Contract Week 1 Offer

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2 Contract Week 1 Offer What is a contract An agreement or set of promises that the law will enforce. There must always be AT LEAST one promise involved to form a contract. Elements of Contract: Agreement (Offer & Acceptance) Intention to create legal relations Consideration Certainty Whenever there is a contract between two people, all of the above elements MUST be discussed and explored. It is rare that there is a scenario where each of the requirements are controversial. Offer An offer may be described as the indication by one person to another of his or her willingness to enter into a contract with that other person on certain terms. What type of communication is required to constitute an offer? Any form of communication, from media, orally or it can even be made without any verbal communication. For the latter, eg. taking public transport or entering a car park without reading the terms and conditions. What if the offeror s conduct instigates a contract with an offeree even if there is no intention to enter into one? The conduct has to be judged from the perspective of a reasonable person and how that specific conduct that was thought to initiate an offer. Terminology: Offeror = the person who makes the offer Offeree= the person to whom the offer is made (i.e. who may accept or reject the offer) Bilateral offer = something offered with a promised return of goods or services. In this kind of offer, both parties make a promise. Unilateral offer = A contract in which an offer is made in the form of a promise to be accepted by the performing of an act. This is the case when the offeror offers something to the offeree in promise for doing something (act of performance). A unilateral offer can be made to more than one person, including the world at large (i.e. anyone who completes the requirements to fulfil the promise is entitled to the promised goods/services these offers are called general offers ). Case Study: Carlill v Carbolic Smoke Ball (1893) Carbolic Smoke Ball Co. promised a 100 pound reward to any person who contracts influenza, colds after having used the ball three times daily for two

3 weeks according to the printed directions supplied. During the last epidemic of influenza, many thousands of smoke balls were sold and in no case was the disease contracted by those using the balls. To show intent, the company deposited 1000 pounds with the Alliance Bank, showing their sincerity in the matter. Mrs Carlill used the smoke ball as directed and contracted the flu. She claimed to receive the money, but the Carbolic Smoke Ball Co. argued in relation to offer: The advert was not a promise; was a mere puff (i.e. they did not intend to contract) Too vague No time limit No means of checking or monitoring use No offer can be made to the world at large. Other arguments: Intention: no intention to be legally bound (intertwined with offer) Acceptance: Mrs Carlill did not communicate her acceptance Consideration: no consideration moved from Mrs Carlill Certainty: offer terms were too vague and open ended. Case Study: Gibson v Manchester Council [1979] Mr. Gibson was a tenant in a council owned house in Manchester. The council was governed by the conservative parties during the 1970s, and so the corporation decided to sell the council houses to the existing tenants. There was communication from the council to Mr. Gibson saying that the corporation may be prepared to sell the house to you for 2725 pounds (less 20%). A statement followed in the information notice saying This letter should not be regarded as a firm offer of a mortgage if you would like to make a formal application please complete the enclosed application form. Mr. Gibson completed the application form and returned it. Both the trial judge and appeal court voted for Mr. Gibson, whereas the House of Lords took the view that the council s letter to Mr. Gibson was not an offer, meaning Mr. Gibson s application to the council was the offer, but was not accepted by them. Ticket Cases: Tickets pose problems for identification of the offer (and acceptance), for a number of reasons. For instance: Different types of tickets Some tickets contain terms; some do not The process of contracting and ticketing vary The usual approach is that the ticket is an offer, which the passenger can accept or reject after he or she has had reasonable opportunity to accept or reject. Case Study: MacRobertson v Commissioner of State Tax (WA) (1975) The issue was whether the airline ticket issued by the MM was chargeable with stamp duty as an agreement or a memorandum of agreement (in order words contract documents ). The ticket contained conditions giving MM the right to cancel a flight of booking without incurring any liability. The courts held that the ticket did not record the terms of an agreement, but rather the terms of an offer, which was subsequently accepted by conduct. However, the reasoning differed.

