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Foundations of Business Law CLAW 1001 Assignment
The legal issue at hand is whether Cary was in breach of his contract by
ordering Andrew to leave the premises before the contract was completed. In order for
the plaintiff (Andrew) to successfully sue for breach of contract, he has to establish
that firstly, a contract was formed and secondly, how was it breached.
In order for a contract to be valid, several requirements must be satisfied:
agreement between the parties; intention to create legal relations; consideration, legal
capacity, genuine consent, legality of objects and formal requirements.
Contract Formation
Agreement
The first element of a valid contract stipulates that the parties to the contract
must have reached an agreement. Thus, the courts have to ensure that an offer was
made by one party, followed by acceptance of the offer by the other party.
1
Although contracts usually consist of an identifiable offer and acceptance, it is
not always necessary nor possible to distinguish between which party made the offer
and the acceptance. A contract can still exist if both parties did reach a final
consensus. The status of the agreement depends on whether any reasonable person in
both the plaintiff and defendant’s position would think there had been a concluded
bargain.
2
Although it may be difficult to discern which party actually made the offer
and acceptance, intention to be contractually bound can be inferred from the parties
conduct.
3
From the hypothetical, it is not clear if either Andrew or Cary made the offer
first. However, both parties had signed a beer coaster, signifying that there was some
form of agreement. Applying the “reasonable person” test from Brambles Holdings, it
is not unreasonable to infer that the parties had reached a concluded agreement or at
the very least, final stages of negotiation.
An offeree’s acceptance must be absolute and unqualified, which denotes that
the offeree must be committed to complying with all terms of the offer. Conditional
acceptance ie acceptance “subject to contract” does not satisfy the condition of a valid
acceptance.
4
However, Masters v Cameron
5
saw the High Court rule that an agreement
“subject to contract” could be divided into three categories, provided the negotiating
parties have reached an agreement of terms intended to be legally binding. The first
1
Andrew Terry and Des Giugni, Business and the Law (4th ed, 2009) ch 12.
2
See Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 (Heydon JA).
3
See Clarke v Earl of Dunraven [1897] AC 59.
4
Terry and Giugni, above n 2.
5
(1954) 91 CLR 353.
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scenario is where the parties’ negotiations are in their final stages and both intend to
be immediately bound by them, with an understanding that these terms will be
restated more formally later. Alternatively, the parties could have agreed on a set of
final terms but only intend to be bound by them upon implementation of a formal
contract. Lastly, the parties’ intention could be of a non-binding nature until the
execution of a formal contract. A fourth category is sometimes mentioned whereby
the parties intend to be bound immediately by the terms agreed upon but expect to
make a subsequent contract which will contain additional terms.
6
Recent decisions
have seen the courts uphold that a contract exists for all categories bar the third. In
deciding which category a case belongs to, the courts will attempt to ascertain the
intention of the parties based on the language and wording of the agreement as well as
the subsequent conduct of the parties.
7
Heads of Agreements (hereafter “HOA”) are documents summarising the
terms agreed by the parties, and are expected to form the basis of later formal
contracts. They are purported to be included in the fourth category of Masters v
Cameron previously mentioned.
8
Lifestyle Appliances v Autel TV Services Ltd
9
saw the court uphold the HOA
as binding based on the parties’ conduct, as the plaintiff allowed the defendant to take
over the running of the business, something which could only have been done had the
two parties recognized that the HOA was binding.
The main issues in dispute here are firstly, was the HOA binding? In cases
involving such documents, it is always important to determine the extent to which the
parties intended to be bound, and whether the terms contained are precise enough to
