Question (a)
Fry v Leela

Invitation to treat

Offer and acceptance

Counter-offers as rejection

Incorporation of unsigned terms
Leela v Edna

Acceptance

Prescribed modes of acceptance

Postal acceptance rule

Revocation

Past consideration

estoppel
Leela v Dr Z

Promise to perform a pre-existing duty

Promise to third party to perform a pre-existing duty
Question (b)

Stipulating modes of acceptance
I have tried to list the obvious cases for various legal principles. This doesn’t mean
that other cases are not as authoritative. So if different cases are cited, that’s fine.
Lots of case citation is required.
I have indicated to students repeatedly that my answer is only one possible
interpretation. I have tried to anticipate various interpretations, but if students raise
issues not included in the answer guide, please try to evaluate these on their own
terms, and give credit where the reasoning is good, even if some errors are made.
The main difference between P, C, D and HD papers is in the level of understanding
of how to apply the rules. Identifying the relevant area is easy. That is P standard
work. Building a persuasive analysis which is well structured and reads clearly i.e.
good expression and grammar, is D standard of work. HD papers should be fairly
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comprehensive in identifying issues and application to facts, and must be very well
written and structured.
They should not include an opening summary of the facts. If they do this, write a
comment telling them not to. You won’t need to deduct any marks, because wasting
word limit like that will result in a poorer paper anyway.
Please correct poor referencing, at least on the first page or two. If no attempt has
been made to follow AGLC, that should incur a loss of marks, up to 3 marks for none
or really hopeless referencing. Bibliographies should be included, but if not please
just comment on it, don’t deduct marks. There was no research required to answer the
question, so the bibliography isn’t crucial.
The clearest structure is probably if they deal with each contract (or purported
contract) in turn, identifying legal issues that require analysis. I am not prescriptive in
how students structure their answers, but there should be a solid structure which helps
to demarcate different issues so that they are dealt with coherently and logically.
Don’t hesitate to call me if anything comes up that you didn’t expect. For example, if
a lot of papers cover an issue I haven’t covered, please contact me asap. I also find
that sometimes none of the papers discuss an issue that I regarded as fairly important.
That probably indicates a flaw in the question or the unit itself, so please let me know
about that too.
Answer Guide
Question (a)
There are three main contracts in question (a): Leela v Fry; Leela v Edna Zoidberg;
and Leela v Dr Zoidberg.
Leela v Fry
The parties have reached agreement, or think they have, but there is a dispute as to the
terms. As in Butler v Ex-Cell-O Corp, this may be resolved by identifying the
moment of agreement, using the rules of offer and acceptance.
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The first proposal, that a discount will apply to specified purchases, is contained in a
catalogue issued by Fry. Is this an offer? The test for an offer is whether the person
making the proposal would intend to be bound on acceptance (Carlill v Carbolic
Smoke Ball). Generally, catalogues, advertising and other marketing materials are not
deemed to be offers, but are merely invitations to treat (Pharmaceutical Society v
Boots Cash Chemist). I think that analysis would apply in this case. This is not an
offer. [having marked several papers that argue that this is a unilateral offer, I note
that in that case, Leela’s counter-offer effectively rejects this offer anyway.]
The next proposal is from Leela to Fry on the phone. She orders several dozen bolts
of fabric, and we can assume that the price in the catalogue is agreed, as well as other
substantive terms such as the fabric material, width etc. To this she adds two further
terms, i.e. 15% discount and delivery within 10 days. Is this an offer? I think so. It is
certain, it covers the terms of a fairly simple contract and it evinces an intention to be
legally bound on acceptance by Fry.
Is Fry’s response an acceptance? Clearly not. He makes a counter offer – 5%
discount, delivery within 14 days and COD. An acceptance must not propose any
change in the terms. (Turner Kempson v Camm). This is a counter-offer, which has
the effect of rejecting Leela’s offer.
Is Fry’s offer accepted by Leela? She proposes changes – again asking for a 10%
discount and 30 days to pay. Sometimes asking for credit, or making inquiries might
not be a counter-offer, but simply a request for clarification or information. However,
Leela is not seeking information because credit and discount have already been
proposed in different terms. Therefore this amounts to a counter-offer which rejects
Fry’s counter-offer.
Is this offer accepted by Fry? He says “I’ll send an email to confirm the order.” He
