The Essentials of Offer and Acceptance

Issues

1. Whether there is a binding contract amid Sam and Josie?
2. If Sam can establish that there is a contract with Josie, then, what remedies he can seek if there is violation of contract terms?

Applicable law

An agreement when is enforceable by law results in contract formation. An agreement is initiated by an offer which is made by an offeror through which the terms and conditions are communicated to an offeree (Smith v Hughes). The offeree when without bringing any changes to the terms of the offer agree to the same then it is an acceptance. If changes are made before acceptance then it is counter offer which is not an acceptance in law. A counter offer cancels the offer and when the counter offer is accepted again then there is formation of agreement (Australia cotton case ).

When one person invites people whew to receive offers then it is invitation to treat. In invitation, an inviter display his goods for sale or conduct auctions, or tenders or issue advertisement through which he invites the willing offeror and when offers  are received and if are confirmed by the inviter, then, but makes a binding agreements amid the parties (Pharmaceutical Society of Great Britain v Boots).

When an acceptance is made then the same should reach the offeror and it is then only the acceptance is declared to be valid (Carlill v Carbolic Smoke Ball Company. But, when an acceptance is made with the help of post then there is no need that such acceptance must come within the knowledge of the offeror. It is complete there and then (Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd.

Also, if offeror wants to back out from his words then a revocation can be made but the same should be done before acceptance as an acceptance results in binding agreement (Brinkibon v Stahag und Stahlwarenhandelsgesellschaft mbH. If a revocation is made but is not heard by the offeree then in as per Re Imperial Land Co of Marseilles (Townsend’s Case), it was held that of the revocation is made in such a sense that the same is not heard by the offer because of the fault of the offeree himself, such as, faulty handset in uch situation, if the offeror leave the massage on the answering machine of the offeree then such revocation has full validity in law.  

Once a valid offer and acceptance are made then they must be coupled with consideration, intention and capacity to make an enforceable contract.

Application of law

Issue 1

No, Sam cannot sue Josie for breach of contract as there was no contract that was established amid the parties.

When an Invitation to Treat is Not an Offer

A sunflower painting is made by Jose whom she has displayed at her house and she quoted the price for the sale of the painting as $ 900.

The act of Josie simply reveals that she did not intend to make any offer, rather, by displaying the painting along with the quote of price she simply wish that offers must be received by her which she can accept or not. The rule in Fisher v Bell, establishing that articles which are displayed with tags are invitation to treat and not offer. Same is the case with Josie. So she has made an invitation to offer.

On Sunday, that is, 19^th February, the studio of Josie was visited by Sam.  He saw the sunflower painting and simply loved it. But, he is not able to pay the price of $900 to Josie, so he makes an offer to purchase the painting at $ 700.

Now, when the offer is made by Sam to Josie, it is up to Josie to confirm the same or not.

Josie instead of confirming the offer of Sam submits that the minimum offer she is willing to accept is not less than $ 800. Sam furnished that he has to consult his wife prior accepting the said offer.

To validate the wording, Josie made a written offer to Sam wherein she submitted that she is offering Sam a painting of sunflowers which is worth $ 800 and of Sam is interested in buying the painting then the same must be done till the midnight of 21^st February. Now, Sam must accept this offer till the midnight of 21^st February.

But before an acceptance is received from Sam, Josie again received an offer to buy the sunflower painting from Wendy at a price of $900. Considering the offer to be very profitable, Josie willingly accepted the offer of Wendy and sold the painting to Wendy.

Now, Josie intends to cancel the offer that is made by her to Sam. This can be easily done by her as till that time no acceptance was received by Josie from Sam.

So, Josie called up Sam and intends to communicate with him. But, she was not able to reach to him so she left a message on the answering machine of Sam that the offer that is made by her is no longer valid.

But the answering machine was not working so Josie left the message of the revocation on the answering machine. In the leading case of Re Imperial Land Co of Marseilles (Townsend’s Case)  it was held that when a revocation is made and the same is communicated through an answering machine then there is no need that the receiver must hear the revocation to make it valid as it will make the process of revocation very cumbersome. If the message is left on the answering machine then it is expected that the same must be heard by the receiver. So, it is presumed that Sam must have heard of the message and the revocation of offer is complete.

