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Lecture 2- Agreement

The first requirement for a valid contract is an agreement, which normally consists of an 'offer' and an 'acceptance' (although the parties may not articulate their arrangement in these terms) and involves a 'meeting of the minds' - or consensus - between two or more parties. The offer and acceptance rule tells us the following about a contract A. When the contract was entered into. This can be an important because the time for performance of obligation is often determined by reference to the date of the contract B. Where the contract was entered into. This is important in cases where a contract is entered into between parties in different legal jurisdictions in order to establish which jurisdictions courts will resolve the dispute C. The express terms of a contract

The Offer
Offer can be described as aStatement upon which maker is prepared to be bound. For a valid offer to exist, it must be communicated to the offeree, or his or her agent, by the offeror, or his or her agent. If the offeree learns from an unauthorized person, there is no offer for the offeree to accept: Banks v Williams (1912) 12 SR (NSW) 382 at 390-1. Once the offer is communicated to the offeree, he or she has the power to transform it into an agreement Invitation to Treat: An invitation to another person to make an offer to contract. Gibson v Manchester City Council [1979] 1 All ER 972 (Existence of an Offer) In November 1970, the Conservative run Manchester City Council (MCC) sent out brochures outlining their scheme to sell council houses. If recipients of the brochures wanted further information they were to return a form attached to the brochure. Mr. Gibson did precisely this. Afterwards he received an application form and a letter on February 16th 1971 stating that the MCC may be willing to sell him a council house at a price of 2,180. The letter asked Mr Gibson to make a formal application on the form provided which he did. In May 1971, the council changed hands and Labour came to power and promptly reversed the policy of selling council houses, only completing those deals in which an exchange of contracts had taken place. Mr Gibson was told that because his transaction had not reached the stage of exchanging contracts, the council was no longer prepared to sell him a council house. Mr Gibson tried to argue that they were bound to sell on the grounds that the letter of Feb 16th, 1971 from the Council constituted an offer, which he had accepted when he completed the formal application. It was held that no binding contract had come into existence. The most that could be said about the council's letter of Feb 16th was that it represented part of the

negotiations where the parties were feeling their way towards an agreement. Its said that the letter constituted an Invitation To Treat rather then an offer. Lord Russell of Killowen agreed and stated, My Lords, I cannot bring myself to accept that a letter which says that the possible vendor " May be prepared to sell the house to you" can be regarded as an offer to sell capable of acceptance so as to constitute a contract. The language simply does not permit such a construction. Nor can the statement that the letter should not be regarded as a firm offer of a mortgage operate to turn into a firm offer to sell that which quite plainly it was not. In Harvey v Facey [1893] AC 552 The case involved negotiations over a property in Jamaica. The defendant, Mr LM Facey, had been carrying on negotiations with the Mayor and Council of Kingston to sell a piece of property to Kingston City. On 7 October 1891, Facey was traveling on a train between Kingston and Porus and the appellant, Harvey sent Facey a telegram. It said, "Will you sell us Bumper Hall Pen? Facey replied on the same day: "Lowest price for Bumper Hall Pen 900." Harvey then replied in the following words. "We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please send us your title deed in order that we may get early possession." Facey, however refused to sell at that price, at which Harvey sued. Facey successfully defended his action in court with The Privy Council holding that the indication of lowest acceptable price does not constitute an offer to sell. Rather, it is considered an offer to treat. Thus there was no offer for Harvey to accept.

OFFERS OR INVITATIONS TO TREAT 1. Circulars, catalogues and advertisement


The general rule is that circulars, catalogues and advertisements setting out price lists or promoting the sale of product are seen as invitations to treat. Thus in Partridge v Crittenden [1968] 2 ALL ER 421, an advertisement in a bird magazine which said Bramblefinch cocks, Bramblefinch hens 25c each, was held to be an invitation to treat only. The use of the word offer in an advertisement does not necessarily mean that they intent to be legal bound. However, the general rule will not apply if it is clear from the circular that the seller is limiting his or her own liability to the amount of stock in hand. Thus in Lefkowitz v Great Minneapolis surplus store 86 NW 2d689 (1957), the store placed an add which read: 1 Black Lapin Stole beautiful, worth $139.50 $1.00 FIRST COME FIRST SERVED. Lefowitz was the first person to present himself in response, but the store refused based on the house rule that the purchaser must be female. Leftowitz sued the store for damages for breach of contract. The Supreme Court of Minnesota indeed found in his favour, stating that as the advertisement contained the statement first in first serve it was indeed an offer which Leftowitz upon entering the store accepted and that the store could not impose new conditions on the offer after being accepted.

