Common Law &

International Contract
 Understanding Common Law Contracts
 Offer and Acceptance
 Interntion to create legal relation
 Consideration
Definition of contract

 A contract is essentially an agreement

between two or more persons which will be
enforced by a court of law.
Elements of a contract

 Offer
 Acceptance
 Intention
 Consideration
Form of contract

 There is no requirement that a contract be in

writing except a few notable exceptions.
 An oral contract is enforceable in the same
way as a written one.
 It is easier to prove the existence of a written
contract and what the contract says.
Offer
 An offer is an indication by one person to another of
his willingness to enter into a contract with him on
certain terms.
 An offer normally does three things:
 It indicates the exchange of “consideration” that the
offeror has in mind
 It identifies an offeree (a person who is to have
power of acceptance)
 It reveals a commitment by the offeror to deal with
the offeree
Invitation to treat (make
offer)
 An invitation to treat is an indication that
someone is prepared to received offers with
the view to forming a binding contract.
 There are four types of invitation to treat:
 Aution sales
 Advertisements
 Exhibition of goods for sale
 An invitation for tenders
Partridge v Crittenden
(1968) 2 All ER 421
 The defendant placed an advert in a classified
section of a magazine offering some bramble
finches for sale. S.6 of the Protection of Birds Act
1954 made it an offence to offer such birds for sale.
He was charged and convicted of the offence and
appealed against his conviction.

Held:

The defendant's conviction was quashed. The

advert was an invitation to treat not an offer. The
literal rule of statutory interpretation was applied.
Spencer v Harding Law Rep.
5 C. P. 561
 The defendants advertised a sale by tender of the stock in trade
belonging Eilbeck & co. The advertisement specified where the
goods could be viewed, the time of opening for tenders and that
the goods must be paid for in cash. No reserve was stated. The
claimant submitted the highest tender but the defendant refused
to sell to him.

Held:

Unless the advertisement specifies that the highest tender would

be accepted there was no obligation to sell to the person
submitting the highest tender. The advert amounted to an
invitation to treat, the tender was an offer, the defendant could
choose whether to accept the offer or not.
Question

 Is an advertisement an offer to sell? (see

Spencer v Harding case)
 What is an ‘counter-offer’? (see Hyde v
Wrench case)
Offeree’s options upon
receiving an offer

A (Offeror) B (Offeree)

B may:
Accept A’s offer
Reject the offer
Make a counter-offer
Remain silent
Withdrawing the offer

 An offer may be revoked any time before

acceptance if:
 Revocation must be communicated to the

offeree, otherwise it is ineffective

 Communication of revocation doesn’t have to

made in person
Once accepted, the offer cannot be revoked
Routledge v Grant 1828

 The fact: the defendant offered to buy the

claimant’s house for a fixed sum, requiring
acceptance within six weeks. Within the six
weeks specified, he withdrew his offer.
 Decision: the defendant could revoke his
offer at any time before acceptance even
though the time limit had not expired.
Dickinson v Dodds (1876) 2
Ch D 463
 The defendant offered to sell his house to the claimant and promised to
keep the offer open until Friday. On the Thursday the defendant
accepted an offer from a third party to purchase the house. The
defendant then asked a friend to tell the claimant that the offer was
withdrawn. On hearing the news, the claimant went round to the
claimant's house first thing Friday morning purporting to accept the
offer. He then brought an action seeking specific performance of the
contract.
Held:
The offer had been effectively revoked. Therefore no contract existed
between the parties. There was no obligation to keep the offer open
until Friday since the claimant had provided no consideration in
exchange for the promise.
The offeror is free to withdraw the offer at any time before acceptance
takes place unless a deposit has been paid.
Lapse of time

 An offer may be expressed to last for a

specified time. If there is no express time limit
set, it expires after reasonable time. What is
reasonable time depends on the
circumstances of the case.
Ramsgate Victoria Hotel v
Montefoire (1866) LR 1 Ex
109
The defendant offered to purchase shares in the claimant
company at a certain price. Six months later the claimant
accepted this offer by which time the value of the shares had
fallen. The defendant had not withdrawn the offer but refused to
go through with the sale. The claimant brought an action for
specific performance of the contract.

