Business Law 9th Edition Gibson

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Chapter 8
Agreement between the Parties
Answers to Questions

REVIEW QUESTIONS

Question 8.1 Explain why the courts have found it necessary to look to
other approaches in addition to the traditional analysis of offer and
acceptance to establish agreement.

The traditional approach to evaluating whether or not an agreement between

parties exists is to identify if an offer and an acceptance of that offer have take
place. However, there are situations in which this analysis will be unsuccessful,
namely where it is not easy to locate an offer or an acceptance: Brambles Holdings
Ltd v Bathurst City Council [2001] NSWCA 61, Heydon JA. Examples of occasions in
which it will be difficult to identify an offer or an acceptance include competitors in
a regatta (Clarke v Earl of Dunraven and Mount-Earl (The Satanita) [1897] AC 59),
and exchange of contracts to sell land (Gibson v Manchester City Council [1979] 1
WLR 520 (CA)).

8.2 In cases where the traditional approach of offer and acceptance cannot
be applied, how does the court determine whether an agreement has been
reached between the parties?

In cases where the traditional approach of offer and acceptance cannot be applied,
the court determines whether or not an agreement has been reached between the
parties by looking at the conduct of the parties. In Integrated Computer Services
Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11 at 110, McHugh
AJA, as he then was, said that ‘contracts may be inferred from the acts and conduct
of parties as well as or in the absence of their words’. The court must consider
whether or not the facts, when viewed objectively and as a whole in light of the
relevant circumstances, demonstrate that, from the perspective of a reasonable
person on both (or all) sides of the agreement, it can be seen that a concluded
agreement has been reached. If the parties have not yet agreed on essential or
critical terms that they regard as necessary for the creation of a binding
agreement, the court cannot find such agreement exists: see, for example, Azzi v
Volvo Car Australia Pty Ltd [2007] NSWSC 319.

8.3 In Clarke v Earl of Dunraven and Mount-Earl (The Satanita) [1897] AC

59 and Raguz v Sullivan [2000] NSWCA 240, on what grounds did the
courts rely to find that there were agreements?

In both Clarke v Earl of Dunraven and Mount-Earl (The Satanita) [1897] AC 59 and
Raguz v Sullivan [2000] NSWCA 240, the courts found it hard to apply the
conventional approach of offer and acceptance to the fact situations since there
were several parties involved and no clear offer and acceptance. Therefore, they
instead determined that agreements existed by looking to the conduct of the

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parties and the documents that governed entry into the relevant competition. While
mere participation will generally not of itself provide the basis of a contract between
the participants themselves and the organisers, in both these cases there was
sufficient evidence of an intention to enter into a contract based on the conduct of
the parties having to sign undertakings to be bound by the rules as a condition of
participation (a multipartite transaction).

Question 8.4 Explain what an offer is.

An offer is a clear expression of the terms under which a person is prepared to

enter into a contract with another person and be bound by their acceptance of
those terms.

Question 8.5 List and explain the main rules relating to an offer.

The main rules relating to an offer are as follows:

• An offer must be communicated to the offeree. This can be in writing, oral, or
by conduct.
• An offer can be made to a particular person, a group of people, or to the whole
world.
• An offer can be revoked at any time before acceptance, unless it is in the form
of an option.
• An offer can be terminated by rejection, counter-offer, lapse of time, failure of a
condition, or the death of a party if the contract is one of personal service.

Question 8.6 Explain why it is necessary to distinguish between an offer

and an invitation to treat.

An invitation to treat is not an offer, but rather is an offer to consider offers. This is
because the person making the statement does not intend for their words or
conduct to constitute an offer—for example, as in the case of advertisements. An
invitation to treat cannot be accepted and can never give rise to a contract.

An offer is a clear expression of the terms under which a person is prepared to

enter into a contract with another person and be bound by their acceptance of
those terms. In the case of an offer, the person making the offer does intend to be
bound by the offer. The distinction is important because acceptance of an offer
brings a contract into existence.

Question 8.7 Under what circumstances will an apparent invitation to treat

situation become an offer?

An apparent invitation to treat can be construed as an offer where it is clear in the

circumstances that a party intends to be legally bound. In that case, the words or
conduct used will constitute an offer.

An example of where an advertisement was thought by the advertiser to constitute

an invitation to treat, but the courts considered it to be an offer, can be found in
Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256. The Carbolic Smoke Ball
Company published an advertisement claiming that anyone who used their ‘smoke
balls’ according to their instructions would not catch influenza. If an individual did,
the firm would pay them £100. As a sign of good faith, the Carbolic Smoke Ball
Company deposited £1000 with their bankers, and it was this fact that the court
considered clearly evidenced an intention to pay anyone who performed the
conditions of the offer and who claimed the money.

