Please help me answer this question using the IRAC method, i have also included Chapter 7 of the textbook under the case study below to help you answer.

Mini case study 2

Tammy has a large collection of vintage cars. Tammy auctions her cars occasionally when she needs

room to park new additions to the collection. She decided to sell her Porsche 356B 1600 Super of

1960 edition, one of her oldest cars in the collection. For this sale, she decided to use an online

auction platform, "Trace Online". The reserve price for this vehicle was $280,000 AUD. There was

an option for a purchaser to "buy now" for $315,000 AUD. There were 3 bidders at the auction.

Simpson made the highest bid for $288,000 AUD. Simpson received the standard message from

Trace Online, 'Congratulations, the car is yours; please pay now." However, when Simpson tried to

pay for the vehicle, Tammy refused to accept the money and give the car to Simpson for $288,000

AUD. Tammy claims that the listing on Trace Online is an invitation to treat and that Tammy has not

accepted Simpson's offer.

Simpson does not accept Tammy's argument and wants to have the car.

Advise Simpson whether a contract exists between him and Tammy, and if he is entitled to the

car because he offered the highest bid.

Please use case law to support your answer.

CHAPTER 7

Requirement 1: agreement

LEARNING OBJECTIVE 7.2When does a contractual agreement come into existence? What is an offer? Is an advertisement an offer? What is an acceptance? When is acceptance effective?

When business people are negotiating a deal, when should the deal be put into writing?

To establish the existence of a legally enforceablecontract, it is first necessary to show that there is an actual agreement between the parties. Anagreementis a meeting of minds, andexistswhen two or more people share a mutual understanding and intention.

Many agreements are preceded by a period of negotiations. A contract does not exist until the negotiations are concluded and an agreement is reached. As a general rule, if important aspects of the arrangement are still being negotiated, there is no agreement and no contract. There is no conclusive meeting of minds on a final outcome.

Sometimes, the existence of a finalised agreement can be deduced from the conduct of the parties.¹This occurs when the parties are clearly behaving as if they have already reached some kind of agreement. It is not necessary to show that the parties have discussed and agreed upon every single aspect of their arrangement. Evidence that the parties have reached a broad consensus is sufficient.

At other times, the existence of a finalised agreement is less clear. One party might insist that an agreement has been reached, while the other party insists that an agreement is still being negotiated, or that no legally enforceable commitments have been made. In these circumstances, the test for determining the existence of an agreement is the existence of an offer by one party and an acceptance of that offer by the other party. An agreement is said to exist if it can be shown that one party has made an offer and that another party has accepted that offer and communicated their acceptance. Neither party can breach that agreement without legal consequences, provided that the other requirements of a contract are satisfied.

CHECKLIST

An agreement will be formed if all of the following requirements are satisfied.

• One person (the offeror) has made an offer.

• Another person (the offeree) has accepted the offer.

• The offeree has communicated their acceptance of the offer to the offeror.

The following rules relating to offer and acceptance are used to determine the precise point in time that an agreement is reached, because it is at this moment that the contract comes into existence and the parties become legally obliged to proceed.

Offer

A person makes anofferwhen they express a willingness to immediately enter into a contract with the person to whom the offer is directed. For example, when Johnny tells Jin that he will sell his pizza oven to Jin in return for$10000,Johnny is expressing a willingness to immediately enter into a contract with Jin and he is, therefore, said to have made an offer to Jin. In these circumstances, Johnny is called theofferorand Jin is called theofferee.

An offer can be:

• made in writing,
• made verbally, or
• indicated through conduct.

For example, if Johnny picks up a banana in a shop and hands the money to the cashier, he is offering to buy the banana without actually saying anything.

The following are some of the rules and guidelines that will assist you in the identification of an offer.

The offeree

Sometimes an offer is made by one person to another, and sometimes an offer is made by one person to a group of people. When an offer is made to a group of people, depending on the particular wording of the offer, the offer can be accepted by either the first person to respond or by anyone from within the group who responds.

There is no limit to the number of people to whom an offer can be made and, in fact, it is said that an offer can be made to 'the world at large'.²In other words, an offer can be worded in such a way that, hypothetically, anyone in the world can accept it. For example, if Ash puts up a poster offering a reward for the return of her lost cat, she is making an offer to pay the reward to anyone in the world who finds the cat.

CAUTION!

