Contract Law: Elements of Agreement and Formation of Contract

This article discusses the elements of agreement and formation of contract in Contract Law. It covers important concepts such as invitation to treat, offer, acceptance, intention, capacity, consideration, and postal rules. Two case studies are analyzed to illustrate the application of these concepts.

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BLOCK 1 TRIMESTER 1 2018: TLAW 101 BUSINESS LAW

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Question 1
Issue
Whether a contract was created with any of the three parties, based on the submitted tenders?
Rule
A contract can be created only when certain important elements are present under it. The
elements of agreement, i.e., offer and acceptance are followed by elements like intention,
capacity, consideration and consent (Clarke and Clarke, 2016). When a contract has to be started,
an offer has to be made, which shows that one party is offering the other party with something.
There is a need to differentiate an offer from an invitation to treat. The tenders are deemed as
invitation to treat due to the reason that they invite price for the particular task, which then
becomes the offer (Ayres and Klass, 2012).
The next requirement for creating a contract is for the offer to be accepted by the party to which
the offer is made and this acceptance has to be provided in a time based manner. The date of
acceptance is when it reaches the offering party (Andrews, 2015). Though, when it comes to
postal rules, this date of acceptance changes and this becomes the date on which the accepting
party posts the acceptance letter. It does not matter when the acceptance letter actually reaches
the offering party. This is because the postal officers are deemed as the agent of offering party,
resulting in the acceptance of postal officers as that of the offering party (Gibson and Fraser,
2013).
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It becomes crucial to note here that the postal rules apply in such cases only where the post has
been stated as a mode of acceptance or that there is reason enough before the offering party that
post would be used for giving the acceptance on a particular matter, as had been seen in
Tallerman & Co Pty Ltd v Nathan's Merchandise (1957) 98 CLR 93.
Application
The facts of this case demonstrate that the University had invited tenders openly where a closing
date of 01st June had been set. As the tenders are the invitation to treat, this invitation would be
deemed as invitation to treat. Each reply to this tender would become an offer. Each of the offers
made by the different parties need to be analysed now. Greenland sent their offer through hand
as the offer was delivered through hand. The laws stated here provide that the date of offer is the
date when the offer actually reached University which was 29th March. In the case of the second
party which is Enviro, the offer was sent through post on 15th May, resulting in the date of offer
being 15th May as a result of applicability of postal rules. The offer of Plant Forever was posted
on 30th May and this would be offering date for them.
Coming to the acceptance part, the Enviro offer had being forgotten due to error on part of
administrative assistant of University, making it their fault. This fault resulted in no contact
being formed. In context of Greenland, their offer was not accepted owing to the rumours. It is
not obligatory to accept every offer, so no liabilities arise here. University accepted Plan
Forever’s offer through the postal mode. Based on Tallerman & Co Pty Ltd v Nathan's
Merchandise, this would be deemed as a valid mode of acceptance as it was the mode being used
for every communication. And the acceptance of postal officer would make the acceptance of
University and it would not matter that the post was destroyed.
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Conclusion
Thus, a contract was only formed between University and Plant Forever, and by not following on
the contract, Plant Forever would breach the contract.
Question 2
Issue
Whether a contract was created based on ten day communication?
Rule
There is a difference between offer and invitation to treat, as the latter lacks intention. The
invitation to treat is merely a showcase of negotiations phase of the contract and it may not
necessarily result in a contract. The offer shows that the parties are ready to take on the
contractual liabilities. Newspaper advertisements are deemed as invitation to treat in general as
per Partridge v Critenden (1968) 2 All ER 425. These do not result in the parties being forced to
undertake what has been advertised in the newspaper advertisement (Lambiris and Griffin,
2016).
Once the offer has been made, it needs to be accepted in the exact same manner in which it had
been made. If the offer is changed while giving acceptance, a counter offer is made as per Hyde v
Wrench (1840) Beav 334, resulting in the original contract ending. It is important that the
contract is accepted by the party to which the offer had been made. The next requirement is for
the contract to have valid consideration having economic value. In absence of the contract
having a valid consideration, it would not be valid (Marson and Ferris, 2015). The parties need to
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have the capacity of entering in contracts in terms of legal age. The parties also need to have the
intention of creating legal relations (Latimer, 2012).
Application
The communication which took place in the ten days of October has different features. The
communication sent on 01st October would be deemed as an invitation to treat as it was a
newspaper advertisement due to applicability of Partridge v Critenden. There was a lack of
clarity in offer and lack of intention to sell the product. The communication sent on 02nd October
show negotiations being taken up. This resulted in Famous Footwear making an offer. The next
communication which occurred on 04th October showed James making an offer as a result of
invitation to treat, where the offer of $30,000 including GST and delivery was made for 2000
pairs of slingback sandals.
The next communication is the one which came on 06th October where a counter offer was made.
The reason for this is that it was stated that “Footloose will sell 2000 pairs of slingback sandals
for $30,000, excluding delivery.” Thus, based on Hyde v Wrench, this would be considered as a
counter offer, which would mean that the offer sent on 04th June is no long open for being
accepted. The 08th October communication shows James accepting the offer made by Simon on
06th June. Yet, a contract was not completed due to lack of clarity in the “earliest delivery date”.
The last day communication, which occurred on 10th October, would be taken as the date on
which a contract was actually formed as this is the date of finalizing the entire terms on which
the contract between the two parties had to take place, where it was agreed that 01st November
would be the date of acceptance. This is the stage where all the elements required to form a
contract were present in terms of offer and acceptance being present, along with consideration
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value, clarity regarding terms of contract, and intention between the parties. As there is nothing
to prove the contrary, the capacity of the parties is assumed to be present.
Conclusion
Thus, it can be concluded that a contract was completed on 10th October where every details of
the contract was clarified, resulting in contractual relations between James and Simone being
created.
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References
Andrews, N. (2015) Contract Law. 2nd ed. UK: Cambridge University Press
Ayres, I., and Klass, G. (2012) Studies in Contract Law. 8th ed. New York: Foundation Press
Clarke, P., and Clarke, J (2016) Contract Law: Commentaries, Cases and Perspectives. 3rd ed.
South Melbourne: Oxford University Press.
Gibson, A., and Fraser, D. (2014) Business Law 2014. 8th ed. Melbourne, Pearson Education
Australia.
Hyde v Wrench (1840) Beav 334
Lambiris, M., and Griffin, L. (2016) First Principles of Business Law 2016. Sydney: CCH.
Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia
Limited.
Marson, J., and Ferris, K. (2015) Business Law. 4th ed. Oxford: Oxford University Press.
Partridge v Critenden (1968) 2 All ER 425
Tallerman & Co Pty Ltd v Nathan's Merchandise (1957) 98 CLR 93
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