Consideration and its Importance

But, on the contrary the revocation is not heard and at 10AM, Sam called up to confirm the acceptance but was not able to talk to Josie and to make an acceptance complete it must be received by the offeror. Then he posted a letter of acceptance after an hour later. But, the letter will not make a valid acceptance in law because the offer was already revoked before the letter is posted.

Thus no contract is made amid the parties.

Issue 2

 If an offer that is made by Josie is validly accepted by Sam then there would have been a contract amid them. Now, the sale of the painting to Wendy will be considered to be breach of the contract. In such situation, the most essential term, that is, the sale of the painting which is the gist of the contract and for which the contract is established is shattered by Josie. So, Sam has every right to treat the contract repudiated and he is eligible to seek damages.

Conclusion

There is no contract that was initially made amid Sam and Josie. If it is assumed that a contract was nevertheless was formed amid Sam and Josie, then, Josie is not allowed to sell the painting to someone else. However, since the painting is sole by Josie to Wendy, thus, there is contractual breach by Josie. So, Sam can now sue Josie for breach and can claim damages.

There are few contractual elements that needed in any contract formation. A contract is initiated with an offer which is when accepted with legal intention by capable parties, then, it results in the formation of an agreement. To make an agreement enforceable in law it is very necessary that it must have some motivational force in the form of some kind of benefit and is called consideration in law.

Consideration is a kind of benefit which is moved by the promisor to the promisee to support the act or omission which is undertaken by the promisee on behalf of the promisor. Every consideration must be real in nature as an illusionary consideration has no value in law. A consideration need not be adequate but must be sufficient and can be in the form of non-monetary or monetary and is held in Re McArdles case. It was held in Currie v. Misa, a consideration was regarded as some profit, interest or benefit which is provided by one party to another against the responsibility which is given by the other party.  In Thomas v. Thomas also anything which is valuable in the eyes of law is considered as consideration. no consideration which is past in nature is held to be valid and is held in Roscorla v. Thomas.

Changes to Contract Terms and Pinnel’s Case

When a consideration is made by one party to another party then it must be something which is beyond what is normally expected from a party to indulge in as per the terms of the contract. so, if one party A is giving something extra to B so that B undertakes his pre existing duties within the contract, then , that something extra is not a valid consideration because there is nothing extra beneficial which is provided by B to A to support such consideration. In Stilk v Myrick, the crew was to help the captain of the ship to help him to travel amid Britain – Baltic Sea. But, during the journey of the ship two of the crew members refused to help the captain. At this point the captain promised that he will allocate the salary of those two crew members amid the other members. Later when the remaining members sue the captain for the extra salary, it was held by the court that the promise made by the captain is not enforceable because the promisee is made against the act which the members are already obligated to perform. There is nothing extra that is provided by them to support the promise that is made by the captain. So, the promise is not enforceable in law. If the crew member has done something extra then the promise would have been enforceable and is rightly anal used in the leading case of Hartley v. Ponsonby.

Now, if the parties to the contract intends to brings changes to the terms of the contract, then, it is settled law established in Williams v Roffey Bros & Nicholls (Contractors) Ltd, that when the changes are brought in then such changes must be supported by something extra on the part of the promisee. If the promisor is willing to pay something more but the promisee is not undertaking something extra then there cannot be valid consideration and the promise is not enforceable.

This law was later tried to be applied when the debtor is willing to pay part of his debt in full settlement of his claim and is rightly evaluated in the leading case of Pinnels Case. The facts submit that the debtor has to pay eight pounds to the creditor on a particular date. But, the creditor submitted that of the debtor will pay the less amount of money before the due date the he will consider the payment as full settlement of the claim. The debtor on the pretext if the promise made by the creditor pay part payment against the full settlement of the claim. However, later the creditor sues the debtor for the remaining amount of money. It was held by the courts that if any debtor is paying part of the debt which is against the full settlement of the claim then it is not a valid consideration to enforce such promises and thus is invalid. In Foakes v. Beer. It was held by the court that something valuable against an existing duty is not a good consideration and thus must not be enforced in law.

