Victoria University-College of Law and Justice
Acceptance under Australian Contract Law
- Introduction
- Laws of Contracts
In a discussion paper by the Australian Government it has been rightly observed that “Australia’s system of contract law is based on English common law as developed by Australian courts. These common law rules are supplemented by equitable doctrines, Commonwealth, State and Territory statutes and international law instruments. The terms of contracts themselves also guide the parties’ expectations and performance”. It goes without saying that the laws of contracts are the most important branch of business laws.
- Elements of Contracts
The formation of contract requires two important steps, namely an offer and an acceptance of the offer. The concept of offer and acceptance may seem so simple and rudimentary that any layman may simply not be able to comprehend the whole branch of legal jurisprudence and the plethora of judicial precedence explaining the finer nuances of simple terms like offer and acceptance. The creation of a binding contractual relationship is dependent upon an in-depth understanding these basic terms, especially, what amounts to a valid and unqualified acceptance. Before we venture into discussing the finer nuances of the topic under consideration, it is essential to discuss briefly, the basic terms which are relevant for the analyses:
- Offer: An offer is a communication amounting to a promise to do something (or not do something) if the person to whom the offer is directed does something (or refrains from doing something) - or makes a promise - in return.
- Acceptance: Acceptance occurs when the party answering the offer agrees to the offer by way of a statement or an act. Acceptance must be unequivocal and communicated to the offer or: the law will not deem a person to have accepted an offer merely because they have not expressly rejected it As explained more lucidly by Dr. Julie Clark, “Acceptance is an unequivocal statement (oral, written or by conduct) by the offeree agreeing to the offer. An offer may only be accepted by the person to whom it is directed and to constitute a valid acceptance this statement or conduct must occur in response to the offer (although compliance with terms of an offer raises a rebuttable presumption that the act was done in response to the offer). It is sufficient if the offer was one of the reasons for the offeree acting in the way s/he did - even if not the dominant reason”.
- Consideration: Consideration is the feature that distinguishes a bargain from a gift. It is the price, not necessarily in money terms that each party asks of the other in return for entering the agreement. This is important because, in order to enforce a contract, a party has to show that he or she paid a price.
Aside to the above, there are many other characteristics which are fundamental to the formation of a valid contract, namely, intention to create legal relations, capacity, formalities etc. Nevertheless, for the purpose of the topic under consideration, we will limit ourselves to the above basic terms.
- Development in the laws of contract vis-à-vis Australian jurisdiction
Australian contract law owes its origins to English common law, which remains an important source of law for many international commercial transactions. Over the course of time, the laws of contract have evolved on account of the legislation on the subject and plethora of judicial decisions. Various discussion papers have been initiated to bring about further improvement in contract laws of Australia so as to focus on further reducing business costs and improving our international standing.
- Structure of current Discussion
In this discussion, we will do a detailed analysis about the most important law of the contract laws, namely acceptance. To this end, we will discuss the historical background, the indicia of the jurisprudence, and current trends in the laws of acceptance by analysing the case laws on the topic and finally touch upon the recent developments in the common law (judge-made law) and provisions in relevant legislation.
- Detailed Analysis of the element of acceptance vis-à-vis binding contract
- Historical Background
Australian contract law is primarily based upon common law and equitable principles developed by judicial decisions in individual cases. As we have a unified system of common law, most principles apply uniformly throughout Australia. However, the offer and acceptance formula, developed in the 19th century, has been weakened by developments in the law of estoppel, misleading conduct, misrepresentation and unjust enrichment.
- The law of acceptance
As stated in point (I)(b)(iii) above, Acceptance occurs when the party answering the offer agrees to the offer by way of a statement or an act. There are certain fundamental rules which govern the law of acceptance, namely:
There are several rules dealing with the communication of acceptance:
- Communication of acceptance:
With respect to the rules of communication of acceptance, Dr. Julie Clark has effectively stated that “to be effective, acceptance must be communicated. Further, a mental decision to accept is not sufficient. To this end, the general rule is that an agreement is concluded when and where communication of acceptance is received. In relation to instantaneous modes of communication acceptance is deemed to be received when it is given to the offeror (even if they do not read it). Where post (or possibly other non-instantaneous methods of acceptance) is used a special rule applies (the postal rule!): provided post is contemplated by the parties (expressly or by implication) acceptance occurs when and where the letter is posted.” In Brinkon’s case, the application of postal rule vis-à-vis modern mode of communication has been discussed. Below is a brief discussion of the foregoing case
Facts: In this case, the offeror, Brinkibon (London, England) wanted to sue the offeree, Stahag (Vienna, Austria) for breach of contract. In this case, the acceptance of the offer was by telex. The moot question was as regards the applicability of jurisdiction (i.e., whether England or Vienna) on account of use of telex vis-à-vis the postal rule.