4 The passenger would be entitled to a refund as so much a fair that is proportionate to the fare paid. The individual justices held that: Barwick CJ Sweeping exemption left no room for obligation to carry the passenger. The passenger makes the offer by presenting it at the airport, and the airline accepts it by carrying them. Stephen J A ticket constit utes an offer by the airline capable of acceptance or rejection by the passenger when he/she has had a reasonable opportunity to read the condition. Thus, the ticket only records terms of an offer. Jacobs J No contract existed based on reasons advanced by Stephen J and Barwick J. Invitation to Treat: An offer must be distinguished from an invitation to treat. What is central to an offer is the will or intent of the offeror to be legally bound by the terms of the offer. An important consequence of the offer is that the offeree has the power to transform the offer into a contract by accepting the offer. There cannot be a contract unless there is an offer. A purported acceptance of a statement that is not an offer, is not an acceptance in law, and does not lead to a contract. Such a statement is more than likely going to amount to the offer. The statement that preceded it is often called an invitation to treat. Case Study: Pharmaceutical Society v Boots Chemist [1953] Two customers in a pharmacy took items off the shelf and put them into a shopping basket and paid at the cash register at the exit. The pharmacist station was near the shelves and thus the pharmacist could oversee everything. The Pharmaceutial Society, as the organization responsible for enforcing provisions of the Pharmacy and Poistons Act 1993, brought this action as a test case against this type of retailing. The court found that goods on a display are invitation not an offer and the customer makes an offer when they take the goods to the register. Auctions: The general rule is that the bid that a person makes is the offer, and thus anything preceding that amounts to an invitation to treat. The advertisement for an auction is the invitation to treat, the bid is the offer and the final hammer is the acceptance of that highest bid/offer. Case Study: AGC (Advances) Ltd v McWhirter (1997) The plaintiff put a property up for sale at auction subject to a reserve. The highest bid of $70,000 was below this reserve. The plaintiff then instructed the auctioneer to withdraw the reserve and a bid of $70,500 was made by defendant. The plaintiff did not accept the bid (they had concerns about defendant's ability to pay). The property was then knocked down to the earlier $70,000 bidder. The defendant claimed a contract had been formed when they made the highest bid. The justice Holland J held that bidders at auctions make offers that may or may not be accepted. Withdrawal of a reserve does not change this - it does not constitute a definite offer to sell to the highest bidder; an auction is merely an invitation to treat.

5 Tenders: The general rule is that each tender is an offer to, for example, a public authority. Anything preceding that amounts to an invitation to treat. There are exceptions when there is bad behaviour on part of the tender. A tender may become an offer if the party were to say they would accept the highest bid, for example, whereas normally it is just an invitation to treat. Case Study: Harvela Investments v Royal Trust Co of Canada (CI) Ltd [1986] An example of this is RTC in Canada where RTC owned shares in Harvela Investments Ltd. RTC wanted to sell those shares and invited two particular parties to make tenders for the purchase of the shares. One of the two persons were Harvela Investments Ltd and RTC specified in its invitation to make tenders that it would accept the highest offer. RTC did receive tenders from both parties. Harvela offered $2,175,000 Canadian dollars and the other party offered $2,100,000 or $101,000 dollars more than Harvela. Thus, the other party made a referential offer to RTC. RTC accepted $2,276,000 Canadian dollars. Harvela was unhappy as he offered the highest fixed price and found himself entitled to the shares. The House of Lords agreed with Harvela and ordered RTC to sell the shares to Harvela. The House of Lords thought the RTC was acting in poor faith and found that the invitation to treat/buy tenders was the offer and that Harvela s tender was the acceptance as RTC s received referential offer was nullified and thus Harvela s offer was the only one existing, and thus the highest bid. Case Study: Hughes Aircraft International v Airservices Australia (1997) The aviation authority of Australia invited tenders for air traffic control services in Australia. One company was from USA, however the aviation authorities wanted the Australian company contesting to win to bring in more Australian jobs. Thus, the aviation authority informed the Australian company on the terms of tenders provided by the USA company. Therefore, the Australian company was able to make a higher tender than the Californian company. The justice did not deviate from the general rule of tenders but found that: The parties (aviation authority and Californian company) entered a process contract, whereby the parties came together at the start and made a preliminary agreement about how the tender process was to occur. This agreement, even though not contractual, governed the contractual process and the parties had to stick to their preliminary agreement. Two contracts existed (one of a process contract and the other the actual contract). Termination of an Offer: Withdrawal or revocation of an offer can occur at anytime before acceptance. An offer that is neither accepted nor rejected does not stay valid for eternity, rather it elapses after a reasonable period of time a phrase determined by the circumstances of the case at the discretion of the court. Withdrawal is effective when it reaches the offeree. Communication can be difficult in determining whether the offer is susceptible to revocation as when someone says the offer is open to 1pm tomorrow, it does not openly indicate there is a promise that the item can be bought before 1pm tomorrow.