Display Of Goods Goods displayed in shops for sale are invitations to treat, even though a price tag is attached. In Pharmaceutical Society of Great Britain v Boots Cash Chemist (Southern) Ltd [1953] 1 QB 401, the court held that in a self serve shop, the offer takes place at the sale of the counter when the shop assistant accepts the customers offer to buy the selected goods. Putting items on the shelf with a price tag are not an offer that could immediately be accepted by a customer putting it in their shopping trolley. Therefore, the shop display Is seen as a invitation to treat. Actions In actions it is well established that when an auctioneer puts up an item up for sale he or she is not making an offer to sell to the highest bidder, but is inviting offers from the assembled bidders. When a bidder makes an offer it can be either accepted or rejected by the auctioneer. Acceptance is with the fall of the hammer Payne v Cave (1789) 100 ER 502. A consequence of this is that the auctioneer does not have to accept the highest bid or a particular bid AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454. Further more in Harris v Nickerson (1873) LR 8 QB 286, a prospective bidder, who had travelled to the site where the action was advertised to be held, only to find out it had been cancelled was unable to recover damages for a breach of contract in relation to his wasted travel expenses. The court held that the advertisement of an action was not an offer for Harris to accept. In Barry v Davis [2001] 1 All ER 944 Davies, trading as an auctioneer, conducted an action of a couple of machines, each worth over $14,000. The action was conducted without a reserve price on the Machines. The only bids were from Barry who offered 200 pounds for each machine. The auctioneer refused the bid and Davis subsequently sold the machinery for 700 pounds each. The issue before the court of appeal was whether the auctioneer, who without a reserve price, refused the highest bidder was a breach of contract with that bidder. The court unanimously held that the auctioneer was liable was liable to Barry for damages. Tenders In the tendering process it is the tender who makes the offer, and not the person calling for the tender. The inviter can accept or reject any tender: Meudell v Mayor of Bendigo (1900) 26 VLR 158. In Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 119 The local council called for tenders. The Blackpool Borough club submitted a tender shortly before the expiry of the deadline. The council's staff failed to empty the letter box until the following morning, and the applicants tender was stamped with the date and time of the day after closing. They were subsequently informed that their tender had been submitted late and that the tender had been awarded to another tenderer. The issue before the court of appeal was whether a call for tenders could, in any circumstances, contains an offer. The court unanimously held that

the clause in the call for tenders constricted an offer to consider all duly submitted tenders, and that the club had accepted the offer by submitting a tender that met all the councils requirements as to procedure and form. Thus the council was liable for dames for a breach of contract. (b) Termination of Offers

Counter Offer/ Request for more information A counter offer is an implied rejection of the offer Hyde v Wrench (1840) 49 ER 132. In Stevenson, Jacques & Co v Mclean (1880) 5 QBD 346 Stevens was to buy a quantity of iron from Mclean for a set price on delievery. Stevenson responeded seeking credit terms and Mclean treated this as a rejection. The court ruled this simply to be a request for more information, and that Mclean had breached the contract. Withdrawal Of Offer- Revocation An offer can be withdrawn by the offeror at any time before it has been accepted, even if the offeror as specified a period of time the offer would be open for. Communication of revocation does not have to be communicated by the offeror. It does not matter who communicates the revocation to the offeree, so long as the information given to the offeree is reliable: Dickinson v Dodds (1876) 2 Ch D 463. Byrne v Van Tienhoven (1880) 5 CPD 344, the offeror argued that his revocation was effective upon posting it to the offeree. This was rejected by the court, the court held that there was a contract because the letter withdrawing the offer, even though posted before the letter of acceptance was posted, was ineffective to withdraw the offer because it had not been received by the offeree before the offeree had posed his letter of acceptance

