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LAWS1204 – Contracts Weeks 1-6 Notes I.

Offer

An offer is a statement that if accepted will create a binding contractual relationship between the offeror and offeree. It must be promissory in so far as the offeror must intend that the offer can be converted into a legally binding document should the offeree accept it.

A. Defining the Offer There are a number of factors that must be taken into consideration when first trying to establish whether an offer has been made. – Sufficient Precision/Clarity: The statement must be sufficiently detailed/comprehensive to establish the formation of a contract. » Mildura Office Equipment & Supplies Pty Ltd v Canon Finance Australia Ltd [2006] VSC 42: Facts: Defendant claimed that statements made during a comical presentation amount to a contractual offer; offer was for $1 photocopiers; held that relevant statements did not constitute an offer as they were not sufficiently detailed. Q1 ‘If a statement is not sufficiently detailed and comprehensive to achieve the requisite level of certainty in relation to essential matters and contingencies, it will not constitute "a legally enforceable offer of a promise”’. [Dodds-Streeton J] – Government Policy: The government in its announcements and schemes does not intend to create legal relationships with third parties, rather it simply releases a government policy. » Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424: Facts: Defendant claimed it would subsidise the purchase of raw wool through a series of letters; plaintiff purchased wool but didn’t receive subsidy; held no contract because it was a statement of government policy. Q1 ‘It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty.’ Q2 ‘… it is necessary that what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation.’

– Intention/Quid Pro Quo: Intention is crucial in order to establish an offer. This could mean that on face value a ‘quid pro quo’ exists, but there actually is none. » Arfaras v Vosnakis [2016] NSWCA 65: Facts: Plaintiff was mother-in-law of defendant; she promised to transfer a burial licence to him to be able to eventually rest with his late wife; he exercised his right to choose that burial spot for his wife (thinking to be awarded the licence in return); plaintiff didn’t award licence; held no contract because the offer was simply a gift (no intention for contract). Q1 ‘… the conversations are more readily understood as amounting to a succession of gifts … his acceptance of the offer of the subject plot as the place where his wife could be buried was not made subject to or conditional upon the promise by Mrs Arfaras that she would then or later transfer the burial licence to him.’ – Promise to Act: There must be a firm promise to do something or not to do something, otherwise it is simply a ‘supply of information’. » Harvey v Facey [1893] AC 552: Facts: Plaintiff asked if Bumper Hall Pen was for sale; defendant replied ‘lowest price for Bumper Hall Pen, $900’; held that it was supply of information and not an offer. [Similar idea in Pattinson v Mann – something more must be offered, such as a sale]. » Re Webster (1975) 132 CLR 270: Q1 ‘There is a radical distinction drawn in the law of contracts between the mere quotation of a price and an offer to sell and deliver … the quotation will be no more than an … [invitation] to treat.’

A. Limitations – Invitation to Treat: An invitation to treat is a statement during the bargaining process that instigates the dealing process. Usually, it falls short of an offer but can become one if it is specific enough and shows intention to be an offer. » Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256: Facts: Defendant manufactured an anti-cold and flu preparation; advertised a £100 reward for someone who contracted the flu; said they had deposited £1000 to show genuine; plaintiff bought and used as directed but still contracted; held too specific and deposit showed seriousness to the ‘world at large’. [Note: this can be called

into question regarding whether £1000 is a serious offer to the world at large]. Q1 ‘… here is a distinct promise expressed in language which is perfectly unmistakable.’ [Lindley LJ] » Lefkowitz v Great Minneapolis Surplus Store 86 NW 2d 689 (Minn. 1957): Facts: Plaintiff tried to purchase a woman’s mink coat; advertised for sale with no explicit exclusion of class of offerees (but everything else was specific); context suggested offeror intended exclusion to females; held that offer extended to male plaintiff as there was no exclusion and the advertisement was specific enough to constitute an offer. – Mere Puffery: Statements that would induce a contract but are so farfetched no reasonable person would believe them. This is a reasonability test based upon reasonable perception at the time. » Leonard v Pepsico Inc 88 F Supp 2d (SDNY 1999): Facts: Defendant offered prizes for Pepsi-Points; advertised that 7,000,000 rewarded a Harrier Fighter jet; jet was not included in prize-catalogue (only in advertisement); plaintiff acquired points and attempted to claim the jet; held that no reasonable person could have believed the jet would be a prize. Q1 ‘… no objective person could reasonably have concluded that the commercial actually offered consumers a Harrier jet … the Court must not consider defendant’s subjective intention making the commercial, or plaintiff’s subjective view of what the commercial offered, but what an objective, reasonable person would have understood.’

