Contract Law - Acceptance PDF

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Summary

Rules and exceptions of acceptance in contract law....

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I.

INTRODUCTION

Acceptance is an integral part of a contract and certain rules apply in its communication to the offeror. However, there are exceptions to every rule. When acceptance has legally been communicated, expressed or implied, it is then an unqualified assent to all the terms offered, if all terms are not accepted, or understood, then the agreement does not become a legally binding contract. Acceptance on a condition may be given, however it is does not give rise to a contract, the contract only comes into fruition after the condition is fulfilled and only if that condition is in great detail otherwise risk the conditional acceptance being considered full acceptance of all terms and in turn creating a legally binding agreement the courts will enforce.

II.

The Rules of Acceptance

An agreement involves both an offer and then acceptance of that offer, this paper will be focusing on acceptance and the effects it has on our legal system. There are four main rules concerning acceptance, the first being that it must be clear and undoubted, if any of the terms are being altered this is not considered acceptance. The changing of terms results in a counter offer to which a completely different set of terms may be accepted, less obvious is a counter offer destroys all terms of the previous offer1. Rule two is that the correct method of acceptance must be followed. The offerer may dictate or nominate in which method the acceptance is to be communicated. If the method is dictated then that method must be followed, however if the method is only nominated then that method, or any quicker one may be used 2. If no method is nominated then it is presumed that the offeree may use the same method as the offeror. Acceptance must be given with both knowledge of the offer and in reliance of it, this is the third rule of acceptance. An offer is only accepted if that is your sole intention, it must be a conscious decision 3. Acceptance cannot be given accidentally or when motivation was for a different purpose other then to enter into the contract4. The final rule of acceptance is it must be communicated, either expressly or it may be implied by the offerees conduct5. Expressed acceptance must be stated verbally or written, silence is not and cannot be considered acceptance6. Acceptance may be communicated through an agent only if the agent has authorisation7. If this agent does not have authorisation but their position infers that they do, the courts may then take the stance that authorisation was implied 8. If acceptance cannot be proven the contract is void, therefore acceptance and its role in contract formation is of paramount importance.

1 Hyde v Wrench (1840) 3 Beav 334. 2 Eliason v Henshaw (1819), 4 Wheaton 225.

3 R v Clarke (1927) 40 CLR 227. 4 Ibid.

5 Brogden v Metropolitan Rly Co (1877) 2 app cas 666. 6 Felthouse v Bindley (1862) 142 ER 1037. 7 Powell v Lee (1908) 99 LT 284.

8 Northern Territory of Australia v Skywest Airlines Pty Ltd (1987) 48 NTR 20.

III.

The Parole Evidence Rule & Conditional Acceptance

After acceptance is received the contract is formed, moreover all terms are accepted and no terms may be added. A contract contains express terms either written or oral; these terms are stated, known and agreed upon by both parties. A contract will often contain implied terms, these are different in that they may be added by the courts to uphold a contract or be included by government statute such as the ACL. In the case a contracts terms are entirely written it is presumed all are included and any oral or other evidence that would ‘add to, vary or contradict’ 9 is not admissible, this is called the parole evidence rule.10 There are quite a few exceptions to the Parole Evidence Rule however as seen is Pym v Campbell11. In this situation a written contract was given acceptance reliant on a verbal agreement not in the written contract that stated Pym required third party approval, when the third party did not approve Campbell sort to enforce and continue with the contract. The court held that the condition precedent was legally binding and that the contract was not to become enforceable until the condition precedent was satisfied. This shows that a condition precedent whether oral or written is a term and that the contract will not begin until this event occurs.

IV.