Termination of offer once performance has commenced Mobil Oil v Lyndell Nominees (1998) 153 ALR 198, at 222-228
Facts Franchisees of Mobil Oil alleged that it had made them an of various benefits if they reached a certian level of sales over a certian period of time. Before that time period had elapsed the alledged offer was withdrawn. The franchisees brought cliams against mobil on a number of grounds including damages for a breach of contract. The franchisees claimed that mobil had made the offer which could not be revoked once the terms of the offer had been partly preformed. Issue before court Whether mobile had nade an iffer and, if it did. Whether its revocation of the offer rended it liable for damages

Decision The full court found there was no such offer made by mobil. But still dealt with the withdrawl of offers in such circumstances. Such a withdrawl would be valid because the increased level of sale achieved by the franchisees in preformaning the terms of the offer was a benefit to them, and thus it would not be unjust for them to revoke it. .

(c)

The Acceptance

R v Clarke (1927) 40 CLR 227


Facts: The Govt of WA had offered a reward of 1000 for information leading to conviction of murderers of 2 policemen and suggested that a pardon might be available to any accomplice not being a person to have actually committed the murder. Clarke and T were arrested in connection with one of the killings. Clarke made a statement and gave evidence, after which T and one other were convicted for that murder. Nobody was charged with the other murder. Clarke later claimed the reward for the first time. Issue Whether clarkes actions in satisfy the terms of the reward amounted to an acceptance to the offer. Decision: When giving the information, Clarke did not act "in reliance upon the offer or with the intention of entering into any contract". While the convictions would not have come about without his evidence, and so the Crown obtained what it wanted, Clarke gave the information solely to clear himself. HELD Higgins J Clarke's motive and intention in giving the evidence was to protect himself, to clear himself of the charge of murder. Only after arrest, conviction and appeal by the others, did Clarke think of claiming the reward. It wasn't that he didn't know of the existence of the reward before then - he clearly did - it was just that he stated clearly in his evidence that he did not think about the reward at that time so clearly could not have given his evidence, intending to obtain the reward, or to enter into a contract with those who offered it.

Postal Acceptance Rule:


The acceptance is completed as soon as it has been posted as stated by Lord Herscheel in Henthorn v Fraser [1892] 2 Ch 27. This also extends to telegrams. This leaves the offeror in a valnerable position, as he is unaware of when the

contract untill he recevies the letter or telegram. If he was to sell it after the acceptance had been posted, then he would be liable for damages for a breach of contract.

Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex D 216


Facts The defendant, through an agent in Glamorganshire, made a written offer to buy shares in the plaintiff's company in London. An acceptance of the offer was mailed to him, but was never received. He was entered as a shareholder in the plaintiff's books. The plaintiff went bankrupt and their books showed the defendant owing for the price of shares, less dividends. The defendant refused to pay on the grounds he did not receive an acceptance, and is not a shareholder. The plaintiff's liquidator filed suit against him. Issue Is acceptance completed when posted, even if it is never received? Ratio There was a binding contract because once posted, acceptance was completed. The post office was a common agent so acceptance occurred when it reached the defendant's agent. The postal acceptance rule balances the parties' interests. The offeror can make communication of acceptance a condition of the contract, or can inquire if he does not receive a timely acceptance. The offeree would have to inquire if his acceptance was received before knowing if he was bound. In addition, fraud could result if acceptance was dependent on it being received by the offeror. Held Judgment for plaintiff affirmed.

Henthorn v Fraser [1892] 2 Ch 27 Facts


The claimant received a note from the defendant with an offer to purchase a certain property within 14 days. The claimant responded to the offer with an acceptance posted the next day via mail. The defendant withdrew the offer before receiving the acceptance, but after the acceptance was posted. Judgment The Court of Appeal ordered that the claimant was entitled to specific performance. Lord Herschell argued: "Where the circumstances are such that it must have been within the contemplation of the parties that, according to ordinary usage of mankind, the post must be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted."

