Business

Price quote – Legally binding

How often have we consumers and buyers found ourselves in negotiations 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 the perfect house is purchased, painters and contractors are hired. These service providers usually do 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 ruling by the Supreme Court of New South Wales in Megalift v Terminals [2009] NSWSC 324 advises parties to exercise care and diligence when negotiating a quote, as an innocent conversation could turn into a contractually binding offer.

In the previous case, Terminales had used the services of Megalift. This last part was asked to unload a huge storage sphere from a barge at the facilities of the first part. It was later discovered that the sphere could not be discharged without excavating part of the ground. This miscalculation or carelessness 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 excavation costs.

On April 28, 2006, Megalift submitted a revised quote to Terminales. Subsequently, both parties entered into a contract on May 1, 2006. The Supreme Court was faced with 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 acceptable offer. According to their understanding of quotations and legally binding contracts, this was simply a ‘quote’ or ‘quote offer’. Terminals treated this, as well as the purchase order, as a contract, on April 4, 2006. Based on their understanding of 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 talks involved quotations and, although no fixed price was agreed upon, it was a legally binding contract. Furthermore, the Honorable Member disregarded the quotation solely for the purpose of budgeting. 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 one of objective intent of the parties involved. “We quote you” has been found not to be an offer, but “we will be happy to receive an order from you and will give immediate attention to it” was found to be an offer in a Canadian case. In Canadian Dyers Association v. Burton further stated that – “In each such case, it is a matter of the language used, and in the light of the circumstances in which it is used, whether what is said by the seller is a mere quotation of price or in really 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 ensure that the quote clearly indicates 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.

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