FACULTY OF LAW

LAWS5002CONTRACTS

PART 2:• OFFER AND ACCEPTANCE• CONSIDERATION• ESTOPPEL AND ITS EFFECT ON CONSIDERATION• INTENTION TO CREATE LEGAL RELATIONS• CONTRACTS REQUIRING WRITTEN EVIDENCE

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PART 2 - AGREEMENT ..............................! 5...................................................................Importance of agreement.! 5

A - OFFER AND ACCEPTANCE..........................................! 5......................................................................................................Offer! 5

...........................................................................................................Definition! 5...........................................................................Invitation to Treat and Offer.! 5

..................................................................................Declaration of Intention.! 6*Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd [1953] 1 QB 401 – (PRD p. 54)!6*Australian Woollen Mills Pty Ltd v. Cth (1954) 92 CLR 424 – (PRD p. 104)!7

........................................................Offers to Unascertained Persons! 8............................................................Necessity for Communication of Offer.! 8

*Carlill v. Carbolic Smoke Ball Company [1893] 1 QB 256 – (PRD, p. 45)!8

............................................................................................Acceptance! 9.....................................Communication of Acceptance is generally required.! 9

*Felthouse v. Bindley (1862) 142 ER 1037 – (PRD p. 73)!10............................................................................Correspondence with Offer! 10

*Butler Machine Tool Co Ltd v. Ex-Cell-O Corporation (eng) Ltd [1979] 1 All ER 965 – [PRD p. 98]!11

..................................................................................Postal Acceptance Rule.! 12Bressan v Squires [1974] 2 NSWLR, (PRD, p. 91)!13Brinkibon Ltd v. Stahag Stahl mbH [1983] 2 AC 34, (PRD p. 91)!13

..............................................Knowledge of Offer Required for Acceptance.! 14*R v Clarke (1927) 40 CLR 227!14

..............................................................................Duration of Offers! 15.......................................................................................................Revocation! 15

*Dickinson v. Dodds (1876) 2 Ch D 463!16Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674 (PRD p. 56)!17

.........................Rejection, Lapse, Non-occurrence of condition and Death.! 18*Stevenson Jacques & Co v. McLean (1880) 5 QBD 346!19

......................................................Uncertainty and Incompleteness! 20........................................................................................................Generally.! 20

*Upper Hunter County District Council v. Australian Chilling Freezing Co Ltd (1968) 118 CLR 429, (PRD, p. 164)!21

...............................................................Severance of unenforceable clause.! 22*Whitlock v. Brew (1968) 118 CLR 445, (PRD, p. 174)!22

.................................................................................Agreements to negotiate.! 23*Coal Cliff Collieries Pty Ltd v. Sijehama Pty Ltd (1991) 24 NSWLR 1!23

.....................................................................................Conditional promises.! 24*Masters v. Cameron (1954) 91 CLR 353, (PRD, p. 159)!25*Meehan v. Jones (1982) 149 CLR 571, (PRD p. 193)!26

B - CONSIDERATION.......................................................! 27.........................................................Legally Enforceable Contracts! 27

.........................................................................................................Definition! 27.......................................................Executory and Executed Consideration:! 28

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..............................................................................Conditional gift promises:! 28...........................Consideration must be referrable to the promise! 29

*Australian Woolen Mills Pty Ltd v Cth (1954) 92 CLR 424 !29

Consideration must move from the promisee (but not necessarily to ......................................................................................the promisor)! 30

.........................................................................................................The Rule.! 30......................................................................Need not move to the promisor.! 30

.................................................................................................Joint Promises! 30*Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460!30

.........Consideration must be sufficient, but need not be adequate! 31..........................................................................................................The Rule! 31

.................................................Consideration must be legal to be sufficient.! 31........................................................................................................Adequacy.! 31

.................................................................................Nominal Consideration:! 32Chappell & Co Ltd v Nestle & Co Ltd [1960] AC 86!32

..............................................................................Past consideration! 32.........................................................................................................The Rule.! 32

.........................................Past Consideration and Executed Consideration.! 33...............................................................................Request for performance.! 33

Re Casey’s Patents [1892] 1 Ch 104!33

..................................................Consideration must not be illusory! 34...........................................................................................................The rule! 34

...................................................................................Discretionary promises! 34*Placer Developments Ltd v Cth (1969) 121 CLR 353 (PRD 6.185)!34Meehan v Jones (1982) 149 CLR 571 (PRD 6.145)!35

....................................................Performing Existing Legal Duties! 35.......................................................................Public Duties Imposed by Law! 35

Glasbrook Bros Ltd v Glamorgan County Council [1925] AC 270 !35Ward v Byham [1956] VR 197!36Popiw v Popiw [1959] VR 197!37

..........................................................................................Contractual Duties! 37*Foakes v Beer (1884) 9 App Cas 605 (PRD 4.105)!38*Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 (PRD 4.95)!38Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 (PRD 4.125)!39Forbearance to sue or compromise of a disputed claim - good consideration!40

........................................................................Consideration in compromise.! 40*Wigan v Edwards (1973) 47 ALJR 586 (PRD 4.95, 4.170)!40

..................................................................................Accord and Satisfaction! 41.........................................................................................Forbearance to sue! 41

...............................Should we keep the doctrine of consideration?! 41..............................................................Is consideration the right criterion?! 41

....................................................................................................Public policy! 42............................................................................................Economic duress.! 42

.........................................................................Subjectivity of consideration.! 42

C - ESTOPPEL AND ITS EFFECT ON CONSIDERATION....! 43

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The Concept: Estoppel in pais (by representation/by conduct & Equitable estoppel ..................................................................................(promisory/proprietary)! 43

....................................................................Relationship with Consideration! 44.........................................................................................................Operation! 44

........................Promissory Estoppel - Requirements (Walton – Mason CJ).! 44*Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 !45Legione v Hately (1983) 152 CLR 406!47*Ausotel v Franklins (1989) 16 NSWLR 582!47William A Drennan v Star Paving Co (1958) 333 P 2d 757!48Giumelli v Giumelli (1999) 196 CLR 101!49