then emails a copy of a standard invoice. The invoice contains contractual terms
which differ from the terms proposed by Leela in her offer. There are 10 rules
impacting on acceptance. Of those rules, two are relevant to this situation. First, an
acceptance must correspond with an offer. (Turner Kempson v Camm) Second, an
acceptance must be unequivocal. (Appleby v Johnson). Taking the latter factor first,
The textbook refers to a situation where a telegram was sent indicating an intention to
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accept and stating that a letter would be sent containing details of the offeree’s
position. This was construed as not amounting to a binding acceptance (Davies v
Smith see p 42). The word ‘confirm’ seems to be a statement of acceptance, but it is
possible to construe it as referring only to the order i.e. the identity and amount of
fabrics, but not to all the terms Leela proposed. In any case, there is a lack of
correspondence between the offer of Leela and Fry’s purported acceptance. Butler
suggests that some lack of correspondence will not prevent the court from recognising
an agreement, but it is difficult to reconcile this with the established rules on
acceptance. On the whole, I don’t think this amounts to acceptance, given the lack of
correspondence and the equivocal aspects of the email. If that is correct, then Fry’s
email is a counter-offer. Does Leela accept it, even though she did not intend to agree
to some of the terms? It is unequivocal in its wording so objectively it seems her
email is an acceptance of Fry’s offer contained in his email.
In that case, Leela has presumptively agreed to the terms of the email. Is it relevant
that she has not read the terms, and therefore has not subjectively intended to be
bound by them? Terms can be incorporated into a contract in certain situations. One
mode of incorporation is if a party signs written terms (L’Estrange v Graucob). In that
situation, the party will be bound to the terms even if they haven’t read them.
However, Leela hasn’t signed the terms. Another mode of incorporation is notice.
Written terms may be incorporated into a contract if the party seeking to rely on them
gives the other party sufficient notice. (Balmain New Ferry v Robertson). The
question is whether the party has taken reasonable steps to bring the terms to the other
party’s attention. Has Fry taken reasonable steps to bring the terms to Leela’s notice?
Factors which the court have taken into account include the timing of the notice
(Olley v Marlborough Court), the knowledge of the party of the terms, or their
existence or that the document contains writing that might be a term (Parker v South
Eastern Railway Co), Whether the document containing the terms is contractual in
nature (Causer v Brown), and whether the contract contains unusual or onerous terms
(Thornton v Shoe Lane Parking). Here the notice of terms precedes the agreement,
because the invoice is emailed before Leela accepts Fry’s offer. In terms of
knowledge, it is not necessary to show that Leela had actual knowledge of the terms.
If she knew that the invoice contained terms, that will normally be sufficient notice.
If she didn’t know that the invoice contained terms, but she did know that it contained
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writing, and that documents of that kind are widely understood to be contractual in
nature, then that might still be sufficient notice. The facts are a little unclear on this.
They say she ‘doesn’t bother to read the terms outlined’ This suggests that she knew
that the writing was contractual terms. If so, the terms are incorporate into the
contract. If not, the question is whether she knew the invoice contained writing and
an invoice would be widely understood to contain contractual terms. It seems she
knew the invoice contained writing because she read part of the invoice detailing
which fabrics had been ordered. I think an invoice would be widely understood as
contractual in nature. Therefore, I think that on either interpretation the terms were
incorporated by notice. There is nothing to suggest that the terms are unusual or
onerous. On that analysis, Leela is bound by the terms set out in the invoice, despite
the fact that she was not subjectively aware of them. She must pay the extra money
that Fry claims.
However, since it is arguable that Fry’s verbal response amounts to an acceptance of
Leela’s offer, then if students decide that Fry accepted Leela’s offer, then they must
consider the consequences that flow. In that case, the terms specified by Leela have
been agreed. This means that the terms contained in Fry’s email were not notified to
Leela contemporaneously with the agreement. In other words, notice of the terms was
given after the agreement was finalised. In that case, Leela could argue that the
purported notice came too late. Olley v Marlborough Court. Additionally, she could
argue that, as in Causer v Browne, it was not reasonable to assume that the email
would contain further terms of the contract which had not been agreed. This
