W5, L2 Unilateral Contracts and Preliminary Agreements

Unilateral Contracts

  • Definition: A unilateral contract is formed when an offer is accepted through performance by the offeree, without requiring prior communication of acceptance.

    • Key Element: The contract is accepted at the moment the offeree completes the performance of the contract conditions.

  • Example: Offering a reward for the safe return of a missing cat.

    • Explanation: It does not make sense for someone to accept the offer before returning the cat; the contract forms only when the cat is returned.
    • Implication: Only one party undertakes performance at the outset, hence it is termed unilateral.

  • Case Study: Carlisle and Carbolic Smokeball Company

    • Overview: The advertisement promised a £100 reward to anyone who contracted influenza after using the smokeball three times daily for two weeks.
    • Amount equivalent to roughly $25,000 today.
    • Legal Arguments: The Carbolic Smokeball Company argued no contract formed, suggesting that the advertisement was merely an invitation to treat.
    • Court's Decision: The advertisement was an offer, as it was directed to the public, allowing any performing party to accept it.
    • Judgment Citation: "It is an offer made to all the world, and why should not an offer be made to all the world…?"
    • Acceptance: Acceptance occurs when the condition (contract performance) is fulfilled.
    • Further Insights: The ruling emphasizes that acceptance and performance cannot logically occur at different times in unilateral contracts.

  • Testing for Unilateral Contract Validity: Consider whether acceptance can logically precede performance. If not, it leans towards being a unilateral contract.

Revocation of Offer in Unilateral Contracts

  • Hypothetical Example: Offering $1,000 to the first person who climbs Mount Grey.

    • Only the first person to reach the summit can accept the contract through their action (climbing).

  • Communication of Revocation: Revocation may occur anytime before the performance is completed.

    • Example: If the offeror calls out a revocation to the first climber en route, the offer is typically withdrawn.

  • Legal Precedent: Mobile Oil case (Federal Court of Australia)

    • Findings: No universal rule for revoking unilateral offers.
    • Circumstantial assessments may determine whether revocation is permissible.
    • In some cases, an implied promise not to revoke may exist.

Reliance on the Offer

  • Case Study: Arvin Clark case (High Court of Australia)
    • Topic: Reward offers based on performance.
    • Details: A reward for information leading to the conviction of murderers was placed.
    • Outcome: The court decided no contract was formed since the performance was not made in reliance on the offer; the informant acted to clear themselves, not to accept the reward.

Preliminary Agreements

  • Definition: A preliminary agreement signifies an initial understanding intended to lead to a final contract but not binding until formally executed.

    • Parties often refer to agreements as "subject to contract" denoting that no binding contract exists until finalized.

  • Legal Examples:

    1. Caruthers and Whitaker (NZ Court of Appeal)
    • Situation: Negotiations for a farm sale, agreed terms remained unsigned by both parties.
    • Court's Finding: No enforceable contract as the intention was only to bind upon signing a formal agreement.
    1. Franssen Height (NZ Court of Appeal)
    • Context: Discussions over a leasing agreement; although a written record of terms was produced, the intention was assessed as not binding since the formal lease was never executed.
    1. Fletcher Challenge Energy v. ECNZ (NZ Court of Appeal)
    • Details: Negotiation for a gas supply contract; questions around whether a heads of agreement constituted a binding arrangement.
    • Conclusion: Terms like "heads of agreement" suggest non-binding intentions as significant terms were still subject to negotiation.