LAWS2111 T1 Preparation, 2011

Reading Contract Cases

Students should read the full judgments in these two cases and consider the questions asked. The purpose of the exercise is not only to understand the legal issues raised, but also to assist you to dissect cases quickly and efficiently.

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (English Court of Appeal)

Why did the plaintiff not sue for breach of contract as the product did not work?

Because damages for a product that doesn’t work will generally only be pretty minor – the cost of the product plus any other losses suffered due to it not working (and since establishing that the sickness was caused by the product is unlikely to happen, realistically just the cost of the product). A hundred pounds, however, was definitely worth suing for.

What was the contract being sued on?

The contract was created by Mrs. Callill’s acceptance of the Smoke Ball Companies offer to pay 100 pounds to anyone getting sick while using their product.

What were the competing arguments in the case?

Carlill claimed the notice was an offer. Carbolic claimed that it was ‘mere puff’ (which it was held to not be, as the notification that money was in the bank established Carbolic’s sincerity).
Carbolic tried to argue that it could not be an offer, as it didn’t identify anyone in particular. This was rejected, as an OFFER could be made to the entire world (as in the instance of a bounty or reward) but could only be ACCEPTED by a finite number of people.
Carbolic then argued that that Carlill never accepted the contract, so it couldn’t be binding. That was rejected, again using the reward/bounty analogy, that the offeror can dispense with the requirement for notification, either expressly or impliedly, creating a unilateral contract were notification is the final stage of performance – and that was the effect here.
Carbolic then argued that the terms were vague. Different judges proffered different definitions of ‘contracting the epidemic after having used the ball three times daily for two weeks’, with the most limited only applying while using it, a more reasonable version based on the duration during while the carbolic acid remained in the system, and the most generous based on the period of the epidemic – but as Mrs Carlill was using it when she contracted the illness, she met all three – with the judges favoring the ‘reasonable period after use’.
Carbolic also argued that there was no consideration on Mrs Carlill’s part, but the court found that the costs of obtaining the smoke balls and the displeasure of using them for a prolonged period of time amounted to sufficient consideration.

What is the ratio decidendi of the case?

Advertisements containing clear and objectively sincere offers are treated as offer’s to the world, and the performance of conditions of the offer are sufficient to constitute a contract.

What were the key material facts which swayed the decision?

The guarantee in the advertisement
The fact that Mrs Carlill was using the smoke ball when she got ill, and hadn’t stopped weeks beforehand
The fact that the Smoke Ball Company benefited from the sale/use of the Smoke Balls

Which of those facts, if not present, might have altered the result?

No guarantee of money to establish sincerity could well have lead to it being considered ‘mere puff’ rather than an offer.
If Mrs Carlill hadn’t been using it during/shortly before getting ill, she may well have been found not to meet the terms.
The benefit gained by the company, combined with the discomfort of Mrs Carlill, definitively constituted consideration. Remove one of those, and it could have gone the other way.

How does that help us predict the future?

In the future, more advertisements will obviously contain contractual fine print designed to avoid having them interpreted as unwanted contracts – as we can see to this day. Interestingly enough, the Carbolic Smoke Ball Co. Ltd. (restructed to provide from only limited liability) went on to use this as an advertising gimmick, and offered 200 pounds in the future – with numerous conditions specifically attached to the offer.

MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125 (High Court of Australia).

What has this case to do with the law of contract?

The taxation statute specifically required that stamp duty applied to ‘an agreement or any memorandum of agreement’. In order to determine whether it was necessary to pay it, the question became whether the ticket itself constituted a contract or memorandum of a contract.

Why was the issue about the moment of contracting so important?

If the contract was formed prior or at the point where the ticket was issued, it would constitute a contractual agreement or memorandum of the contract.

What does the case decide say about making contracts using tickets?

Short answer: Don’t, if you can avoid it.
Long answer: Nobody actually knows WHEN the contract is formed, but it’s probably at some point before the thing you bought the ticket for starts/takes off, so there is no contract and you can cancel it at any point within a ‘reasonable’ period of receiving the ticket. And no, nobody really knows what ‘reasonable’ means in a legal context, and if anyone says they do, they’re lying to you. And if the government wants stamp duty on ticket based contracts, it will need to be slightly more specific. I have every faith in their ability to accomplish that.

What were the key material facts?

  • Passengers enquired about flights (presumably at the airlines invitation)
  • Passengers exchanged money for a ticket
  • Passengers (hopefully) perused the ticket and terms it contained, and decided whether or not to accept them. Meanwhile, the airline made no promises to actually go through with the flight, only to refund the passenger if they cancelled on them.
  • Passengers then presented the ticket to board the plane (or didn’t, if they were running late)
  • The government wanted stamp duty. The airline wanted to avoid paying it. So they argued over the technicality of exactly what constituted ‘an agreement or any memorandum of agreement’

What was the ratio decidendi of the case?

