CONTRACT LAW
Readings: Chapters 8, 9 and 10
(6th/7th Ed)
What is A Contract?
Text definition:
A valid contract is an agreement made between
two or more parties (including business
organisations) that creates rights and obligations
that are enforceable by law.
Not every agreement is a contract.
Contracts can be Formal or Simple.
Formal contracts
Those agreements made in writing.
Form/nature of document replaces need for
consideration. E.gs.:
Contract of Record (Court document where one
ordered to carry out an obligation)
Contract under Seal (also known as Deed)-
document states its purpose, parties and terms.
Signed and Witnessed
Signed, sealed and delivered.
Simple Contracts
Those other than a formal contract
Do not be misled by the word simple.
Requires consideration
Can be created expressly (written/oral)
or implied by conduct.
Essential elements of a valid
contract
Six essential elements:
Intention
Agreement Apparent Contract
Consideration
Capacity
Genuine Consent
Legality
Element 1: Intention to create legal
relations
Parties must intend to create legal relations-
an understanding that legal action could be
taken to enforce rights.
Two presumptions: (rebuttable)
Domestic or Social Agreements: parties do
not intend to create legal relations
Business or Commercial Agreements:
parties intend to create legal relations
Domestic and social agreements
Agreements between family members and
friends.
Assessing legality:
Friendliness of parties
Was there a commercial aspect to the
agreement?
Size/nature of consideration
Consequences if agreement is not
performed
Case Examples
Balfour v Balfour
Wakeling v Ripley
Teen Ranch v Brown
Business or Commercial agreements
Note the presumption
Some business documents may not be legally
binding e.g. MOUs, Letter of Intent, Comfort
Letters)
Case Example:
Rose & Frank Co v Crompton Bros Ltd
Element 2: agreement
One party (offeror) makes an offer to
another (offeree) and the offeree accepts
the offer.
Offer + Acceptance = Agreement
Rules re Offers
The Offer must be communicated.
Offers can be made to an individual/group or
the world (see Carbolic Smokeball case)
Offers differ from an invitation to treat-
invitation to treat are invitations to make an
offer.
E.g. goods on display in shops, price catalogues,
tenders.
What about auctions?
Auctioneers asking for bids- invitation
to treat
Bidders: make offer
Contract made: when auctioneer accepts
highest bid by hitting hammer on the
rostrum.
Rules re offers contd
A request for information is not an offer
(see Harvey v Facey)
An offer differs from an option an option
is where Party A promises to sell property
to Party B if Party B pays a specific price
in an agreed period of time.
Offeree must be aware of all terms- if not
acceptance is not binding.
Rules re acceptance
The offeree must respond to and rely on a
specific offer- offer must be in their mind
at time of acceptance (see R v Clarke)
Acceptance must be unconditional- no
counter offers-
Counter offer is when the offeree varies
the terms or conditions of the offer.
(see Hyde v Wrench)
Rules re acceptance contd
Acceptance must conform to the conditions set
e.g. specified method of acceptance
Acceptance by instantaneous communication
generally occurs when it is received (see
Entores v Miles)
Acceptance must be communicated- silence is
not sufficient (see Felthouse v Bindley)
Acceptance must be communicated by the
offeree or an authorised agent
Acceptance must occur within a specified or
reasonable time.
Rules of offer and acceptance by post
1. An offer by letter is not valid until it is
received by the offeree.
2. An offer may be accepted by letter, if
parties agree on this method.
3. Revocation of an offer by letter is not valid
until it is received by the offeree.
4. An acceptance by letter is valid from the
time it is posted (see Adams v Lindsell)
Rules on revocation of offers
An offer may be revoked prior to acceptance-
revocation must be communicated (by either
the offeror or reliable 3rd party)
(see Dickinson v Dodds)
Revocation by post must be received before
acceptance. (see Byrne v Van Tienhoven)
