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Published: Fri, 02 Feb 2018

Memorandum of Advice for Katie

The matter of the sale of a motor vehicle via the social networking website Facebook has given rise to a number of contractual considerations and obligations which must be addressed. The seller, Sarah has sought advice as to her liabilities and responsibilities toward the parties who had indicated their intention to purchase her vehicle. The following memorandum of advice will outline the legal principles underpinning the claims of the affected parties and will serve to outline what recourse she has in achieving a satisfactory outcome.


In order to advise Katie, firstly, it needs to be ascertained whether there any valid contracts extant between any of the parties involved, and if so, to determine whether these are bilateral or unilateral in nature. Moreover, if upon establishing that a valid binding contract exists between Katie and Freda, Nick and Marco, additional questions arise with respect to their conduct in enacting said contract if at all.

To begin, the first requisite of any binding contract is an agreement. Therefore, in order to conclusively state that a contract has been enacted, giving rise to enforceable obligations, it is necessary first to undertake an examination into the elements constituting an agreement. By convention, the law adopts an objective approach when establishing an agreement. This approach looks for external evidence of agreement, and with that, the conventional formulation of an agreement entails the existence of an offer and corresponding acceptance. As Lord Denning in Storer v Manchester City Council stated, contract law involves examining what a man has said and done; a contract is formed when there is an outward appearance of one. This approach, is however divergent to the law which adopts a subjective approach wherein the courts are directed by the parties’ intentions. In trying to establish an agreement via this approach, judges often state that agreement requires a “meeting of the minds” as illustrated in Smith v Hughes. The inherent difficulty evoked by this is that subjective intentions prove to be exempt from inspection. It follows that given this inability to examine subjective intentions, the objective approach is considered. This is expanded upon in Australian law by Taylor v Johnson wherein Mason ACJ, Murphy and Deane JJ held that in practice, there is little difference in the result of the application of the competing objective and subjective theories.

A further requisite of any valid contract is consideration; it must be established that consideration emanated from both parties in the contract. The English common law stipulates that a contract is not necessarily binding unless it is supported by consideration, whereby the parties to the contract have fulfilled the proviso of giving something of economic value in return for what is obtained from the other. In the present case, this proviso manifests itself in the sum of money in return for the vehicle. Moreover, the capacity of the parties to enter into the contract must be ascertained in addition to their cognisance of the terms of the agreement.

Attention must be directed toward another fundamental element that constitutes a valid, binding contract; in most instances, the general assumption is that in business agreements, both parties express their mutual intention to enter into legal relations, which amounts to the contract between the parties becoming legally binding and enforceable by law, should a party fail or refuse to fulfil their contractual obligation.

To begin, the primary question which needs to be addressed is whether an offer was made. Was Katie’s advertisement on Facebook recognised in Law as a valid offer-or, was this merely a mechanism within which to invite other interested parties to make an offer. The technical definition of an invitation to treat per Poole is “restricted to statements indicating the maker’s willingness to receive offers”. Furthermore, Lord Parker CJ in Patridge v Crittenden stated that “when one is dealing with advertisements, unless they come from manufacturers, there is business sense in their being construed as invitations to treat and not offers for sale”. Expanding upon this, in the case of Carlill v Carbolic Smoke Ball Co, when referring to the contrast between an “offer” and “an invention to treat”, Bowen LJ remarked that “it is not like cases in which you offer to negotiate or you issue advertisements that you have stock to sell, in which case, there is no offer to be bound by any contract. Such advertisements are offers to negotiate-offers to receive offers-offers to chaffer”.


Having established the nature of the advertisement regarding the sale of the vehicle, it is clear that when Freda was informed of the vehicle through a third party, this advertisement was merely “an invitation to treat” and nothing constituting a valid offer. Treital notes that an offer is “an expression of willingness to contract on specified items, made with the intention that it is to become binding as soon as it is accepted by the person to whom it is addressed.”