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Question 8.8 Explain under what circumstances an offer can be terminated.

An offer can be terminated in the following circumstances:

• revocation (withdrawal);
• rejection or counter-offer;
• lapse of time;
• the death of a party where that person’s personal involvement is necessary; or
• failure of a condition

Question 8.9 Andrew offered to purchase Rob’s house and gave Rob six
weeks for a definite answer. Rob, on the basis of this offer, bought another
house. Before the six weeks expired, but after Rob had bought the second
house, Andrew withdrew his offer. Is Andrew entitled to do this?

This question deals with the problem of offer and acceptance, and, in particular,
with the withdrawal/revocation of an offer.

Andrew has offered to purchase Rob’s house and given Rob six weeks in which to
indicate his acceptance or rejection of the offer. From the information given in the
question, it seems that no consideration has been given to keep the offer open by
Rob. If consideration had been provided by Rob to keep the time period open, then,
as in the case of Goldsborough Mort & Co Ltd v Quinn [1910] HCA 20, there would
have existed an option contract and Andrew would then have had no right to
withdraw the offer until the expiry of the agreed six weeks.

As it appears that Rob has given no consideration to keep the promise open, as in
Routledge v Grant (1828) 4 Bing 653, the court would come to the conclusion that
before Rob bought another house he should have accepted the offer. It makes no
difference that Rob, relying on Andrew’s intention to maintain his offer, had gone to
the expense of buying another house in the place of the one he expected to sell. A
promise unsupported by consideration will not be binding on the offeror, and may
be withdrawn at any time up until acceptance or the time period lapses.

(Note: Routledge v Grant does not appear in the text.)

Question 8.10 Hardy sent out a circular to all his clients which read: ‘We
are instructed to offer for sale by tender the stock-in-trade of ABLE
Imports … which will be sold at a discount in one lot … The tenders will be
received and opened at our offices.’ Spence submitted the highest tender
but Hardie refused to sell the goods to him. Has a contract been concluded
between the parties?

The question requires consideration of tenders and whether or not there is an

invitation to treat or an offer in the circumstances of these facts.

Tenders are generally treated as an invitation to treat. The facts are similar to
Spencer v Harding (1870) LR 5 CP 561. The defendants sent out a circular saying
that they were instructed to offer certain stock-in-trade for sale by tender. The
plaintiffs submitted a tender, but the sale did not proceed. The court held that there
was no undertaking to sell to the highest bidder, rather an indication that the
defendant was willing to consider offers.

Where the tender clearly states that the highest or lowest tender will be accepted
then it will be considered to be an offer: Harvela Investments Pty Ltd v Royal Trust

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Co. of Canada (CI) Limited [1986] 1 AC 207.

Here it appears, from the information given, that the announcement calling for
tenders by Hardy was not a firm promise to sell to the person submitting the
highest tender. It only indicates that he was prepared to receive offers to buy. As a
result, Spence cannot demand that the goods be sold to him.

TUTORIAL QUESTIONS

Question 1 Could an offer sent by fax be accepted by letter if the offeror

had not specified a particular method of acceptance? Give reasons.

If the offeror had specified a particular method of acceptance, the offeree must
comply with that method. However, since the offeror has not specified a particular
method of acceptance, the general custom of the trade or what is reasonable in the
circumstances is deemed to be an appropriate means of acceptance. Therefore,
since the offer has been sent by fax, it suggests a sense of urgency with respect to
the reply and thus a response by fax or a method as fast or faster would be
effective.

Question 2 Explain what is required for an offer to be validly accepted.

For an offer to be validly accepted, it:

• must be made in reliance on the offer;
• must be strictly in accordance with the terms of the offer;
• must be communicated to the offeror orally, in writing or by conduct;
• cannot be a cross-offer;
• can only be accepted by the party to whom the offer was made;
• must be absolute and unqualified; and
• once made, cannot be revoked without the assent of the offeror.

Question 3 Explain why the rules as to acceptance differ between contracts

by post and instantaneous communication.

The rules as to acceptance differ between contracts by post and instantaneous

communications due to the speed by which the offer and acceptance can be made.
Where the parties decide to use post as the means of exchanging promises, the
offeror is taken to have contemplated and intended that the offer be accepted by
post or a method of similar speed. Thus, the rules as to the time of acceptance
dictate that an offer made by letter is not effective until received by the offeree and
acceptance is effective as soon as it is posted. Where the communication of offer
and acceptance is instantaneous, the postal rules do not apply; the contract is
formed when acceptance is received: Entores Ltd v Miles Far East Corp [1955] 2 QB
327.

