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Offer and Acceptance Principles for Contract Formation

Lianne, a wealthy property developer, wants to treat her friends by hosting and paying for a mid-year party on 30 July. She wishes to outsource the party arrangements to a professional organiser and searches the internet for one.

The following advertisement on the website of maryspartytreats.com.au catches her eye:

On 10 June the following email exchanges occur.

Lianne emails Mary setting out her requirements for a Malaysian themed party including that country’s high quality ethnic food and drink, and live Joget and Zapin styles of music provided by musicians. She expects twenty people in her group, and asks for a quote. She tells Mary to direct all correspondence to her given email address.

In reply, Mary emails Lianne suggesting that the party be held on board a boat that will travel up and down the local river for a period of eight hours. Lianne responds immediately saying she likes the idea provided there is room on board for dancing, and enquires about the type of boat that will be used.

Three hours later, Mary emails Lianne with information about the boat and attaches a detailed quote for the amount of $10,000.

Lianne replies that the quote seems a bit high and proposes a price of $9,500.

In response, Mary approves this lower price on the condition that her new quote for the lower figure would only remain open for seven days, and provided a 10% non-refundable deposit was received in that time-frame. As added encouragement, she writes, ‘I really hope to hear from you soon’.

Lianne’s personal commitments distract her from responding to Mary’s last email. It is only on 20 June, that she contacts Mary again and on that date, the following exchanges occur.

Lianne sends Mary an email saying ‘go ahead with my party for $9,500. I’ll forward the deposit to you by the tomorrow’.

Mary replies, ‘Sorry, but the price is now $10,000 due to increased costs’.

Annoyed by this, Lianne writes, ‘You’re actually bound by your $9,500 offer. But I don’t want to quibble. So go ahead with the $10K deal’. Thirty minutes later, Lianne has a change of heart and sends another email to Mary stating, ‘I’ve changed my mind. The deal is off’.

Mary does not read these last two emails from Lianne because Mary’s computer had just experienced hard drive failure. She has no other electronic devices to access her emails, and the technical problem is not resolved until five hours later.

When her computer is repaired, Mary reads for the first time Lianne’s two earlier emails.

Mary has found Lianne to be a demanding client - or potential client. She had spent some time and effort preparing the quote, and believes they have a contract.

  • Explain whether the parties had entered into a contract with one another. Your answer should include analysis of

.all the parties’ exchanges and their legal significance (if any)

.whether any opinions or views held by the parties are correct or not. ( Furthermore, beware of the words or descriptions used by the parties throughout the facts as these are only their interpretations of events, and may be incorrect)

  • Assume for this part only, a contract was formed between the parties for the price of $9,500. On the agreed date of 30 July, Lianne arrives with her friends who boarded the boat arranged by Mary. The food and drink supplied by Mary ( through her supplier, Food Organics Ltd) was totally different from what Lianne had ordered, as it consisted of Russian-style food rather than Malaysian cuisine. Furthermore, the boat was extremely cramped and it was a tight squeeze to accommodate all the party guests, let alone the musicians, leaving no room for dancing. All the food was consumed. Upset by this, Lianne complains to Mary, ‘I’m a consumer and I have rights, you know!’.

Advise Lianne of her rights, if any, against Mary under the relevant legislation.

Advertisements published by businesses appear in various media such as television, radio, print, or internet. In Australia, as elsewhere, advertisements are designed to have a certain impact or effect on those who see, read or hear them. An example appears in the facts of Question 1 (above).

The business advertiser needs to be careful about statements made in its advertisements given that they are subject to legal rules developed by the courts as well as by parliament ( through legislation).

Discuss this statement.

( Ensure you do discuss the statement, with which you may agree or disagree. Refer to relevant legal authorities such as cases and legislation in support.)

Offer and Acceptance Principles for Contract Formation

Issue 1

The question which needs to be analyzed in relation to given circumstances is whether a valid contract has been formed between Mary and Lianne in relation to the correspondence between them.

Rule 1

A contract is defined as a legally binding agreement which is enforceable in the court of law. The clauses contained in such agreement are binding in the legal manner upon those parties which enter into it. There a certain requirements for the purpose of making an agreement a binding contract. They are primarily, offer and acceptance, intention, capacity and consideration.

The process in relation to the formation of contract is commenced by the advent of an offer. Offer has to be accordance to law which means it should be complete and must be specific and certain. If an offer does not have such elements it is regarded as invitation to treat as provided by Blackpool & Flyde Aero Club v Blackpool Borough Council. The offer in order to be valid must contain at least the elements of price, description of goods and services, validity and time of delivery. As provided by the case of AGC (Advances) Ltd v McWhirter an advertisement is treated by law as an invitation to treat. However compete advertisements can be considered as a valid offer.

The next element for the formation of contract is an acceptance. An acceptance is the consent given by the party who has received the offer to be bound by the terms of the offer in return of a consideration. As provided by the land mark case of Hyde v Wrench  an acceptance must be unequivocal.  The case signified that the offer has to be accepted without any alternation or additions to its original clauses. In case any alteration is cited through the acceptance it would be regarded as an invalid acceptance in law and would be termed as a counter offer. A counter offer ends the original with respect to the process of rejection and the offer cannot be accepted in future.