argument would be supported by Fry’s use of the word ‘confirm,’ which does not
suggest that anything new will be stated in the email. In this case, Leela would not be
liable to pay the extra money.
Leela v Edna
Contract
Again, the parties are disputing the terms of their agreement, and we need to examine
offer and acceptance to determine when the agreement was made.
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On Monday, Leela and Edna discuss the possibility of contracting for Leela to make a
quilt for Edna in consideration for Edna’s promise to pay. Is there an offer made on
this day? I think the discussion culminates in an offer made by Leela to construct the
quilt for $540, to be delivered in no less than 3 months and no later than Edna’s
wedding anniversary, which she indicates follows shortly thereafter. This would be an
offer because it was specific, it included the major terms, including the work, time
and price and it would have been intended by Leela to be binding on her if Edna
accepted it. Even though some terms are little hazy around the edges, (“Oh, say
$540”; “at least 3 months”) I think it is clear and definite. If it is an offer, is it
accepted?
Edna does not accept immediately. She leaves it open. At that point Leela offers to
keep the offer open until Friday 5pm. That promise is not binding on Leela, because
it would need to be supported by consideration. (Dickenson v Dodds). Therefore
Leela can still revoke the offer any time prior to acceptance without incurring legal
liability. (Stevenson Jacques v McLean).
Edna intends and purports to accept Leela’s offer on Wednesday. Is this note a valid
acceptance? The only variation to Leela’s offer is in the date of delivery. Leela
specifies delivery no earlier than 3 months away. Edna specifies no later than 4
months. I don’t think these terms are actually different. One specifies a minimum
time for delivery, the other specifies a maximum time for delivery. In my
interpretation, the acceptance is valid. However, this is not an issue I would be
prepared to bet any substantial money on. It would be quite legitimate for students to
argue that it is not a proper acceptance because it purports to vary the terms of the
offer. The delivery term is in one sense different and imposes different obligations
and entitlements on the parties, (Turner Kempson v Camm) in which case it is a
counter-offer. I will follow this strand of analysis in a moment.
Assuming for now that Edna’s note is not a counter-offer, does it comply with
requirements as to the mode of acceptance? Edna’s mode of acceptance is to post a
note to Leela. If the postal acceptance rule applies to this contract, then the moment
of acceptance is the time of posting. (Henthorn v Fraser: Bressan v Squires) A
contract would crystallise between the parties on Wednesday afternoon. If the postal
acceptance rule does not apply, then the general rule is that acceptance is not effective
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until it is communicated to the offeror, (Dickenson v Dodds) unless notice is waived
by the offeror (Carlill v Carbolic Smoke Ball). But does the postal acceptance rule
apply? Two tests have been developed to assess whether the rule applies. The most
authoritative test was outlined in Henthorn v Fraser, that it applies whenever it is
contemplated by the offeror that an acceptance might be posted. Though narrower
tests have been adopted (Tallerman v Nathan’s Merchandise), the broad test still
seems to apply. Was it within Leela’s contemplation that Edna might send an
acceptance by post? Generally, where the mode of acceptance stipulated by the
offeror indicates a requirement of actual notice, the postal acceptance rule will be
displaced. As noted in the textbook, ‘in such cases everything depends on the correct
interpretation in the circumstances of the language used and slight differences in
terminology can be of crucial significance (eg Bressan v Squires).
The mode of acceptance stipulated by Leela is “let me know before Friday 5pm,
because I might get other orders. Please phone me this week and let me know.” The
stipulated mode of acceptance is by telephone, which is instantaneous communication
(Brinkibon v Stahag). This implies a requirement of notice which displaces the postal
acceptance rule, I would argue. Acceptance should comply with the mode outlined by
the offeror. To be valid, Edna’s acceptance should be by telephone. It is arguable
that, had she called into the shop and told Leela she accepted the offer, this might be
valid, because it, like a phone call, is instantaneous. But posting of the letter does not
comply. Even if it could be a valid mode, the postal acceptance rule would not apply.
Even if Edna’s letter would be a valid mode of acceptance once it is communicated to
Leela, the offer is revoked by Leela on the phone before she reads the letter. An offer
can be revoked at any time prior to acceptance, even where it is expressly stated that it
will be held open for a specified period of time which has not, at the time of
revocation, expired (text p75; Routledge v Grant; Stevenson Jaques v McLean). A