The Case Study and Issues Arising

So, it is a settled law that if any contract is made then it must be supported by some consideration, also, if changes are brought in the contract then such changes must also be supported by some extra consideration provided it is not a pre existing duty. So, the rule in Pinnels Case is a valid justification when applied in simple contracts.

However, this rule has resulted in great hardship to those debtors who in the belief of the promise made by the creditors pay them part payment of their debt in full settlement of the claim and later those creditors ask for the remaining amount that was due on the debtors. Thus, this is a kind of fraud that is incurred by the creditor upon the debtor. In order to escape from this fraudulent activity in the name of consideration there are few exception that are established to the rule laid down in   Pinnels Case.

1. If the debtor is paying part of the debt in advance against the full settlement of the claim, that is, not on the due date when the debt is to be actually paid to the creditor, then, such act of the debtor is valid and is held to be enforceable.
2. When the payment of part debt is considered to be valid for full settlement of the claim and such settlement is already pre decided by the parties as term of their contract, then, such part payment is held to be valid in law.
3. When the debtor has to pay money to the creditor at a place A but the same is paid as part payment to at some other place ‘B’, then, the payment is held to be valid for full settlement of the claim;
4. When the third party is paying the part payment and relive the debtor from his discharge;
5. If the debtor is paying something other than money to creditor as part payment then such is valid for full settlement of the claim;
6. If the debtor has paid the part payment to the creditor on the promise made by the creditor that he wills not being any subsequent legal action, then, there is a estoppel that is created against the creditor and then the creditor cannot bring any claims against the balance amount.
7. If a composite agreement is made amid the creditor and the debtor and it is mutually agreed amid them that the debtor is paying part of the debt for full settlement of the claim, then, the creditor as per the provision of Bankruptcy Act 1966, cannot bring any future action as the same will be considered as fraud on the part of creditor upon the debtor.
8. When the debtor has to pay the due amount to the creditor in some particular currency but the debtor pay in some other currency then it is held to be a valid consideration in law.

Hence, even though the rule established under Pinnels Case is very essential but it was found to be very harsh on the debtors who are paying the creditors in good faith and on the expectation that no future proceedings will be brought against them. In order to curb this menace, the exceptions are established so that those debtors who are acting in good faith and with the prior approval of the creditors do not face any kind of hardship.

Books/Articles/Journals

Eliza, Mik, ‘The Effectiveness of Acceptances Communicated by Electronic Means, Or – Does the Postal Acceptance Rule Apply to Email’ (Journal of Contract Law, 2009);

Malbon, J and Bishop, B, ‘Australian Export’ (Cambridge University Press, 30-Oct-2014).

Case laws

Australia cotton case (17 September 2003).

Brinkibon v Stahag und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34.

Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1.

Currie v Misa (1875) LR 10 Ex 153;

Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 527;

Fisher v Bell [1961] 1 QB 394.

Foakes v. Beer (1884).

Hartley v Ponsonby [1857] 7 EB 872.

Hartley v Ponsonby [1857] 7 EB 872

Pharmaceutical Society of Great Britain v Boots [1953] 1 QB 401;

Pinnels Case (1602).

Re McArdle (1951) Ch 669 .

Re Imperial Land Co of Marseilles (Townsend’s Case) (1871) LR 13 Eq 148.

Roscorla v Thomas. (1842) 3 QB 234

Smith v Hughes [1871] LR 6 QB 59.

Stilk v Myrick (1809) 170 ER 1168.

Thomas v Thomas (1842), 2 QB 851.

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1989] EWCA Civ 5.

Online Material

Clark, Julie, ‘Australian Contract Law’ (2012) < https://www.australiancontractlaw.com/law/formation-agreement.html#acceptance>.

kuklik, Alex ‘law of contract’ (2017)< https://sydney.edu.au/lec/subjects/contracts/Summer%202016-17/LPAB%20-%20Contract%20-%20Summer%202016%20-%20Lecture%203.pdf>.