Download Question 1: (Offer and Acceptance)

Contract Law
Tutorial Preparation
Tutorial 1:
Introductions, introduction to problems solving
Question 1: (Offer and Acceptance)
Tony, a car dealer in Sydney, advertised that in order to stimulate interest in the new range of Holden
cars, he would sell a car at 50% off the normal price to the first ten customers on the following Monday.
After reading the advertisement Edna travelled from Newcastle on Sunday, spent the night sleeping on
the footpath outside Tony’s showrooms and was the first customer to enter the premises on Monday
morning. Edna told Tony that she wanted to buy a car on the terms of the special offer, but Tony replied
that he had changed his mind and Edna must pay the full price. Advise Edna.
Using template:
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We are acting for Edna.
Edna wants to buy the car at a 50% discount or at least be compensated for her
journey/expenses.
The cause of action is that there was no contract formed (issue in offer/acceptance)
Issue 1: Was there an offer?
 Advertisements are not usually considered offers, merely “invitations to treat”: Partridge v
Crittenden [1968] 1 WLR 1204
o Ad for selling illegal bird, prosecuted for offering bird up for sale
o Held: advertisement was merely an invitation to treat, and not an offer
 However, Carlyl v Carbolic Smoke Ball shows us that an advertisement may be held as more than
an invitation to treat if it is specific enough, and shows an intention to be legally bound.
 To settle this, there is an objective balance:
o On the one hand, by limiting the acceptors “first ten customers on ... Monday”, it seems
that it is closer to being an offer: Lefkowitz v Great Minneapolis Surplus Store [selling
furs]
o On the other, the offer was not that specific (not offering a specific price, or a certain
model of car), and as such could not constitute a valid offer.
 I do not think that this would constitute a valid/binding offer because of its vagueness.
Issue 2: Was the offer accepted?
 It is clear that Edna intended to accept this offer.
 It is clear, also, that in cases of unilateral offers, acceptance need not be expressly
communicated, but, rather, may be implied through action (Carlyl).
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However, was her action in attempting to accept the offer going to Newcastle? That seems
insufficient for a purchase. However, Lefkowitz seems to show that this is acceptance.
Issue 3: Was the offer successfully revoked?
 In the case of a bilateral contract, it is sufficient for the revocation of the offer merely to be
communicated (Dickinson v Dodds (1876)).
 However, this is a unilateral contract, and it would be difficult to revoke the offer personally. As
such, Shuey v US (1875) allows that if the offer was revoked as prominently as it was advertised,
the revocation holds. This did not occur in this case.
 In my opinion, you could get around this: the purpose of Shuey was to allow for the revocation
of unilateral contracts indirectly, not restricting their direct revocation.
 If we accept that Edna’s trip to Newcastle is acceptance, than both revocations are invalid since
the contract is now executed.
 If we say that Edna’s acceptance was to occur on purchase, then it is likely that a court will find
that the offer had been successfully revoked.
Conclusion:
 Estoppels?
 Unlikely that the offer was made, dubious acceptance, probable revocation: it is likely that the
court will not find in favour of Edna.
Question 2: The Nature of Contract and Contract Theory
Excited by the prospect of the World Hang Gliding championships coming to their area they decided to
expand their business. Realising they would need extra finance Charles consulted the Regal Bank. Regal
agreed to advance Charles and Camilla the sum of $200,000.00 to finance renovations and ongoing
business costs however, as security, the bank required a personal guarantee and a mortgage from
Charles visited his parents Liz and Phil and explained the arrangement. He assured them that the
business was fine and the venture would prosper. In fact, just that week, Charles had secured a large
contract with the Hang Gliding 2007 organising committee for a three week conference at Winn’s Ore in
December. The conference and associated accommodation at the mansion would net $400,000.00.
(Well, not quite. He had actually tendered for the conference but did not know if he had won the
tender, but Liz and Phil didn’t need to know that).
