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									Formation of a
   contract
 A contract is an
agreement that is
 enforceable at
      law.
Characteristics of a Contract
1. There will be a promise or promises.
2. They will be made by “parties to the
   contract”.
3. They will create an obligation.
4. That obligation will be enforceable
   at law.
5. Often found in negotiations, rather
   than a formal document.
    OFFER/ACCEPTANCE
        ANALYSIS
 OFFER
    +        =   AGREEMENT
ACCEPTANCE
                 INTENTION
                 CONSIDERATION
                 CAPACITY
                                           Offer

“the indication by one person
 to another of his or her
 willingness to enter into a
 contract with that person on
 certain terms”
Carter and Harland, “Contract Law in Australia” 4th edn p28
    Essential features of an offer:
   The offeror must intend to be bound by the offer
       Distinguish from request for information or invitation
        to treat
   The offer must be communicated to the offeree
   The offer may be made to one person, a class of
    persons, or the whole world
   The offer must contain enough information
    (certainty) to allow a binding contract to come
    into existence
          Intention to be bound
An offer is not:
   A request for the supply of information

       Harvey v Facey [1893] AC 552


     An invitation to treat
        Pharmaceutical Society of Great Britain v
         Boots Cash Chemists (Southern) Ltd [1953] 1QB
        401.

        Gibson v Manchester City Council       [1979] 1AllER 972

        Grainger & Son v Gough [1896] AC 325
                 Harvey v Facey
  “the mere statement of the lowest
  price at which the vendor would sell
  contains no implied contract to sell at
  the lowest price.”

Lord Morris at 556
                 Grainger v Gough
   “transmission of such a price list does not amount
   to an offer to supply an unlimited quantity of the
   wine described at the price named, so that as
   soon as an order is given there is a binding
   contract to supply that quantity. If it were so, the
   merchant might find himself involved in any
   number of contractual obligations to supply wine
   of a particular description which he would be
   quite unable to carry out, his stock of wine of that
   description being necessarily limited.”

Lord Herschell at 334
         Examples of
       Invitations to Treat
 advertisements/circulars
 price lists

 displays  of goods in shops
 calls for bids at auctions, and
 calls for tenders.
    Carlill v Carbolic Smoke Ball
                           [1893] 1 QB 256


 Distinguish offer from invitation to
  treat by looking at intention of offeror
 Offer can be made to world at large

 Unilateral contract – communication
  of acceptance not required
 Consideration can equal
  detriment/effort

Text of ad: http://www.carbolicsmokeball.co.uk/
               Communication
   Offer must be communicated to offeree
   ‘overheard’ offer or unintended
    communication is not an offer
       Banks v Williams (1912) 12 SR (NSW) 382
 Offeree may be a particular
person or class of persons or
       the whole world
“It is also said that the contract is made with all
the world –that is, with everybody, and that you
cannot contract with everybody. It is not a
contract made with all the world. There is the
fallacy of the argument. It is an offer made to all
the world; and why should not an offer be made
to all the world which is to ripen into a contract
with anybody who comes forward and performs
the condition? It is an offer to become liable to
anyone who, before it is retracted, performs the
condition, and although the offer is made to the
world, the contract is made with that limited
portion of the public who come forward and
perform the condition on the faith of the
advertisement.” Bowen LJ at 268, Carlill v Carbolic Smoke Ball
  All an offer
needs is a “yes”
  to make a
   contract
        Termination of Offers

1.   Acceptance
2.   Revocation
3.   Rejection
4.   Condition in offer not fulfilled
5.   Lapse of time
6.   Death of a party
                        Revocation
   Must be communicated
   Prior to acceptance – Byrne v Van
    Tienhoven (1880) 5 CPD 344
   Communication can be by third party or
    conduct – Dickinson v Dodds (1876) 2 ChD 463
   Not bound by statement to keep offer
    open for a specified time – Dickinson v
    Dodds
   Unless option – Goldsborough Mort v Quinn
    [1910] 10 CLR 674
                                    Options
    “An offer may be withdrawn at any time
    before acceptance. A mere promise to
    leave it open for a specified time makes no
    difference, because there is, as yet, no
    agreement and the promise, if made
    without some distinct consideration, is
    nudum pactum and not binding. But if
    there is (as in the present case) a
    consideration for the promise it is binding.
    This is often expressed by saying that an
    option given for value is not revocable.”
Griffith CJ said at 678: Goldsborough Mort v Quin
    Communication of revocation
   Actual communication required – although
    presume good business practices
        Telex deemed received during office hours – Brinkibon
         case   [1983] 2 AC 34

        or next business day if received after hours –       The
         Pamela    [1995] 2 Lloyd’s Rep 249).


