Essential Elements Of A Contract And Application Of Postal Rules In Acceptance: A Legal Analysis

Essential Elements of a Contract

Discuss about the Exchange for Certain Essential Elements.

A contract is an exchange of promise, between two or more parties, where one party promises to do something, in exchange for consideration from the other party[1]. A contract can be an oral one or a written one. In case of an oral contract, the terms of the contract are exchanged in verbal manner. In the written contract, on the other hand, the terms of the contract are stated down on a document and signed by the parties to the contract[2].

In order to form a valid contract, it needs to have certain essential elements[3]. These include, an offer, an acceptance, consideration, intent, capacity and clarity regarding the terms of the contract[4]. An offer has to be made by one party, which has to be accepted by the other party. The offer has to be accepted as it was made; in case the in acceptance, the terms of the contracts are modified, then it is treated as a counter offer and not an acceptance.

The acceptance has to be clearly communicated to the other party, and a mere silence cannot be treated as an acceptance. In the case of Felthouse v Bindley (1862)[5], the uncle has officered to purchase the home from his nephew and he stated that if he heard nothing from the nephew, he would consider the home as his. In this case, the court held that the acceptance was never communicated from the nephew, and mere silence cannot be treated as acceptance. So, a simple mental decision does not amount to acceptance[6].

Consideration is a crucial element of any contract, and without a consideration, a contract is void[7]. It can be anything which is decided amongst the parties, as long as it has some commercial value. The next essential is the intention of the parties to enter into legally binding contract and create legal relations[8]. The parties to the contract need to have the contractual capacity, i.e., they need to be of sound mind and legal age. The last essential is that there should be a clarity regarding the terms on which the contract is being established. Only when these elements are present in an agreement, a legally binding contract is formed[9].

When any party to the contract, fails to carry out the obligation which was imposed on them, due to the contract, then such party is held liable for a breach of contract. In such cases, the aggrieved party can initiate actions against such party, for breach of contract, and can apply for equitable or monetary damages. Monetary damages are in form on compensation and equitable damages are in form of specific performance and injunction[10].

Breach of Contract and Remedies

In the present case, an offer was made by the university to attain police cover for the “End of the Year Ball” party. This offer was accepted by the police officers and a consideration was advised by the police officers, as the extra cost for the services of the police officers. Both the university and police had the legal capacity to enter into a contract. And they had the intention to enter into such legally binding relationship. There was a clarity regarding each aspect of the contract, and hence, a contract was formed. Since the terms of the contract were exchanged in a verbal manner and the offer and acceptance was in verbal manner, an oral contract was formed in this case.

The university in this case believed that the services of the police officers in Victoria were free, even when Sergeant Ratty clearly communicated that this service of police officers would be charged. And the university never provided a counter offer or contested that it would not be paying the university, as this service was free as per their understanding. Taking inference from the case of Felthouse v Bindley, a mere silence cannot be treated as an acceptance, and even rejection of such fees.

If the university refuses to pay the stated amount, it would breach the contract and this would allow the police to apply for contractual remedies in form of monetary compensation and specific performance. So, not only the university would be liable to pay the amount stated in invoice, by the reasons of specific performance, but would also be liable to pay compensation to the police for the hardship caused due to refusal of payment.

After analyzing the facts of the case with the relevant law, it can be concluded that the university is indeed liable to pay the amount stated in the invoice to the police, otherwise it will be held in breach of contract, and would accordingly be liable for contractual remedies.

The essential elements of a contract are offer, an acceptance, consideration, intent, capacity and clarity regarding the terms of the contract. Two of these, i.e., an offer and an acceptance are crucial elements of the contract. An offer has to be made by one party, which then has to be accepted, as was made, by the other party. A general rule is present regarding the acceptance that only when the acceptance is communicated and such communication is received by the other party, then it has to be deemed as acceptance[11]. But an exception to this rule is the postal rules.

Application of Postal Rules in Acceptance

When the acceptance is given regarding an offer and such is communicated through the post, then the date of acceptance is taken as the date on which the acceptance was posted[12]. These rules apply only in such cases where the post is acknowledged as the means of acceptance. And, whether or not the other party received such post, is irrelevant[13]. The rationale behind this is that the parties nominate the post office as their implied agent, so the receipt of acceptance by the post office has to be taken as the receipt by the other party.