Question 4 How can businesses that make offers protect themselves from
the risk of loss associated with the rules of offer and acceptance by post?

If businesses make offers by way of post, they should frame their offers carefully in
such a manner as to promote their goods or services in a manner that would be
considered an ‘invitation to treat’. An invitation to treat is not an offer, even if it is
described as an offer, and, as such, cannot be accepted. A party who responds to
such advertising would be the one making the offer, which could then be accepted
by the relevant business.

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Question 5 What problems can you envisage occurring where businesses
use printed standard order forms in the course of negotiations?

Where businesses use printed standard order forms in the course of negotiations,
there can be problems in ascertaining whether or not agreement has actually
transpired and, in some cases, which party’s terms will form the content of the
contract.

Question 6 Is it possible for a contract to be formed without an identifiable

offer and acceptance? If so, how does a court determine whether
agreement has been reached? What tests does a court apply?

It is possible for a contract to be formed without an identifiable offer and

acceptance. In such cases, a court determines whether or not an agreement has
been reached by considering the respective parties’ conduct. The court may infer a
contract from the parties’ conduct and acts, in addition to, or in the absence of,
their words: Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust)
Pty Ltd (1988) 5 BPR 11, McHugh AJA at 110.

The court must consider whether or not the facts, when viewed objectively and as a
whole in light of the relevant circumstances, demonstrate that, from the
perspective of a reasonable person on both (or all) sides of the agreement, it can
be seen that a concluded agreement has been reached.

If the parties have not yet agreed on essential or critical terms that they regard as
necessary for the creation of a binding agreement, the court cannot find such
agreement exists: see, for example, Azzi v Volvo Car Australia Pty Ltd [2007]
NSWSC 319.

Question 7 A contract to purchase a car contains the following clause: ‘If

you are not completely satisfied with the car, return it in good condition
within seven (7) days and we will give you your money back.’ Is this
clause a condition precedent or a condition subsequent? Explain your
answer.

The clause quoted from the car purchase contract is a condition subsequent. A
condition subsequent clause is one that causes the contract to terminate, as the
parties have stated that the occurrence of a particular event will give the parties
that right. Unlike a condition precedent, a condition subsequent is activated when
the contract is already in operation. In this situation, the condition subsequent is
the purchaser’s dissatisfaction with the car and its return in good condition within
seven days, which, if it were to occur, would terminate the contract.

Question 8 On 7 March, Brendan sent a letter by express courier to Sydney

offering to buy fabric from Steven. At the foot of the letter he added:
‘Please write and return by express courier whether you accept my offer.’
The letter was delivered to Steven on 8 March, and he wrote accepting the
offer. However, instead of giving the letter to the express courier, Steven
sent it by post. An express courier letter would have arrived back in
Melbourne on 9 March, but the letter of acceptance did not arrive until 12
March. On 15 March, Brendan replied to Steven’s letter saying that he had
bought his requirements of fabric elsewhere. Steven claimed that there
had been a breach of contract. Advise Brendan as to his legal position.

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Brendan specifically informed Steven that he wished his offer to be accepted by
express courier. Where the offeror specifies a special or particular method of
acceptance, it must be followed exactly. Steven failed to do this; he accepted the
offer by regular post. Therefore, his acceptance may not be recognised as an
agreement between the two parties. Had Brendan stated that the offer would only
be accepted on receipt by him via express courier, he could have excluded the
operation of the postal rules and then definitely been able to ignore Steven’s
acceptance by post. However, Brendan only stated a desire for the acceptance to
be via express courier.

Applying the postal rules, Brendan’s offer was made on 8 March, when received by
Steven, and accepted that same day when posted by Steven. For Brendan to
successfully revoke his offer, the revocation must have been received by Steven
before he posted his acceptance. Since the revocation did not occur until 15 March,
such termination of the contract by revocation would not be permissible under the
postal rules. See Byrne & Co v Leon Van Tienhoven & Co [1880] 5 CPD 344.

Question 9 An insurance company advertised an invitation to the public to

subscribe for shares. Grant applied for 100 shares through the mail. The
shares were duly allotted to him, and a letter of allotment was posted.
However, the letter got lost in the mail and was never received by Grant.
Nothing further was heard from the company for several years until a
demand for payment of $400, a call on the shares. Grant claimed that he
was never a shareholder and refused to pay. Advise Grant.