An acceptance needs to be informed to the offeror (the person making the offer) by the offeree (the person to whom the offer is made) through a proper mode of communication. The mode of acceptance may be prescribed by the offer or may be any reasonable mode in which is accepted by law. One significant mode of acceptance is through the mode of post. In the landmark case of Adams v Lindsell the postal rule in relation to acceptance had been discussed by the court. In this case it was ruled by the court in the light of equity that an acceptance should be considered as completed when a letter which has been posted by a person goes beyond his control. This means as soon as the letter is posted it should be deemed that the acceptance is made without considering whether the letter has reached its destination or not given that the letter had been addressed appropriately.

Analysis of Exchanges between Lianne and Mary

In modern day communication where the post is hardly used and emails are the new form of post the postal rule is applicable in the same way as provided in the Lindsey case. As provided in the case of Chwee Kin Keong v Digilandmall.com Pte ltd applying the principles of the postal rule in the situation of an email it can be interpreted that an acceptance through an email is made as soon as the letter leave the computer of the acceptor and it is not considered whether the offeror reads it or not.

In the famous case of Dickinson v Dodds it had been ruled by the court that an offer can be revoked by the offeror any time before the offer has been accepted. However once the offer has been accepted a contract is formed and it becomes legally binding on the parties as provided by the case of Byrne v Van Tienhoven.

In the given situation it has been provided that Mary has made an advertisement in the paper which states that she provides party services starting from $500. The advertisement can be said to be an invitation to an offer as according to the principles discussed above the advertisement does not contain the specific elements required to constitute a valid offer. The terms of the advertisement are not certain in relation to the price and service to be provided and that it would only be regarded as an invitation to an offer. Therefore the advertisement has no legal significance.

A valid offers have been sent by Mary to Lianne after proper discussion about her requirement which quoted price of $10000 in relation to a Boat party. However according to the principles of acceptance discussed above the acceptance had to be unequivocal to that of an offer. In this case Lianne has stated that she is only willing to pay $9500 for the party. This statement of Lianne accounts to a counter offer which revokes the original often made by Mary according to the principles discussed above.

The counter offer was followed by another counter offer provided by Mary with stated that the price quoted by Lianne would be accepted by Mary if she accept the offer within 7 days by providing a 10% nonrefundable deposit.

This is a proper offer made by Mary which had to be accepted within 7 days where time was the essence of the contract as it was emphasized by Mary. However Lianne was not able to deposit the money within 7 days which made the offer made by Mary to come to an end.

Conclusion

As Lianne tried to accept the offer after the time period it would account to another counter offer as the original office ceases to exist. The counter offer made by lianne was followed by another counteroffer which stated that the price would be fixed at $10000.

 Lianne had accepted the offer to email. According to the postal rule of acceptance and offer is said to be accepted as soon as the letter is posted. In the same way in this case the offer would be said to be accepted as soon as the email reach the system of Mary. As per the principles discussed above in offer can only be rejected or revoked before it has been accepted. Therefore it can be provided that the contract between Lianne and Mary was formed as soon as Lianne accepted the offer. The rejection made by Lianne after the offer was accepted would not have any effect on the contract.

Conclusion

Lion has a valid contract with Mary which was formed when she sent an Email on 20th june accepting the offer.

Have the consumer rights of Lianne been violated by the actions of Mary

For the purpose of safeguarding the rights of the consumers in Australia the Australian Consumer Law has been enacted under the schedule 2 of the Competition and Consumer Act 2010. The law specifically provides consumer rights and consumer warranties with respect to the goods and services sold to the consumers by the sellers.

Section 61 of the ACL provides that when a service has been requested particularly in relation to a purpose the provided service has to be in accordance to the purpose as requested especially when the consumer had made Reliance on the statement and skill of the seller. Section 62 for the states that the requested services has to be provided to the consumers within reasonable time as requested.

Section 268 of the ACL provides that if a seller is not able to work in accordance to consumer guarantees in relation to services, it accounts to a major failures specially when such service is not suitable for a specific purpose and the failures cannot be corrected within a reasonable time so that the service may become fit for the purpose again. The noncompliance of the section would result in a major failure in case the provided services were not of condition, quality, state or nature which was promised by the seller and which the consumer reasonably expected.

In case of the breach of this section a consumer becomes entitled to compensation for any loss or damage caused by the services resulting in major failures.

In this case a promise by Mary that she would be serving Malaysian cuisine on the boat and the boat would be spacious enough to accommodate all of Lianne’s guests. However it was seen that instead of Malaysian cuisine the staff of Mary served Russian food and the boat was very congested which caused considerable hardship to the guest. In addition Lianne was not able to accommodate her musician and guest to the boat because of the lack of space.

Therefore in this case it can be stated that Mary has not provided services to Lianne in accordance to what had been requested by her and what had been promised by Mary. According to the principles of section 61 Mary had the duty to provide services which was for a purpose as requested by the consumer. Therefore it can be stated that Mary has violated section 61 of the ACL. Thus, lianas entitled to claim compensation from merit.