6 In general, the offeror can revoke the offer even though the offeror has promised not to revoke it. A promise to keep an offer open for specified period is not binding and can be revoked at any time prior to the expiration of the period, unless the promise is supported by consideration (for example, money has been paid for the return of something the next day). Commencement nor completion, where expenses or detriments being incurred by the offeree in performance of the stipulated act, means revocation of offer is still permitted unless any consideration has been provided by the offeree to the offeror in terms of the promise over not revoking the offer. Consideration is not required for a deed. Case Study: Goldsbrough Mort v Quinn (1910) The defendant made an offer to the plaintiff to sell his land to the plaintiff for thirty shillings. The offeror gave the plaintiff an option to either accept or reject the offer, and in return for the defendant s promise not to revoke his offer, the plaintiff paid five shillings. A few days later, the defendant then said to the plaintiff that he was no longer willing to sell his land. Within the week from the making of the offer (i.e. still valid time), the plaintiff accepted it even though the defendant had said he was no longer willing to sell it. The High Court held that there was a binding contract for the sale of land between the parties (order for specific performance) and ordered the defendant received thirty shillings in exchange. One justice found that when the option was granted, there was already a contract for the sale of land under a condition that the condition for the offeree was up for him to take or not. The plaintiff accepted the revokable offer when he accepted it. Revocation of a unilateral offer: Case Study: Mobil Oil v Wellcome Intl Pty Ltd (1998) There was an announcement by Mobil to franchisees that if they scored >90% in the Circle of Excellence program for 6 years would entitle them to free extra years on the franchise. The plaintiff proceeded to get such scores, but the offer was revoked as well as the entire benefits program. The program, meant to last for 6 years was revoked after 4. The franchisees lost the case as the Full Court found that the announcement was too vague and that there was no clear promise, only that a plan was coming in the future. Thus, because there was no offer, there was no need to revoke it. The Full Court went on to say that even if Mobil s statement at the convention had been an offer, Mobil was still free to revoke the unilateral offer after 4 years. Mobil could revoke it as long as the action was not completed by the franchisees. It is possible for the plaintiff to seek an injunction preventing revocation of offer or damages for breach of contract of process. The franchisees did not suffer any detriment as they were already acting according to the terms of a previous contract as to the standards the franchises should fulfil on behalf of the company.