Charles explained to his parents the mortgage and guarantee would be for only 6 months and for not
more than $200,000. The next morning, the bank manager (an old friend of the family and their long
time adviser) visited ‘Sandringham’. Phil was busy with his stamp collection and Liz was exercising her
pit corgis. Phil greeted the bank manager and they had a pleasant chat in the gardens, when they got to
the topic of ‘Charles and Camilla’ Phil confidently advised the bank manger that Charles had already
explained everything.
The bank manager realised the hard part was done and duly produced the mortgage and guarantee for
signing. Phil quickly perused the documents and signed them both. Phil called Liz, who was now in the
kitchen preparing a pot of tea and some scones, to come out and sign the documents. Liz duly complied,
she did not bother to read the documents as Phil looked after those sort of things and she would do
anything for Charles.
The mortgage and guarantee were for an unlimited period and an unlimited amount.
Ten months later and unfortunately Charles and Camilla did not win the conference tender and the
renovations were far more expensive than anticipated. Their business is bankrupt and Charles and
Camilla have disappeared. The Regal Bank advises Liz and Phil that Charles and Camilla now owe the
Bank $600,000 and it is going to sell ‘Sandringham’ if Liz and Phil do not repay the debt immediately.
Liz and Phil protest as they thought the contract with the bank was for 6 months and for $200,000 and
in any event the bank should have explained the documents to them. The Bank maintains that they
signed the documents so they should be bound.
Questions:
Note: This case is almost identical to the one we did in the first lecture ... Amadio? ... The difference
being that the bank did not have a personal relationship with the borrower and there was no language
barrier.
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What is the role of contract law in this situation?
o Contract law seeks to (1) make sure there was a meeting of the minds, (2) enforce
the agreement.
How would this case be approached under classical contract theory?
o You signed a document, bound by the 4 corners of the contract, deal with it.
Can one of the ‘feminist’ approaches be taken?
o Yep! As per Amadio: STDebt, emotional connection w child preventing reasonable
contract.
What are the economic consequences of Liz and Phil succeeding?
o Break sanctity of contract, reduce lending want by increasing risk, destabilising the
markets.
In advising the parties what moral and ethical issues arise?
o Is it ethical for the bank to press the contract with the knowledge that the terms
were not known?
o Can the family ask for the contract to be broken when their laziness (not reading the
contract) and trust of their son (fault of a third party, not the contracting party)
contributed to the dilemma?
o Did the banker abuse his position of social intimacy with the client?
Notes on Contract Law Theories
o Classical approach/black-letter tradition
 Lassiaze faire. Based on agrarian history of markets, that everyone was on
equal footing in entering into a contract (less relevant today) and, thus,
should watch out for what they promise (i.e. tough love)
o Economic theory
 Contracts facilitate economic exchange. Based on division of labour
requiring the exchange of goods for aggregate social benefit
 That the court should not interfere so as to not destroy the market
mechanism/balance
o Ideological functions as central (CLS)
 Contract used to prop up the powerful
 Because of unequal bargaining power/informational advantage the court
may be able to step in
o Feminist analysis
 That the contract is a male construct and does not allow for the difference
between men and women
E.g. sexually transmitted debt and the requirement for banks to clearly get permission for
wife/mother guarantees of debt
Tutorial 2: Agreement
QUESTION 1: Offer and Acceptance, Postal Acceptance Rule, Consideration
Samantha was a city accountant who now lives in the country to escape the rat race. She needed a fourwheel drive motor vehicle to access certain areas on her farm. She saw an advertisement in the local
newspaper as follows:
‘BEST CAR YARD. Car auction next Monday. No reasonable offer refused.’
Samantha travelled 150 kilometres to the auction. She saw a black Land rover that she liked. When it
came up for auction Samantha made several bids including the highest bid of $25,000. Nevertheless, the
auctioneer refused to ‘knock down’ the sale and told all bidders that the car was withdrawn from sale.
After the auction, Bob, the owner of the car, approached Samantha. He told her that the Land rover had
great sentimental value to him; but that he would sell it for $27,000.Samatha said she would think it
over at home. Bob said she would have to be quick, as the car would be sold ‘any day now’.