revocation needs to be communicated to the offeree, and this requires simply a clear
indication that the offeror does not intend to proceed with the contract (Financings v
Stimson). Leela tells Edna she underquoted and wants to change the price. She says
she needs to charge $620 “to make it worth my while.” In my analysis this amounts
to a revocation followed by an offer to contract on the same terms but with an
increase of price.
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Does Edna accept this offer? The facts state that she argues, ‘but eventually agrees to
pay the price increase.’ This is a valid acceptance. Therefore there is a concluded
contract between Leela and Edna at this point. Edna is liable to pay $620 for the
quilt.
The alternative interpretation is that Edna’s letter of acceptance was in fact a counteroffer because it stipulated different terms of delivery. This makes no difference to the
outcome, because the letter has no effect as an acceptance as it arrives after Leela has
revoked her original offer and made a new offer, and it has been accepted by Edna on
the phone.
Is Leela in breach of a term or an agreement which required her to use 100% natural
fibres in the quilt? This promise was made the day after the parties had agreed on
terms. Does Edna provide any consideration to support the promise? She relies on
the agreement already made. This raises the doctrine of past consideration which was
discussed in Roscorla v Thomas. In that case it was decided that a past promise could
not operate as valid consideration. Past consideration is no consideration. Therefore
this is not enforceable, either as an additional term or as a further contract.
Estoppel
Could Edna raise estoppel regarding Leela’s promise to use natural fibres? An
estoppel is raised by the following circumstances (Waltons v Maher; Je Maintiendrai
v Quaglia):
1.
an assumption adopted by the relying party (assumption)
2.
the assumption is induced by the representor’s conduct (inducement)
3.
the relying party relies on the assumption and will suffer detriment if the
assumption is not fulfilled (reliance and detriment)
4.
the relying party has been reasonable in adopting and acting on the
assumption (reasonableness)
5.
it would be unconscionable for the representor to depart from the
assumption (unconscionability)
6.
the representor threatens to depart or does depart from the assumption.
(departure).
Applying this to the facts, we find that there are grounds for estoppel to apply:
1.
Assumption – Edna adopts the assumption that the quilt will be made out
of natural fibres
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2.
Inducement – this assumption is induced by Leela’s response to Edna’s
request – ‘Yeah, no worries.’
3.
Detrimental reliance – Edna relies on the assumption that the quilt will not
contain artificial fibres. Her reliance leads her to accept the quilt as is.
Her detriment is the suffering of allergy ‘flare up’ and the price she paid
for the quilt.
4.
Edna’s reliance was reasonable
5.
Leela departed from the assumption because she did not use natural fibres.
Edna would be entitled to damages to counter the detriment, which means she would
be entitled not to pay the price of the quilt, and perhaps some medical expenses,
depending on the severity of her allergic reactions.
Leela v Dr Zoidberg
Dr Zoidberg has promised to pay Leela an extra $200 if she completes and delivers
the quilt within the time promised in her earlier agreement with Edna. Is this an
enforceable promise? It must be supported by good consideration. One principle is
that a promise to perform an existing duty is not good consideration (Stilk v Myrick).
This includes a promise to perform a pre-existing contractual duty. The promise is
already owed, and cannot be seen as providing fresh consideration. However, one
exception to this rule is that, though the promise may not be valid if it is made to the
other party, if it is made to a third party, then it can operate as good consideration
(Shadwell v Shadwell; The Eurymedon). This is because the third party is receiving
an additional benefit, which is an ability to directly enforce the promise. Here, Dr
Zoidberg is a stranger to the first contract. Therefore, by promising to Dr Zoidberg
that she will perform her duty to Edna, Leela is arming him with a direct right to
enforce that promise, which he did not previously have. This counts as good
consideration. Therefore the term is enforceable and she is entitled to the extra $200.
Even if Edna succeeds in raising estoppel, this would not affect Dr Zoidberg’s
liability under the contract he has with Leela.
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Question (b)
Leela v Edna
Contract
If Leela received Edna’s letter before revocation of the offer, then she might be bound
by the acceptance. This is not because of the postal acceptance rule, which does not
apply here. An important rule of acceptance is that it be communicated unless such
communication has been waived by the offeror (eg in a unilateral contract). As noted
above, Leela could not be interpreted as waiving communication. Acceptance by
