Position of Acceptance in Creating Binding Agreement - Essay Example

A Research Essay: Contract Student’s Name: Lecture’s Name: Course Code: Date of Submission: 1.0 Introduction Contract is said to have occurred when two parties have an agreement that is enforceable by law. For the contract to be legally binding there has to be offered and acceptance.1 There are various laws pertaining to contracts depending on the sector one is in. Contract law in Australia is based on common law and supported by various statutory legislations at national or state level.2 In Australian contract law it is indicated that “to create a binding agreement the acceptance must occur, and that ‘acceptance’ must be final and absolutely unconditional”. The principal undertaking in this discourse is to establish the accuracy of this statement by affirming or refuting the same using various legal literatures and case laws. 2.0 Discussions The above statement can be approached from two paradigms. The first are those rulings and propositions that support the statement while the second are those that present the opposite. In analyzing the thesis statement (to create a binding agreement the acceptance must occur, and that ‘acceptance’ must be final and absolutely unconditional), three themes emerges. The first is “….to create a binding agreement the acceptance must occur”. The second is “…acceptance must be final” and lastly, “…the acceptance must be absolutely unconditional”. These three themes in the above phrase will be used to qualify or disqualify the same. 2.1 Position of Acceptance in Creating Binding Agreement Let’s look at the first sub statement/ theme emerging from the phrase which is “….to create a binding agreement the acceptance must occur”. In the Victorian case of Director of Consumer Affairs Victoria v Craig Langley Pty Ltd & Matrix Pilates and Yoga Pty Ltd (Civil Claims) [2008] VCAT 482 at [66], cited in Commonwealth of Australia (2010, p.8), Judge Harbison stated: Terms of a consumer contract which have been the subject of genuine negotiation should not be lightly declared unfair. This legislation is designed to protect consumers from unfair contracts, not to allow a party to a contract who has genuinely reflected on its terms and negotiated them, to be released from a contract term from which he or she later wishes to resile. This statement affirms the belief that for a contract to be considered that it has occurred there has to be acceptance by the offeree. Nevertheless, the question that emerges is what parameters are used to establish if an agreement had indeed occurred? This then makes it necessary to examine the concept of acceptance in contractual agreement. 2.1.1 Concept of Acceptance in Contractual Agreement Contract is said to be “exchange relationship created by oral or written agreement between two or more persons, containing at least one promise, and recognised in law as enforceable”.3 The premise that contractual relationship is tied on is to be bound and reach agreement on the essential terms of relationship. This is equally pegged on non coercion. Apart from reaching agreement, the other critical element is reciprocal exchange relationship where there is give and take or a promise. Moreover, Emanuel (2010, p.114) notes that it involves engaging in consented exchange and make promise to each other through acceptance. These conditions once met, it means the process is legally recognised and thus, can be legally enforced.4 However as parameter (acceptance) of establishing if there is any contractual relationship, it is equally significant to differentiate it with invitation to treat. Acceptance is defined as “final and unqualified expression of assent to the terms of an offer”.5 Nevertheless this has to happen towards the person it is directed to.6 4lawschool (2012) observes that once this is done’ “it is no defence to an action based on a contract for the defendant to claim he never intended to be bound by the agreement if under all the circumstances it is shown at trial that his conduct was such that it communicated to the other party (s) that the defendant had in fact agreed”. Determination of valid acceptance by Australia’s contract law becomes integral in this perspective. The test for acceptance has either been conducted through ‘meeting of minds theory’ or through objective model approach. This only become plausible when there is communication of acceptance, correspondence with offer and knowledge of offer.7 In a nutshell, there has to be acceptance for a contractual agreement to be binding and thus, the first segment holds true. Nevertheless, quietness can’t be assumed to an acceptance. This is highlighted in the case of Felthouse v Bindley (1862) 142 ER 1037 cited in Clerk 2012. From the above discussion, Australian contract law has provided greater clarity as to what does or does not amount to valid acceptance. 2.2 Acceptance, Unconditional Acceptance and Finality of Contractual Agreement The second concern relates to the second theme in the phrase which is “…acceptance must be final”. To contextualise the bone of contention, to affirm/ corroborate the thesis statement, the paper utilises parole evidence rule. On the other hand to counteract this statement, the paper utilises bad faith/good concept in contractual agreement, implied term and collateral contract. In objective manner, the countering position examines the condition in which the acceptance was conducted. Perole evidence rule affirms the finality of acceptance in contractual agreement. Corbin (1944, p.603) indicates that “when two parties have made a contract and have expressed it in a writing to which they have both assented as the complete and accurate integration of that contract, evidence, whether parole or otherwise, of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing”.8 Justice Mason J substantiates this by stating that when terms of contractual agreement