In one of the established cases of Tallerman & Co Pty Ltd v Nathan's Merchandise (1957)[14], the judges were of the view that the acceptance by post would not be justified; unless and until the offering party has grounds to believe that the offer can be accepted by use of postal means[15]. In another case of Byrne v Van Tienhoven (1880)[16], the judge was of the view that the post office acts as an agent of the person posting the acceptance; and that the delivery made to the post office has to be taken as the delivery made to the other party[17].

Further, in case where a revocation of an offer has to be made, where the offer was made in postal form, then the revocation would only be effective, if it was received by the other party before they post the acceptance letter[18].

In the given case, the offer was made by Welwisha to Dowell through a telegram regarding the appointment as the senior accountant for the firm. It was further stated in the telegram that the formal letter of appointment was in the mail. And when Dowell received this communication, he posted his acceptance letter to the offer of the committee. So, a valid offer was made and the acceptance was validly communicated.

Applying the case of Tallerman & Co Pty Ltd v Nathan's Merchandise here, there was presence of clear grounds to believe that the offer could be accepted by use of postal means, as the means of post was used for making the offer. Moreover, applying the case of Byrne v Van Tienhoven, the post office was the agent of Welwisha while making the offer and Dowell while accepting the offer, and so the date of posting of acceptance would be deemed to be the date of acceptance by Dowell.

After the letter was posted by Dowell, the committee met again and decided against appointment of Dowell. But this was never communicated to Dowell. Moreover, the revocation of an offer has to be sent before the acceptance is received on an offer. Consideration is the next element, which is deemed to be present in the letter of appointment. The parties had the intention to create a legally binding contract, as Welwisha sent an offer to form such relations, which was duly accepted by Dowell. Both the parties had to contractual capacity and the terms of the contract were also clear.

Due to the presence of a valid offer and acceptance, along with the other elements of the contract, a valid contract was formed in this case. In case Dowell is not appointed as the senior accountant, the firm would be liable for a breach of contract.

On the basis of above analysis, it can be concluded that a valid and legally binding contract was created between Mr. Dowell and Dodgy Accounts Associates.

References

Andy Gibson and ‎Douglas Fraser, Business Law 2014 (Pearson Australia, 2014)

Ewan McKendrick and ‎Qiao Liu, Contract Law: Australian Edition (Palgrave Macmillan, 2015)

W Carter, Carter's Guide to Australian Contract Law (LexisNexis Butterworth, 2011)

Jill Poole, Casebook on Contract Law (Oxford University Press, 2016)

Michael Furmston and G.J. Tolhurst, Contract Formation: Law and Practice (Oxford University Press, 2010)

Paul Latimer, Australian Business Law 2012 (CCH Australia Limited, 31st ed., 2012)

Ronan O’Brien, ‘Analysis of the Postal Rule’ (2007) 13 Cork Online Law Review <https://corkonlinelawreview.com/editions/2007/COLR%202007%2013%20O'Brien.pdf>

Australian Contract Law, Formation (2016) <https://www.australiancontractlaw.com/law/formation.html>

Bits of Law, Acceptance: Postal Rule (2016) <https://www.bitsoflaw.org/contract/formation/study-note/degree/acceptance-postal-rule>

Craig Hong, What are the elements of a contract? (29 July 2015) <https://www.hillhouse.com.au/legal-question/what-are-the-elements-of-a-contract/>

Find Law, Breach of Contract and Lawsuits (2016) <https://smallbusiness.findlaw.com/business-contracts-forms/breach-of-contract-and-lawsuits.html>

Jade, Tallerman and Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd [1957] HCA 10; 98 CLR 93. (2016) < https://jade.io/article/65197>

The Law Handbook, Elements of a contract (30 June 2015) <https://www.lawhandbook.org.au/07_01_02_elements_of_a_contract/>

Thomson Reuters, Byrne & Co. v. Leon Van Tienhoven & Co. (2016) <https://legal.thomsonreuters.com.au/product/AU/files/720502512/contract_p1_byrne_v_vantienhoven.pdf>