7 Termination of Offer: Rejection and Counter Offers A counter offer occurs when, while both parties are happy to enter a contract, the terms of that contract are not mutually pleasing. Therefore, when a counter offer is made to the original offer, the former symbolises a rejection of the original offer for a contract to be valid both parties must agree to the terms of the contract. It is then the job of the initial offeror to accept or reject the counter offer as his/her original offer becomes nullified. The offeree can not accept the initial offer that he has already rejected. If the offeree was to say something like would you prefer paying x, the initial offer is not rejected and still open for acceptance. Case Study: Stevenson, Jaques & Co v McLean (1880) The defendant held documents of title to certain quantities of iron and offered to sell them to the plaintiff for 40/- cash, indicating that the offer would be held open until the following Monday. The plaintiff was a broker and would only buy once they had lined up a buyer to take from them. A buyer of goods always wants to pay later rather than on delivery to sell them on. The plaintiff replied saying he was happy with 40 shilling per tonne but asked if he would accept 40/- for delivery over 2 months. The defendant did not reply and sold the iron to another party. The plaintiff said that he was happy to accept the conditions. The defendant who no longer had the iron said that there was no longer a contract as the telegram reply was a counter offer. The court found the telegram to be an inquiry rather than a counter offer, so the original offer was upheld. Termination of Offer: Lapse of Time and Death of Offeror The offeree can no longer accept the offer once they are aware of the death of the offeror. When consideration is present, however, the offeree can still accept the offer before the deadline specified in the offer. If the offeree dies, his/her heir can still accept it before the deadline. The offeror must not be necessary for the contract (i.e the presence of the offeror should not be replied upon to fulfil the contract). The general rule is that upon the death of a party, contractual liabilities pass to that person's personal representatives. This does not apply if the contract is for personal services, which require the exercise of personal skill and judgment. On the other hand, an offer is generally considered to lapse on the death of the offeror. Case Study: Fong v Cilli (1968) A vendor and one of two joint purchasers of a parchel of land signed the contract of sale, however, before the other joint purchaser signed the contract, the vendor died. The purchaser was aware of the death of the vendor, before signing the contract. The court held as the purchaser was aware of the death of the vendor, the contract lapsed and cannot be accepted. Case Study: Laybutt v Amoco Australia Pty Ltd (1974) Deathbed granting of an option by Mr Laybutt for $10 on $42,000 property to sell his property to oil company, Amoco. Option specified to be exercised by giving notice of exercise to grantor or his agent but did not specify an agent and that payment of the deposit was to be made to me, that is, Mr Laybutt. Amoco sought to exercise the option after Laybutt s death by giving notice to his widow,

8 the executrix, prior to probate being granted. They also sent a chq for $42,000 to the solicitors acting for the deceased estate. In this case, Gibbs J took the view that an option to purchase is a contract to sell upon condition. Unfortunately he qualified his view "at least one in a form similar to that in the present case. Option holder has the right to become the purchaser upon fulfilling the stipulated conditions, as long as any conditions relating specifically to the grantor are still able to be fulfilled past his death. Termination of Offer: Failure of Condition and Changed circumstances Offeror cannot foresee future circumstances. Case Study: Dysart Timbers Ltd v Neilson [2009] Neilson was obliged to pay $300,000 to Dysart. The Supreme Court debated whether to allow an appeal, and during the process, Neilson offered $250,000 to Dysart on the grounds that if it was accepted by Dysart, Neilson would withdraw his appeal. Neilson s offer had a deadline; however, before the deadline, the Supreme Court informed both parties that it had granted leave to appeal. Now, the settlement offer between Neilson and Dysart became much more controversial the possibility of a successful appeal was threatening to Dysart. Dysart immediately accepted Neilson s offer still before the deadline specified in his offer. However, Neilson said that the offer had lapsed with the change in circumstances the information given by the Supreme Court re. an appeal. The Supreme Court took the view that there was a contract and that it had not lapsed Dysart was still able to accept the offer because Neilson soon after the offer made a mistake by not specifying in the offer those conditions that a Supreme Court decision would terminate their offer. The conditions of lapse were found by the court to be required. This was spoken by Blanchard J. Estoppel: Estoppel arises if the offeree has acted to their detriment on an assumption that the offer will not be revoked.