An advertisement promoting a product at a particular price may appear to be an offer to the world at large, but it is more likely to be categorised as an invitation to treat and not an offer at all,even if the advertisement uses the word 'offer'. 'Invitation to treat' is explained below.

Acceptance, rejection or revocation

If the offer isaccepted, an agreement (and possibly a contract) comes into existence from that moment.

If the offer has not already been accepted, the offer may berejectedby the offeree. For example, Jin may decline Johnny's offer to sell the pizza oven to her for$10000.If that is the case, the offer is terminated and Jin cannot later change her mind and accept it. (She can, however, approach Johnny and make an offer herself, which Johnny is not obliged to accept.)

If the offer has not already been accepted or rejected, the offeror is entitled torevoketheir offer. For example, if Jin has not yet accepted or rejected Johnny's offer to sell the pizza oven for$10000, Johnny can change his mind and withdraw the offer. As long as Johnny makes it clear to Jin that the offer has been revoked, Jin can no longer accept the offer.

An offeror is entitled to revoke their offer even if they have promised to keep the offer open for a particular period.³There is, however, an important exception: if the offeree has provided consideration for the offeror's promise to keep the offer open (e.g. by paying a deposit), the offeror cannot withdraw their offer until the period has expired. If the offeree has paid a deposit, a separate contract comes into existence, sometimes referred to as anoption, and the offeror breaches that contract if they withdraw the offer before the promised deadline. For example, if Johnny offers to sell the pizza oven to Jin for$10000and at Jin's request Johnny promises to keep that offer open until 5.00 pm, Johnny can change his mind and sell the oven to someone else before 5.00 pm unless Jin has paid a deposit. If a deposit has been paid, Jin has an option and Johnnymustkeep the offer to Jin open until 5.00 pm.

Goldsborough Mort & Co Ltd v Quinn(1910) 10 CLR 674

Mr Quinn offered to sell his land to Goldsborough Mort & Co Ltd (GMC) and promised to keep the offer open for one week in return for GMC paying to Mr Quinn a deposit of fifty cents. Before the week had expired, Quinn informed GMC that he was revoking his offer and selling the land to someone else. GMC then accepted the offer and sued Quinn for breach of contract. The Court decided that because GMC had paid Mr Quinn to keep his offer open for one week, Mr Quinn was not permitted to withdraw the offer, which meant that when GMC accepted the offer a contract was formed. Mr Quinn had breached the contract by selling the land to someone else.

CAUTION!

Even if the offeror has promised to keep the offer open for a particular period, they are entitled to revoke their offer at any time prior to acceptance, unless the offeree has paid the offeror to keep the offer open.

If the offer is not accepted, rejected or validly revoked, it willlapseafter the expiry of a reas- onable amount of time. What is 'reasonable' will depend on the circumstances and will be decided by the court.

Ramsgate Victoria Hotel Co Ltd v Montefiore(1866) LR 1 Ex 109

On 8 June, Montefiore made an offer to Ramsgate Victoria Hotel Co Ltd (RVH) to purchase shares in that company. More than 5 months later, on 23 November, RVH wrote back to Montefiore accepting the offer and informing Montefiore that the balance owing on the shares was now due. Montefiore refused to pay and RVH sued him for breach of contract. The Court decided that there was no contract because there was no agreement. Montefiore's offer had lapsed before RVH accepted it because more than a reasonable period of time had lapsed.

Requests for information

It is important to differentiate between the making of an offer and a mere request for information. For example, if Jin emails Johnny and asks if Johnny is willing to sell his pizza oven for $8000, Jin is likely to be seen to be merely asking for information rather than making an offer to buy Johnny's oven.

Similarly, a response to a request for information is not an offer. If Johnny replies to Jin's email and says that the lowest price is$10000,this is unlikely to be seen as an offer by Johnny to sell the oven at that price.⁴

Advertising, advertisements and invitations to treat

Despite the fact that many advertisements on television, in magazines, on posters and on the internet use the word 'offer', most advertisements are not offers. As explained earlier, an offer is an expression of willingness to immediately enter into a contract with the person to whom the offer is directed. If every advertisement placed by Johnny was a legal offer, he would immediately enter into a contract with every person who accepted the offer by responding to his advertisement, and once the advertised product was sold out he would be in breach of contract with every customer who missed out.