Held:

The offer was no longer open as due to the nature of the subject
matter of the contract the offer lapsed after a reasonable period
of time. Therefore there was no contract and the claimant's
action for specific performance was unsuccessful.
Rejecting an offer

 An offer may be rejected expressly or by

implication
 An offer is rejected by the offeree making a
counter-offer.
 Asking for clarification of the terms of the
offer is not a counter-offer.
Acceptance of the offer

 Acceptance can be defined as an unqualified

agreement to the terms of the offer.
 Acceptance may be by express words or by
actions. It may be inferred from conduct.
Brogden v Metropolitan
Railway Co 1877
 The fact: having supplied coal for many years to the
defendant, the claimant suggested there should be
a written agreement. The claimant later denied that
there was any agreement between him and the
defendant.
 Decision: the conduct of the parties indicated that
they both agreed to the terms of the draft. The draft
agreement became a binding contract as soon as
the defendant ordered and the claimant supplied
coal.
Acceptance of the offer

 Only the offeree may accept the offer

 Acceptance must be final and unqualified
 Acceptance must be communicated to the
offeror, unless one of the exceptions applies.
Entorres v Miles Far East
[1955] 2 QB 327
 The claimant sent a telex message from England offering to
purchase 100 tons of Cathodes from the defendants in Holland.
The defendant sent back a telex from Holland to the London
office accepting that offer. The question for the court was at what
point the contract came into existence. If the acceptance was
effective from the time the telex was sent the contract was made
in Holland and Dutch law would apply. If the acceptance took
place when the telex was received in London then the contract
would be governed by English law.

Held:

To amount to an effective acceptance the acceptance needed to

be communicated to the offeror. Therefore the contract was
made in England.
Counter-offer

 Acceptance which purports to introduce any

new terms is a counter-offer.
 Hype v Wrench 1840
Hyde v Wrench (1840) 49 ER
132 Chancery Division
 The defendant offered to sell a farm to the claimant
for £1,000. The claimant in reply offered £950 which
the defendant refused. The claimant then sought to
accept the original offer of £1,000. The defendant
refused to sell to the claimant and the claimant
brought an action for specific performance.

Held:

There was no contract. Where a counter offer is

made this destroys the original offer so that it is no
longer open to the offeree to accept.
Silence as acceptance
 There must be some act on the part of the offeree to indicate his
accpetance.
 Fethouse v Bindley 1862
 Fact: the claimant wrote to his nephew offering to buy the
nephew’s horse for £30.15s,, adding “if I hear no more form him,
I consider the horse mine at that price”. The nephew intended to
accept his uncle’s offer but did not reply. He instructed the
defendant, an auctioneer, not to sell the horse. Owing to a
misunderstanding the horse was sold at auction to someone
else. The uncle sued the auctioneer in conversion ( a tort
alleging wrongful disposal of another’s property).
 Decision: the action failed. There could be no acceptance by
silence in these circumstances. The claimant had no title to the
horse and could not sue in conversion.
Felthouse v Bindley [1862]
EWHC CP J35
 A nephew discussed buying a horse from his uncle. He offered to
purchase the horse and said if I don't hear from you by the
weekend I will consider him mine. The horse was then sold by
mistake at auction. The auctioneer had been asked not to sell
the horse but had forgotten. The uncle commenced proceedings
against the auctioneer for conversion. The action depended upon
whether a valid contract existed between the nephew and the
uncle.

Held:

There was no contract. You cannot have silence as acceptance.

The Postal acceptance rule

 In common law tradition there is a major

exception to the rule that acceptance must be
communicated. This is where is made by
post.
 The contract is made at the time and the
place the letter was posted. (see Adams v
Lindsell (1818) case)
Adams v Lindsell (1818)
106 ER 250
 The defendant wrote to the claimant offering to sell them some wool
and asking for a reply 'in the course of post'. The letter was delayed in
the post. On receiving the letter the claimant posted a letter of
acceptance the same day. However, due to the delay the defendant's
had assumed the claimant was not interested in the wool and sold it on
to a third party. The claimant sued for breach of contract.
Held:
There was a valid contract which came in to existence the moment the
letter of acceptance was placed in the post box.
This case established the postal rule. This applies where post is the
agreed form of communication between the parties and the letter of
acceptance is correctly addressed and carries the right postage stamp.
The acceptance then becomes effective when the letter is posted.
Intention to contract
 The parties to the agreement must have
intended their agreement to be legally
enforceable.
 The court must construe the intention of the
parties by using objective test.
 In applying this test the court draws a
distinction between social (domestic)
agreement and commercial agreement.
Domestic vs. commercial
agreement
 If the agreement is of a social or domestic nature the court
begins with the presumption that the parties did not intend to
contract.
 This is only a presumption and may be rebutted if there is
evidence which indicates a contrary intention.
 If the agreement is of a commercial nature the court begins with
the presumption that the parties intended their agreement to be
legally enforceable.
 Any party not wishing a commercial agreement to be legally
enforceable should state this clearly. The parties are free to rebut
that a commercial is intended to be legally binding (see Rose &
Frank v Crompton (1923) case)
Domestic agreement