   Unless, actual circumstances mean no
    communication - Entores v Miles Far East Corporation      [1955] QB 327

    at 332


   Email governed by legislation -             Electronic Transactions
    Act 2000 (NSW) s13
                  Rejection
   Rejection terminates an offer
   Counter offer is a rejection
     Hyde v Wrench (1840) 49 ER 132

   Response is not always counter
    offer/rejection
   May be clarification or request for
    information
      Stevenson Jacques & Co v McLean    (1880)
      5 QBD 346
  Stevenson Jacques v McLean
 “The form of the telegram is one of
  inquiry. It is not …[like] Hyde v
  Wrench…where the negotiation was
  at an end by the refusal of the
  [offeree’s] counter proposal. Here
  there is no counter proposal….There
  is nothing specific by way of offer or
  rejection, but a mere inquiry, which
  should have been answered and not
  treated as a rejection of the offer.”
Lush J at 350
       ACCEPTANCE
A FINAL and UNQUALIFIED
assent to the terms of an offer
made in the manner specified or
indicated by the offeror
   The “yes” which ends
           negotiations
                Acceptance
   Must respond to the offer
   Must be communicated
     Subject to exceptions - Postal
      Acceptance Rule
   Must not be conditional
    Acceptance must respond to the
                offer
   So, only those persons:
      to whom the offer was made; and

      who have the offer in mind at the
        point of “acceptance” may accept


   R v Clarke   (1927) 40 CLR 227
                  R v Clarke
   “it is not an absolute proposition of
   law that one who, having the offer
   before him, acts as one would
   naturally be induced to act, is
   deemed to have acted on the faith of
   or in reliance upon that offer. It is an
   inference of fact and may be
   excluded by contrary evidence.”
Starke J at 244
    What Can Be Accepted?
   Only what was offered (without
    any additions, deletions or
    conditions)
   Must end negotiations
   Must be unqualified
   Battle of the forms (cf counter
    offer)
             Machine Tool Co Ltd v Ex-cell-O
       Butler
       Corp (England) Ltd [1979] 1 All ER 965
                Acceptance must be
                  communicated

   Silence is not sufficient
       Felthouse v Bindley (1862) 11 CB(NS) 869

   Conduct may communicate acceptance
       Brogden v Metropolitan Railways (1877) 2 App Cas 666
       Empirnall Holdings v Machon Paul (1988) 14 NSWLR 523
      Communication by conduct
   “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.”
McHugh JA at 535 in Empirnall Holdings v Machon Paull
  Exceptions to communication
Postal Acceptance Rule
     Lord Herschell said in Henthorn v Fraser [1892] 2 Ch
      27 at 33:
      “Where the circumstances are such that it must
      have been within the contemplation of the
      parties that, according to the ordinary usages
      of mankind, the post might be used as a means
      of communicating the acceptance of an offer,
      the acceptance is complete as soon as it is
      posted.”
     So:
        Acceptance complete on posting (constructive vs
         actual communication)
        Within the reasonable contemplation of the parties
        Adams v Lindsell (1818) 1 B & Ald 681
Postal acceptance rule will not
           apply:
   Contentious matters - Tallerman & Co
    Pty Ltd v Nathan’s Merchandise (Vic) Pty
    Ltd (1957) 98 CLR 93

   If actual notice requested - Bressan v
    Squires [1974] 2 NSWLR 460
     Conditional acceptance
Can you accept ‘with strings
 attached’?
 “subject to” some reservation.



NO - BECAUSE there is no “final and
 unqualified assent to the terms of the
 offer.”
       Intention of the parties to be
                  bound?
   Have the parties finally agreed on the
    terms which will bind them
   or can the condition result in the contract
    either not proceeding at all (eg if it is
    expressed to be subject to finance, or
    subject to planning approval)
   or in the initially agreed terms being
    altered.
   The Three Possibilities from
     Masters v Cameron           (1954) 91 CLR 353.