.........................................................................................................Remedies! 49

D - INTENTION TO CREATE LEGAL RELATIONS ...........! 50...................................................................................................The Principle! 50

..............................................................Family and social situations! 50Balfour v Balfour [1919] 2 KB 571 !50Cohen v Cohen (1929) 42 CLR 91!51*Jones v Padavatton [1969] 2 All ER 616!51*Ermogenous v Greek Orthodox Community of South Australia (2002) 209 CLR 95;!52

......................................................................Commercial Situations! 52Rose and Frank Co v JR Crompton & Bros Ltd [1923] 2 KB 261!53Esso Petroleum Ltd v Commissioners of Customs & Excise [1976] 1 All ER 117 !54

.............................................................................Letters of Comfort! 55*Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 !55

E - CONTRACTS REQUIRING WRITTEN EVIDENCE ......! 56.............................................................Contracts Requiring writing! 56

*Conveyancing Act 1919 (NSW) s 54A !56Statute of Frauds 1677, s4 !56

....................................................................Requirement of Writing! 56.............................................................................Contents of the documents! 56

Popiw v Popiw [1959] VR 197!57.........................................................................................................Signature! 57

.....................................................................................Joinder of documents! 57Harvey v Edwards Dunlop & Co Ltd (1927) 39 CLR 302 !57

................................................................................................Material Terms! 57Pirie v Saunders (1961) 104 CLR 149!57

...................................................................Effect of non-compliance! 58..................................................................................................Common Law! 58

Pavey & Matthews Pty Ltd v Paul (1987) 69 ALR 577!58...............................................................................................................Equity! 58

..........Discharge of contracts required to be evidenced in writing! 59Morris v Baron & Co [1918] AC 1 !59

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Part 2 - Agreement✤ IMPORTANCE OF AGREEMENT.• Four essential elements for contract formation: agreement, consideration, certainty and an

intention to create legal relations.• There are three proofs of agreement: (1) executed by a document, (2) entry via conduct (3)

offer and acceptance. • In the absence of an agreement (or, perhaps more accurately, in the absence of circumstances

which the law treats as giving rise to agreement), there can be no contract. • Standard form contract: A contract that is not individually negotiated by the parties but

contains the same terms for all transactions of that type. Sometimes called ‘contracts of adhesion’ because the party in the inferior bargaining position who wishes to contract must adhere to the form proffered by the party in the superior position, there being no room to negotiate.

A - OFFER AND ACCEPTANCE

I. OFFER(a) Definition• 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 person on certain terms, without further negotiation. • The ‘offer’ must indicate a willingness by the offeror to be bound without further negotiations

as to the terms of the proposed contract. • An offer has legal significance in that is creates in the offeree a power subsequently to create a

contract by the offeree’s unilateral position, that is, by accepting the offer. • A statement of intention as to future a course of action, not put forward as an offer and not

inviting acceptance or rejection cannot be an offer. o Milne v. A-Go Re Sander (Statement by father that he hoped to be able to repay his son’s debt, not a

promise to pay)• Whether a statement is an offer depends on whether the person to whom it is addressed would

reasonably interpret it as such.• Two general principles:

o A mere statement as to the price at which land, goods or services may be sold or provided is not an offer.

o The display of goods in a retail store is not an offer to sell at the price stated even if goods are being sold on a self-serve basis. ‣ Pharmaceutical Society of Great Britain.

(b) Invitation to Treat and Offer.• Often a seller will have issued an ‘invitation to treat’ – a request to others to make offers or to

engage in negotiations with a sale in mind. • The question to be asked is whether the statement can be taken as indicating an intention by

the alleged offeror to be bound, without further discussion or negotiation, on acceptance of the terms set out by the offeror.

• Whether a statement is an offer depends n the interpretation reasonably to be placed upon it by someone in the positon of the receiver

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• An advertisement can take effect as an offer (Carlill v Carbolic Smoke Ball Co), though generally is invitation to treat.

• The circulation of price lists or of other promotional material giving particulars of goods for sale does not usually amount to the making of an offer (Pharmaceutical Society of Great Britain v Boots Cash Chemists)

(c) Declaration of Intention.• It was held in Harris v. Nickerson that an advertisement of an auction sale is simply a

declaration of intention to hold the sale, not an offer binding that auctioneer to any prospective purchaser who claims compensation for expenses wasted in travelling to the sale only to find that the sale is cancelled.

o An auctioneer who puts property up for sale is not offering to sell bus is issuing a request for bids. Each bid made at the auction is an offer, and no contract is formed until the auctioneer accepts the highest bid.

• Tenders: Companies wanting to purchase bulk supplies of goods over a lengthy period of time will often advertise requesting tenders from potential suppliers. Each tenderer has made an offer, which the offeree may then accept or reject.

*Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd [1953] 1 QB 401 – (PRD p. 54)

Principle of Law:The display of goods in a shop does not amount to an offer by the shopkeeper to sell, but merely to an invitation to treat. This meant that any offer would occur when the customer presented an item at the cashier’s deskFacts:• The defendant conducted a retail pharmacy shop organised on a ‘self-service’ basis. • When the shop was open for the sale of drugs, a pharmacist employed by the defendant was stationed at the

‘Chemists’ Dept.’ and was in view of the cash desk. • In every case involving the sale of a drug, the pharmacist supervised the transaction and was authorised by the D

to prevent at that stage any customer from removing a drug from the premise.• Section 18 of the Pharmacy and Poisons Act 1933 (UK) provided that it was unlawful for a person to sell certain

drugs unless ‘the sale is effected by, or under the supervision of, a registered pharmacist. • The P brought an action for a declaration that certain sales of drugs effected in the manner described contravened

s 18 of that Act. Held:• The display of items on a ‘self-service’ basis did not amount to an offer.• ISSUE: is a contract to be regarded as being completed when the article is put into the

receptacle, or is this to be regarded as a more organised way of doing what is done already in many types of shops?

• In the case of an ordinary shop, although goods are displayed and it is intended that customers should go and choose what they want, the contract is not completed until, the customer having indicated the articles which he needs, the shop keeper accepts that offer.