Instead, most advertisements are deemed to be 'invitations to treat' rather than offers to the world at large. Aninvitation to treatis an invitation to another person to make an offer. If Johnny advertises his vegan pizzas online, the advertisement is an invitation to treat, which invites members of the public to come to his restaurant and offer to purchase a pizza. The customer is the person who makes the offer and it is then up to Johnny to decide whether or not to accept that offer. There is no legally enforceable contract between Johnny and the customer until Johnny decides to accept the customer's offer. This applies to most transactions involving the buying and selling of products.

Another example that illustrates why the customer must be the party to make the offer is that of a minor seeking to purchase alcohol from a liquor store. A minor (a person below the legal age of 18 years or older) cannot purchase alcohol. What if a 16-year-old sees a bottle of rum advertised in the local paper for $24.99 and attempts to buy the rum from a nearby liquor store? If the advertisement was a formal offer, the 16-year-old would be accepting the store's offer and forming a binding agreement with the store, and if the store then refused to sell the alcohol to the minor it would be in breach of the agreement.

There are exceptions to the general rule that advertisements are not legal offers. Sometimes, the wording of an advertisement makes it clear that the advertiser is, in fact, willing to enter into a legally enforceable contract immediately upon acceptance of the advertised offer (i.e. the advertisement is an offer to the world at large). For example, an advertisement that states that the business only has a certain number of products in stock and that these products will be sold to the first few customers is likely to be an offer rather than simply an invitation to treat.

To better understand these exceptions, consider the case ofCarlill v Carbolic Smoke Ball Co[1893] 1 QB 256. Carlill is an important English case in the area of contract law. The case is referred to numerous times throughout this chapter, in a range of different areas to do with contract formation.

Carlill v Carbolic Smoke Ball Co[1893] 1 QB 256

The advertisement by Carbolic Smoke Ball Co ('CSBC') promised that their product, the 'Carbolic Smoke Ball', would 'positively cure coughs, cold in the head, cold on the chest, catarrh, asthma, bronchitis, hoarseness, loss of voice, sore throat, throat deafness, snoring, sore eyes, influenza, hay fever, headache, croup, whooping cough and neuralgia'. It further promised that '100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds or any disease caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. 1000 is deposited with the Alliance Bank, Regent Street shewing our sincerity in the matter'. Mrs Carlill used the product according to the directions and (perhaps not surprisingly) still caught the flu. However, when she contacted CSBC to claim the reward, they denied that they were legally obliged to pay the reward. Mrs Carlill sued the company for her 100 reward. The Court considered whether or not a contract existed between CSBC and Mrs Carlill. In determining if there was an agreement, the Court decided that the advertisement was more than a mere invitation to treat. It was a legal offer to the world because the wording of the advertisement made it clear that CSBC was willing to enter into legal relations with anyone who accepted the offer of the reward.

Catalogues and price lists, like most advertisements, are likely to be invitations to treat rather than offers.⁵

The display of a product in the window of a shop or on the shelves of a shop is also an invitation to treat rather than an offer. This means that the contract is not formed until the customer offers to buy the product and the cashier accepts the offer.⁶This view appeals to common sense. If the display of a product was really an offer, and the customer accepted that offer by picking the product up from the shelf, a contract would be formed at that point and the customer would not be permitted to return the product to the shelf if they changed their mind. This is clearly impractical and unrealistic.

Auctions and tenders

At an auction, the call for bids is an invitation to treat.⁷The bidders are offerors, and there is no agreement and no contract until the auctioneer accepts an offer on behalf of the seller. This means that if the auction is 'without reserve' (i.e. there is no minimum price that must be reached before the seller is obliged to sell the product) and the auctioneer refuses to sell to the highest bidder, there is no contract and the auctioneer cannot be sued for breach of contract. However, in these circumstances the court is likely to decide that there is in fact a second contract, called acollateral contract, between the auctioneer and all of the bidders to the effect that the auctioneer will sell to the highest bidder, and the auctioneer could be sued for breach of this collateral contract.

