Law of Contract Example

Thus A’s letter to K dated 21 April is the first possibility of an offer. However the terms of this letter are too vague to be construed as an offer. This is because an offer must contain all the terms necessary for the contract to come into existence4. Offering to work for a fee “between $12000-$20000” is not certain enough to constitute an offer and the letter is more appropriately seen as a supply of information only5. Thus K’s letter to A on 24 April is, contrary to K’s belief, merely an offer, not an acceptance. The nature of K’s letter implies a clear intention to be bound by the terms of the enclosed contract and the letter sets out the method by which the signed contract is to be returned. As this is an offer, not acceptance, A is considered to have received the offer on 28 April.

This raises a question as to whether:(a) the offer is the letter itself, with the “contract” document to be signed an event that does nothing more than put the already agreed terms in writing; or(b) the enclosed contract is itself the offer made by K.These issues are similar to those dealt with by the High Court in Masters v Cameron6. However that case dealt with the issue of what constituted acceptance and so is not a direct precedent for the issue in this case.

1 See eg Carhill v Carbolic Smoke Ball Co. (1893) 1 QB 2562 Eg Boots Cash Chemist (1953) 1 QB 4013 Op. cit.4 G. Scammell & Nephew Ltd v H.C and J.G Ouston [1941] AC 251: but cf. Hillas & Co. Arcos Ltd [1932] All ER 4945 Eg Harvey v Facey (1893) AC 5526 (1954) 91 CLR 353In any event K directs A to sign and return the contract “by express mail”. Aattempts to first fax the contract and then mails it. We must determine if such actions constitute an effective acceptance.

In order for acceptance to be effective it must be unqualified7 and communicated8. Unless there is evidence to the contrary communication will be determined objectively by the courts9. There is no issue of conditional acceptance in this case as A merely signs the contract and attempts to return it.

However A’s first attempt to communicate acceptance is by fax. The courts have held that whether such acceptance has been communicated is by determining the time at which the fax is received by the offerer10. In this case, no fax is in fact received by K due to A’s faulty fax machine. Thus there has been no acceptance communicated by this action. It is well established that an offeror can stipulate the means of acceptance by the offeree11. In this case the letter, though it mentions the avoidance of delay does not set a time period in which acceptance must take place. It does however stipulate “express mail”. The facts are unclear whether A uses normal or express mail. In the event that she has not her acceptance may not be effective.

In the event that A uses express mail, or the courts find that using normal mail is a means of acceptance that is not more disadvantageous than the stipulated means12 the postal acceptance rule will result in the acceptance having been effectively communicated on 28 April, the date of posting13.

On the other hand, following Brogden v Metropolitan Ry Co14 and Empirnall Holdings v Machon Paull15, an unsigned contract may still create contractual obligations if the parties act consistently with its terms. In this case this argument is even stronger because not only have both parties acted consistently with the terms of the document but K has drafted it and A (and possibly K) have signed it.

Thus the facts disclose both an effective offer and acceptance. Consideration also appears to be satisfied as A is providing its services in return for anagreed monthly fee of $11,500 to be paid by K. Thus consideration passes from both parties16 and is of a precise 7 Ibid

8 Felthouse v Bindley (1862) 11 CB (NS) 8699 R v Clarke (1927) 40 CLR 22710 Eg Entores LTD v Far Eastern Corp (19550 All ER 493 & 495 11 Manchester Diocesian Council for Education v Commercial and General Investments Ltd [1969] 3 All ER 159312 Eliason v Henshaw 4 Wheaton 225 (1819)13 Adams v Linsell (1818) 2 B & Ald 68114 (1887) 2 AC 66615 (1988) 14 NSWLR 52316 Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd [1915] AC 847 nature17. The fact that this conduct occurs in a business setting between two parties acting at arms length also creates a presumption that there is a common intention to create legal relations, a presumption that is not rebutted by any contrary facts18. The Terms of the Contract

In order to determine the terms of the contract it is important to have regard to the terms of the offer only. The only terms that could arise out of the previous negotiations are those referred to in the offer itself or that the courts would imply as necessary to give the contract “business efficacy”19. This is particularly the case if the signed contract is seen as the basis of the agreement, which is likely. In this case the parol evidence rule will generally preclude any evidence of intention inconsistent with the signed document20. There is nothing in the offer letter or contract sent by K to A which imports any of the previous negotiations.

Thus once the offer is accepted the contractual term is that the monthly fee is $11,500 per month irrespective of A’s earlier letter. Even if the contract was formed before A signed the document the terms in the contractual document which limit A’s liability were clearly brought to the attention of both parties before A accepted (either by signing or by her actions) and are thus effective terms of the contract21.

There is however one area of uncertainty in the terms of the contract. Thisis the reference in Ks letter to “exclusive courier”. This could be interpreted to meaning A will be the only courier K will use, or as suggested in the original advertisement, that K will be A’s only customer. In order to determine this issue it would be necessary to examine the wording of the contract more closely. In any event nothing in relation to A’s alleged liability for the accident turns on this point.

Breach of the ContractIn order to determine a whether a breach of the contract has occurred it is necessary to closely examine the wording of the terms. The contract states that A undertakes to use all due care and consideration in carrying out its “courier duties” but excludes liability for documents or goods “given into its care”.

The facts in this case concern the transport of K’s manager. One assumes that as the manager is in the car himself he keeps the documents in his own care. Thus the exclusion clause would not apply to this situation unless A could prove the unlikely event that the manager while in the car had given the care of his important documents to A’s driver. 17 White v Bluett (1853) 23 LJ Ex 36

18 Cf Edwards v Skyways (1964) 1 WLR 34919 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363: The Moorcock (1899) 14 PD 6420 L Estrange v Gracoub Ltd (1934) 2 KB 39421 cf Causer v Browne 1952 VLR 1As a result it seems that the exclusion clause is ineffective to shield A from liability. But this liability can only arise in contract if the transporting of the manager with his documents falls within the meaning of “courier duties”. Generally couriers are distinct from taxis and therefore A could run a strong case that the loss suffered by K is not due to an action by A that is in breach of the contract, but in fact a gratuitous action that occurred outside of any contractual obligations.

The Measure of DamagesIn the unlikely event that such a breach has occurred the amount of damages K can recover will be determined by the use of the foreseeability tests set out in Hadley v Baxendale22. Under these tests damage will be limited to that damage that reasonable person would foresee as a likely result of the natural consequences of the breach, unless that eventuality was specifically in the mind of the parties at the time of contracting. At the time of contracting for the courier duties giving lifts to K’s manager in order for him to attend crucial business opportunity meetings was never brought to A’s attention. Thus the only possibility is to argue that the loss suffered by K is a natural consequence of the accident. This is highly unlikely to succeed.

Finally it is unlikely that K could argue that the requesting of a lift for K’s manager is a new contract. K does not appear to provide any new consideration for this this and it appears to be best characterised as merely a favour done for K by A in the interests of an ongoing business relationship.

22 (1894) 9 Exch 341 and see also Victoria Laundry (1942) 2 KB 528