Commercial Law

The issue between Brian and Amy is if there was an enforceable contract and if after Brian verbally offered to sell the car for $10,500, was Amy’s response was a mere inquiry or a counter-offer? While Amy and Brian were negotiating terms a contract was not in place. As per Hyde v Wrench (1840), a counter-offer does not amount to acceptance but is a rejection of the original offer, which then lapses. However, a mere inquiry is not an acceptance or a rejection, therefore the option of either accepting or rejection is still available as per Stevenson, Jacques & Co v McLean (1880). Amy’s response included ‘but I will need a roadworthy’ indicates that she is only prepared to agree to the terms that are different to Brian’s original offer. To determine if a response is a counter-offer or a mere inquiry a reasonable person test is undertaken. As per Poweiga V Daley (1985) ‘the effect (of the response) on a reasonable person standing in the offeror’s shoes’. As per the postal rule indicated in Adams V Lindsell (1818), the acceptance of the offer is deemed to have occurred when correspondence is properly posted, not when received by the other party.

In Brian and Amy’s scenario, Amy made a counter-offer as soon as she posted a letter to Brian (which negated his original offer of $10,500). In turn, Brian posted his new offer on the same day. As both letters were sent in ignorance of one another’s offers, there can be no acceptance of either offer. With no acceptance, there is no enforceable contract. As indicated in Tinn V Hoffman & Co (1873), ‘There was no contract. Neither letter amounted to an acceptance because both had been sent in ignorance of the other parties offer and, therefore, could not be an acceptance of it.’ However had the communication been via an instantaneous or near instantaneous method (email or fax), the offer/counter offer/acceptance or refusal is deemed to have occurred at the time of receipt of correspondence, not when it was sent. (Entores Ltd V Miles Far East Corp, 1955)

Based on the above information, Amy’s query was to be deemed a counter-offer and the additional correspondence between Brian and Amy did not result in an acceptance of any offer causing no enforceable contract. Therefore in this instance, Amy is not obliged to go through with the car purchase. To provide a more a thorough analysis of Amy and Brian’s scenario, more information would be advantageous in determining the outcome of this scenario. Further information could include; how did Amy find out how Brian was selling his car? Was there a time frame on Brian’s original offer? These questions are relevant in determining if Amy may be liable to purchase Brian’s car. -How did Brian advertise his car was for sale?

If Brian advertised his car in a local newspaper/online, he has ‘invited to treat’ a wide range of potential customers. Brian is not obliged to sell the car to Amy or anyone else nor is Amy or anyone else obliged to buy the car from Brian. (Grainger & Sons V Gough, 1896). This would also be the case if Brian owned a car dealership. As per Pharmaceuticals Society (GB) V Boots Cash Chemists (1952), displayed goods with clearly marked prices are also regarded as an invitation to treat; therefore no obligation exists for any potential party. -Was there a time frame on Brian’s original offer?

If Brian/Amy had set a time frame around their offer, this would have helped clarify if a contract was in place, (Dickinson V Dodds). Determining if a contract was in place is the main issue in Amy and Brian’s case, any steps that are taken to improve the communication between the two of them would have made it easier for them both to determine if an agreement was in place and not be in this situation. Even if the above missing information was available, there was no acceptance of an offer; therefore there was no enforceable contract between Brian and Amy.

Scenario Two
The issue that Sam has in his scenario with Peter is was there an enforceable agreement? The handwritten agreement on a piece of wrapping paper contained both names and the price agreed upon. The two clauses in the handwritten agreement, can determine if what Peter and Sam have signed is in fact an enforceable agreement. The handwritten agreement can be considered to be a conditional acceptance as the first clause is ‘subject to’ a clause being completed. As per Masters V Cameron (1954), the court held the agreement was not in its final form, and not enforceable. However, this case the clause was subject to the solitors acceptance of the clauses. In Sam and Peter’s scenario, the detailed agreement was to be identical to the handwritten agreement already signed. Sam may argue that as per Veivers V Cordingley (1989) –‘while accepting that an offer can ordinarily be withdrawn at any time before acceptance, the court found that, where the offerree has already started doing the acts which, when completed, will constitute acceptance of the offer, the offer becomes irrevocable.’ As Peter’s solicitor has not yet drawn up the formal agreement, does this indicate that there is no acceptance, and therefore no agreement? The next query in this scenario is the handwritten agreement although ‘subject to contract’ in its final form?