9 Contract Law Week 2 Acceptance Acceptance An acceptance is an unqualified assent to the terms of an offer. Acceptance must result in an actual consensus between the parties or a meeting of the minds, meaning they totally agree to all the terms of the contract. Under a subjective approach, no contract is formed unless there was a real consensus between the parties. An objective approach, on the other hand, looks only to the external manifestations of consent, disregarding the offeree s actual state of mind through the eyes of a reasonable person. Conduct constituting an acceptance: If an offeree who behaves in such a way that a reasonable person would think he/she was accepting the offer and induces the offeror with him/her on that basis will be bound by law under both subjective and objective approaches. A signature represents an absolute acceptance to all terms and conditions of a contract, whether those terms would objectively be deemed reasonable or not. Case Study: Smith v Hughes (1871) APPEAL, UK, Queen s Bench Hughes had purchased a quantity of what he thought was old oats having been shown a sample when in fact the oats were new. The defendant wanted the oats for horse feed and new oats were of no use to him, and refused to pay for them. The plaintiff was aware of the mistake of the defendant but said nothing. The plaintiff brought an action against the buyer based on mistake and misrepresentation. Rejecting that one man should merely look to what people subjectively intended, Blackburn J said that if, whatever a man s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belied enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party s terms. Both actions failed. The action based on misrepresentation failed as the seller did not lead him to believe, by his conduct, that they were in any instance old oats. The action of mistake failed as the court found that, to a reasonable person, it could be assumed, by tasting the new oats, the buyer was intending to buy new oats. Was there anything in the facts that show that there was a promise to sell old oats? [NO] Is passive agreement of the seller enough to void a contract? [NO] If a buyer has a chance to inspect goods, and purchases those goods based on his own judgment, then as long as the seller does not induce the buyer to buy the product, he is not liable. There was no meeting of the minds. Case Study: Taylor v Johnson (1983) APPEAL, AUS, HIGH COURT This case involved a contract for the sale of 5 acre land. The vendor stipulated the price of $15,000 for the property. The vendor made a mistake in the contract

10 and changed his invitation to treat to $15,000 per acre. The purchaser took the view that there was a binding contract and sued Johnson. Whether mistakes can lead to legally binding contracts. [In this case, NO, because the purchaser knew what was going on]. The High Court held that there was no binding contract (seller could dissent in equity), as the purchaser was aware of the vendor s mistake, and instead took advantage of the vendor by pressuring him to speed up the sale process. Case Study: Fitness First v Chong [2008] APPEAL, AUS, SUPREME COURT Ms Chong signed an application form to join a gym on a 12-month membership without first reading the form. She was unaware that is stipulated that she was liable to pay a $200 fee if she cancelled the membership within the first two months. A Tribunal Member held that the parties did not have the requisite consensus ad idem required for a valid contract and therefore Ms Chong was not liable to pay the fee. The decision was overturned on appeal, with Harrison AsJ holding that the Tribunal member erred in law when he stated that a valid contract requires that the parties have the consensus ad idem in that each full know and understand the terms of their agreement. Whether a contract signed unknowing of the terms and conditions is binding. [YES] By signing the form, Ms Chong had manifested her assent to the printed terms and it was irrelevant that there was no true consensus ad idem between the parties. Consciousness of the offer: In the case of bilateral contracts formed verbally or in writing, it will usually be clear that the offeree has deliberately accepted the offer. This is different to unilateral contracts, as a unilateral contract will only arise where the acts required for acceptance are performed on the faith of the offer. Acceptance must be in response to an offer (i.e. one cannot accept in ignorance of an offer). Case Study: Crown v Clarke (1927) APPEAL, AUS, HIGH COURT A 1000 pound reward was offered for information leading to the arrest and conviction of the person who murdered two police officers. Clarke and Treffene were arrested and charged with one of the murders. Clarke gave a statement to clear his name and gave evidence, which led to the conviction of Treffene and Coulter. Clarke claimed the reward but the Crown refused to pay it on the basis that he did not make the statement to claim the reward but rather to clear himself of the charges laid against him. Clarke claimed the Crown was under contractual obligation to pay him the reward, but he was ultimately unsuccessful in establishing a contract. Although Clarke s conduct would have led a reasonable person to believe he was assenting to the Crown s offer, the principle of estoppel described in Smith v