Decision: It was held that the postal rule would not be applicable to instantaneous mode of communication like telex and therefore it was held that the Contract was formed at Vienna. It was further held that in the event a telex is sent to an office acceptance would deem to occur when the telex reaches the place of business, not when it actually gets to the person it is addressed to.
- Acceptance required to be made in a particular form:
Dr.Julie Clark effectively explains that if a particular form for acceptance is made mandatory then, to be effective, acceptance must take this form - however, the courts will be slow to conclude a stipulated form is mandatory unless clear language is used to that effect. Further, where clear language is not used then an equally fast and effective method of communication will usually be held to suffice.
Manchaster Diocean case effectively explains this point. Below is a brief summary of the foregoing case:
Facts: MD called for tenders relating to property. C&G submitted a tender (offer to buy). The tender stated that acceptance was to be notified to the person whose tender was accepted by letter sent ‘by post addressed to the address given in his tender’. MD decided to accept C&G tender and sent their acceptance to the CG's solicitor, which not the address was given in the offer. C&G knew of this acceptance. Was there a contract? In particular, was a mandatory form stipulated for acceptance and, if so, was it complied with?
Decision: The method of acceptance prescribed in the tender was not mandatory because the offeror was made aware of the acceptance by an equally effective method and thus the acceptance was effective.
- Acceptance must be final and unconditional
This principle sets out the “mirror image rule”. The “mirror image rule” states that if you are to accept an offer, you must accept an offer exactly, without modifications; if you change the offer in any way, this is a counter-offer that kills the original offer. However, a mere request for information is not a counter-offer. It may be possible to draft an enquiry such that is adds to the terms of the contract while keeping the original offer alive.
Where one might expect a contractual intention, this may be negatived expressly. If the parties to a transaction reach a stage where acceptance of an offer is made, "subject to solicitor's approval of contract", as often appears with negotiations for the purchase of real estate, what is the legal effect?
The term "subject to contract" has been considered by courts on numerous occasions and it was examined by the High Court in Masters v Cameron’s case
Facts: In this case, an agreement to purchase property was subject to the preparation of a formal contract of sale which shall be acceptable by Cameron's solicitors on the above terms and conditions. The sale fell through. The question for the consideration for the High court was whether there was a contract in place? In case there was a contract in place, then, in such instance, the prospective vendor could retain the deposit. If not, it would have to be given back.
Decision: The High Court said that there was not a contract, and Masters recovered the deposit. The reason was that the agreement was not in its final form as it had to be acceptable to C's solicitors. A reasonable presumption could be drawn that the solicitors could have altered it quite substantially, by deleting adding or modifying terms. Whether they did so or not, was immaterial. The agreement gave them that power and so was not final.
In Ardente case, this point has been again reaffirmed. Below is a brief summary of this case:
Facts: Ardente (P) made a bid of $250,000 on real property owned by Horan (D). In this regard, Horan notified Ardente that the offer was accepted and forwarded a formal written agreement. Furthermore, P signed the agreement and returned it together with a $20,000 check and a request for confirmation that certain items of furniture would be included in the transaction. To this end, D refused to sell those items or the property and did not sign the purchase and sales agreement.
In light of the above, P sued for specific performance and D moved for summary judgment on the grounds that no contract had formed. The court held that the P’s request for confirmation regarding the additional items was a conditional acceptance and therefore a counteroffer. The court granted D’s motion for summary judgment and P appealed.
Decision: It was held by the appellate court that the acceptance must be definite and unequivocal to be effective. In this case the mere execution of the agreement alone would have operated as acceptance.. The court held that the letter of acceptance by P was not consistent with an absolute acceptance accompanied by a request for a gratuitous benefit and therefore was a conditional acceptance or counteroffer.
Conclusion:
It can be reasonably concluded that the acceptance of the contract has be final and unconditional. Acceptance is required to be communicated. If a particular form has been indicated for the communication of acceptance, then such form has to be complied with. A conditional acceptance would amount to a counter offer consequentially leading to the rejection of the initial offer. If a party makes a counteroffer, it amounts to a rejection of the original offer. The original offer can thereafter not be revived and a binding contract cannot be formed. In light of the above, it can reasonably be concluded that the acceptance has be absolute and unconditional for a binding contract to come into existence.
BIBLOGRAPHY
- Dr. Julie Clark on “Australian Contract and Consumer Law” Retrieved from http://www.australiancontractlaw.com/index.html
- Commonwealth of Australia 2012 Discussion Paper on “Improving Australia’s Law and Justice Framework” (2012) (P.1) Retrieved From http://www.ag.gov.au/consultations/pages/ReviewofAustraliancontractlaw.aspx
- Article retrieved from http://www.4lawschool.com/contracts101/offer.htm
- Simson Solicitors on “The Principles of Contract” (P. 11) Retrieved from http://www.simpsons.com.au/documents/visarts/visarts89/1Princip.pdf
- Ardenete v. Horan, 117 R.I. 254, 366 A.2d 162 (R.I. 1976). http://www.lawnix.com/cases/ardente-horan.html