are clear then it is prudent to adopt the plain meaning of the contract.9 The hard evidence parole assumes that what has been agreed upon and written represents an absolute truth and thus it forms a final straw.10 The finality of contractual agreement once acceptance has been done especially in written contracts is underpinned in admissibility of evidence where evidence of higher quality can’t be substituted with a lower one.11 The same line of thought is affirmed by Justice Spigelman (2011, p.3) who observes that legal words cannot be replaced with mere words and hence, when one was accepting the same, he or she must be aware of the same. However, the above classical argument that places focus on parties being of one mind has been made weaker by developments like law of estoppels, misleading conduct, misrepresentation and unjust enrichment. For instance, while an individual might accept a contractual agreement, there might be some bad faith associated with agreement as a result of undue advantage possessed by the other party. In agreements, issues of dishonesty, imbalance of power, coercion and limited choices might result in unlevelled playing field.12 The key to any agreement should be fairness where both parties gain.13 Court through its powers can revoke such agreements since they are not built on good faith, but on exploitation. This becomes called for in an event where one exploits the low know how of the other party. One area that acceptance alone is not a finality is the insurance industry. Section 13 of the Insurance Contact Act of 1984 states that “a contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith.” Section 14 subsection (1) & (3) outlines how parties should not rely on provisions except in the utmost good faith. The sections state that “If reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision. In deciding whether reliance by an insurer on a provision of the contract of insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of the provision that was given to the insured, whether a notification of a kind mentioned in section 37 or otherwise.” A case example that can be used to show how the common law has been used to gurantee good faith in insurance contracts is the of Australian Associated Motor Insurers Ltd v Ellis & Anor. The contention of the case was based on lack of informing the policy holder about the policy restrictions. The initial policy by the defendant which was motor vehicle comprehensive insurance prohibited the policy holder from making any structural modifications on the car without prior permission from the insurer (applicant). The contention of the case was that after the expiry of the first policy, the insured renewed the same with the insurer. After renewal, the policy holder did some structural adjustments on the car by fitting “mag” wheels. Later in some stages, the car of the insured got damaged while being driven by her daughter. However, post analysis showed the wheels were not the cause of the damage. The contention of the case as advance by the plaintiff in her application was that the insured should not be paid by the insurer since he made some modifications to the car without informing the policy provider. However, justice Cox of Supreme Court of South Australia ruled the contrary by giving leverage to the defendant. The judge noted that the first contract had expired and this was a new one and thus it was the onus of the insurer to inform the insured of the regulations governing the new policy and the accompanying consequences if the same is breached. The judge applied section 13 of the Insurance Contracts Act on utmost good faith. Thus, acceptance of an agreement by offeree does not constitute finality in the agreement since it can still be reviewed by a court of law. 3.0 Conclusion The aim of this paper was to affirm or refute the observation that “to create a binding agreement the acceptance must occur, and that ‘acceptance’ must be final and absolutely unconditional”. In analysing this statement, the paper identified three themes. These are “….to create a binding agreement the acceptance must occur”, “…acceptance must be final” and lastly, “…the acceptance must be absolutely unconditional”. It is these themes that informed the discussion. In relation to the first and the last theme, the paper established that it is mandatory for acceptancy to exist for an agreement to be considered binding. This agreement must be unconditional and based on free will. The contention was in the second theme about finality and acceptance. From parole evidence rule, once acceptance has been confirmed, the agreement is final. However, from bad faith perspective, the courts have discretion of determining finality of contractual agreement. References Books Andrews, Neil, Contract Law. Cambridge, NY: Cambridge University Press, 2011. Blum, A. Brian. Contracts: Examples & Explanations. New York: Aspen Publishers, 2007. S, Emanuel. Emanuel Law Outlines: Contracts. New York: Aspen Publisher, 2010. Journals Cole, Tony, "The Parol Evidence Rule: A Comparative Analysis and Proposal", University of New South Wales Law Journal, 26/3 (2003), 680. Corbin, L. Arthur. “The Parole Evidence Rule.” The Yale Law Journal 53, no 4 (1944): 603-663. Nussbaum, C. Martha. “Beyond the Social Contract: Capabilities and Global Justice.” Oxford Development Studies 32, no 1 (2004): 1-16. Svantensson, Jakers B. Dan, ‘Codifying Australia’s Contract Law: Time for a Stock Take in the Common Law Factory”, Bond Law Review, 20/2 (2008), 1-26. Legislations Commonwealth Government of Australia, Insurance Contacts Act 1984. Commonwealth of Australia. Competition and Consumer Act 2010 . Websites 4lawschool, “Contract law: offer and acceptance”, [Website] (2012) < http://www.4lawschool.com/contracts101/offer.htm> accessed 17 April 2013. Clerk Julie, “Australian contract law: acceptance”, [Website] (2012) accessed 17 April 2013. Read More