CONTRACT LAW

(FORMATION OF A CONTRACT)

Michael is a farmer and advertises for sale in the Dimboola paper, a farm tractor, priced at $20,000.

On 21 January, Trevor contacts Michael and offers him $20,000 for the tractor. Michael replies,
Well, you can have it for $25,000: take a week to think about it.

On 23 January, Trevor texts Michael and indicates that he is happy to pay the $25,000 but wants to
know if he can pay in two instalments: $15,000 upon Michael agreeing to this, and the other
$10,000 by 30 January.

Three days pass, and Trevor has not received any reply from Michael. On 26

January, Trevor posts a
letter to Michael accepting the deal at $25,000 cash, paid upon delivery of the farm tractor. This
letter of acceptance is received by Michael on 28 January.

On 27 January, Michael calls Trevor and tells him that the tractor has been sold to his cousin Jeremy
for $30,000 which is probably the true market value. He tells Trevor there is no deal.


Required
(a) Advise the parties (Michael and Trevor) whether a valid contract has been created for the
sale of the tractor.
(b) Advise Michael whether he has a valid contract with Jeremy.
In your answer you should refer to relevant cases.


(a)Michael v Trevor (SAMPLE ANSWER)
Issue:
This case relates to contract law. Specifically contract law offer, acceptance and revocation.
Relevant Law and Analysis:
In order for Trevor to prove that there is a valid contract between him and michael, he must prove 3
things: there is (1)offer, (2)acceptance and (3)no revocation.
Sub Issue 1:
Was an offer made?
Relevant Law:
The general rule is that an offer is effective when communicated. If it is face-to-face or by telephone, it is
instantaneous.
If there is a counter offer, the original offer dies legally (Hyde v Wrench)
Most advertisements are invitation to treat and the offer is the order. (Patridge v Crittenden)
Application:
In this case, an offer to sell was made by Michael on the 21st. This is because no offer was made when
Michael advertises the tractor as it was an invitation to treat. The offer to buy tractor for $20000 dies
legally as Michael counter offered. The result is an existing offer to sell the tractor for $25000 this was a
counter offer which was communicated through phone (instantaneuous).
SC:
An offer to sell was made on the 21st of January.

Sub Issue 2:
Was the offer with a time limit?
Relevant Law:
The offer lapses (expire) during the deadline.
Application:
The offer lapses on the 28th which is one week after 21 January.
SC:
The offer lapses on the 28th of January.
Sub Issue 3:
Was there an option given?
Relevant law:
The general rule: an offer can be revoked anytime prior to acceptance. (Routledge v Grant)
This however can be rebutted if an option was given for a time limit. An option is consideration for the
oferrors promise to keep offer open until a future date.
Application:
There was no option provided by Trevor. So, the offer can be revoked anytime prior to acceptance.
SC:
The offer can be revoked anytime prior to acceptance.

Sub Issue 4:
Was the statement on 23rd January a counter offer or request to clarify?
Relevant law:
Stephenson Jacques v McLean test: Reasonable person test. This test determines whether the matter is a
counter offer or a request to clarify. Factors to consider are circumstances of the offer and response,
subject matter of the offer the contents of the offer, and the words of the oferees response.
Application:
According to Stephenson Jacques v McLean, the oferees response on 23rd January was a request to
clarify because Trevor was asking whether he could pay in instalments. He did not change the price, only
the way to pay.
SC:
There was a request to clarify on the 23rd by Trevor to michael on whether he could pay in instalments.

Sub Issue 5:
When was the acceptance made?
Relevant law:
The general rule is that acceptance is made when communicated.
There is an exception to this rule which is PAR. The PAR applies if it has been contemplated (agreed to
be a way of communication) by the parties (tallerman 7 co. V Nathans Merchandise). If it applies, the
acceptance is communicated when the letter is posted not when it is read.
Application:
In this case, the PAR does not apply as neither of the parties has contemplated the PAR. This means that
the general rule applies where acceptance is made when communicated. The letter of acceptance was
communicated on 28 January.
SC:
The acceptance was made on 28 January which is within the deadline.

Sub Issue 6:
Was the revocation prior to acceptance?
Relevant Law:
The general rule: (same as in sub issue 3)
Revocation must be communicated to the oferee.
Revocation is effective when communicated. If it is face-to-face or by telephone, it is instantaneous.
Application:
In this case, the revocation was made on 27th of January. Michael called trevor on the 27th and revoked
the offer. Since the revocation was instantaneous, a revocation was made on the 27th.
SC:
The revocation was made on the 27th which was prior to acceptance. This means that there is no
agreement and therefore no contract.

Conclusion:
There was no legally binding contract between Trevor and Michael because Trevor could not prove all 3
elements.
There was an offer to sell on 21st of January and Trevor was given a time limit of 1 week (until 28th of
January). There was an acceptance which was prior to deadline (communicated on the 28th). However,
there is a revocation which was prior to acceptance on the 27th. This shows that there is no agreement and
thus no legally binding contract.





(b) Michael v Jeremy
Issue:
This case relates to contract law, intention. Specifically whether Michael has a legally binding contract
with his cousin Jeremy on the sale of tractor.

Relevant Law and Analysis:
In this case, an agreement has already been made since the tractor has been sold to Jeremy. There is
however one issue which is regarding the intention of the parties.
Sub Issue:
Was there an intention to contract?
Relevant law:
There are 2 types of agreement: domestic and business/commercial agreement.
The presumption of a domestic agreement is that it had no intention to be in a legally binding contract
(Balfour v Balfour)
This presumption can, however, be rebutted if there is a great cost, a lot of inconvenience, and drastic
consequence. (Todd v Nicol)
Application:
The agreement is domestic as it is between relatives and presumption of a domestic agreement is that it
has no intention to be legally binding. This presumption can be rebutted as the tractor is of great cost
(which is $30000 price of tractor) and thus there is an intention which makes the contract binding.
SC:
There is an intention to be legally binding.

Conclusion:
There has already been an agreement since the tractor has been sold to Jeremy. To prove that there is a
legally binding contract, an intention to contract must exist. In this case, there is an intention because even
though the agreement was domestic, the presumption can be rebutted as there is a great cost involved.