• There was supervision in the sense required by the Act and at the appropriate moment of time. • The mere fact that a customer picks up a bottle of medicine from the shelves in this case does

not amount to an acceptance of an offer to sell. It is an offer by the customer to buy and there is no sale effected until the buyer’s offer to buy is accepted by the acceptance of that price.

• Appeal dismissed.

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*Australian Woollen Mills Pty Ltd v. Cth (1954) 92 CLR 424 – (PRD p. 104)

Principle of Law:• It is of the essence of contract, regarded as a class of obligations, that there is a voluntary

assumption of a legally enforceable duty. In order that a contract may be created by offer and acceptance, it is necessary that what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation. In the absence of such an intention, actual or implied, the alleged ‘offer’ cannot lead to a contract.

• There must be a relationship of quid pro quo between the statement and the Act.  Here there was no promise offered in consideration of doing an act.Facts:

• The P was a manufacturer of worsted cloth. It purchased large quantities of raw wool. • During WWII the British Gov. purchased the Aust. wool clip. Any local manufacturer (such as the P) which

required wool was therefore forced to purchase from the Gov. rather than from the growers. Local manufacturers benefited from the lower prices.

• In June and August 1946 the Prices Commissioner announced a Cth subsidy plan. The aim was to maintain the price of wool purchased by Aust manufacturers, and the amount of the subsidy was to be calculated by reference to the difference between the current basic price of wool for domestic production and the average market price for each auction series.

• In 1947 a printed form was sent to manufacturers. The commission paid subsidies to the P.• Early in June 1947, it was announced that the subsidy scheme would be discontinued as from the end of that

month.• The P alleged a promise by the Gov. that, in consideration that the P would purchase wool for domestic

consumption, the Gov. would a subsidy. It was alleged that the P made purchases of wool ‘in pursuance of the said agreement’.

• ISSUE: whether the announcement of a Cth subsidy plan in 1946 was an offer and whether the P had provided consideration by purchasing wool and whether there was a sufficient connection between the announcement and purchases by the P.

Held:• The position in such cases is simply that the consideration on the part of the offeree is

completely executed by the doing of the very thing which constitutes acceptance of the offer. • In order that a contract may be created by offer and acceptance, it is necessary that what is

alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation. In the absence of such an intention, actual or imputed, the alleged ‘offer’ cannot lead to a contract: there is, indeed, in such a case no true ‘offer’.

• A, in Sydney, says to B in Melbourne: ‘I will pay you $1000 on your arrival in Sydney’. The next day B foes to Sydney. If these facts alone are proved, it is perfectly clear that no contract binding A to pay B is established. For all that appears there may be no relation whatever between A’s statement and B’s act.

• It is impossible to find anywhere anything in the nature of a request or invitation to purchase wool, or anything which suggests that the payment of subsidy was put forward in order to induce any manufacturer to purchase wool, or which suggests that the payment of subsidy and the purchase of the wool were regarded as related in such a way that the one was a consideration for the other.

• Letters were held to contain merely a statement of government policy as to a proposed subsidy scheme for manufacturers rather than an offer capable of acceptance by the plaintiff manufacturer – Base of scheme not contractual but administrative.

• Test: A test which has not seldom been applied in such cases in order to determine whether a contract has been made or not is to ask whether there has been a request by the alleged

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promisor that the promisee shall do the act on which the latter relies. Such a request may, of course, be expressed or implied.

• A statement of intention as to a future course of action, not put forward as an offer and not inviting acceptance or rejection cannot be an offer. As it is the intention of the alleged offeror which is decisive, the word ‘offer’ may have been used colloquially and indicate merely a willingness to commence negotiations.

• If we ask, whether there is a promise offered in consideration of the doing of an act, as a price which is to be paid for the doing of an act, we cannot find such a promise.

• Judgement for the defendant.

IV. OFFERS TO UNASCERTAINED PERSONS(a) Necessity for Communication of Offer.• An offer is ineffective until it is communicated to the offeree. • For example, B may hear from C that A intends to make an offer to him or her. Even though

A may express an intention to make an offer to B, no power of acceptance is created in B until A’s offer is communicated to B or by A or by someone acting with A’s authority.

o Cole v. Cottingham.

*Carlill v. Carbolic Smoke Ball Company [1893] 1 QB 256 – (PRD, p. 45)

Principle of Law:• An advertisement can take effect as an offer. • Although an 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.Facts:• The D was the proprietor and vendor of a pseudo-medical preparation called ‘The Carbolic Smoke Ball’. They

inserted in a number of newspapers the following advertisement:o £100 reward will be paid by the Carbolic Smoke Ball Company to any persons who contracts the

increasing epidemic influenza, colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. £1000 is deposited with the Alliance Bank, Regent Street, shewing our sincerity in the matter.

• The P bought a smoke ball on the faith of this advertisement and used it as directed over 8 weeks. She contracted influenza and sued the D to recover the £100.

Held:• The ‘Offer’: The advertisement was not a mere ‘puff’ as the deposit is called in aid by the

advertiser as proof of his sincerity in the matter that is, the sincerity of his promise to pay £100 in the even which he has specified.

• The plain meaning of the advertisement is to be taken from the objective perspective of any person of the general public.

• In cases where the communication is made to a section of the public, or to a particular person, it may be appropriate to apply a narrower criterion, that is, a reasonable member of the class or a reasonable person in the position of the particular person to whom the communication was directed.

• Advertisements offering rewards are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer.

• The ‘Acceptance’: As an ordinary rule of law, an acceptance of an offer made ought to be notified to the person who makes the offer, in order that the two minds may come together.

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• However, in the advertisement cases it seems to follow as an inference to be drawn from the transaction itself that a person is not to notify his acceptance of the offer before he performs the condition, but that if he performs the condition notification is dispensed with it.

• The ‘Consideration’: Inconvenience sustained by one party at the request of the other is enough to create a consideration. It is consideration enough that the P took the trouble of using the smoke balls.

• The D would receive a benefit from this user; for the use of the smoke ball was contemplated buy the D as being indirectly a benefit to them, because the use of the smoke balls would promote their sales.