11 Hughes (1871) could only be used against Clarke to prevent him from denying the existence of the contract. It could not be used by Clarke to prevent the Crown denying the existence of a contract. Did the information supplied by Clarke amount to acceptance of the reward, or was it just to clear his name? [CLEAR NAME] The court held that Clarke did not act on the faith of, or in reliance upon the reward offer (Stark J), and thus was not entitled to a reward. In order for his claim to the reward to be valid, the information needed to be given in exchange for the offer. Higgins J asserted Clarke s motive to give evidence was to clear his own name and the charge of murder. Method of acceptance: If an offer prescribes an exclusive method for the communication of acceptance, then only an acceptance communicated by that method will be effective. An offeror may also expressly or impliedly dispense with the need for communication (eg. accepting the offer to walk from Melbourne to Sydney but does not tell offeror until completion). In the case of a unilateral offer, for example, it is the doing of the stipulated act that constitutes acceptance of the offer and the offeror implicitly dispenses with communication of acceptance. Silence as acceptance Contract cannot be forced on the offeree by stipulating silence as the prescribed method of acceptance. One cannot unilaterally define the meaning of another party s conduct. The offeror can, however, prescribe the means of acceptance. After a reasonable period has elapsed, silence is generally seen as a rejection and not an acceptance of the offer. Acceptance may not be inferred from silence, but conduct may amount to acceptance when, for example, one party takes benefit from that silence. Case Study: Felthouse v Bindley (1862) TEST, UK, COMMON PLEAS Defendant Paul Felthouse offered to buy a particular horse from his nephew and stated (in a written offer) that if I hear no more about him, I consider the horse mine at 30 15s. His nephew did not reply but instructed the auctioneer, Bindley, not to sell the horse. Bindley mistakenly sold the horse. Felthouse sued the auctioneer for conversion. To succeed in an action for conversion Felthouse needed to demonstrate that he owned the horse at the time of the sale; to do this he needed to prove that there was a contract between himself and his nephew for the sale of the horse. Can silence be considered as acceptance? [NO] Does failure to reject an offer constitute an acceptance? [NO] Can you impose an obligation on another party to say something in order to avoid acceptance? [NO] The court held that Felthouse could not impose a sale of the horse on his nephew unless he chose to comply with the condition of writing to repudiate the offer (Justice Willes).

12 There was no communication of acceptance before the sale and consequently, while the nephew may have intended to sell the horse to his uncle, there was no contract of acceptance formed to make Bindley liable under conversion. Acceptance inferred from conduct: Conduct may amount to acceptance. The offeror will be bound if he dispenses with the need to communicate the acceptance of his offer. Case Study: Empirnall v Machon Paull (1988) APPEAL, AUS, SUPREME COURT The plaintiff, a property developer, retained architects, Machon Paull, to draw plans, obtain approvals and do other work in connection with a property development. When the architects requested a progress payment and the execution by Empirnall of a contract for the works, they were told to submit a progress claim but were informed that Mr Jury did not sign contracts. Machon kept working and Empirnall kept making payments. Empirnall went broke and owed Machon considerable sums. Although Empirnall Holdings expressed that their director, Mr Jury did not sign contracts, the fact that the plaintiff relied on this statement supported the defendant s case the objection was not to the terms and conditions but rather to the manner of acknowledging them. Is silence sufficient to create a contract? [NO] Can that conduct of silence constitute right to benefit from goods/services? [NO] The court, spoken by McHugh J, held that 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. Case Study: Brambles v Bathurst City Council [2001] APPEAL, AUS, SUPREME The council gave authority for Brambles Holdings to manage the waste. Brambles charged a fee from the customers and managed the solid waste disposal. Before the initial contract expired, there were negotiations about the renewal of the contract. The council informed Brambles that it had resolved to increase liquid waste disposal fees to 1.3c per litre, increasing by a further 1c each quarter up to 6c per litre. Brambles was instructed to charge the increased fees and remit the additional income to the Council. Brambles replied that it was not viable for Brambles to continue to provide a liquid waste disposal service at the rates it was then receiving and asked for an increase in its remuneration. Communication ceased and the council never responded to Brambles; hence, they increased the fee and kept all additional revenue. The council demanded the extra revenue, but Brambles argued no contract existed under which Brambles was obliged to pay the money to the council for the purpose of building a waste plant. Brambles also claimed that there was no offer because the letter was written in commanding language and that the general commercial waste specified by the council to be disposed of did not include liquid waste.