Grant could argue that the insurance company was simply advertising its shares to
the public, which should thus merely be viewed as an ‘invitation to treat’. An
invitation to treat is not an offer, even if it is described as an offer, and, as such,
cannot be accepted. Therefore, Grant, as a party having responded to such
advertising, would be the one making the offer, which could then be accepted by
the relevant insurance company. Since, by way of the postal rules, acceptance is
effective as soon as it is posted, the contract concerning the shares would be
complete upon the insurance company’s posting of Grant’s 100 allotted shares to
him, despite the letter having been lost in the mail. Alternatively, if the insurance
company’s advertising was specific as to the number of shares it had available for
the public, it might be deemed to be an offer (Partidge v Crittendon [1968] 2 All ER
421), in which case Grant’s application for 100 shares through the mail would have
constituted acceptance of the offer.

Question 10 Kelly was very thirsty, so when she passed a vending machine
owned by Vending Machines Pty Ltd selling ‘icy cold Coke’ she couldn’t
resist. After checking the price on the machine and that she had the
correct change, she inserted the coins in the machine and pressed the
button. The machine accepted the payment but did not give her a drink.

Advise Kelly whether a contract exists and with whom.

The display of ‘icy cold Coke’ for the advertised price in the vending machine is an
example of an offer as there is an intention or a willingness to be bound by the
offer to supply purchasers with the goods displayed. The offer is accepted when the
correct change is inserted into the machine. Thus, a contract exists between Kelly
and Vending Machines Pty Ltd, which has been breached by the latter.

Question 11 Jenny received a circular from Beauty and the Beast Hair
Salon advertising massages and manicures for $10. Realising that this was

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an exceptionally good deal, but not surprised because she knew that they
had only just opened and were running a number of good opening specials,
she rang and made a booking.

When Jenny arrived at the salon she was told that there had been a
mistake on the circular and it should have said $100. The manager of the
salon explained that this was still a good price because normally a
massage and manicure would cost $150.

Jenny was furious, as it had taken her 30 minutes to get to the shop by
car, and if she had known it would cost $100 she would never have made
the booking. Advise Jenny.

Would your advice have been any different if Jenny had the massage and
manicure before being told that the cost was $100? Would she have to pay
the full price?

The circular from Beauty and the Beast Hair Salon advertising massages and
manicures for $10 is an example of an ‘invitation to treat’: Pharmaceutical Society
of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401; Grainger &
Sons v Gough [1896] AC 325. An invitation to treat is not an offer, even if it is
described as an offer, and, as such, cannot be accepted. Therefore, Jenny, as a
party having responded to such advertising, would be the one making the offer for
a massage and a manicure for $10, which Beauty and the Beast Hair Salon would
then reject and counter with an offer of those services for $100 (Hyde v Wrench
(1840) 3 Beav 334), which was what it had intended to advertise in its original
circular. Jenny would then have the option to accept or reject that counter-offer.

If Jenny had the manicure and massage before being told the cost was $100, it
could be argued that an agreement existed between the parties for these services
to be provided for $10 based on Jenny’s conduct—she would not have driven a one-
hour return journey had she known the cost of the services was $100. However, a
court may question if, on the facts, when viewed as a whole and objectively in light
of the surrounding circumstances, that, from the point of view of a reasonable
person in Jenny’s position, it would have seemed a reasonable offer that a manicure
and massage be provided for only $10. In this circumstance, it is difficult to advise
whether or not Jenny would have to pay the full price ($100). The parties might try
to negotiate a compromise by way of counter-offer/s (Hyde v Wrench (1840) 3
Beav 334).

In either situation, Jenny may have recourse against Beauty and the Beast Hair
Salon by way of the Australian Consumer Law (ACL) provisions, and particularly ss
18 (misleading or deceptive conduct) and 29 (false representation). Care must be
taken when advertising pricing by an offeror when promoting or selling their
services. Beauty and the Beast Hair Salon would not be able to rely on their
‘mistake’ in advertising a price of $10 rather than $100 as a defence to civil
proceedings being taken by Jenny for misleading and/or deceptive conduct or
misrepresentations about price under the ACL.

Question 12 Greta decided that it was time to sell her car. However, she
was not certain of its value and so, when she advertised the car, she left
out the price. When Sam responded to the advertisement, he asked for the
price. Greta responded by saying, ‘Oh, I don’t know. I guess a fair price
would be around a couple of thousand dollars’. When Sam arrived the
following day with $2000 for the car, Greta told him that she really meant

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$2500.

Does a contract exist?

The price of the car is an essential term for a binding agreement with respect to the
sale of Greta’s car. Unless Sam agrees to the price of $2500, Greta and Sam have
not come to an agreement with respect to this critical matter, and, as such, there
can be no contract between them: Azzi v Volvo Car Australia Pty Ltd [2007] NSWSC
319.

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