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)