• In unilateral conracts, communication of acceptance is not expected or necessary.o If there is an offer to the world at large, and that offer does not expressly or impliedly

require notification of performance, performance of the specified condition in the offer will constitute acceptance of the offer and consideration for the promise.

• Statements made in an advertisement may be a mere ‘puff’ and not intended to be legally binding. If the advertisement shows a clear promissory intention to be legally bound, it may constitute a unilateral offer.

• Appeal dismissed.

II. ACCEPTANCE• The acceptance of an offer may be defined simply as compliance with the requirements, if

any, stated in the offer, offer may be accepted only by the offeree.• If the offer says nothing on the matter, the following requirements will be implied:

o Unequivocal: the acceptance must be an unequivocal acceptance, ando Communication: the acceptance must be communicated.

• Only the person (or persons) to whom the offer was made may accept the offer.• If anyone else purports to accept the offer, that ‘acceptance’ is at best an offer which the

original offeror (now the offeree) may accept. • Mirror image rule: must accept the offer on all its terms without negotiation.

(a) Communication of Acceptance is generally required.• An acceptance is generally effective to conclude a contract only when the fact of acceptance

is communicated to the offeror. • Until then, the offeror can withdraw the offer. • An offeror may have authorised an agent to receive notification of acceptance, and so notice

to the agent is treated as the equivalent of notice to the offeror personally. • The offeror may dispense with need for communication:

o The offeror may give up the requirement that the acceptance must be communicated, since the requirement is primarily in the interest of the offeror.

o In many cases, an offer will be interpreted as contemplating that acceptance may take the form of performance of an act rather than of the making of a counter-promise, and in such a case the offeror will be held to have dispenses with the necessity of communication of acceptance.‣ Carlill v. Carbolic Smoke Ball Co.

• The method of acceptance is prescribed by the offeror. o The offeror may prescribe the manner in which acceptance is to be made, and a

purported acceptance in any other manner is not an effective acceptance.

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• An offeror cannot compel an offeree to take positive steps to reject an offer. If the offeree decides not to accept, and therefore simply ignores the offer, there will be no acceptance and no contract. (Felthouse v Bindley).

• If one takes the benefit of another, knowing that the other party expects to be paid, this will imply acceptance.

‣ Empirnall Holdings.

*Felthouse v. Bindley (1862) 142 ER 1037 – (PRD p. 73)

Principle of Law:An offeror cannot impose a contract on the offeree by saying that when there is no rejection of the offer, acceptance is to be implied from silence. Facts:• John Felthouse was about to sell his farming stock by action. • He discussed the sale of a particular horse to his uncle, the P. • The P wrote to his nephew on 2 January 1861 offering to buy the horse and saying: ‘if I hear no more about him,

I consider the horse mine at £30 15s’. The nephew did not reply but instructed the auctioneer (the D0 that the horse had been sold.

• At an auction sale the D by mistake sold the horse to a third party. • ISSUE: Had the horse been sold to the P? That depended on whether the P’s statement meant that a contract

would arise if the nephew remained silent. Since the nephew was happy with the price, a subsidiary question was whether his decision to accept the offer was sufficient.

Held:• The horse in question being catalogued with the rest of the stock, the D was told that it was

already sold. It is clear, therefore, that the nephew in his own mind intended his uncle to have the horse at the price which the uncle had named: but he had not communicated such his intention to his uncle, or done anything to bind himself.

• Nothing had been done to vest the property in the horse in the P down to 25th Feb, when the horse was sold by the D.

• A proposal had been mad, but there had before that day been no acceptance binding the nephew.

• Rule absolute.

(b) Correspondence with Offer• An offer is ineffective until it is communicated to the offeree.

o Henthorn v Fraser – “an offer to sell is nothing until it is actually received”• The offer and acceptance must precisely correspond; the acceptor (offeree) must have

accepted all the terms of the offer.• Any departure from the offer will result in the purported acceptance being ineffective. Such a

purported acceptance will normally, even though worded as an acceptance, amount to a new offer (described as a counter-offer).

What amounts to acceptance• Necessity for acceptance: Where an offer has been made, a contract binding the parties will

result when the offeree has clearly accepted the offer.• Acceptance must correspond with offer: The offer and acceptance must precisely correspond;

the acceptor (offeree) must have accepted all the terms of the offer. Any departure from the offer will result in the purported acceptance being ineffective.

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• Acceptance must be unequivocal in that nothing further is left to be negotiated between the parties and the language used must clearly convey a decision by the offeree to be bound by the terms of the offer.

• Although acceptance must correspond exactly with the offer, an offer may present several alternatives to the offeree

• Additional or different terms:o Perhaps the most common situation where a purported acceptance is ineffective is and

operates merely as a counter-offer is where the ‘acceptance’ proposes one or more terms which are in addition to, or different from, those contained in the offer.

o A purported acceptance which agrees to the offer in general terms but which seeks to qualify the scope of some of the detailed provisions contained in it is at most a counter-offer.

*Butler Machine Tool Co Ltd v. Ex-Cell-O Corporation (eng) Ltd [1979] 1 All ER 965 – [PRD p. 98]

Principle of Law:Where the seller does not acknowledge the buyer’s counter-offer, it may well be held to have been accepted by conduct if the goods in question are later supplied. In a battle of forms, generally the last shot wins.Facts:• The plaintiff-sellers (Butler) sued the defendants (the buyers) to recover the additional sum of £2892 for a

machine they had delivered. • They alleged that this amount was payable because the contract included a price variation clause. • On 23rd May 1969 the sellers offered to deliver one ‘Butler’ double column plane-miller for the total price of

£75,535, with the terms and conditions on the back of the quotation. • Chapter 3 was the price variation clause which generally stated that goods will be charged at prices ruling upon

date of delivery. • The buyers replied giving an order in these words: ‘Please supply on terms and conditions as below and

overleaf’. There were differences between costs, delivery dates and cancellation dates.• On the foot of the buyers’ order there was a tear-off slop which, once filled in would notify acceptance of the

buyers’ terms and conditions. • On 5 June 1969 in a letter to the buyers the sellers said: We have pleasure in acknowledging receipt of your

official order…. this is being entered in accordance with our revised quotation of 23 May for deliver in 10/11 months. We return herewith, duly completed, your acknowledgement of order form. They enclosed the acknowledgement form filled in with delivery date.

