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The essence of a contract is the final offer and its acceptance which signify that the parties have reached an agreement as to the essential terms of the contract. The acceptance must be the mirror image of the offer.

Key issues

Before answering the following questions, you should be familiar with these issues:

  • What is an offer? (definition)
  • What is an acceptance? (definition)
  • Who is an offeror and who is an offeree?
  • What is an invitation to treat?
  • How long does an offer continue in existence?
  • How can an offer be brought to an end?
  • Does an acceptance have to be made by a particular method?
  • What is the postal rule of acceptance?
  • When does the postal rule apply?
  • When can an acceptance be revoked?
  • Can silence be an acceptance?
  • What are the rules for electronic methods of acceptance?
  • What is a counter-offer?
  • What is the effect of a counter-offer?
  • If an offeror promises to keep an offer open for you does
  • it have to be kept open?
  • What is the effect of instantaneous communications?
  • When is an advertisement for an auction or tender an invitation to treat and when can it be an offer?

Common pitfalls

  • Stating that there is an offer without saying what the definition of an offer is and how the offer in the question fulfils the requirements of the definition.
  • A failure to observe dates and events in order.
  • Stating that the postal rule of acceptance applies simply because the letter of acceptance was posted. It may well be that careful examination of the question reveals that the offeror had made it clear that some other form of acceptance was required or that the offeror had to know of the acceptance by a certain time which was not complied with by the mailed acceptance.
  • Failing to discuss adequately the situation where the offeree posts an acceptance and then tries to withdraw it. Discussion of the postal rule is needed.
  • Assuming that revocation has taken place without discussing whether communication of the revocation came from a reliable source, nor whether it was communicated to the other party.
  • Counter-offers are often not distinguished from inquiries and other communications. Failing to recognise that counter-offers insist on a change of terms.
  • Failing to recognise when an option contract has or has not been formed.

Question 1

Distinguish between an offer and an invitation to treat.

Answer Plan

You will need to consider the following in your answer:

  • The definition of an “offer” and of an “invitation to treat”;
  • The essential points distinguishing offers and invitations to treat.

Question 2

Robert has started importing a new brand of MP3 players from China. On 12 June Robert sends a fax to Tom in Nelson and a fax to Rachel in Dunedin. The faxes are identical except for the names and addresses. Robert asks each of them if they would be interested in becoming the sole distributor for the MP3 players throughout the South Island for a commission of 20 per cent of the recommended retail price. On 13 June Tom and Rachel each fax Robert stating that they are interested in the proposal but want information to do with the availability of spare parts and repairs while the MP3 players are still under guarantee. Robert faxes Tom on 15 June with the requested information.

Rachel replies by fax on 17 June stating that she accepts all the terms in Robert’s faxes but will take on the distributorship if the commission is 40 per cent. Robert then sends a fax to Tom, on the 17th, stating:

I offer you the sole distributorship of Spelco (details are attached) at a basic rate of 35 per cent commission from the recommended retail price. I must hear from you by 23 June as I want to ship the first supplies of Spelco to you on 30 June.

Tom receives the fax and sends Robert a letter in the mail accepting the offer. The letter did not arrive until 24 June.

On 22 June Rachel, having heard nothing from Robert since the fax of 12 June, posted a letter to Robert offering to act as sole agent for distribution of Spelco for a 20 per cent commission of the recommended retail price.

Robert received Rachel’s letter on 23 June. Robert immediately telephoned Tom and told him that the post of sole distributor was no longer available. Tom insists that there is a binding contract to appoint him.

Advise Robert if he has a contract with Tom or if he is free to accept Rachel’s offer.

Answer Plan

You will need to consider the following in your answer:

  • Was Robert’s first fax to Tom and to Rachel an offer or an invitation to treat?
  • What is the legal effect of the faxes sent on 13 June?
  • Is the fax from Rachel on 17 June an invitation to treat, an offer or a counter-offer?
  • Has Robert made an offer to Tom, and if so when?
  • Can Tom rely on acceptance by mail?
  • If Tom cannot rely on acceptance by mail, can Tom accept after 23 June?
  • Has Robert revoked the offer to Tom?
  • Is the final communication from Rachel an acceptance or a counter-offer?

Question 3

Tom, a distributor of MP3 players in the South Island, wants to reduce his inventory of stock ahead of the availability of a new model. He sends a fax to two of his regular retailers, Mary and Sam. Except for names and addresses the faxes are identical. The faxes state: “I have 50 MP3 players model 2538. I am prepared to let you have half of them for half the usual price, i.e. $150 each. I must receive your acceptance by 5 pm at the latest today. Cheers, Tom”. Mary replies by fax: “Interested in acquiring all your stock and will pay $4000 for all 50 of them”. Tom receives this fax at 4 pm.

Sam also replies to Tom by fax: “Delighted to accept your offer. Cheers Sam”. Sam’s fax is delayed through a telephone fault at Sam’s end and does not reach Robert’s fax machine until 5.15 pm when everyone has gone home. Sam’s secretary does not tell Sam the fax has been delayed in its transmission. In the morning Mary rings Tom and says she will now take just 25 of them for $2500. Tom says the offer is no longer open to her. Sam rings Tom and says he will have a courier collect the MP3 players that afternoon. Tom says the price is now $170 each. Sam says he had accepted at $150.

Advise Tom whether he has one contract, two contracts, or no contracts.

Note: This problem is in the area of offer and acceptance. Write down the points of offer and acceptance that you think are covered. You should be familiar with offer, acceptance, invitation to treat, counter-offer, and the rules on communicating acceptance. If you are familiar with these areas, then outline the issues you see arising from the problem.

Answer Plan

You will need to consider the following in your answer:

  • Are Tom’s faxes to Mary and Sam offers or invitations to treat?
  • Is Mary’s fax to Tom an acceptance or a counter-offer?
  • What is the effect of Mary’s fax to Tom?
  • What is the effect of the phone call from Mary to Tom?
  • What is the effect of Sam’s fax arriving late?

 

For the full sample answers and more see Adams and Drake Questions and Answers: Contract Law (3nd ed, LexisNexis, Wellington, 2014).

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