13 Did the letter stating the terms of the waste treatment plant fund indicate there was no contract? [NO, AN OFFER] Did Brambles conduct imply acceptance to the offer? [YES] The NSW Court of Appeal found that there was acceptance by conduct because of the council s conditions. Since Brambles took advantage of one term (assent to charge more), they were therefore bound to all terms of the contract. Communication of acceptance: An acceptance generally has effect only when communicated to the offeror. An offeror may waive the notification requirement, which often occurs in the case of a unilateral contract. In a unilateral offer, a contract can only be accepted by performing the stipulated act, but does not involve the offeror being aware of the performing of the action. In Carlill v Carbolic Smoke Ball Co, the smoke ball company waived the offer for notification by advertising their offer to the whole world. An offeror may expressly or impliedly dispense with the need for actual communication and will commonly do so in one of two ways. Firstly, the offeror may agree to treat the doing of an act as an effective acceptance. Secondly, the offeror may treat the dispatch of an acceptance by a particular method as effective, whether or not the acceptance is received by the offeror. Exceptions: Unilateral offer (Carllil) Waive the right via conduct (Empirnall & Brambles) Case Study: Latec Finance v Knight [1969] APPEAL, AUS, SUPREME COURT Knight wished to hire-purchase (short payments over time amounting to full payment and ownership) a television from the defendant, Latec Finance. The company provided a form, which Knight filled in and returned. The document was expressed to be the offer from Knight to the company. The company never responded. The TV was delivered to Knight and one week later, the finance company noted their acceptance of the offer on the form, but Knight was not notified. A few weeks later when the product was faulty and Knight sought to return it, thereby revoking the contract before acceptance. Can an offer be revoked if communication of acceptance has not been given? [YES] The NSW Court of Appeal, Jacobs J.A, held that this is not a case where knowledge of the agreement could be inferred from the conduct of the finance company. The court considered the possibility that Knight waived the requirement of communication, but there was no evidence proving the finance company notified Knight of the contract. The ordinary rule is that the offer has not been accepted until acceptance has been communicated. Any variation of this rule must be made clear in the offer, generally in one of two forms: Acceptance may be provided by the doing of an act without any communication.

14 Offer may expressly or impliedly provide for acceptance to be communicated in a particular way so that acceptance is deemed communicated when that manner is adopted, whether or not actually received. While the finance company claimed that the signing of the document was an effective acceptance, the court found that there was no clear language to support this view as a consumer needs to know when a contract is sealed, and thus the appeal was dismissed. Postal Rule: Adhering to this rule, contracts are formed at the place where acceptance is posted, and the contract can also be formed when the acceptance is posted, even if it is received some time later or is lost in the post. The rule requiring actual communication of an acceptance prejudices the offeree, who has no way of knowing whether the acceptance has reached the offeror and therefore no way of knowing whether a contract has been formed. The postal rule, on the other hand, places the offeror in a difficult position because once the acceptance is posted, the offeror is bound without knowing it. If a letter of acceptance is lost in the post, the offeror may act on the assumption that there is no contract. If the offeree sent a good/service to the wrong address or not enough postage, then the postal acceptance rule does not apply and therefore no contract can be imposed. Case Study: Adams v Lindsell (1818) Lindsell wrote to Adams on 2nd of Sep 1817, offering a certain quantity of wool. Adams, offeree, then posted letter of acceptance on the 5th of Sep. In usual order of things, Lindsell would have received letter by the 7th Sep. But, for some reason, the offeror received the letter on the 9th of September. On the 8th of September, not having heard from the offeree, sold the wool to a third party. Adams sued for breach of contract. Lindsell argued there was no contract as no acceptance received. Court held a contract existed when offeror permits acceptance by post and posted by offeree. Postal rule protects offeree, but not offeror. Offeror however can protect himself against Postal Acceptance Rule by stipulating any method of acceptance e.g. provision for acceptance only occurring when received by Offeror by a certain date. Case Study: Brinkibon v Stahag Stahl Und [1983] APPEAL, UK, HOUSE OF LORDS The offeree, Brinkibon (London) wanted to sue Stahag (Austria) for breach of contract over the sale of a quantity of steel bars. Acceptance of Brinkibon s offer had been by way of telex from London to Austria. When came to question, the House of Lords had to determine which jurisdiction could enforce the breach. The answer was whether the postal rule applied if it did then the contract would have been accepted in England (as the plaintiff claimed); if not, the contract would be formed where the acceptance was received in Vienna. Does the postal rule apply for telex messages? [NO]