• The machine was ready about September 1970, but the buyers could not accept delivery until November 1970. • The sellers invoked the price increase clause and the £2892 was for cost increases.Held:• The quotation of 23 May 1969 was an offer by the sellers to the buyers containing the terms

and conditions on the back. The order of 27 May 1969 purported to be an acceptance of that offer in that it was for the same machine at the same price, but it contained such additions as to cost of installation, date of delivery and so forth, that it was in law a rejection of the offer and constituted a counter offer.

• In most cases, when there is a ‘battle of forms’ there is a contract as soon as the last of the forms is sent and received without objection being taken to it.

• The acknowledgement of 5 June 1969 is the decisive document. It makes clear that the contract was accepted on the buyers’ terms and not the sellers’ terms: and the buyers’ terms did not include a price variation clause.

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• Appeal allowed.

(c) Postal Acceptance Rule.• The main exception to the principle that acceptance is not effective until communicated to the

offeror occurs in cases where the postal acceptance rule applies.• The acceptance is effective immediately a properly pre-paid and addressed letter is posted. • A contract is formed on posting even though the offeror is then ignorant of that fact, and even

though the letter is delayed in transmission, or may be lost in the post and therefore never ultimately delivered.

• The rule is one of convenience.• The rule benefits offerees, who are not left in the position of waiting to see whether a notice of

revocation is received before the letter of acceptance reaches the offeror.

Application of the rule:• The rule only applies when the parties contemplated that acceptance would be communicated

by the post.• The relevant question is whether it can reasonably be inferred that the parties contemplated

the likelihood of acceptance by post rather than whether they contemplated the legal effect of such a method of acceptance.

• The power of the offeror to revoke the offer comes to an end once the offeree has posted the letter of acceptance.

• ‘Henthorn v. Fraser: Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usage 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.’

• The postal acceptance rule does not apply to letters of rejection, as these are effective only upon receipt.

Displacement of the rule:• If the offeree wrongly addresses the letter of acceptance so that it is delayed in delivery, the

acceptance will not be effective until it is actually delivered.

Acceptance lost in post:• The postal acceptance rule protects the acceptor not just against the risk of delay in the

acceptance being transmitted but also against the risk of it being lost and never reaching the offeror.

Intermediate situations:• If it is contemplated that acceptance will be by post, it may well be that an acceptance, though

not effective on posting, will nonetheless take effect on delivery to the offeror’s address even if not actually read until some later time.

Justification of the rule:• The argument most commonly advanced initially was that the post office was the agent of the

offeror to receive the communication and that therefore the acceptance should be treated as having been communicated to the offeror upon posting.

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• Another argument is that the acceptance is effective on posting because the offeree has then done all that can be done to communicate acceptance and should not be responsible for what might happen after losing control over the letter.

Place and time of formation of contract:• A contract is formed at the place where the final act regarded as completing the contract

occurred. • So where the postal acceptance rule applies; Australian courts will regard the contract as

having been made in the place where the acceptance was posted, where in other cases the contract is made at the place where acceptance is communicated to the offeror.

Instantaneous communication:• In the case of communication by mechanical means such as telephone, telex or fax

communication is for all practical purposes simultaneous and hence is to be assimilated to cases where parties are negotiating in each other’s presence.

Bressan v Squires [1974] 2 NSWLR, (PRD, p. 91)

Held:• All that needs to be in contemplation of the parties is the post as a mode, indeed as a possible

or permitted ode, for the law to impose the consequence that the contract is concluded by the action of posting.

• It is not required that it should be within the contemplation of the parties that the actin of posting should have the consequence of concluding the contract ; this, of course, would apply in relatively fewer cases, and would narrow the application of the exception.

Brinkibon Ltd v. Stahag Stahl mbH [1983] 2 AC 34, (PRD p. 91)

Principle of Law:An acceptance sent by telex directly from the acceptor’s office should be treated as if it were an instantaneous communication between principles, like a telephone conversation. The simple case of instantaneous communication between principals involves that the contract was made when and where the acceptance was received. Facts:• The facts involved and offer by the buyer, a counter offer made by the seller and an acceptance by the English

buyer. • All the communications were by telex, and the argument of the buyer was that its telex took effect when sent,

that is, in England.• The question is whether an acceptance by telex sent from London but received in Vienna causes a contract to be

made in London, or in Vienna.Held:• The court focused on determining whether telex falls within the category of instantaneous

communication or falls under the ‘postal rule’ upon which acceptance is effective upon postage.

• It was reached that telex was considered as instantaneous communication.• The message has been received on the offeror’s telex machine; it is not unreasonable to treat it

as delivered to the principal offeror, because it is his responsibility to arrange for prompt handling of messages within his own office.

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• The acceptor who tries to send a message by telex can generally tell if his message has not been received on the offeror’s machine, whereas the offeror, of course, will not know if an unsuccessful attempt has been made to send an acceptance to him.

• It is therefore convenient that the acceptor being in the better position should have the responsibility of ensuring that his message is received.

• Appeal dismissed.

(d) Knowledge of Offer Required for Acceptance. • It seems obvious to say that knowledge is required before an offer may be accepted. • Acceptance cannot occur if the offeree is ignorant of the offer. Consequently, where an offer is

made for a reward to be paid in return for the performing of some act, the mere fact that a person by chance happens to perform that act while ignorant of the offer will not result in a binding contract.

• Where an offer calls for acceptance by the performance of an act, it may be that a person commences performance in ignorance of the offer but becomes aware of it before completing performance.

• In such a case, continued performance would be assumed to be at least partly motivated by the offer, and so in the absence of any contrary intention indicated by the offeror, there would be a binding contract once the performance was complete.

Is knowledge sufficient?• A more difficult question is whether, once it is shown that a person was aware of an offer and

subsequently performed the act requested by the offeror, it necessarily follows that agreement has been reached.