Vague or Uncertain Terms

Acceptance, as spoken about previously, is the unequivocal agreement on all terms of an offer, therefore it would be impossible to accept any terms that are uncertain or that a definition cannot be prescribed. If terms of an agreement are incomplete or uncertain, especially those of a ‘subject to’ clause, it may cause the contract to be unenforceable as the court may be unable to prescribe any definite meaning. This was documented in the case of Scammel v Ouston12 where the subject to clause stated ‘on hire purchase’ it was ruled to be too vague and imprecise for the courts to ascribe any definition and the contract was declared void for uncertainty. In contrast is the case Meehan v Jones & Ors13 where the vague term in this instance was ‘finance on satisfactory terms and conditions’, however the court found in this case that the definition was that obtaining finance had to be satisfactory to the purchaser and therefore the term was clear. This shows how the smallest details in the writing of a term can cause completely different outcomes. Sometimes courts need to declare an entire contract void for uncertainty as seen in Scammel v Ouston14, however courts have shown preference to uphold a contract wherever possible. Contract preservation is done by attempting to sever any uncertain or vague terms from the contract if the core concept is kept intact15. If however, the term is an integral part and cannot be severed without changing the objective of the contract, the courts will then be forced to declare the entire contract void for uncertainty.16

9 Jacobs v Batavia and General Plantations Trust (1924) 1 Ch 287. 10 Mercantile Bank of Sydney v Taylor (1893) AC 317. 11 (1865) 119 ER 903.

12 (1941) 1 AC 251. 13 (1982) 149 CLR 571. 14 Ibid. 15 Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60. 16 Whitlock v Brew (1968) 118 CLR 445.

Another factor to be considered is how far the parties have progressed with the contract 17. Where large portions of a contract have been completed and when the parties have displayed, with their behaviour, that they do understand any uncertain terms and have prescribed meaning to them through their actions the courts may then be inclined to imply those terms into the contract 18. It is of great importance to have terms written in clear detail to ensure the intention of the contract can be proved and upheld.

V.

The Three Possible Outcomes of ‘Subject to’ Clauses

Acceptance cannot be conditional while also being an agreement of all terms as the conditional acceptance in itself is a new term added19. Conditional acceptance has caused problems for courts when it has been stipulated in the contract that it is pending a formal agreement being drafted. This arose in the historic case of Masters v Cameron20 where on the sale of Cameron’s property he insisted a clause be added to the sale note stating ‘This agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors’. When Masters could not gain finance Cameron sued for specific performance. The issue the court had to decide was whether the sale note constituted a legally binding contract or a preliminary agreement not legally binding. The high court stated that there were three possible outcomes that were likely to occur in the situation of Masters v Cameron21. The first two situations involved both parties agreeing on all terms, but either wishing to have a formal contract written, which would be an exact mirror image drawn up to embody these terms22. or, performance or some part of performance would be completed when the formal agreement was signed23. In both of these situations the sale note would have been a legally binding document as all terms were accepted and their intentions were for it to be legally binding. The third outcome was considered slightly different in nature. This was that the intention of the parties, or at least one of the parties, was that the preliminary agreement was not to be legally binding. For example the terms may be changed, revised or added on the arrangement of the formal agreement. If this was the case ‘there is no contract unless and until the formal contract is executed.‘24 The high court held that the case between Masters v Cameron fell under the third category. This was explained because in the written sale note it stated ‘acceptable to my solicitors’ displaying that Masters Solicitors may in the future change terms of the agreement. Therefore Masters obviously did not accept all terms and it was held no legally binding contract was formed. It is clear that ‘subject to’ clauses require terms to be extremely clear and with an easily definable meaning to ensure it is understood by the courts the way it was intended.

17 LexisNexis, Halsbury's Laws of Australia (at 30 March 2015) 110 Contract, '3 Uncertainty and Incomplete Terms' [110465]. 18 WN Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 (HL). 19 WestLaw, The Laws of Australia (at 1 March 2012) 7 Contract: General Principles, ‘2 Contract Formation’ [630]. 20 (1954) 91 CLR 353. 21 Ibid. 22 Branca v Cobarro [1947] 2 All ER 101. 23 Niesmann v Collingridge (1921) 29 CLR 177. 24 LexisNexis, Halsbury's Laws of Australia (at 30 March 2015) 110 Contract, ‘4 Conditional Contracts’ [110-530].

VI.