‘Where parties have reached finality and do not intend to alter their agreement, but want to defer performance of all or part of it until it has been incorporated into a formal document’ (Graw. S – An Introduction to the Law of Contract, 7th Edition. Page 85). As both Sam and Peter have actually reached finality in their agreement, they have a binding and enforceable contract. ‘Subject to contract’ clauses may defer the obligation that Sam has to Peter (ie. Making payment of the deposit), however the write up of the formal agreement, does not change nor vary it, therefore both parties are bound. In Niesmann V Collingridge (1921) the reference to the formal agreement acknowledging the same terms in the handwritten agreement was to be signed before Sam would make an initial payment. The formal document was not intended to alter what the parties had already agreed upon, and finality had been reached. Unfortunately for Sam, as per ‘Geebung Investments Pty Ltd V Varga Group Investments (No 8) Pty Ltd (1995), “The mere fact that the parties contemplate the execution of a formal contract, subsequent to an informal agreement, does not mean that the informal agreement is not presently binding”.

If Sam decides he wishes to revoke his offer, due to an informal agreement, Peter will argue that acceptance has been made. The informal agreement may be written on a piece of wrapping paper; however it does contain the three essential elements for an agreement to be binding, the parties, the subject matter and the price, (Hall V Busst (1960). In the scenario, Peter and Sam agreed upon price and ‘other details’ whilst negotiating. The ‘other details’ that were agreed upon, could potentially help Sam argue that there was no acceptance of the offer. The other piece of missing information in this scenario is there is no time frame based on the first clause of the informal agreement. As the payment and transfer of ownership is dependent on the formal agreement being signed – how long is Sam’s acceptance valid for? Without the formal agreement, funds cannot be transferred and the change of ownership will not take place.

‘Reasonable time’ will differ from case to case and will depend on what is deemed to be fair by the court. In Ballas V Theophilos (No 2) (1957), the High Court deemed the agreement had lapsed, due to the fact the survivor took sixteen months to exercise his option. In the Peter and Sam scenario, it has only been a few days. This amount of time would not constitute a lapse of the agreement. The value of the business and its assets would not have fluctuated over a ‘few days’. My advice to Sam is based on the Queensland Supreme Court ruling in Commercial Bank of Australia Ltd V GH Dean & Co Pty Ltd (1983), if he argues that no contract exists as the first clause of the handwritten agreement was not met, the court will rule in favour of Peter as the parties have agreed on all matters in the informal agreement and the intention of a written contract is a mere formality.

References

-Graw. S – An Introduction to the Law of Contract, 7th Edition. Cases Referred to:-
-Hyde v Wrench (1840)
-Stevenson, Jacques & Co v McLean (1880)
-Poweiga V Daley (1985)
-Adams V Lindsell (1818)
-Tinn V Hoffman & Co (1873)
-Entores Ltd V Miles Far East Corp (1955)
-Grainger & Sons V Gough (1896)
-Pharmaceuticals Society (GB) V Boots Cash Chemists (1952) -Dickinson V Dodds
-Masters V Cameron (1954)
-Veivers V Cordingley (1989)
-Niesmann V Collingridge (1921)
-Geebung Investments Pty Ltd V Varga Group Investments (No 8) Pty Ltd (1995) -Hall V Busst (1960)
-Ballas V Theophilos (No 2) (1957)
-Commercial Bank of Australia Ltd V GH Dean & Co Pty Ltd (1983)