Specific Performance is an order of a court, which requires a party to perform a specific act, usually what is stated in a contract. It is an alternative to awarding damages, and is classed as an equitable remedy

Significance The case is based on a line of decision starting with Adams v Lindsell (1818), according to which the acceptance was valid at the time of posting. The importance of this decision's ratio is that a postal acceptance will only be valid at the time of posting if it is reasonable for the offeror to expect an acceptance by post. It follows that if an offer is brought by hand to a neighbour or sent by fax or telegram, the offeror expects an acceptance by comparable means.

Tallerman & Co v Nathans Merchandise (1957) 98 CLR 93


In Tallerman & Co Pty Ltd v Nathan's Merchandise (1957) 98 CLR 93, 111-112 Dixon CJ and Fullagar J took a more restrictive view. "The general rule is that a contract is not completed until acceptance of an offer is actually communicated to the offeror, and a finding that a contract is completed by the posting of a letter of acceptance cannot be justified unless it is to be inferred that the offeror contemplated and intended that his offer might be accepted by the doing of that act." The High Court included the element of intention. Indeed this case also invloved highly contentious communications between solicitors and because of the nature of this communication the rule did not apply

Bressan v Squires [1974] 2 NSWLR 460


An offeror can exclude the operation of the rule at the time the offer is made. The key is to establish that the offeror requires actual communication before acceptance takes place. Acceptance actually has to be received by the offeror, it not being a case where the acceptance is effective upon posting the acceptance letter: Bressan v Squires

Alternatives to Offer & Acceptance


Although offer and acceptance analysis works well in many cases, in some case it is innappropriate or meaningless to try and conclude that an agreement resulted from one party making an offer and the other accepting that offer. Brambles Holdings v Bathurst City Council (2000-1) 53 NSWLR 153 The court of appeal held in this case that on the facts, a contract did arise as the result of an offer and acceptance. However, Butler Machine Tool Co v Ex-Cell-O Corp [1979] 1 All ER 965 Butler Machine Tool Co Ltd made and sold machine tools. They sent a letter to Ex-Cell-O on May 23 1969 offering Ex-Cell-O some new machinery for 75,535.

With it, was Butler's standard contract terms. It included a price variation clause, so their manufacturing costs went up, that price rise would be passed on to ExCell-O. Ex-Cell-O replied on May 27 and said they would order the machinery, but on Ex-Cell-O's own standard terms. Ex-Cell-O's standard terms did not have a price variation clause. Butler replied on June 5. It replied on the tear-off slip from Ex-Cell-O's terms. At the bottom of this slip it read, "We accept your order on the terms and conditions stated therein." But Butler added a letter reasserting that the deal was being made under Butler's own terms, from the May 23 letter. A while later, nothing further had been said, and Butler delivered the machinery. They asked for 75,535, plus 2,892 according to their price variation clause. ExCell-O refused to pay the extra. Butler sued Ex-Cell-O. The court of Appeal in England ruled in favour of Ex-Cell-Os order represented a counter-offer, which was accepted by Bulters return of the tear off slip. The notation on the tear off slip was interpretated as being simply a reference of price and identify of the machine only and did not ammount to a reaffirmation of the terms and conditions of the original offer. Goodman v Cospak [2004], Master Macready identified 3 approaches that have been used in the battle in the forms of the cases: 1. So-called last shot doctrine (that is the contract is on the terms of the last document preoffered provided the other party doesnt object to those terms): British Road Services v Arthur V Crutchley 2. The so-called higher status doctrine (the form with the highest status establishes the form of the contract: Transmotors v Robertson, Buckley [1970] 1 Lloyds A confirmation of an offer to transport good which contained terms that differed from the offer was held to be of higher status then a response to he confirmation , in the form of an invoice, even though the invoice refferred to the standard terms of the original offer. 3. So called global or synthesis approach: Toyota Motor Corporation v Ken Morgan Motors [1994] 2 VR 106 existence is established entirely

without any reference to offer and acceptance. That parties have agreed to incur reciprocal promissory obligations