 Spouses
 Other domestic arrangements
Balfour v Balfour [1919] 2
KB 571
 A husband worked overseas and agreed to send
maintenance payments to his wife. At the time of the
agreement the couple were happily married. The
relationship later soured and the husband stopped
making the payments. The wife sought to enforce
the agreement.

Held:

The agreement was a purely social and domestic

agreement and therefore it was presumed that the
parties did not intend to be legally bound.
Simpkins v Pays [1955] 1
WLR 975
 A Grandmother, granddaughter and a lodger entered into a
weekly competition run by the Sunday Empire News. The
coupon was sent in the Grandmothers name each week and all
three made forecasts and they took it in turns to pay. They had
agreed that if any of them won they would share the winnings
between them. The grandmother received £250 in prize money
and refused to share it with the other two. The lodger brought the
action to claim one third of the prize money.

Held:

There was a binding contract despite the family connection as

the lodger was also party to the contract. This rebutted the
presumption of no intention to create legal relations.
Edwards v Skyways [1964] 1
WLR 349
 The claimant was an airline pilot working for the defendant. He
was to be made redundant. The defendants said that if he
withdrew his contributions to the company pension fund, they
would pay him the equivalent of company contributions in an ex
gratia payment. The claimant agreed to this and withdrew his
contributions. The company then ran into further financial
difficulty and went back on their promise relating to the ex gratia
payment.

Held:

The agreement had been made in a business context which

raised a strong presumption that the agreement is legally
binding. The claimant could therefore enforce the agreement and
was entitled to the money.
Rules of consideration
 The consideration must not be past.
 The consideration must be sufficient but
need not be adequate.
 The consideration must move from the
promisee.
 An existing public duty will not amount to
valid consideration.
 An existing contractual duty will not amount
to valid consideration.
Re McArdle (1951) Ch 669
 Majorie McArdle carried out certain improvements and repairs on
a bungalow. The bungalow formed part of the estate of her
husband's father who had died leaving the property to his wife for
life and then on trust for Majorie's husband and his four siblings.
After the work had been carried out the brothers and sisters
signed a document stating in consideration of you carrying out
the repairs we agree that the executors pay you £480 from the
proceeds of sale. However, the payment was never made.

Held:

The promise to make payment came after the consideration had

been performed therefore the promise to make payment was not
binding. Past consideration is not valid.
Chappel v Nestle [1960]
AC 87
 Nestle ran a sales promotion whereby if persons sent in 3 chocolate bar wrappers and a
postal order for 1 shilling 6d they would be sent a record. Chappel owned the copyright in
one of the records offered and disputed the right of Nestle to offer the records and sought
an injunction to prevent the sales of the records which normally retailed at 6 shillings 8d.
Under s.8 of the Copyright Act 1956 retailers were protected from breach of copyright if
they gave notice to the copyright holders of the ordinary retail selling price and paid them
6.25% of this. Nestle gave notice stating the ordinary selling price was the 1 shilling 6d and
three chocolate bar wrappers. The question for the court was whether the chocolate bar
wrappers formed part of the consideration. If they did it was impossible to ascertain the
value they represented and therefore Nestle would not have complied with their obligation
to give notice of the ordinary retail selling price. If the wrappers were a mere token or
condition of sale rather than constituting consideration, then the notice would be valid and
Nestle could sell the records.
Held:
The wrappers did form part of the consideration as the object was to increase sales and
therefore provided value. The fact that the wrappers were simply to be thrown away did
not detract from this. Therefore Chappel were granted the injunction and Nestle could not
sell the records as they had not complied with the notice requirements under s.8.
Collins v Godefrey (1831) 1 B
& Ad 950
 The claimant, Collins, had been subpoenaed to attend court as a
witness in separate court case involving the defendant,
Godefrey. Godefrey had sued his attorney for malpractice and
Collins was required by the court to attend as an expert witness.
In fact Collins never gave evidence but was required to be on
standby for six days in case he was called. After the trial Collins
gave Godefrey an invoice to cover his time spent at court and
demanded payment by the next day. Without giving him the full
day to pay, Collins commenced an action to enforce payment.
Held:
Collins was under a public duty to attend court due to the
subpoena. Where there exists an existing public duty this can not
be used as consideration for a new promise. Godefrey was not
required to pay him.
Stilk v Myrick [1809] EWHC
KB J58
 The claimant was a seaman on a voyage from London to the
Baltic and back. He was to be paid £5 per month. During the
voyage two of the 12 crew deserted. The captain promised the
remaining crew members that if they worked the ship
undermanned as it was back to London he would divide the
wages due to the deserters between them. The claimant agreed.
The captain never made the extra payment promised.