Successful and Unsuccessful ‘Subject to’ Clauses

Masters v Cameron 25 was the defining legislative case involving ‘subject to contract’ clauses. There have been many other cases with similar or completely different outcomes determined by the slight differences in each case. It is important to look at these varying outcomes to display what is needed when adding a conditional acceptance clause to a contract. Similar to Masters v Cameron was the case of Leitch v Natwest Australia Bank26 where the preliminary agreements were ruled unenforceable, however the difference in this case is there was already a formal document written and the preliminary agreement was oral. It was alleged the written contract was different in nature to the preliminary oral agreement and it was held that the preliminary agreements were not enforceable and the terms of the written contract stood. This is an example of the parole evidence rule and shows how if oral conditional acceptance is given it is highly recommended to be documented in writing to avoid the courts becoming uncertain to its nature.

When conditional acceptance is in writing we have seen situations where it may be to vague to be enforceable, however the case of Souter v Shyamba Pty Ltd 27 demonstrates in how much detail it must be to ensure it becomes legally binding. In this situation the preliminary agreement contained all the essential terms of a contract, namely, the parties, the property, the price and the promises 28. This is an illustration of example 1 from the Masters v Cameron29 case where the written contract would just be a mirror image. This shows that with extreme detail a preliminary agreement can be considered an agreement on all offered terms and become a legally binding contract.

An exception to the need of a detailed preliminary agreement or a signed contract is evident in Empirnall Holdings v Machon Paull Partners30. In this case a preliminary agreement was discussed and agreed upon and then work commenced, however the written contract was only ever signed by one party making it clearly unenforceable. In this case both parties continued with the promises for a prolonged period of time and because of this fact the courts inferred that through their actions they understood and accepted the terms of the agreement. This case proves that conditional acceptance which may not be legally binding may become enforceable through the actions of parties involved.

VII.

Conclusion

In conclusion, acceptance must be clear, unambiguous and communicated, whether implied or expressed there is no way around this. An agreement is not agreed upon unless all terms are defined, clear and both parties are aware of the promises required of each other. Conditional acceptance is not acceptance, it is just an agreement to the agreement and not legally binding unless the intention is to be legally bound, if that is the intention then there is no conditional acceptance it is just acceptance on all terms and results in a legally binding contract enforceable by law.

Bibliography 25 Ibid. 26 (1995) FCA 818. 27 (2002) NSWSC 929. 28 David Parker and Gerald Box, Business Law for Business Students (LawBook, 3rd ed 2013). 29 Ibid. 30 (1988) 14 NSWLR 523.

A. Article/Books/Reports Parker, David and Gerald Box, Business Law for Business Students (LawBook, 3rd ed 2013). LexisNexis, Halsbury's Laws of Australia (at 30 March 2015) 110 Contract, '3 Uncertainty and Incomplete Terms' [110-465]. LexisNexis, Halsbury's Laws of Australia (at 30 March 2015) 110 Contract, ‘4 Conditional Contracts’ [110-530]. WestLaw, The Laws of Australia (at 1 March 2012) 7 Contract: General Principles, ‘2 Contract Formation’ [630].

B. Cases Branca v Cobarro [1947] 2 All ER 101 Brogden v Metropolitan Rly Co (1877) 2 app cas 666 Eliason v Henshaw (1819), 4 Wheaton 225 Empirnall Holdings v Machon Paull Partners(1988) 14 NSWLR 523 Felthouse v Bindley (1862) 142 ER 1037 Hyde v Wrench (1840) 3 Beav 334 Jacobs v Batavia and General Plantations Trust (1924) 1 Ch 287 Leitch v Natwest Australia Bank (1995) FCA 818 Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 Meehan v Jones & Ors (1982) 149 CLR 571 Mercantile Bank of Sydney v Taylor (1893) AC 317 Niesmann v Collingridge (1921) 29 CLR 177 Northern Territory of Australia v Skywest Airlines Pty Ltd (1987) 48 NTR 20 Powell v Lee (1908) 99 LT 284 Pym v Campbell (1865) 119 ER 903 R v Clarke (1927) 40 CLR 227 Scammel v Ouston(1941) 1 AC 251 Souter v Shyamba Pty Ltd(2002) NSWSC 929 Whitlock v Brew (1968) 118 CLR 445 WN Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 (HL)...