Conclusion

Mary has violated consumer guarantees and is liable to pay compensation to Liam

Advertisements are used by almost all the Australian businesses with respect to the promotion of their services and goods. The business must however remember that the advertisements made by them is in compliance with the provisions of the ACL. The provisions not only apply to advertise taken place via television and radio but also those which are done through social media sites. A business in order to comply with the provisions of ACL while making advertisements in various form have to ensure that the advertisements are not of a nature which is misleading or deceptive or is likely to mislead or deceive a consumer. The section 18 of the ACL provides that no business is allowed to engage in an activity which is misleading or deceptive or is likely to mislead or deceive in trade and commerce. The purchasing choice of the consumers may be distorted and they might suffer losses because of misleading advertisements. Thus restrictions have been imposed on the businesses towards making false or incomplete statement in relation to the quality, style, use, benefit and accessories related to goods and services.

In addition section 35 of the ACL prohibits a business from indulging in Bait advertisements. These are the kind of advertisements which are made by the business to increase the demand for their goods or services by promising to provide them at a lower price whit no intention to supply them to the consumers. These form of advertisement if detected is punishable under the provisions of the ACL.

Competition in the market is reduced by the indulges in a conduct which is misleading or deceptive by the sellers in the market as it make she consumer favor a specific product which does not have any or most of the feature which have been advertised. It make the consumers get into a contract with the seller which are contrary to their interest.  

In the case of Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] the importance of section 18 of the ACL in relation to safeguarding the interest of the consumers have been established by the court. The court in this case ruled that misleading and deceptive conduct can also result out of headline advertisements even if finely printed disclaimers are present in the advertisements. In addition in the case of Trade Practices Commission v Radio World Pty Ltd [1989] it had been ruled by the court that a sign which stated the purchase condition was misleading and deceptive in the light of unconscionable conduct even if the seller did not indulge in a misleading and deceptive conduct intentionally. 

Therefore it can be concluded that a seller in Australia has to refrain from indulging in any activity which related to advertisements which may mislead or deceive or is likely to mislead or deceive the seller can also be held accountable if they did not have any intention of misleading. The sellers must also in the light of section 35 prohibit in the indulgence with bait advertisements in order to increase the demand of their gods.

AGC (Advances) Ltd v McWhirter (1977) 1 BLR 9454

Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54,

Brody, Gerard, and Katherine Temple. "Unfair but not illegal: Are Australia's consumer protection laws allowing predatory businesses to flourish?." Alternative Law Journal 41.3 (2016): 169-173.

Byrne v Van Tienhoven (1880) LR 5 CPD 344

Corones, Stephen G., Sharon A. Christensen, and Nicola Howell. "Submission to Australian Consumer Law Review Issues Paper." (2016).

Corones, Stephen. "Misleading premium claims." Australian Business Law Review 44.3 (2016): 188-203.

Coteanu, Cristina. Cyber consumer law and unfair trading practices. Routledge, 2017.

Dickinson v Dodds (1876) 2 Ch D 46

Howells, Geraint, and Stephen Weatherill. Consumer protection law. Routledge, 2017.

https://www.accc.gov.au/consumers/misleading-claims-advertising/false-or-misleading-claims

Hunter, Howard. "Modern Law of Contracts." (2017).

Hyde v Wrench (1840) Beav 334 

McKendrick, Ewan. Contract law: text, cases, and materials. Oxford University Press (UK), 2014.

Paterson, Jeannie Marie, and Gerard Brody. "“Safety Net” Consumer Protection: Using Prohibitions on Unfair and Unconscionable Conduct to Respond to Predatory Business Models." Journal of consumer policy 38.3 (2015): 331-355.

Paterson, Jeannie Marie. "Developments in consumer protection law in Australia." Legaldate 25.2 (2013): 2.

Pearson, Gail. "Further challenges for Australian consumer law." Consumer Law and Socioeconomic Development. Springer, Cham, 2017. 287-305.

Poole, Jill. Textbook on contract law. Oxford University Press, 2016.

Sparks, Beverley A., et al. "Cooling off and backing out: Understanding consumer decisions to rescind a product purchase." Journal of Business Research 67.1 (2014): 2903-2910.

Star, Dan. "Federal court: Federal court casenotes." Proctor, The37.8 (2017): 41.

Svantesson, Dan, and Roger Clarke. "The Trade Practices Act: A Hard Act to Follow: Online Consumers and the New Australian Consumer Law Landscape." James Cook UL Rev. 20 (2013): 85.

Trade Practices Commission v Radio World Pty Ltd [1989] 16 IPR 407

Twigg-Flesner, Christian. Consumer product guarantees. Routledge, 2017.

Tynan, Daniel. "Australian consumer law [Book Review]." Bar News: The Journal of the NSW Bar Association Summer 2015 (2015): 78.

Wee, Chiew Shi, et al. "Consumers perception, purchase intention and actual purchase behavior of organic food products." Review of Integrative Business and Economics Research 3.2 (2014): 378.

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