LAW EXTENSION COMMITTEE

WINTER SESSION 2012

CONTRACTS

SAMPLE OF AN ANSWER TO A PROBLEM QUESTION

QUESTION

Alan is a tenant of a home unit owned by Bill. Ten days ago Alan received a letter
from Bill in which Bill stated that he (Bill) was ‘interested in selling’ his flat and
asking Alan to ‘let him know’ if he (Alan) was willing to buy the home unit for the
price of $450,000. Three days later Alan posted a letter to Bill in which he agreed to
buy the home unit for the price set out in Bill’s letter. After receiving Alan’s letter, Bill
telephoned Alan and told him that he had decided that he did not want sell the home
unit.

Alan seeks your advice as to whether he has a contract with Bill for the sale of the
home unit.

ANSWER

Introduction

For a contract to arise in the circumstances of the question, one of the parties has to
make and offer which is duly accepted by the other. If there is an offer followed by an
acceptance there will be a contract between the parties.

Issue

The issue raised by the question is whether Bill’s letter constitutes an offer. If it does,
Alan’s reply is an acceptance of the offer, with the consequence that a contract exists
between the parties. However, if Bill’s letter is only an invitation to treat, no contract
exists between the parties because Alan’s reply will not be the acceptance of an offer.
In fact, Alan’s reply would constitute the making of an offer to purchase the unit from
Bill, and it is clear that Bill rejected that offer, given that he told Alan that he had
decided not to sell the unit.

The Law

An offer has been defined as follows:

An offer is a statement of the terms upon which the offeror is prepared

to be bound if acceptance is communicated while the offer remains
alive.1

The American Restatement (2d) Contracts defines an offer as follows:

1
Nielsen v Dysart Timbers Limited [2009] NZSC 43 at [25].
 An offer is the manifestation of willingness to enter into a bargain, so
as to justify another person in understanding that his assent to that
bargain is invited and will conclude it.

The critical aspect of the definition of an offer is the will or intent of the offeror to be
bound in contract by the terms of the offer. A statement that lacks such will or intent is
not an offer. Such a statement will often be what is termed an invitation to treat. An
invitation to treat has been defined as ‘a request to others to make offers or to engage
in negotiations with a sale in mind’.2 On other occasions the statement may simply be
the supply of information, as was the case in Harvey v Facey.3

Application of the Law to the Facts of the Problem

The significant fact in the problem is the statement in Bill’s letter that he is ‘interested
in selling’ his unit. This raises the question of whether the letter displays the will or
intent to bound in contract by the terms otherwise stated in his letter.

In Gibson v Manchester City Council,4 the House of Lords was faced with a case
whose facts were essentially identical to those in this problem. In that case the
wording of the owner’s letter to the prospective buyer stated that the owner ‘may be
prepared’ to sell the property to the prospective purchaser. The House of Lords ruled
that the letter was not an offer, but rather, an invitation to treat. Lord Diplock
observed that the relevant words in the owner’s letter were crucial in coming to the
conclusion that the letter was ‘but a step in the negotiations for a contract which …
never reached fruition’.5

Although the wording in Bill’s letter is different to that in Gibson’s case, it is

suggested that the result is the same in both cases. In saying that he was ‘interested in
selling’ his unit, Bill did not display a will or intention to be bound in contract. Bill’s
letter is not a firm indication that he would sell the unit to Alan. It effectively means
that he is contemplating whether or not to sell, and as such is merely an invitation to
treat. It is only following receipt of Alan’s reply, which is in fact an offer by Alan to
purchase Bill’s unit, that Bill unequivocally decides whether or not he wants to sell
his unit. His telephone call to Alan is a clear statement of his decision not to sell, and
thus amount to a rejection of the offer.

Conclusion

On the basis of the meaning of the words in Bill’s letter, as informed by the guiding
authority of Gibson’s case, Bill’s letter is not an offer. This means that Alan’s reply is
an offer. This offer has been rejected. The advice to Alan is that there is no contract
between himself and Bill.

2
J W Carter, E Peden & G J Tolhurst, Contract Law in Australia, 5th Ed, LexisNexis
Butterworths, Sydney, 2007, p 42.
3
[1893] AC 552.
4
[1979] 1 All ER 972.
5
Gibson v Manchester City Council [1979] 1 All ER 972, at 974.