1.The parties had reached FINALITY,
  intended to be bound immediately, but
  wanted the terms set out in a MORE
  PRECISE but NOT MATERIALLY
  DIFFERENT form.
2.The parties had reached finality, intended
  NO DEPARTURE from the terms of the
  agreement but made PERFORMANCE of
  one or more of the terms conditional on
  execution of a formal document.
3.The parties did not intend to make a
  CONCLUDED BARGAIN unless or until a
  formal contract was drawn up.
  INTENTION TO CREATE LEGAL
          RELATIONS
   “To create a contract there
   must be a common intention
   of the parties to enter into
   legal obligations, mutually
   communicated expressly or
   impliedly”
Atkin LJ in Rose & Frank Co v JR Crompton & Bros Ltd [1923] 2 KB 261 at 293
         Rebuttable presumptions
   In social and domestic agreements there is a
    presumption against legal obligations
       Balfour v Balfour [1919] 2 KB 571
       Cohen v Cohen (1929) 42 CLR 91
       Jones v Padavatton [1969] 1 WLR 328

   The presumption is rebuttable
       Merritt v Merritt [1970] 1 WLR 1211
       Wakeling v Ripley (1951) 51 SR (NSW) 183
                  Balfour v Balfour
“There are agreements between parties which do not
result in contracts within the meaning of that term in
our law. The ordinary example is where two parties
agree to take a walk together, or where there is an
offer and acceptance of hospitality. Nobody would
suggest in ordinary circumstances that those
agreements result in what we know as a contract,
and one of the most usual forms of agreement which
does not constitute a contract appear to me to be the
arrangements which are made between husband and
wife…they are not contracts because the parties did
not intend that they should be attended by legal
consequences.”

Atkin LJ at 578
         Rebuttable presumptions
   In business or commercial
    agreements, there is a rebuttable
    presumption that the parties did intend
    to create legal obligations
       Carlill v Carbolic Smoke Ball
       Rose & Frank Co v Crompton & Bros Ltd   [1925] AC

