Question

Wiremu operates a small business selling natural health products. He recently heard about one of the latest trends - an expensive new organic herbal tea called T4.

While looking through a trade magazine Wiremu saw an advertisement, promoting the supply of T4 by a company called Eaze Supplies. The advertisement stated, amongst other things, “Great Offer” and “Prices start at $100 per kg”.

Wiremu phoned up Eaze Supplies and spoke to Sally who was Head of Sales, and asked whether Eaze Supplies would be able to fill an order for a regular supply of T4. Wiremu told Sally he wanted the tea packed in 0.5kg packets and suggested the supply of 100 packets each week. (Nothing was specifically said about the price but Wiremu assumed the price would be based on the price stated in the advertisement, which worked out at $5000 per 100 packets.)

Wiremu also told Sally that he must receive the order Monday of each week since he was expecting a high demand, had limited storage space, and Monday would be his weekly time for organizing his stock.

Sally told Wiremu that she needed to do some inventory checks and would get back to him.

After 3 weeks, there was no response from Sally, so Wiremu called Sally again to enquire whether Eaze Supplies could supply him with the requested T4. Sally responded by saying, “Oh yeah... silly me... it completely slipped my mind. Sure no problem. However, we are closed on Mondays so the T4 would have to be sent and delivered on Tuesdays. How does $6000 per 100 packets sound?” In response Wiremu answered, “Mmmm, geee I don’t know. That might affect my entire business scheme. But I guess it could work.”

Sally then suggested to Wiremu that they both agree to do this but decide on the exact terms when Wiremu had worked out the precise details of his business plan, since he sounded a bit confused and uncertain. Wiremu agreed.

Over the next few days, a friend of Wiremu gave him some inside information about an exceptionally cheap supplier of bulk speciality tea grown in Malaysia. Wiremu immediately called up the New Zealand supplier, MST Ltd, and asked if they could supply T4 for 12 months. MST Ltd accept without hesitation, offering $5000 per 100 packets. Wiremu replied, “Excellent that is exactly what I need.” Wiremu and MST Ltd agreed that 100 packets of T4 would be delivered every week on Monday for a period of 12 months.

Two months later, Sally phoned Wiremu looking to conclude their agreement. Wiremu told Sally that he had changed his mind and no longer wished to order from Eaze Supplies. Sally is furious, and told Wiremu, “We had a deal! You will be hearing from my lawyer!”

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COMLAW 101

COMLAW 101

Wiremu, worried about potential legal action, seeks your advice regarding whether he has entered into a legally binding contract with Eaze Supplies.

REQUIRED:

Advise Wiremu. In advising Wiremu, analyse each stage in this scenario in terms of offer and ac- ceptance, and in addition consider any issues relating to contractual intention. Limit your analysis to

any possible contract between Wiremu and Eaze Supplies.

Answer 1

Issue: Wiremu is interested in a herbal tea sold as T4. He is also keen to receive supplies every Monday, as that is the day he organizes his stock each week. He was in the midst of  negotiations with Eaze Supplies, when he comes across another supplier MST Ltd., who can supply the same product at a cheaper price, and on Mondays of each week. Eaze Supplies was more expensive, and also, they would be able to supply only on Tuesdays. Wremu has not yet finalized his deal with Ease Supplies, but the latter threatens him with litigation if he does not go through the deal.

Law: A contract is an agreement enforceable by law. An agreement is an accepted promise. The terms of the offer should be clear and unambiguous, and the acceptance of the offer should be absolute and unconditional, and should be communicated to the offeror. A contract is formed only once an offer is accepted unconditionally by the offeree.

Analysis: The advertisement by Eaze Supplies was an invitation to offer. The enquiry made by Wiremu to Sally was an offer in response thereto. Wiremu specified to Sally that he needed the supplies each Monday. Sally responded after three weeks ( on a follow up from Wiremu ) that Eaze Supplies would be able to supply on Tuesdays and not Mondays. Hence there was no absolute acceptance of the offer. A counter offer was made by Sally, and they both agreed that they needed to work out the exact details of the impending deal. At this stage, no contract was obviously formed. Soon thereafter, finding the terms to be more acceptable, Wiremu enters into a contract with MST Ltd. Two months later, Sally calls Wiremu looking to conclude the agreement. When Wiremu told her that he had changed his mind, Sally threatened him with litigation, as according to her, Eaze Supplies had a deal with Wiremu, and Wiremu had committed breach of contract.

Conclusion: A contract is an agreement enforceable by law. In other words, if the agreement is enforceable, the court would provide a resolution to the dispute between the contracting parties. But in the given situation, Wiremu did not accept Sally's counter offer, and therefore, no binding agreement was formed between them, let alone a contract. Therefore, Wiremu need not worry. Sally, on behalf of Eaze Supplies can go ahead and waste money on hiring a lawyer, and filing a suit, but the court will not allow her to recover damages from Wiremu, as there being no contract, the question of its breach does not arise.