Six Elements To Form A Contract Law Contract Essay

Published Date: 02 Nov 2017

Acceptance defined as definite and unqualified assent to terms of offer which can be implied and made without saying anything. [1] This means that acceptance must be accepted by the offeree without subject to any condition. If any suggestion to change the offer by offeree, it will become counter offer. Acceptance is very important because it indicating the communications of both parties and once the final acceptance has reached, parties who agreed to involve in the offer are legally bound and the agreement will therefore becomes an enforceable contract.

The rule 1 of acceptance stated that acceptance must be definite and unconditional. [2] What does this means? Acceptance must be definite means offeree must accept the entire instead of part of the offer while acceptance must be unconditional defined as offeree must accept the offer without suggesting and demanding for other offer or amending the offer by the offeree, or it will considered as counter offer. Mirror Image Rule defined as principle in contract law which emphasized that acceptance to an offer cannot has the occurrence of changing the offer or amending the offer by the offeree, or it will considered as counter offer. [3] As example, Wilson offers the sale of his house to Billy at $ 20,000. If Billy thinks the price is a bit higher and asks for a lower selling price, he is actually making a counter offer which damaged the previous offer made. In this case, there is no agreement exists since the original offer is damaged as what has happened in Hyde v Wrench(1840). [4] 

However, there is acceptance accepted by subjecting to certain condition in the Law called conditional acceptance. This is something contrast with the general rule of acceptance, so the important issue to decide whether there is an existing contract is by determining whether parties have reach finality, intention to be legally bound and the intention to be immediately binding. [5] Usually, there is a clause like ' subject to contract' in the terms of contract. The ' subject to contract' clause is playing an important role in agreement for a contract; the existence of this clause may affect the existence of a binding contract.

Horst K Lucke says that:

Where the phrase' subject to contract ' or some similar express statement is not used, the defendant who disputes his liability on the preliminary documents is faced with a twofold task: he must convince the court (1) that the execution of a more formal documents was in fact contemplated, and (2) that the preliminary document was not meant to be a binding contract. [6] This clearly stated the importance of ' subject to contract' clause. [7] 

There are 4 categories of contract under conditional acceptance. Masters v Cameron [8] established the precedent that there are 3 categories of contract in conditional acceptance. The first category of contract occur when both parties have reached final agreement and intend to be immediately bound but they expect the terms comes into a precise document form without changing the terms. [9] This statement means that parties have reached finality and expect for a formal contract without amending or changing the agreed terms. For example, Godeck v Kirwan(1973). [10] In this case, the document with" offer and acceptance" as heading have reached final agreement from both parties, Godeck and Kirwan (1973) to buy and sell a land for $110000. There was a clause stated there will be a further agreement prepared by the vendor's solicitor but the conditions in further agreement are reasonably required. The court held that there was an enforceable agreement since the clause and the conditions will be added is just to insert further terms and the agreement which agreed terms will not be affected. Moreover, in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd [11] , Baulkham Hills made an offer to buy the hospital subjecting to "...On receipt of such written acceptance, our client would consider there to be a legally binding agreement in principle between yourself and it..." Baulkham indicated his solicitor for the formation of formal contract after he sent his acceptance. The court held that the language of the correspondence's ' legally binding agreement' do show the intention to immediately create contract between parties. Both cases illustrated above bound under informal contract and the formal contract could include some additional terms without affecting the reached finality. Hence, the importance of Masters v Cameron shown since the cases above are categorized under first category of contract with Masters v Cameron as precedent.

The second categories of contract occur when parties have reached final agreement and do not have the intention to alter their agreement and expect the agreement to be incorporated into a formal contract. [12] This statement means cases which involved the final agreement from both parties and they do not want to change the agreement and wish to corporate the agreed agreement into a formal contract.

Niesmann v Collingridge is an example. [13] The case was held that there was an existing contract between parties because the" firm offer" indicating the parties have the intention to be immediately bound. This case has been decided by viewing the intention to change the agreement for both parties. In Todbern Pty Ltd v RB Kerr ( Group) Pty Ltd [14] , the appeal court held that there is existed contract between the parties since the terms were prepared in document form and approved by Todbern's solicitor and agreed and executed by both parties in the earlier stage. The decision for both case are emphasizing on the intention to be legally bound in to a contract. The parties in both cases above are ready for a formal contract, so their intention to be legally binding was existed.

The third category of contract occurs when parties have not yet reached finality unless the formal contract is signed. [15] Cases which categorized under third category of contract is usually a clause stated that the agreement is "subject to contract" Hence, there is not existing contract before a formal contract is signed. For example, in Masters v Cameron. There is a sale note signed by Masters and deposit paid by Cameron but the agreement is "subject to contract". The court held that there was no an existing contract in this case since both parties are considered not reach the finality before a formal contract is signed. This case is playing an important role for conditional acceptance since the decision and the third category of contract analyzed by the court are widely been use in making decision for cases about conflicts in contract.

Since then, there is forth category of contract recognized by the court. The forth category of contract exist when parties have reached agreement intend to be "immediately and exclusively" bound and intend to make a formal contract. When both parties reached agreement, they can enforce the agreed agreement immediately. Souter v Shayamba Pty Ltd(2000) is an example. [16] As the parties in this case took for formal contract and the transaction involved a large amount of money, the court held that there was an contract. Besides, parties also get advices form their solicitor when making agreement, this shown both parties,' seriousness to the contract and intention to be immediately and exclusively bound. AnotTarher example is Anaconda Nickle Ltd v Tarmoola Australia Pty Ltd (2000). [17] This case was held that there was an enforceable contract since parties have reached finality and intended to be immediately and exclusively binding. Parties also agreed for the additional term to substitute a later agreement. Both cases had shown the intention to be immediately and exclusive bound in a contract. Parties who have contract falls under this category are agreed for additional agreement for the contract.

The importance of the precedent of Masters v Cameron are shown since in Phillip Segal & Anor v Max Christopher Donnelly & Ors (2012) [18] , the court came out with two possibilities categories of the case from the four categories of contract and held that the parties have no intention to be legally bound in a contract and lack of intention to be immediately legally bound as well. So, there was no binding contract until contract was exchange. [19] The court did apply and tried to analyze and categorized which category does the case falls. The court did use Masters v Cameron as precedent. This is to prove courts are still using the four categories of contract as guideline in making decision for contract conflict cases.

In conclusion, Masters v Cameron did provide guidelines for contract cases. However, by reviewing the four categories of contract, we found that only case falls under third category of contract is considered as true conditional acceptance. Other category of contract are emphasizing on the intention to be legally bound and whether the parties agreed to the additional terms in the formal contract instead of the" subject to contract" clause. Hence, the way in making judgments for conditional acceptance cases is actually very narrow so I suggest that Australian Legal System should provide a more clarity guideline for courts in making decision for contract cases. For example, Australian legal system should comply or make a statue similar to Negotiable Instrument Law. [20] By passing this statue, Australian court may have broader guideline for conditional acceptance since the rules for conditional acceptance are set in the statue and it will no longer be a so debatable issue in the court.