        445

       Honour clause
             Presumptions
   Ermogenous v Greek Orthodox Community
    of SA Inc (2002) 209 CLR 95
   Use of presumptions of limited value
   Intention to create legal relations is
    always a matter to be proved
   Objective test
                   Flooring:
Mavis is a keen cook and has just renovated her kitchen
to meet her cooking needs. She was particularly
interested in flooring as she had difficulties keeping her
slate tiles clean. She searched for low maintenance
flooring and after extensive shopping decided on single
sheet vinyl flooring. She saw just the thing at Discount
Lino Barn, close to Kylie’s home. Kylie indicated that she
didn’t share her mother’s preference for vinyl flooring as
it was cold underfoot and had suggested kitchen carpet.
Kylie and Mavis spoke to Mike at Discount Lino Barn who
suggested under-floor heating could address Kylie’s
temperature issues. Kylie provided details of the under
floor heating options while her mother left the
conference room to offer slices of her coffee cake to the
other staff….
She is also angry about the flooring she has had installed.
Despite Kylie’s protests she went with the single sheet vinyl,
and did not have under floor heating installed. The vinyl,
while easier to clean than the slate, is marking and scuffing
badly however. She has only had it down 6 months, and
already there are a number of wear marks. Her cupcake
classes – which she runs 5 times a week and more often in
school holidays – are now so popular that she has at least
20 students per class. Because of her renovations she has
room for them all around her lovely new island bench, but
the vinyl around the island bench almost looks like a race
track. It is as if her students have worn a path around the
bench – and in only 6 months. The vinyl was quite
expensive – as she had heavy grade domestic installed –
but Mavis is very unhappy. She hasn’t yet paid the bill for
the vinyl as she has been arguing with the company. They
are, according to Mavis, now getting nasty, and want their
$45,000 immediately.
               Fridge
She also advised that her mother was
having problems with Whitegoods World
from which she had bought her fridge.
Kylie advised that her mother required a
“French door” fridge with freezer drawers
underneath to accommodate the large
baking trays she used for her cakes. She
had ordered the fridge she needed from
Whitegoods World but had experienced
delivery problems.
Her oven purchase was much more successful than her
fridge which, on the very day it was due to be delivered
– not only did not arrive, but the shop called her to
advise that delivery was delayed for one month. Mavis
said to the shop keeper: “Well that’s no good to me. I
ordered that fridge for today. I need that fridge today.
I told you when I needed the fridge. The only reason I
ordered from you was that you told me I could have it
today. If you can’t give it to me today, you can just
keep your fridge!! I don’t want it anymore.” Mavis then
rang Quick Fridge and ordered and received another
fridge that afternoon– suitable for her requirements.
However, one month later, Whitegoods World delivered
the fridge originally ordered and demanded payment.
Mavis told them she no longer wanted the fridge and
had cancelled the order. Whitegoods World denied the
order was cancelled – as their policy is no cancellations
after an order has been placed. They are threatening to
sue Mavis for the price of the fridge - $5,500.
                      Oven
Mavis returned to the conference room. She advised that
she had had to make a large coffee cake that morning,
even though her preference would have been to make
cup-cakes. In fact, one of her legal problems was her
cup-cake oven. Cake Cookers is a specialist retailer
which sells products designed for those who like to cook
cakes. It retails a number of specialist pans and other
baking utensils – many imported from America and not
readily available in Australia, as well as a special range
of cake ovens. They are located in Broome – and Mavis
lives in NSW, but Cake Cookers sells throughout
Australia by catalogue. Mavis wanted a special cake oven
in her new kitchen. She saw an oven that looked perfect
for her in their catalogue – the picture showed 8 slide
out patty pan trays instead of oven trays – exactly what
she wanted.
She rang the store and spoke to Cathy. She told Cathy all about her
cupcakes, her favourite recipes, and her interest in the patty pan
oven in their catalogue. Cathy told her that the patty pan oven had
eight slide out patty pan holders – instead of oven racks – and that
each patty pan holder would take one dozen patty pans. Even
better, they came with self cleaning silicone inserts. Mavis was
delighted about the self cleaning but concerned that each tray
would only take one dozen patty pans. Although after discussion
with Cathy, she was convinced that the overall capacity of the oven
was appropriate, and so she placed an order….
Mavis advised that even if she had known about the cake order she
would have had difficulty fulfilling it because of problems with her
newly installed cake oven. When the oven arrived she saw that
instead of Australian sized delicate patty pan holders, the cake trays
were American size muffin holders – and two trays were even
jumbo sized Texas muffin size holders. This is not what Mavis
wanted at all.
Mavis rang Cathy and told her the oven
was not what she had wanted at all, and
not suitable for the cakes in which she
specialised. Cathy said she was sorry that
Mavis was disappointed, but there is
nothing that they can do about it. Mavis
wants to know if she still has to pay the
$8,000 for the special cake oven.
                 Wedding cake
As well, Mavis is being threatened with legal action by Chrissie
Saranrap. Chrissie was married a month ago and was expecting
Mavis to provide her specialty – the “nouveau doveau” - a
tiered tower of cupcakes, iced in white and arranged to
resemble the wings of doves – as the centrepiece cake for her
wedding reception. Mavis loves doing cakes for weddings – in
fact she now makes more money from doing wedding cakes
than she does from her regular cooking classes.
Chrissie saw information about Mavis’ cake services after an
article in the local paper, and called round to see Mavis, and
look at the different cakes she could make. They discussed
possibilities and pricing and Chrissie left with a price list.
Apparently, Chrissie called and left Mavis a message on the
answering machine ordering the “nouveau doveau” for her
wedding, to be delivered on 2nd May at the wedding reception,
for $2,000 COD. In her message, Chrissie had said: “If I don’t
hear to the contrary, I’ll assume everything is OK. Call me if
there is a problem – otherwise I will see you on the 2nd.
Looking forward to your lovely creation.”
Unfortunately, because of all the work
being done to the kitchen and problems
with electrical work and electrical supply,
Mavis had experienced a number of black
outs which had interrupted her answering
machine. Mavis – never received the
message from Chrissie, and so of course,
had not provided the cake. Chrissie is very
angry and claims her wedding was ruined
without the cake. She has threatened to
sue Mavis.

								
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