How often have consumers and buyers found themselves negotiating for work or services on the receiving end of a quote? ‘Most of the time’ would be a common response and observation. First-time homebuyers, for example, love to search for quotes before taking the plunge. After purchasing the perfect home, painters and contractors are hired. These service providers usually make a quote before offering their services. This has become the norm.
Receiving a quote is a comforting thought. It offers choice and security. It allows parties to make informed decisions based on their income. However, a simple quote can become a contract in some situations. The recent judgment handed down by the NSW Supreme Court in Megalift v Terminals [2009] NSWSC 324 advises parties to exercise care and diligence when negotiating an estimate, as innocent conversation could turn into a contractually binding offer.
In the previous case, Terminales had used the services of Megalift. The latter part was asked to unload a huge storage sphere from a barge at the first part’s facility. It was later discovered that the sphere could not be discharged without excavating part of the ground. This miscalculation or oversight caused additional inconvenience, delay and cost. Megalift, having provided an unexpected service, not initially quoted, claimed the extra amount. The terminals, on the other hand, claimed the excavation costs.
On April 28, 2006, Megalift sent a revised quotation to Terminales. Subsequently, both parties entered into a contract on May 1, 2006. The Supreme Court faced the question of whether a contractual relationship existed before May 1, 2006.
The facts of this case are unique in that two agreements allegedly existed. Megalift disputed that its first letter dated March 21, 2006 was an offer subject to acceptance. In his understanding of legally binding quotes and contracts, this was simply a ‘quote’ or ‘estimate offer’. Terminals treated this, as well as the purchase order, as a contract on April 4, 2006. Based on their understanding of the legal obligations, they held Megalift liable for the breach of the first agreement.
So which agreement was legally binding? Judge Bergin ruled in favor of the first (April 4, 2006), in which an offer was made and accepted. Both parties were already negotiating, discussing terms and details such as transportation and delivery. These conversations involved quotes and although no fixed price was agreed upon, it was a legally binding contract. Furthermore, Your Honor disregarded the quote solely for the purpose of estimating. This did not prevent the parties from contracting.
How did the court come to this conclusion? A contract requires an offer and an acceptance. However, are price quotes offered, and if so, when do they become legally binding? Each case must be decided on the basis of the facts. The question is of objective intention of the parties involved. “We quote you” has been deemed not to be an offer, but “we would be delighted to receive an order from you and will give immediate attention” was deemed an offer in a Canadian case. In Canadian Dyers Association v. Burton further stated that – “In each such case, it is a question of the language used, and in light of the circumstances in which it is used, whether what is said by the supplier is a mere price quote or in truly an offer to sell.”
The commercial context of such negotiations, as well as the circumstances in which the quotes are discussed, are important considerations. One way to avoid being bound by a mere estimate is to make sure the quote clearly states that it is not a binding offer. The next time you make or accept a listing, just be sure to expressly convey your intent and desire to be bound by the listing.