This point is complicated however by the facts of the case-Freda, in attempting show her interest and intent to purchase the vehicle, utilised email which ultimately ended-up in Katie’s junk-mail folder unbeknownst to her. By convention, the general rule with respect to communication of acceptance entails this is effective once the offeror receives communication. Exceptions to the general rule of acceptance encapsulates the “postal rule” whereby acceptance is effective as soon as it is posted-even though the offeror may not receive acceptance for some days if at all. The postal rule holds that acceptance is effective (and the contract therefore completed) as soon as the letter stating acceptance is sent through the postal service; by extension this (despite the uncertainty and divisiveness attached to this medium) can be considered to email which is merely an electronic manifestation of postage, albeit instantaneous in nature.

Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd. addresses the aforementioned issue, and is where Dixon CJ and Fullagar J held that the general rule is that a contract is not completed until acceptance of an offer is actually communicated-in this instance, Freda despite her email did not communicate the acceptance, and could have sought to have called Katie on her mobile telephone It follows, that a finding that a contract is completed by the sending of an email of acceptance cannot be justified unless it is to be inferred that the offeror contemplated and intended that their offer might be accepted by the doing of this act; Katie indicated that she would give consideration to the first person who contacted her via email to state to the effect of wishing to purchase the vehicle.

However, following the reasoning applied by Dixon CJ and Fullagar J, it is worth noting that given the nature of the chattel on offer and the necessity to test-drive or examine it, one would presume that actual communication would be regarded as essential to the conclusion of agreement (which is manifest in Nick’s case as the facts illustrated). It follows that in light of the nature of the advertisement as merely an invitation to treat, and Freda’s failure to contact Katie indicating her interest, there is no contract between them and thus Katie has no legal obligation.


Nick expressed his intent to purchase the vehicle subject to procuring a loan from a bank and requested that Katie not sell the vehicle to anybody else in the interim. It follows that Nick’s conduct in attempting to procure funds to purchase the vehicle, is demonstrative of his intention to be bound to this contract, and he is, moreover, providing consideration towards an agreement. If this were to be established, in doing so and fundamentally upon attainment of Katie’s acceptance, this can be perceived to form a unilateral contract with the reason underpinning this that within the offer was request of Katie’s performance to not sell the vehicle to any other party. In a unilateral contract, performance of the act constitutes the acceptance-that is, in such a contract a promise is given in return for an act. By comparison, a bilateral contract consists of a promise in exchange for a promise as evidenced by Katie holding onto the vehicle for Nick to procure funds to purchase it. Moreover, the general rule in bilateral contracts stipulates that an offeror cannot waive the need for communication and silence cannot constitute acceptance.

In procuring this loan however, Nick could only receive $2000 less than the price advertised for the vehicle. He offered this and the counter offer altered the terms of the original offer. Thus, this counter offer is in and of itself a new revised offer from the offeree to the offerror, which they are free to accept or reject. This is illustrated in Hyde v Wrench. On a legal basis, the effect this has is that Katie’s original offer has been revoked by Nick’s offer. As was earlier established, Nick’s request of Katie to not sell the vehicle to anybody else, could, in the eyes of the law, render it upon attaining Katie’s acceptance, a unilateral contract. To that end, on receiving Nick’s offer, moreover, in response to Nick’s additional request for Katie not to sell the vehicle, Katie unknown to her receives an offer from an additional offeror, Marco (as will be discussed further below).

Katie inadvertently fulfils her obligation to Nick by not receiving Marco’s message and the essential element manifest in this situation is that Katie, by not being able to accept Marco’s offer, has performed the act requested within Nick’s offer. In this respect it could be seen within the court, as providing acceptance to the offer, the reason for this, as was previously established, was that in uniletaral contracts carrying out the stipulated task is sufficient to constitute acceptance of the offer, authority of this as recognised in Carlill; although, equally, one may apply The Crown v Clarke in that Katie may have had no intention to hold onto the vehicle but did so inadvertently having missed Marco’s message. Katie can be perceived to have not acted on the offer by Marco and thereby fulfilled Nick’s request in the process- essentially, Katie’s conduct amounted to her not acting on the faith of, in reliance upon, the offer; she passively held onto the vehicle for want of another communicated offer.


As noted, the offer made by Marco

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