Good question. The judges certainly had their own ratios, but they didn’t really overlap all that well. Jacobs seemed to agree with Stephen’s general reasoning, but ultimately concluded, along with the Barwick, that the scope of the disclaimer would prevent any form of contract from arising prior to boarding.
Barwick – A disclaimer that prevents any possible liability or duty is insufficient to constitute contractual consideration (no contract could exist until the passenger was actually given a seat)
Stephen – A standard ‘ticket’ contract in which the passenger has sufficient time to consider whether or not to go through with the deal, the contract is finalised when the passenger enters or a ‘reasonable’ period of time has passed to allow that evaluation.
Jacobs –The disclaimer prevented any form of enforceable promise from arising, with the contract only arising on presentation of the ticket.

Why do the textbooks refer mostly to the judgment of Stephen J?

Stephen J was a lot more general, and looked at the general principles of ticket cases, rather than the specifics of the airline disclaimer.

What was the relevance of the reference to the Thornton v Shoe Lane case?

The case was distinguished from Thornton, as in this instance there was sufficient time to consider the terms and conditions on the back of the ticket. In the instance of Thornton, there was no such time, so the acceptance of the ticket effectively amounted to acceptance of the contract.

What issues might be left open by the decision? Are there any obiter dicta?

As with any ruling, there was plenty of obiter dicta. The main question that would arise is how would things change if the disclaimer wasn’t present, or as all-encompassing. Barwick suggests that it still wouldn’t be enough for the issuing of the ticket to reach the point of contract formation, but it ultimately wasn’t necessary to consider it.

Offer

Reading

Course Learning Guide and Paterson, Robertson and Duke, Principles of Contract Law, Chapter 3 generally; Offer 45-53

1. Anastasia

a)
Issue: Was Anastasia’s response to Ben an offer, or merely supplying information?
Relevant Law: Harvey v Facey holds that providing information on price does not constitute a contractually binding offer.
Application: A direct analogy to Harvey can be drawn – Anastasia was not offering it for sale at $2000, but rather initiating negotiations while providing a price floor. As such, she is free to make or entertaining offers from other potential purchasers regardless of Ben’s attempted acceptance.
Conclusion: Anastasia is not bound to sell the cappuccino maker to Ben.

b)
Issue: Is Charlotte contractually bound to purchase Anastasia’s equipment?
Relevant Law: s 59 (1) (b) of the Sale of Goods Act 1959 (Qld) states that “a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner: until such announcement is made any bidder may retract his or her bid;”
Application: As Charlotte announced her desire to withdraw her bid prior to the auctioneer ‘knocking the goods down to Charlotte’ and concluding the auction, her retraction was valid under the Sale of Goods Act.
Conclusion: Charlotte is not contractually bound to purchase Anastasia’s equipment.

2. Philip and John

Issue: Did John contractually purchase the dolls?
Relevant Law: s 59 (1) (b) of the Sale of Goods Act 1959 (Qld) states that “a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner”
Application: As the auctioneer never completed the auction, instead withdrawing the goods, a contract of sale was never completed.
Conclusion: John did not purchase the dolls.

Issue: Was the auctioneer bound to sell the dolls to John?
Relevant Law: An auctioneer, upon advertising a ‘no reserve’ auction, may be held to have established a ‘collateral’ contract with any bidders that he will sell the product to the highest bidder rather than withdrawing it. The benefit of the auctioneer driving up the price and receiving additional bids has been held to be sufficient consideration to support this collateral contract, and though it will not support carrying through the sale (as the original owner retains the property when it is withdrawn) the auctioneer will be liable for the loss suffered by the highest bidder (the difference between the highest bid and the market value of the goods) – this was proposed as far back as Warlow v Harrison in the 17th Century, While this seems to remain good law in England, with recent cases upholding it, Australian case law is a lot more nebulous – with AGC (Advances) Ltd v McWhirter effectively holding that an announcement of no reserve is insufficient to overturn the general rule that no contract is complete until the auctioneer concludes the auction.
Application: While the rule of Warlow would at least see a potential action between John and the Auctioneer (though it would be insufficient to recover the dolls, and depending on their value may not even be sufficient to obtain much in the way of monetary compensation) it seems less likely that he would even succeed in that action in Australia since McWhirter.
Conclusion: The auctioneer was probably not bound to sell the dolls to John, and even if he were, would only be required to compensate John for any market value of the dolls beyond the $50.