Sample Law Assignment: Contract Law

Introduction

The Key question is whether Adam has any contractual rights against Charles or Barbara. The following will address the business interactions between Adam and Barbara and Adam and Charles to establish whether the parties had any obligations to uphold, or whether they were contractually bound at any point in their communications.

Adam and Barbara

The key issues regarding Adam's dealings with Barbara include whether all the essential requirements of a contract were satisfied (namely: offer, acceptance, consideration and intention), whether Barbara's announcement over the radio was sufficient for the revocation of her offer, and whether Barbara was bound to hold the apples until 30 October 1999 as Adam requested.

The rule established in Hughes Aircraft Systems International v Airservices Australia¹ is that if a party accepts a tender by replying, unless it is specified in a clause, they are not contractually bound until the person who requested the tenders formally accepts their offer. Adam's first contact with Barbara on 25 October 1999 appeared to be in the form of a tender. It was not a direct offer to buy, as despite saying "I agree to buy…", no price or consideration existed at this point. Adam merely stated the quantity of apples he wanted, and asked Barbara to "advise her terms of sale". This request for tenders was an invitation to treat. Adam was not bound to accept the offer Barbara then submitted of $1000 per tonne delivery within 14 days². If he did accept the offer, he and Barbara would have been bound, and the contract would have been complete and therefore, now enforceable. However, Adam did not accept her offer, as he told her he would prefer $1000 per tonne delivery within 7 days. Therefore, at this point, Barbara had made an offer, but Adam had not yet rejected it or given his acceptance.

The question that arises now is whether Barbara's radio announcement on 27 October indicating she had sold all of her stock was sufficient revocation of her offer, or was Adam free to accept it. The rule established in Dickinson v Dodds³ provides that once the revocation of an offer has been communicated to the offeree, the offeree can no longer accept the offeror's offer. This case also established that revocation does not have to be formally or explicitly communicated, nor does it have to be communicated personally by the offeror to the offeree. On the one hand, Adam may not have realised that Barbara's comment meant that she had also sold the stock she promised to hold for him, and so when he accepted, he honestly believed that the offer was still open. It was possible for Adam to not have even heard the announcement since it was not specifically for him, and so his acceptance would have been binding since Barbara did not communicate to him her revocation. On the other hand however, in Dickinson v Dodds, Dickinson heard of the sale of Dodd's property by a third party, and so there was no guarantee of Dickinson hearing of the revocation of the offer either, and yet the court found this sufficient. In relation to the rules established in Dickinson v Dodds, it is more likely that the reasonable person would interpret Barbara's announcement as an implicit revocation of her offer to sell. Barbara did in fact sufficiently withdraw her offer by saying that she had no stock left, even though it was not communicated formally or directly to Adam. Therefore, it would be reasonable to find that Barbara was free to withdraw her offer at any time, and so, once Adam knew of her revocation he could not then accept the offer.

A promise is only legally binding on the promisor if the promisee has given valuable consideration in return⁴. If Barbara's offer was capable of acceptance, there was sufficient consideration provided by Adam as the promisee. Barbara's offer was apples, and Adam's consideration was in the form of money ($1000), as this was to his detriment and Barbara's benefit. Therefore, sufficient consideration did exist.

This then raises the next question of whether the parties had the intention to enter a legal relationship at any point in their communications. In commercial agreements, there is a presumption that the parties intend to be bound⁵. However, before Adam's attempted acceptance, it appears the parties did not intend to be bound at any point. They were still involved in the negotiation process, as the language that Adam used indicated that he was indeed only inquiring into Barbara's terms and did not have any intention to be contractually bound at this early stage. This was a mutual understanding. Therefore, it appears that the reasonable person would not view Barbara and Adam's conduct as if they intended to be bound.

However, Adam may still have rights against Barbara in relation to her promise to hold 100 tonnes of apples on her terms until 30 October. In Dickinson v Dodds, the court found that although the offer expired at the end of the week, Dodds was not bound to keep the property unsold until this time. So, according to this precedent, Barbara was free to sell her apples and therefore withdraw her offer at any time. However, here there was not merely an offer that was to expire at a fixed date. It was an arrangement for Barbara not to sell 100 tonnes of apples before 30 October. Section 9(1) of the Electronic Transactions Act 1999 (Cth) provides that agreements through electronic communications such as the facsimile used here are equivalent to written documents, and so, Adam and Barbara had a written unilateral contract that Barbara would hold the apples. They further confirmed this arrangement on 26 October, so there was clearly intention by both parties. By selling the apples she promised to hold, Barbara was also breaking her obligation to negotiate in good faith⁶. Since Barbara did not fulfil her promise, Adam may be able to sue her for non-delivery under section 50 of the Sale of Goods Act 1895 (SA). On the other hand, however, there was no consideration provided by Adam, such as a deposit, or even a guarantee that he would purchase the apples in return for Barbara holding the apples for him. The only thing Barbara received from Adam was a mere possibility of a sale. This is not regarded as valuable consideration, as it is not sufficient.