B. Specific Categories Consider the following specific categories of offer to compare with accompanying cases. – Shop Sales: Goods displayed for sale in a shop constitute invitations to treat, not offers. The offer is made upon presentation of the goods at the counter. Otherwise, the customer would not reasonably be able to take things out of their basket (Fisher v Bell [1961] QB 394). » Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) LD. [1953] 1 QB 401: Facts: Customer picked drug up in the shop; drug must legally be sold under supervision of a pharmacist; issue was where the sale took place; held that the customer was in fact the offeror and the sale took place at the counter with the pharmacist.

– Tenders: Involves a bidding by commercial parties for a particular contract. In this situation, there will be a contract binding the conditions of the tender process, as well as the final contract that is awarded (see Hughes Aircraft Systems International v Airservices Australia (1997) 47 ALD 12). » Harvela Investment Ltd v Royal Trust Co of Canada (CI) Ltd [1986] AC 207: Facts: Invitation to treat for purchase of shares sent to two companies; letter said ‘we bind ourselves to accept … the highest offer’; accepted offer of $2.1m over $2.175m; held that the letter was an offer that could be accepted by the highest bidder, but the tenders were not ‘offers’ in terms of contract law (they were simply potential acceptances between which defendant had complete control to choose). – Auctions: An auction is only an invitation to treat: each bid is an offer (Harris v Nickerson (1873) LR 8 QB 286). The auction process itself will be governed by a contract, but normally a reserve price is included, meaning the auctioneer need not sell to the highest bidder. » AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454: Facts: Held that an auction without a reserve price did not require that the auctioneer had to sell to the highest bidder – it was still an invitation to treat. – Ticket Cases: Courts regard the issuing of a ticket as an offer that a customer can accept or reject depending on their use of the ticket. Thus, customers will normally pay before the contract has even been accepted. » MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125: Facts: Issue whether airline ticket was a contract; would have had to pay stamp duty if yes; held that the purchase/issuing of the ticket was an offer the passenger’s attendance and subsequent carriage constitutes acceptance. – Click-Wrap Cases: Where the terms of a contract are held within the product (or some similar situation), it can still be a contract. This is commonplace and is thus impractical to expect that the terms are negotiated with each person. » ProCD, Inc v Zeidenberg (1996) 86 F3d 1447: Facts: The defendant bought product for which the plaintiff had rights; ignored the click-wrap licence and resold the information; held that the defendant could have rejected/returned the goods should he have wished, but he used it thereby constituting acceptance of its terms despite having already payed.

Q1 ‘Transactions in which the exchange of money precedes the communication of detailed terms are common.’

II.

Revocation

An offeror may revoke his offer at any time prior to acceptance, so long as it is communicated to the offeree. However, there are many circumstances in which this general rule changes, especially in regard to option contracts, where a deposit is paid to prevent revocation. Note the following points and cases. – Communication: The revocation must be communicated clearly and directly to the offeree. » IVI Pty Ltd v Baycrown Pty Ltd [2005] QCA 205: Q1 ‘[a]n offer may be withdrawn or revoked at any time before it is accepted. To be effective the withdrawal must be communicated to the offeree … it is essential that it be made clear to the offeree that the offeror no longer wishes to proceed.’ – Third Party: Revocation is effective if it is successfully communicated by a third party. » Dickinson v Dodds (1876) 2 Ch D 463: Facts: Offeror sought to sell property to offeree; time was set for acceptance; third party informed offeree that offeror had sold the property to another party; held that a revocation is effective despite being communicated by a third party – Offer to World at Large: Where an offer has been made to the public at large, the revocation must be made in the same way. » Shuey, Executer v United States 92 US 73 (1875): Facts: Held that an offer made in a newspaper could be withdrawn in the same way. – Knowledge: Knowledge of the revocation is essential and will always preclude acceptance (Patterson v Dolman [1908] VLR 354). See also Dickinson v Dodds [above]. – Reasonable Time Elapsed: Where a reasonable amount of time has passed since the offer was made, it may lapse (Ballas v Theophilos (No 2) (1957) 98 CLR 193). Depends upon various factors, including: (1) nature of the contract; (2) the industry; (3) any factors indicating a timesensitivity; and (4) past dealings. » Fong v Cilli (1968) 11 FLR 495:

Facts: Offeror died before the offeree could accept the offer; offeree was aware of the death; held that there was no valid acceptance.