telephone provides the offeror with immediate notice of acceptance. This is in
contrast to methods which entail delay, such as post. There, it is clearly contemplated
that communication will not be immediate. This is the context in which the postal
acceptance rule has been developed. The postal acceptance rule applies when it is
contemplated by the offeror that acceptance will be by post.
Leela has stipulated a proper mode of acceptance of the offer as by telephone.
However, the courts have said that an identified mode of acceptance won’t necessarily
be construed as inferring that no other mode of acceptance will be valid. If the offeror
has stipulated that a prescribed mode is the only proper mode, that will be enforced,
so that an acceptance which does not comply will not be valid (Quenerduaine v Cole).
However, ‘in most cases an offeror in indicating that acceptance may be made in a
particular manner will not be taken to have insisted that that is the exclusive method
of acceptance. (Bressan v Squires) In such cases any alternative method of acceptance
which is as prompt as, and no less advantageous to the offeror than, the prescribed
method will suffice.’ (text p 48 [228]). “Where, however, the offeror has prescribed a
particular method of acceptance, but not in terms insisting that only acceptance in that
mode will be binding, I am of opinion that acceptance communicated to the offeror by
any other mode which is no less advantageous to him will conclude the contract’
(Buckley J, Manchester Diocesan Council v Commercial and General Investments).
If only one mode of acceptance is effective, then the offeror should stipulate that
restriction quite clearly. Although acceptance by post is not as prompt as acceptance
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by phone, it could be argued that what Leela was stipulating was that she had to have
notice or communication of the acceptance before Friday. In this case, Edna could
argue that, as her letter was received within the time specified, and prior to
revocation, it did not matter that she did not strictly comply with the mode of
acceptance. Leela was not intending to stipulate a strict requirement of the mode of
acceptance. So although she could not be construed to have waived the requirement
for notice, her offer should not be interpreted as stipulating one exclusive method.
Any method was valid as long as it was communicated before the Friday deadline
(and before revocation).
If this interpretation is correct, then Leela is bound to the earlier contract, which
incorporated a term that the price Edna should pay was $540.
However, this is subject to the interpretation that the note was a valid acceptance
despite the difference in time of delivery. If the other interpretation is adopted, then
Edna’s note was not an acceptance but a counter-offer which rejected Leela’s original
offer. That would mean that when Leela rings Edna, her change in terms to increase
the price is itself a further counter-offer, which is then accepted by Edna, as per the
analysis under Question (a). Edna would be bound to pay the higher price, subject to
the estoppel argument outlined in Question (a).
If the note is a valid acceptance, Is Edna bound by her later agreement to the offer to
contract at higher price during the subsequent phone call? Although parties can vary
the terms of a contract, this requires that consideration be present to support any
additional promises. If a contract variation contains a potential benefit and a potential
detriment to each party, then consideration is provided. In this case, though, the
benefits flow one way only. Edna’s promise to pay more for the quilt seems to be an
example of an agreement to perform a pre-existing contractual duty (Stilk v Myrick)
which, as discussed above, is not valid consideration. There seems to be no relevant
exception to the rule which might apply here. Leela’s promise is the same now as it
was for the earlier agreement. There is no change in content. Another exception
identified in the text is ‘factual benefit to a promisor’, which applies where the
promisee gets some pragmatic commercial benefit such as not having the risk of
paying liquidated damages to a third party as a result of failure of the promisor to
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perform the pre-existing duty (Williams v Roffey Bros & Nicholls). That does not
seem to apply. Thus Edna is not bound to pay the higher price.
Estoppel
Even assuming that she could satisfy the court as to the other elements of estoppel,
Leela would have real problems establishing detrimental reliance (point 3 on the list
outlined above) to the extent required to trigger equitable relief. There is nothing
unconscionable in allowing Edna to enforce her contractual right to pay the price
originally agreed. Leela could have avoided the situation if she had expressed her
offer more tentatively. She has not suffered any detriment except that she will not
make as much profit. Contrast this with, eg, Waltons v Maher, where the plaintiff
suffered extensive loss.
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