*R v Clarke (1927) 40 CLR 227

Principle of Law:• Unless a person performs the conditions of the offer, acting upon its faith or in reliance upon

it, he does not accept the offer and the offeror is not bound to him. As a matter of proof any person knowing of the offer who performs its conditions establishes prima facie an acceptance of that offer…

• There cannot be assent to an offer without knowledge of the offer, and ignorance of the offer is the same thing whether it is due to never hearing of it or to forgetting it after hearing.

Facts:• The government of WA (the D, and later appellant before the HC) offered a reward of 100 pounds ‘for such

information as shall lead to the arrest and conviction of the person or persons who committed the murders’ of two name police men.

• Clarke (the respondent) and another man, Treffene, were arrested in connection with on of the murders. Clarke made a statement to the police concerning the two murders.

• Clarke was subsequently released from custody. • Clarke claimed the reward. The Supreme Court found in favour of the Crown. Clarke appealed to the Full Court,

which by majority, allowed the appeal. The Crown then appealed to the HC. • The issue was whether Clarke could establish a contract. Held:• The information for which Clarke claims the reward was given by in circumstances which

show that in giving the information he was not acting on or in pursuance of or in reliance upon or in return for the consideration contained in the proclamation, but exclusively in order to clear himself from a false charge of murder.

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• He was not acting for the sake of justice or from any impulse of conscience or because he was asked to do so, but simply and solely on his own initiative, to secure his own safety from the hand of the law and altogether irrespective of the proclamation.

• An offer of 100 pounds to any person who should swim 100 yards in the harbour on the first day of the year, would be met by voluntarily performing the feat with reference to the offer, but would not be satisfied by a person who was accidentally of maliciously thrown overboard on that day and swam the distance simply to save his life, without any thought of the offer.

• Clarke did not mentally assent to the Crown’s offer; there was no moment of time at which there was, till after the information was given, as between Clarke and the Crown, a consensus of mind.

• Clarke admitted to forgetting about the proclamation at the instance of his confession.o Ignorance of the offer is the same thing whether it is due to never hearing of it or to

forgetting it after hearing• Appeal allowed.

V. DURATION OF OFFERS• A purported acceptance may fail to create a contract because the offer has ceased to be

effective. This may have occurred for a number of reasons including:o lapse of time,o positive withdrawal by the offeror,o rejection,o Failure of a condition.

• Acceptance must take place within the period of duration of the power of acceptance created by the offeror in making the offer.

• A purported acceptance occurring outside of this period can at best be a counter offer.

(a) Revocation• An offer may be withdrawn or revoked by the offeror at any time before it has been accepted. • The offeror may revoke even though the offer expressly states that it is to remain open for a

specified period of time which has not, at the time of revocation, expired. • Revocation is made effective by the offeree (or someone who is authorised by the offeree to

receive such communications) being informed that the offeror does not want to proceed with the contract.

• The postal acceptance rule applies only to acceptances and never renders a revocation effect on posting.

• So, where the postal acceptance rule applies, an acceptance will be effective on posting, even though before that time the offeror has sent a letter revoking the offer. Of course, there can be no contract if the offeree has received the letter of revocation before posting an acceptance.

• Revocation would only take effect upon receipt. • It is not essential that the communication be made by the offeror (or even by someone acting

with the authority of the offeror).Revocation of offers to public:• In offers made ‘to the world’, the offeror does not know the identity of the persons who have

become aware of the offer and who may be contemplating accepting.• US position: where an offer of a reward was made by publication of a public notice, that offer

could be withdrawn by a similar publication of a public notice. As this had been down well

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before the P purported to accept, he was not entitled to the reward even though he was in fact ignorant of the revocation.

Revocation and option contracts:• Option contracts are an exception to the above rule. • Option contracts usually relate to a contemplated sale of property and under such a contract

the person to have the benefit of the option (the ‘optionee’) gives consideration for the promise of the other party (the ‘optioner’) to sell provided that the optionee exercises the right within the option’s validity period.

• Both parties are bound to the contract of sale, but until that time only the optioner is bound; the optionee is free to decide whether or not to proceed with the proposed transaction.

• The consideration provided by the optionee for the option is the price paid for the optioner forgoing the right to sell elsewhere during the option period.

*Dickinson v. Dodds (1876) 2 Ch D 463

Principle of Law:• An offeror is free to withdraw their offer at any point until the offeree has accepted it, so long

as the offeree has not provided any sort of consideration.• Although a revocation of an offer is ineffective unless communicated to the offeree, it is not

essential that the communication be made by the offeror (or even by someone acting with the authority of the offeror). An offeree must have knowledge of a revocation, but explicit communication is not required.

Facts:• On Wednesday 10 June 1874, Dodds delivered to the P a document which state ‘I hereby agree to sell to Mr

George Dickinson [a certain property described in the document] for the sum of 800 pounds…. This offer to be left over until Friday, 9 o’clock, am, 12 June 1874.’

• On Thursday afternoon Dickinson was told by a Mr. Berry that Dodds had been offering or agreeing to sell the property to Allan.

• That evening, Dickinson went to the house where Dodds was staying and left with Dodds’ mother-in-law a formal written acceptance of the offer. Dodds did not receive this as she forgot to give it to him.

• It appeared that on the previous day Dodds and Allan had in fact entered into a formal contract for the sale of the property. The issue was whether Dickinson had agreed to purchase the property and whether his acceptance of Dodds’ offer was given in time.

Held:• The document, though beginning ‘I hereby agree to sell’, was nothing but an offer, and was

only intended to be an offer. • This, being a mere offer, was not binding and that any moment before a complete acceptance

by Dickinson of the offer, Dodds was as free as Dickinson himself.• There was no consideration given for the undertaking or promise, to whatever extent it may

be considered binding, to keep the property unsold until 9 o'clock on Friday morning.• It is clear settled law, on one of the clearest principles of law, that this promise, being a mere

nudum pactum, was not binding, and that at any moment before a complete acceptance by Dickinson of the offer, Dodds was as free as Dickinson himself

• It is quite clear that before there was any attempt at acceptance by the P, he was perfectly well aware that Dodds had changed his mind, and that he had in fact agreed to sell the property to Allan.