Held:

The claimant was under an existing duty to work the ship back to
London and undertook to submit to all the emergencies that
entailed. Therefore he had not provided any consideration for the
promise for extra money. Consequently he was entitled to
nothing.
Hartley v Ponsonby [1857] 7
EB 872
 Half of a ship's crew deserted on a voyage. The captain
promised the remaining crew members extra money if they
worked the ship and completed the voyage. The captain then
refused to pay up.

Held:

The crew were entitled to the extra payment promised on the

grounds that either they had gone beyond their existing
contractual duty or that the voyage had become too dangerous
frustrating the original contract and leaving the crew free to
negotiate a new contract.

Common Law &
International Contract (Part
2)Consideration


 Terms of the contract

 Remedies for breach
 Vienna Convention on International Sale of
Goods (1980)
Consideration

 An agreement will not be enforceable if there

is no consideration.
 An agreement will only be enforceable if it is
in the form of a deed.
 A deed is a legal document signed and
sealed.
Examples of consideration

 A promise to do something
 A promise not to do something
 Doing something
Requirements of
consideration
 Consideration must move from the promisee
 Consideration may not be past
 Consideration doesn't have to be adequate
but must be sufficient
 Illusory promises are not consideration
Terms of the contract
 The terms of a contract may be express
terms or implied terms.
 Express terms are terms expressly agreed by
the parties.
 Implied terms are terms which the parties
have not discussed but which the courts
regard as an integral part of the deal or
implied by statute.
Implied terms

 Implied terms are terms which are not

included by the parties but which
nevertheless are still part of the contract.
They can implied by:
 The nature of contract
 Business afficacy
 Acts of Parliament
 Custom and usage
Express terms
 A contract consists of a number of express terms
the parties have agreed upon.
 Express terms may be written or spoken.
 In some cases the court may not enforce an
agreement even though the parties agreed to it:
 Mistake
 Misrepresentation
 Duress
 Public policy
 Contract in unreasonable restraint of trade, etc
Relation between express terms
and implied terms
 Implied terms bow to the express terms of the
contract.
 Some of the statutory implied terms cannot
be excluded even by express provision or
can only excluded to a limited extent.
Exclusion clauses

 An exclusion (or exemption) clause is a

clause which seeks to release one of the
parties from liability should something go
wrong with the contract.
 For example, the seller may wish to exclude
liability in respect of all of conditions implied
by statute.
Conditions and warranties

 The terms of contract are usually classified

as conditions or warranties.
 Condition: A term which is vital to the
contract, going to the root of the contract.
 Warranty: a less important term. It does not
go to the root of the contract, but is subsidiary
to the main purpose of the agreement.
Distinction of conditions and
warranties
 Statute may declare the category of the term.
 The parties may expressly declare that a
term is to be a condition.
 In the light of the circumstances
Valid contract

 An agreement made between two or more parties,

giving rise to legal rights and obligations which the
law will enforce.

Copyright © 2000 McGraw-Hill

Australia 7-50
Valid contract
Intention to create Legality
legal relations of object

Terms:- Express/implied
Offer Form
Acceptance Conditions Warranties Consideration

Exclusionary clauses

Reality of Capacity of
consent parties

Copyright © 2000 McGraw-Hill

Australia 7-51
Validity

V alid ity

V alid V o id V o id ab le U n en fo rceab le Illegal

A ll essen tial elem en ts N o legal effect E n titled to b e rescin d ed E ssen tial elem en ts P u rp o se o r o b ject o f
p resen t, th erefo re law b y in n o cen t p arty p resen t b u t tech n icality co n tract is illegal
w ill en fo rce o n b eh alf o f p reven ts it fro m b ein g
eith er p arty en fo rced

