Contract example problem question-(using IRAC problem solving
(The question is taken from Latimer P Australian Business Law 2016 Oxford University Press
Ernest had heard that Jack was thinking of selling Jack’s farm in Dubbo, NSW. On 28 April
2016, Ernest wrote a letter to Jack, in the following terms:
‘Are you interested in selling the farm? If so, at what price?’
Jack received the letter on 29 April 2016 and replied that day by email addressed to Ernest’s
email address :
‘I will sell you the farm for $900,000. The terms and conditions will be those in the NSW
standard form real estate contract. Please reply by email before 5 May 2016.’
On 1 May 2016 Ernest sent a letter to Jack, saying:
‘I accept your offer to sell the farm and surrounding grounds for $900,000.’
However, on the same day the market went into a spectacular dive, and by 5 pm Ernest had lost
a lot of money. Feeling that he could no longer afford the farm, he sent an email to Jack, which
Jack received at 6 pm.
Ernest’s email stated:
‘I no longer wish to purchase the farm.’
On 4 May Ernest recovered all of his losses on the stock market and made a profit. He
telephoned Jack to say that he would now purchase the hall for $900,000. Jack told Ernest he
was sorry but had decided to sell the farm to Gwen who had made an offer of $950,000.
Discuss in a problem-solving format whether Ernest can insist that he has a contract
with Jack to buy Jack’s farm for $900.000.
Issue: Is there an enforceable contract between Jack and Ernest for the sale of Jack’s farm
in Dubbo NSW?
Rules: An enforceable contract requires:
an intention to create legal relations
agreement – represented by offer and acceptance, and
Where an agreement is made in a commercial context it is presumed that the parties intend
to create legal relations. This presumption may be rebutted by evidence to the contrary.
An offer is a clear statement of the terms by which the offeror is prepared to be bound. An
offer must be distinguished from an invitation to treat, which is an invitation to the other party
to make an offer 1 . In Pharmaceutical Society of Great Britain v Boots Cash Chemists 2
<briefly describe the facts> . The court held < briefly describe the court’s decision> An offer
may be terminated at any time prior to its acceptance. In particular, it may be terminated by
revocation of the offer, which is a formal withdrawal of the offer. It may also be terminated by
a counter-offer. A counter-offer brings the original offer to an end.
An acceptance is a final and unqualified communication of assent to the terms of the offer. 3
The offeree must, therefore, accept exactly what was offered. The addition of anything to the
terms of the offer is a counter-offer. In Hyde v Wrench 4 < briefly describe the facts>. The
court held <briefly describe the court’s decision> There must also, therefore, be sufficient
communication of the acceptance, or some external manifestation of assent by the offeree.
If no method of communication is specified, it is assumed that it will take the form of the
offer. A contract is formed at the point at which communication of acceptance occurs. Where
an instantaneous form of communication is used, that is when the assent is brought to the
attention of the offeror. Entorres Ltd v Myles Far East Corp 5 is a case in which < briefly
describe why the method of communication was instantaneous)
Where communication of assent is by letter, it occurs when the letter is posted. In Adams v
Linsell 6 < briefly describe the facts>. The court held < briefly describe the court’s decision>
Generally speaking, acceptance cannot be revoked because a contract is now in force.
Attempted revocation would be repudiation of the contract.
1 Ciro T, Goldwasser V and Verma R Law and Business Melbourne: Oxford University Press 2014
2  1 QB 401
3 Note 1
4 )( 1840) 3 Beav 334
5  2 QB 327
6 (1818) 106 ER 250
A contract also requires consideration, that is, an act or forbearance of one party, or the
promise thereof, which is the price for which the promise of the other is bought, and the
promise thus given for value is enforceable. 7
Application: The parties to this agreement are in a commercial context; it is presumed that
they intend to create legal relations. There are no facts to rebut this presumption.
The letter from Ernest to Jack of 28 April was merely a request for information. It certainly
did not have the finality of an offer.
The email from Jack to Ernest of 29 April was clearly an offer, ie a clear statement of the
terms by which the offeror is prepared to be bound. The facts which indicate this include the
specification of price, subject-matter and the nomination of terms and conditions. The offer
was expressed to lapse on 5th May.
The letter from Ernest to Jack of 2 May 2016 was expressed as an acceptance, but could
have been a counter-offer, because there was some difference in the description of the
subject-matter. If an acceptance, it was effective from the date of posting. However, Jack’s
offer clearly stated that acceptance had to be by email and since Ernest sent a letter
acceptance was not in accordance with the offer.
The email from Ernest to Jack of 2 May 2016 was expressed as a revocation of acceptance.
As this was by email then it is an effective rejection of Jack’s offer of 29 April 2016. Because
Ernest’s email is a rejection, it clearly brings Jack’s offer to an end, even if the offer is said to
remain open until 5 May.
Ernest’s telephone call of 4 May cannot be an acceptance, because the offer is dead. In
any case the telephone call is not in accordance with the terms of the offer which stipulated
that acceptance was to be by email. Jack is entitled to sell the farm to Gwen at the higher
Conclusion: There is no contract between Ernest and Jack for the sale of Jack’s farm in