• It is impossible, therefore, to say there was ever that existence of the same mind between the two parties which is essential in point of law to the naming of an agreement.

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• If an offer has been made for the sale of property, and before that offer is accepted, the offeror enters into a binding agreement to sell the property to a 3rd party, and the offeree receives notice in some way that the property has been sold to another person, he cannot, after that, make a binding contract by the acceptance of the offer.

• If it be the law that, in order to make a contract, the two minds must be in agreement at some one time, that is, at the time of the acceptance, how is it possible that when the offeree knows that the offeror has sold the property to a third party, and that, in fact, he has not remained in the same mind to sell it to him, he can be at liberty to accept the offer and thereby make a binding contract?

• The P must have been aware that the D no longer wanted to sell to him and that his acceptance was ineffective as it occurred after the offer had been revoked.

• Appeal allowed.

Revocation of an Offer:

Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674 (PRD p. 56)

Principle of Law:An option for value is not revocable during the period for which it is given.Facts:• John Quinn (respondent) agreed to sell to Goldsborough, Mort & Co the whole of his “freehold and conditional

purchase and conditional lease lands” situated near Canonbar, known as Bena Billa.• The land comprised 2 590 acres, and Quinn granted Goldsbrough one week from 8th Februar 1909 to purchase

the land at the price of £1 10s per acre, calculated on a freehold basis, and subject to the usual terms and conditions of sale relating to such.

• Upon the exercise of this option, Thomas Quinn agreed to transfer the whole of the said lands to the said company or its nominee.

• Thomas Quinn, before the expiration of the week, and before acceptance of the offer by the appellants, repudiated the offer, alleging to have made a mistake.

Held:• Griffith CJ: “All agreements consist, in substance, of an offer made by one party and accepted

by the other. The offer and acceptance may be contemporaneous, or the offer may be made under such circumstances that it is to be regarded as a continuing offer subsisting at the moment of acceptance. At that point there is a consensus ad idem, that is, a contract.”

• Griffith CJ: “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.”

• Griffith CJ: If there is a consideration for the promise it is binding• O’Connor J: “An option for value is not revocable during the period for which it is given”.• Isaacs J: A contract known as an option consists of a promise founded on valuable

consideration to sell land on stated terms within a given time. Unsupported by valuable consideration such a promise would be nudum pactum…and…could be withdrawn.

• Isaacs J: “The feature which distinguishes an option from a mere offer is the consideration.”• Appeal Allowed

Revocation and unilateral contracts:• A unilateral contract is the contract formed by the exchange of a promise for an act.

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• Where an offer is made which contemplates a unilateral contract, the performance of the requested act is both the acceptance and the consideration by the offeree.

• The issue is whether an offer of a unilateral contract can be revoked after an offeree has commenced performance but before it has been completed. Two issues arise:

o What act of acceptance is contemplated by the offer?o Is it too late for withdrawal to occur?o Until the act is completed, can still revoke the contract.

Revocation: Unilateral ContractsMobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 Federal Court of Australia (PRD, p. 59)Principle of Law: An offer is at liberty to revoke the unilateral offer once performance of the act, which is at once the act of acceptance and the executed consideration, has commenced. Facts:• Mobile operated an incentive scheme for its franchisees known as Circle of Excellence. Franchisees who

achieved high scores in the Circle of Excellence judging were given certain rewards.• Mobil’s general manager (Mr Ken Stumbles) sough to implement a ‘tenure for performance scheme whereby a

franchisee who achieved a score of 90 percent or better in any hear would be granted an extra year’s tenure (the one for one proposal), but that due to the difficulty in achieving this, the only way to give the extended tenure is to say that any franchisee who achieve a score of 90% or better in the Circle of Excellence judging in each of the six years following 1991 would be granted a 9 year renewal of their franchise without cost (nine for six proposal).

• Mobil announced in 1994 that it would not grant renewals free of charge on the basis proposed by Mr Stumbles, but would discount the renewal fees of any franchisees who had succeeded in obtaining 90 per cent or better in 1992 and 1993.

• Franchisees were given a brochure including a tear-off slip which franchises could sign to indicate that they did ‘accept the challenge to exceed 90% in Circle of Excellence judging and qualify for extra tenure’

• Proceedings were brought against Mobil requiring to grant the additional tenure or compensate them for its loss.Held:• Lockhart, Lindgren and Tamberlin JJ: “A unilateral contract is one in which the act of

acceptance of the offer is also an executed consideration for the promise offered.”• The act of acceptance called for by the offer, once completed by the offeree, leaves the

contract executor only on the part of the offeror: The supposed nine-for-six promise was the offer of a reward in return for an act.

• Distinguished from rule in Abbot v Lance that although as a general rule an offer may be retracted before acceptance, yet, if it takes the form of an offer in exchange for the doing of an act or acts, then: 1) acceptance takes place when the offeree ‘elects’ to do the relevant act or acts; and 2.) the offer becomes irrevocable once the act or acts, which will constitute consideration for the offer, have been partly performed.

• Appeal Allowed

(b) Rejection, Lapse, Non-occurrence of condition and Death.Rejection:• An offer is terminated once rejected by the offeree.• A counter-offer is treated as impliedly rejecting an offer.• An offeree will often reject an offer by making a counter-offer on terms more favourable to

the offeree in the hope that the original offeror will accept them.

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• The original offeror may reject the counter-offer, but in terms which indicate that the original offer is still open.

• A rejection would operate to terminate an offer only when received by the offeror. • An offeree does not reject an offer, or make a counter offer, merely by requesting further

information about the offer.