Copyright © 2000 McGraw-Hill

7-52
Australia
Remedies

 Termination
 Damages
 Specific performance
Termination

 Only breach of a condition entitle the

innocent party to terminate.
 A condition is a term that goes to the essence
or heart of the contract.
 Breach of warranty attract damages only.
Damages
 Every breach of contract gives a right to damages
for breach.
 The purpose of damages is to compensate the
innocent party, not to punish the breaching party.
 Damages may be claimed for:
 Expectation losses (including loss of profit)
 Personal injuries
 Disappointment, distress, discomfort
Specific performance

 The decree of specific performance is an

order of the court requiring a party who is in
breach of contract to carry out his promises.
Vienna Convention on
International Sale of Goods
(1980)
 Sphere of application
 Formation of the contract
 Fundamental breach
 Obligations of the seller
 Obligations of the buyer
 Passing of risk
Sphere of application

(1) This Convention applies to contracts of sale

of goods between parties whose places of
business are in different States:
(a) when the States are Contracting States; or
(b) when the rules of private international law
lead to the application of the law of a
Contracting State.
Formation of the contract

 Offer
 Acceptance
Offer
 A proposal for concluding a contract addressed
to one or more specific persons constitutes an
offer if it is sufficiently definite and indicates the
intention of the offeror to be bound in case of
acceptance.
 An offer becomes effective when it reaches the
offeree.
 An offer, even if it is irrevocable, may be
withdrawn if the withdrawal reaches the offeree
before or at the same time as the offer.
Acceptance
 A statement made by or other conduct of the offeree indicating assent
to an offer is an acceptance.
 Silence or inactivity does not in itself amount to acceptance.
 An acceptance of an offer becomes effective at the moment the
indication of assent reaches the offeror.
 A reply to an offer which purports to be an acceptance but contains
additions, limitations or other modifications is a rejection of the offer and
constitutes a counter-offer.
 a reply to an offer which purports to be an acceptance but contains
additional or different terms which do not materially alter the terms of
the offer constitutes an acceptance, unless the offeror, without undue
delay, objects orally to the discrepancy or dispatches a notice to that
effect.
Fundamental breach
 A breach of contract committed by one of the
parties is fundamental if it results in such
detriment to the other party as substantially to
deprive him of what he is entitled to expect
under the contract, unless the party in breach
did not foresee and a reasonable person of
the same kind in the same circumstances
would not have foreseen such a result
Obligations of the seller

 Delivery of the goods and handing over of

documents
 Conformity of the goods and third party
claims
Obligations of the buyer

 Payment of the price

 Taking delivery
Passing of risk

 Loss of or damage to the goods after the risk

has passed to the buyer does not discharge
him from his obligation to pay the price,
unless the loss or damage is due to an act or
omission of the seller.
Passing of risk
(Art. 67)
 If the contract of sale involves carriage of the goods and the
seller is not bound to hand them over at a particular place, the
risk passes to the buyer when the goods are handed over to
the first carrier for transmission to the buyer in accordance with
the contract of sale.
 If the seller is bound to hand the goods over to a carrier at a
particular place, the risk does not pass to the buyer until the
goods are handed over to the carrier at that place. The fact
that the seller is authorized to retain documents controlling the
disposition of the goods does not affect the passage of the risk.
Passing of risk
(Art. 68)
 The risk in respect of goods sold in transit passes to
the buyer from the time of the conclusion of the
contract.
 If at the time of the conclusion of the contract of sale
the seller knew or ought to have known that the
goods had been lost or damaged and did not
disclose this to the buyer, the loss or damage is at
the risk of the seller.
Passing of risk
(Art. 69)
 In cases not within articles 67 and 68, the risk passes to the
buyer when he takes over the goods or, if he does not do so in
due time, from the time when the goods are placed at his
disposal and he commits a breach of contract by failing to take
delivery
 However, if the buyer is bound to take over the goods at a place
other than a place of business of the seller, the risk passes when
delivery is due and the buyer is aware of the fact that the goods
are placed at his disposal at that place.
Exams guidance

 Time allowed: 90 minutes

 There are two exams papers
 Each exams paper consists of 2 questions.
 The exams is open book
Notes to answer legal
problems
 The law is often concerned with disputes
 Realize where the law is to be found
 Recognize that the law is not always certain in a
given situation
 Allocate time available to maximize marks
 Read the questions carefully
 Use a logical structure in your answer
 Use a clear layout to your answer
Steps to deal with a problem-
based cases
 Summarize the case
 Find out the legal issues of the case
 Find out the relevant law (case law and
statutes)
 Apply the relevant law to solve the issues
found in the second step
 Conclusion