Smythe v Thomas(2007) 71 NSWLR 537

Thomas listed an antique fighter plane for sale by auction on eBay. The reserve price was$150000. There was also an option for a purchaser to 'buy now' for$275000. The only bidder was Smythe, who lodged a bid of$15000020seconds before the auction closed. Smythe received the standard message from eBay: 'Congratulations, the item is yours, please pay now.' Thomas, however, refused to sell the plane at that price, arguing that there was no contract: the listing on eBay was an invitation to treat, Smythe's bid was an offer, and Thomas had not accepted the offer. The Court decided that there was a contract. When Thomas listed the plane on eBay he agreed to be bound by eBay's terms and conditions, according to which the seller was obliged to enter into a contract with the bidder who lodged the highest bid at or above the reserve price before the auction ended. Unlike a traditional auction, in an online auction, the listing is an offer and not merely an invitation to treat. Thomas was obliged to sell the plane to Smythe at the reserve price.

An advertisement calling for tenders is an invitation to treat.⁸A person who submits a tender is making an offer, which may or may not be accepted by the person who called for the tenders. Once again, if the call for tenders states that the highest/lowest tender will be accepted, a failure to accept the highest/lowest tender will be a breach of a collateral contract.

Rather than an invitation to treat, a vending machine such as a ticket machine or a drink machine is said to be a standing offer by the owner of the machine. When the customer puts the coins into the machine and makes a selection, the customer is accepting the offer and it is at that point that the contract is formed.⁹

Acceptance

When the offeree indicates by words or by action that they are willing to immediately enter into a legally enforceable contract with the offeror on the terms offered, they are said to accept the offer.

The following rules and guidelines assist in the identification of a valid acceptance.

The offeree

Only a person to whom the offer was addressed (the offeree) can validly accept the offer. For example, if Johnny makes an offer to Jin to sell his pizza oven, and Xue (athird party) attempts to accept the offer, Xue's attempted acceptance will be no more than an offer to Johnny by Xue, which Johnny may or may not accept.

As stated earlier, it is possible for an offer to be made to a group of people, and even to the 'world at large', in which case anyone in the group, or anyone at all (in the latter case) can accept the offer.

Unqualified acceptance

The offeree must accept the offer without qualification. If the offeree modifies the terms of the offer in any way, they are not accepting the offer. Rather, they are making what is called acounter offer. Consider, e.g., the following exchange of text messages between Jin and Johnny:

Johnny 'Will you buy my oven for$10000?'

Jin 'Yes, but I will only pay $9000.'

In this example, there is no agreement and no contract because the offer by Johnny has not been accepted by Jin. Jin has made a counter offer, which Johnny may or may not accept. Negotiations may consist of an offer, a counter offer, a counter-counter offer, and so on, with neither party legally committed until one party accepts without qualification the other party's previous offer. For an agreement to be reached, theremust be a meeting of the minds. In an exchange of counter offers, there is no meeting of the minds as the parties have not reached a mutual understanding.

The making of a counter offer is effectively a rejection of the original offer and, as such, the original offer cannot subsequently be accepted.¹⁰

Just as a request for information is not an offer, a request for further information in response to an offer is not a counter offer.¹¹

Communication of acceptance

The agreement is not complete until the offeree communicates their acceptance to the offeror.

Powell v Lee(1908) 24 TLR 606

Mr Powell applied for the position of headmaster with a school. The school board decided to appoint Mr Powell, but did not immediately inform him of the decision. A member of the board, without the authority of the board, told Mr Powell that the board had accepted his offer of employment. The board subsequently changed its decision and appointed another person as headmaster. Mr Powell sued the board claiming that a contract had already been formed. The Court decided that there was no agreement between Mr Powell and the board. The board had not communicated its acceptance and an agreement is not formed until acceptance of the offer is communicated to the offeror. The communication by the board member acting without authority was invalid.

This also means that to enforce the agreement the offeree must show that they have effectively communicated their acceptance to the offeror. In face-to-face negotiations, this is usually not a concern, but when the parties are negotiating at a distance it becomes necessary to establish that the offeror has in fact received the offeree's acceptance.

If the offeror specifies the way that acceptance must be communicated, the acceptance is not valid unless it is communicated in this manner or in an alternative manner that is just as prompt and no less advantageous to the offeror.¹²For example, if Johnny makes an offer to Jin and states 'reply by email', the offer is effectively accepted if Jin communicates her acceptance directly to Johnny by telephone but not if she communicates her acceptance by posting a letter. If Johnny makes it clear that the reply can be communicated by emailonly, Jin must communicate her acceptance in this way.