III. Acceptance Acceptance is an unqualified assent to the terms of the offer that successfully forms a contract (Taylor v Johnson (1983) 151 CLR 422). The general rule is that it must be communicated (Felthouse v Bindley [see below]), but this is open to a number of varying circumstances. Courts generally adopt the common law objective approach when assessing an acceptance, analysing what a reasonable person would consider when observing the facts (Taylor v Johnson [see above]).

A. Awareness/Consciousness It is of paramount importance that the offeree is aware of the offer when accepting it. Any act without consciousness of the offer cannot form a contract (Fitch v Snedaker 38 NY 248 (1886)). » R v Clarke (1927) 40 CLR 227: Facts: Plaintiff offered reward of £1,000 in return for information; defendant was arrested but gave required information that led to identification of killers, securing his release; defendant tried to claim reward but was refused; held that defendant had not undertaken act of providing information in order to seek reward, therefore no acceptance was possible. Q1 ‘It is not true to say that since such an offer calls for information of a certain description, then, provided only information of that description is in fact given, the informant is entitled to the reward.’

C. Communication of Acceptance In order for acceptance to form a contract, it must be communicated to the offeror (Tinn v Hoffman & Co (1873) 29 LT 271). There are a number of complicating factors that must be realised. – No Communication: Acceptance cannot be assumed (even if both parties believe that it is). » Latec Finance Pty Ltd v Knight [1969] 2 NSWR 79: Facts: Defendant sought to purchase a TV under a hire-purchase agreement; defendant signed agreement, which was accepted by plaintiff; acceptance was not communicated to defendant; TV set was faulty; held that there was no contract that had come into existence, because acceptance had not been communicated.

Q1 ‘The general rule undoubtedly is that, when an offer is made, it is necessary, in order to make a binding contract, not only that it should be accepted but that the acceptance should be notified.’ – Same Terms: In order to accept a contract, the same terms must be agreed upon or else there will be no binding contract. » ICTA Investments Pty Ltd t/a Jolly Roger v GE Commercial Corp (Australia) Pty Ltd [2006] NSWCA 290: Facts: Lighting equipment was installed and paid for as per a contract; director of company signed rental agreement for lighting equipment that was different to initial agreement; held that parties had not agreed to the same terms, and were therefore not bound in contract. – Correct Parties: The acceptance must be communicated by the person who received the offer, or by his/her agent. » Powell v Lee (1908) 99 LT 284: Facts: Plaintiff applied for position of headmaster; school managers collectively decided to appoint him; one manager offered him the position; managers collectively rescinded decision; held that acceptance had not been communicated by the proper offeree/agent. – Silence: A contract cannot be formed by stipulating silence as the prescribed method of acceptance (Felthouse v Bindley [see below]). » Felthouse v Bindley (1862) 142 ER 1037: Facts: Man tried to buy horse from nephew; statement in letter that ‘If I hear no more about him, I consider the horse mine at that price’; nephew did not reply but instructed horse to be set aside; horse sold by accident; held that no communication of acceptance/intention meant that there was no contract. – Conduct: Courts will accept in some circumstances that an agreement has been formed as a result of some conduct that an offeree must undertake. » Famer’s Mercantile Union and Chaff Mills Ltd v Coade (1921) 30 CLR 113: Facts: Defendants applied to buy a share in a company, paying £1 with application; company responded after a reasonable time had passed; defendants knew they were on register after this but ignored calls for further payment, presumably seeking to avoid the contract; held that they could have rejected, but inaction suggested acceptance. » Brogden v Metropolitan Railway Co (1877) 2 App Cas 666:

Facts: Plaintiff supplied coal to defendant for long period; defendant sent contract differing from previous dealings; plaintiff did not send back; plaintiff sought to stop supplying coal; held that a contract had arisen due to way in which the parties conducted themselves. Q1 ‘[the facts] establish[ed] a course of action on the part of the Plaintiffs of such a character as necessarily to lead to the inference on the part of the Defendants that the agreement had been accepted on the part of the Plaintiffs.’ [Lord Hatherly] » Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523: Facts: Plaintiff engaged two architects who did work and then sought progress payment; architects sent contract but were told director ‘does not sign contracts’; architects continued on belief contract had been accepted; did not receive progress payments; plaintiff became insolvent; held that the contract had existed because plaintiff benefitted form services despite taking no opportunity to reject offer. [Note: accepted Felthouse principle of no silence, but there were other factors here]. Q1 ‘… where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms.’ » Carlill v Carbolic Smoke Ball Co [see above]: Facts: Held that Carlill did not have to directly notify the company of her acceptance of the offer, the conduct of following the terms was enough. [Note: Fairly normal in unilateral contracts where no direct communication is needed]. – Prescribed Method: The general rule is that where an offeror prescribes a method for the communication of acceptance, then only that method will be effective (Adams v Lindsell (1818) 106 ER 250). It is important to note that is must be specific (Rushton (SA) Pty Ltd v Holzberger [2003] QCA 106) and where inference can be made that it is not sole method of acceptance, then another may be valid (George Hudson Holdings Ltd v Rudder (1973) 128 CLR 387). » George Hudson Holdings Ltd v Rudder (1973) 128 CLR 387: Q1 ‘… where an offer does not stipulate for a particular mode of acceptance, it is sufficient that acceptance is communicated by the offeree to the offeror.’

D. Counter Offer

If the presumed acceptance contains qualifications or new proposals then it is considered as a counter-offer, which amounts to a rejection of the original offer. Note the following points and cases. – New Terms: Where the offeree suggests new terms that change the nature of the offer, it is a counter-offer. » Turner, Kempson & Co Pty Ltd v Camm [1922] VLR 498: Facts: Plaintiff made offer to sell 15 tons of product; defendant agreed and added request for delivery in three lots of 5 tons, approximately 10 days apart; held that the new terms classified it as a counter-offer, because logistics of delivery was important. – Requests: Some acceptances will include a ‘mere request’ which does not constitute a counter-offer, especially not when they clarify some small action not covered by the contract (e.g. delivery day). » Dunlop v Higgins (1848) 9 ER 805. Facts: The offeree accepted with a request that the goods be delivered on a certain date; held that this was merely a request, rather than new condition. – Error: In some instances, small errors will be made during the act of acceptance by the offeree. These instances do not normally bring rise to a counter-offer. » Carter v Hyde (1923) 33 CLR 115: Facts: Plaintiff offered to sell his hotel to the defendant with all furniture in the hotel at the time of the offer; defendant accepted, but with reference to the furniture at the time of acceptance; held that it was a mere error and that an effective acceptance had been given. – ‘Subject to Confirmation’: Where the offeree has accepted an offer, but has required that their terms be reconfirmed with the original offeror (e.g. by words such as ‘subject to confirmation’) this constitutes a counter-offer that must be accepted. » CJ Bova Pty Ltd v Geoffrey Needham Pty Ltd [2009] NSWSC 1353: Facts: Settlement offer was made by the plaintiff; defendant responded with terms subject to confirmation; held to not be acceptance due to necessity of confirmation.

E. Postal Rule The postal rule holds that where acceptance is sent via post, the offer is accepted at the moment it is posted. However, Australian jurisdictions are slightly restrictive in the application of this rule. Essentially, there are two main reasons for the postal rule: (1) the post is the agency of the two parties, thus the knowledge of the postal service binds the offeror (legal

fiction); and (2) commercial convenience as it is more just that the offeror, who instigated the dealing, should carry the inherent risk of contract law. » Adams v Lindsell (1818) 106 ER 250: Facts: Defendants offered to sell wool to plaintiffs; offer contemplated acceptance via post; offer letter was incorrectly addressed and delayed; plaintiffs wrote letter of ...