Adam and Charles

The key issue regarding Adam's dealings with Charles include whether Adam can accept Charles' first offer after he made a counteroffer.

There was clearly an offer in this situation. As with Barbara, on 25 October Adam invited Charles' to submit a tender, which Charles did not have to reply to. Charles did reply with an offer of $1200 per tonne delivery within 7 days. Neither party was bound at this stage as Adam had not accepted Charles' offer. Adam then replied "I agree to buy 100 tonnes of first grade apples at $1100 per tonne delivery within 7 days". A contract will amount only when an acceptance has been given which exactly corresponds with the offer⁷. Therefore, this was not an acceptance on Adam's behalf since it did not correspond with Charles' offer. It could be seen as a request for information, which would mean that Charles' first offer was still open⁸. However, due to the language Adam used, it appears that it was in fact a counteroffer which Charles was then free to accept or reject. Adam's comment to Barbara before this counteroffer of "…I think I can risk beating him down" further indicates that he had no intention of accepting Charles' first offer at this early stage. Consideration did exist between the parties, as in return for the apples Adam was providing money, which is of detriment to him and benefit to Charles, and therefore valuable consideration.

Upon hearing of the national shortage of apples on 27 October, Adam posted a letter to Charles accepting his first offer of $1200 per tonne delivery within 7 days (the postal rule states that the acceptance is binding when and where the acceptance is posted⁹). In this letter Adam also requested that Charles ignore his earlier fax. This indicates Adam did intend his last fax of $1100 to be a counteroffer rather than a mere request for information. If it was a request for information, Adam would have still been able to accept Charles' first offer. Since it was a counteroffer, it terminated his ability to accept the first offer. In Hyde v Wrench¹⁰, the defendant offered to sell the land for $1000, but the plaintiff made a counteroffer of $950. The plaintiff then tried to accept the defendant's offer of $1000. The court found that once the offeree makes a counteroffer, the offeror's prior offer is no longer valid. So, by applying this principle, since Adam's counteroffer amounted to a rejection of Charles' first offer, Adam could not then revoke his counteroffer to reinstate Charles' first offer. Therefore, Charles' first offer was not capable of being accepted by Adam, as Adam terminated the first offer by making a counteroffer.

Since Adam had, in effect, rejected Charles' offer by making a counteroffer, and they had no further arrangement regarding the price, Charles was free to raise his price to the market price of $1500 per tonne.

Conclusion

In conclusion, it appears that the reasonable person would have difficulty in finding either of these dealings binding. Adam has no contractual rights against Charles, as his counteroffer does not amount to an acceptance. He also has no binding contract with Barbara, as he could not legally accept her offer after hearing her implied revocation over the radio. However, Adam may be able to take action against Barbara for not holding 100 tonnes of apples on her terms as they agreed.

Bibliography

• Clarke, P, Gamble, R, and Brebner, J. Contract Law. Second Ed., NSW, Australia, Butterworths, 2000.
• Carter, J.W and Harland, D.J. Case and Material on Contract law in Australia. Third Ed., NSW, Australia, Butterworths, 1998.
• Carter, J.W. Breach of Contract. Second Ed., Sydney, NSW, The Law Book Company Limited, 1991.
• Electronic Transactions Act 1999 (Cth), http//:www.austlii.edu.au/legis/cth/consol_act/eta1999, [On-line], n.d, 14 August 2002.
• Sale of Goods Act 1895 (SA)¸ http//:www.austlii.edu.au/legis/sa/consol_act/soga1895, [On-line], n.d, 14 August 2002.
• Concise Australian Legal Dictionary. Second Ed., Australia, Butterworths, 1998.
• Smith, M. Contracts. Fifth Ed., Australia, Butterworths, 1999.

Reference

¹ Hughes Aircraft Systems International v Airservices Australia [1997] 558 FCA.
² P. Clarke, R. Gamble and J. Brebner, Contract Law, Second Ed., NSW, Australia, Butterworths, 2000, p. 30.
³ Dickinson v Dodds [1889] 14 App Cas 337.
⁴ J.W. Carter and D.J. Harland, Cases and Material on Contract law in Australia, Third Ed., NSW, Australia, Butterworths, 1998, p. 108.
⁵ P. Clarke, R. Gamble and J. Brebner, Contract Law, Second Ed., NSW, Australia, Butterworths, 2000, p. 73.
⁶ Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd [1991] 24 NSWLR 1.
⁷ J.W. Carter and D.J. Harland, Case and Material on Contract law in Australia, Third Ed., NSW, Australia, Butterworths, 1998, p. 45.
⁸ P. Clarke, R. Gamble and J. Brebner, Contract Law, Second Ed., NSW, Australia, Butterworths, 2000, p. 30.
⁹ Concise Australian Legal Dictionary, Second Ed., Australia, Butterworths, 1998, p. 341.
¹⁰ Hyde v Wrench [1840] Beav 334; 3 ER 132.