An offeror can waive the requirement that communication be accepted, but cannot insist that a failure to respond is acceptance.¹³For example, if Johnny offers to sell his pizza oven to Jin for$10000and Johnny tells Jin that if he does not hear from Jin by 5.00pm he will assume that Jin has accepted his offer, Jin can still enforce the agreement if Johnny refuses to provide the oven, but Johnny cannot enforce the agreement if Jin refuses to pay.

There are three important exceptions to the requirement that the offeree communicate their acceptance to the offeror.

The first is where there is an ongoing commercial relationship between the parties. In these circumstances, a failure to respond to an offer that is similar to previously accepted offers and that was previously accepted effectively by silence can amount to an indication of acceptance, and the agreement can be enforced by either party.¹⁴

The second exception relates to unilateral contracts. Aunilateral contractis a contract where the offeree's acceptance and performance are the same thing. The best example of a unilateralcontract is an offer of a reward: if Ash puts up a notice offering a reward to whoever finds her lost cat, Jin's finding and returning of the cat is both acceptance of the offer and performance of her side of the bargain. Jin does not need to communicate her acceptance of the offer prior to her performance.

Carlill v Carbolic Smoke Ball Co[1893] 1 QB 256

(See the facts of this case described earlier.) CSBC argued that even if their advertised reward was a legal offer, Mrs Carlill had not communicated her acceptance of that offer. The Court decided that, since this was a unilateral contract, not necessary that acceptance be communicated prior to perfor- mance. MrsCarlill had accepted the offer by buying and using the smoke ball as directed, and that was sufficient.

R v Clarke(1927) 40 CLR 227

The government of Western Australia offered a reward of 1000 to anyone who provided information leading to the capture and conviction of a man wanted for the murder of two police officers. Clarke was arrested and charged with the murders and he provided information that led to the arrest of another man who was subsequently convicted of the murders. Clarke was released and he claimed the reward. The court decided that he was not legally entitled to the reward. The reward was a legal offer, but when Clarke provided the information he was not doing so in order to accept the offer. Rather, he was doing so to clear his own name. Clarke admitted that when he gave the information to the police he had forgotten about the reward. The Court explained that a person cannot accept an offer by conduct unless they are acting in reliance on the offer.

The third exception relates to contractual negotiations that are taking place through the post. If it is reasonable in the circumstances for the offeree to reply to the offer by post, then the offeree's acceptance is effective, and the contract is formed, as soon as the offeree posts the letter of acceptance, not when the offeror actually receives the letter.¹⁵This is known as thepostal rule. The postal rule applies even if the letter is delayed in the post and even if the letter of acceptance never arrives.

Adams v Lindsell(1818) 1 B & Ald 681; 106 ER 250

Lindsell made an offer to sell goods to Adams in a letter posted on 2 September. The letter was incorrectly addressed and Adams did not receive the letter until 5 September. Adams immediately wrote back accepting the offer. On 8 September, Lindsell, assuming that Adams was not going to respond, sold the goods to someone else. Lindsell received Adams' acceptance on 9 September. Adams sued Lindsell for breach of contract. The Court decided that there was a contract between Adams and Lindsell.Adams' acceptance was effective on 5 September and the contract was formed on that date.

The postal rule applies only to acceptances. It does not apply to offers and revocations.¹⁶For example, on 1 March, Johnny sends a letter to Jin offering to sell his pizza oven to Jin for$10000. On 2 March Johnny writes again to Jin saying he has changed his mind and has revoked the offer. Jin receives the letter of offer on 3 March and immediately writes back accepting the offer. Jin receives the letter of revocation on 4 March, and Johnny receives the letter of acceptance on 5 March. Is there a contract between Johnny and Jin? The acceptance took place on 3 March when Jin posted the letter of acceptance. The revocation did not take place until 4 March, when Jin received the letter of revocation. Therefore, the offer was accepted before it was revoked, the revocation was ineffective, and a contract was formedon 3 March.

The postal rule applies only to postal communications and telegrams. It does not apply to methods of instantaneous communication, such as telephone calls and faxes.¹⁷If an acceptance is sent by one of these methods, it is not effective and the contract is not formed until the acceptance is actually received by the offeror.

The question of whether or not the use of the internet or email is a method of instantaneous communication and, therefore, beyond the scope of the postal rule has not yet been answered decisively by the courts. The better view seems to be, however, that the postal rule does not apply to the internet or email, and electronic communications must be actually received to be effective.

The offeror can choose to override the postal rule by expressly stating that the offeree's acceptance must be actually received by the offeror to be effective.