By the time Samantha got home she decided to buy the car so emailed Bob agreeing to buy the car for
$27,000. She told him she would collect it the following week. The next day she received a message on
her computer that her email to Bob had not been successfully sent. She breathed a sign of relief as she
had just received a telephone call from her mother who wished to give Samantha a Prado four-wheel
drive to her as a birthday present.
Bob hears about the email and gift. He still has been unable to sell his Land rover and considers that
Samantha has agreed to buy it.
Advise Bob. How could Bob have avoided this situation?
Issue 1: Offer and Acceptance
When was the offer made?
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The advertisment
o The original advertisement was merely an offer to treat, and was not specific enough to
be an exception to this rule which would have made it a unilateral offer (Carlyl v Carbolic
Smoke Ball).
The auction
o In an auction there is no legal relationship until the fall of the hammer (Payne v Cave).
o Samantha’s bid was an offer, but it wasn’t accepted.
o However, it wasn’t revoked either…
 Bob made a counter-offer after the close of the offer (for $27k rather than $25k)
thus negating her offer (Hyde v Wrench (1840)).
o At this point we have his conditional offer (she has to “hurry bc sold any day now”) for
$27k.
Issue 2: Postal Rule
 The email
o The traditional postal rule would state that the offer is accepted once properly poster
(Adams v Lindsell (1818)).
o This has been extended to instantaneous communication (Entores Ltd v Miles Far East
Corp [1955]).
o Was the “letter” properly posted? Is the email counted as received once it has left
Samantha’s computer or once it has reached Bob’s server, or once Bob has read it?
o This has not been decided, I think the case would be when it enters the server.
 If it is taken that the email is not a communication of acceptance; that Bob has heard of her
acceptance is insufficient (unless it was by a competent person, but that is not discussed?)
Issue 4: Consideration
 Even if the email was a valid acceptance of Bob’s offer, did any consideration exchange hands?
o There was the promise to pay
o There was the promise to give a car
o Did the consideration move from the promise? (Coulls v Bagot…)
 A bit confused?
To protect from this type of fault, he should have required a mode of instantaneous communication (i.e.
telephone)?
QUESTION 2: Offer and Acceptance, Consideration
Allan agreed to build a house for Bobby on Bobby’s land, at a price of $90,000. $45,000 was to be paid
on the signing of the contract, the balance to be paid when the house was completed. Bobby paid
$45,000 when the contract was signed. Allan commenced working on the foundations of the house but
three weeks later announced that, contrary to expectations, the soil was very marshy and that he could
not proceed with the house unless Bobby paid him an extra $10,000 for the cost of the extra work he
had to do. Otherwise he would make no profit. Bobby reluctantly agreed to therefore pay $55,000. The
house was completed but Bobby then paid only $45,000.
Can Allan recover the extra $10,000? Assume no legislation applies. What should Allan have done
initially?
Issue 1: Offer and Acceptance
It is clear that the offer and acceptance occurred, with consideration being paid, for the original
contracted sum of $90k. However, only the original terms are binding in this contract, not the added on
contract. The question is, was a new contract formed when the contract was renegotiated? There was
an offer to continue to work, and it was accepted, so this element is satisfied.
Issue 2: Consideration
Bobby’s consideration was the promise for an extra $10k. Was there a valid consideration from Allan?
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Vanilla? No, because he was already contractually bound to do what he said.
But there is another channel to circumvent this: via practical benefit as consideration (elements?)
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In Williams v Roffey Bros, the practical benefit was getting the goods on time:
o It requires no fraud (and, including Mousemici, duress or unconsciounability) which is
satisfied.
o It required a previous contractual agreement (though this requirement was later
obviated by Tinyow v Lee.
o It required that the benefit (getting the goods on time) outweigh the other benefit
(suing for breach). I don’t know whether this is satisfied, since the problem question
does not discuss creditors or why they were rushing…
Also perhaps as per Hartley v Ponsonby, whereby the promise (e.g. to continue) provided an additional
effort (the ground was marshy). However, this would probably fail since the conditions did not change.