*Stevenson Jacques & Co v. McLean (1880) 5 QBD 346

Principle of Law:An offeree does not reject an offer, or make a counter offer, merely by requesting further information about the offer. Facts:• A seller offered to sell goods for cash. The buyer telegraphed asking whether the seller would consider credit

terms.• Although the seller treated this as a rejection, and sold the goods elsewhere, before the seller communicated this

fact, the buyer purported to accept the offer by telegram. • The question was whether the buyer’s first telegram was a rejection. Held:• A mere inquiry, which should have been answered and not treated as a rejection of the offer. • In order to constitute a contract there must be the assent of the two minds at the moment when

the offer is accepted; and that if, when an offer is made, and time is given to the other party to determine whether he will accept or reject it, the proposer changes his mind before the time arrives, although no notice of the withdrawal has been given to the other party, the option of accepting it is gone.

Lapses of time:• Unless accepted, an offer which is stated to remain open for a specific time lapses on expiry of

the specific time. • In cases where an offer (including an option) does not specify a time for acceptance, it must

be accepted within a ‘reasonable period of time’. What is a reasonable time will depend on the circumstances.

• The theoretical basis for the rule is that if the offeree does not accept within a reasonable time, he or she must be treated as having rejected it.

• Where an acceptance is made too late, it will usually be possible to regard the purported acceptance as a counter-offer which the original offeror may choose to accept (and which may well be accepted by conduct rather than expressly, especially if the offeror does not raise any objection to the acceptance being late).

Offers subject to condition:• An offer may be made subject to an express or implied condition that the offer is to be open

only for so long as a certain state of affairs continues to exist. If that state of affairs ceases to exist, the offer automatically lapses.

• Thus, where a person makes an offer for the purchase of goods, it will often be proper to infer that the offer was made conditionally upon the goods remaining in substantially the same condition until the time of acceptance. If the goods are, after the making of the offer, extensively damaged, a purported acceptance will not bind the offeror.

Death:• Generally, an offer may terminate on the death of either the offeror or offeree.

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• However, acceptance will be effective if the offeree accepts before receiving notice of the death.

• Where there is no option, if the language of an offer shows that it was contemplated that the offer was to stand on foot for some period of time and that it might be accepted by the personal representatives if the offeree would die before acceptance, there would be no reason the personal representative would not accept.

V. UNCERTAINTY AND INCOMPLETENESS(a) Generally.• The rights and obligations of the parties must be sufficiently certain to be enforceable. Also,

there may be no contract if some contractual obligation has yet to be agreed on. • Even when it may seem that there is a binding contract because the offer corresponds to the

acceptance, sometimes there will still be no enforceable contract. • Two related, but conceptually distinct principles are involved:

o Uncertainty: the court may be unable to give the parties’ language a sufficiently precise and clear meaning in order to identify the scope of the rights and obligations agreed to. In such a case there is no concluded agreement and the alleged contract will be held to be void for uncertainty.

o Incompleteness: Even though the language is perfectly clear in its meaning, if some important part of the transaction is yet to be agreed upon there is no completed agreement and the alleged contract will fail for incompleteness.

UNCERTAIN AGREEMENTSDifficulty of interpretation distinguished from absence of meaning:• Courts usually place a reasonable meaning on the language unless it is ‘utterly impossible’. • Just because a contract can have more than one possible meaning it is not therefore void for

uncertainty. • As long as it is capable of meaning, it will ultimately bear that meaning which the court

decides is its proper contraction. • The question becomes one of construction, of ascertaining the intention of the parties, and of

applying it. • So long as the language employed by the parties is not so obscure and incapable of any

precise meaning that the court is unable to attribute to the parties any particular contractual intention, the contract cannot be held to be void or uncertain or meaningless.

Construction to avoid uncertainty:• Obvious errors or inconsistencies in contract can usually be corrected by interpreting the

agreement. • Construction may involve the addition of words. • If a contract has more than one meaning it is not void for uncertainty, rather they will choose

the best words based on the intention of the parties. External Standards:• If the position is reached where an issue of apparent uncertainty cannot be resolved merely by

interpreting the contract, the court may be prepared to adopt an external standard such as reasonableness on the basis of an inference as to the intention of the parties

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*Upper Hunter County District Council v. Australian Chilling Freezing Co Ltd (1968) 118 CLR 429, (PRD, p. 164)

Principle of Law:A contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void of uncertainty. Facts:• The Upper Hunter County District Council (appellant) entered into an agreement for the supply of bulk

electricity to the respondent purchaser.• The agreement stated the price to be paid per kilowatt hour, with provision for that rate to be increased or

decreased, according to certain formulae set out in the agreement, for certain wage rates and prices for coal. • cl 5 provided: it is agreed that during the term of this agreement if the supplier’s cost shall vary in other respects

than as has been herein before provided the supplier have the right to vary the maximum demand charge and energy charge by notice in writing to the purchaser…

• cl 18 provided for arbitration ‘in the event of any dispute or difference arising’ between the parties ‘in regard to the construction of this agreement…’

• The council served on the purchaser a notice varying its charges. The purchaser required the matter to be referred to arbitration under cl 18.

Held:• The question becomes one of construction, of ascertaining the intention of the parties and

applying it. • In the search for that intention, no narrow or pedantic approach is warranted, particularly in

the case of commercial arrangements. Thus, will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved.

• So long as the language employed by the parties…is not ‘so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention’, the contract cannot be held to be void or uncertain or meaningless’ (Lord Wright in G Scammel & Nephew Ltd v Ouston)

• The contract itself provided the means of the resolution of any question as to what items constituted supplier’s costs.

INCOMPLETE AGREEMENTS:• A contract will fail for incompleteness where some essential or important part of the bargain

is yet to be agreed. • The classic illustration of an incomplete agreement is one which omits the contract price. • In a contract of sale, price is obviously a vital element and therefore there will be no contract

if the parties provide that the price is to be agreed by them at a future date. • The price of land cannot be added into a contract by the courts (market prices too volatile).• Where the parties have agreed to the essential terms and other matters are left to be

determined by one side’s solicitors, the contract is valid.Implication of terms:• A seemingly incomplete agreement may be enforced because the courts will imply in the

contract terms relating to essential matters which the parties themselves have not expressly dealt with.

• These terms may be implied in law or from the particular facts. • However, the law does not permit a court to imply a term into a bargain between parties for

the purposes of making their bargain an enforceable contract.

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