Quoting A Price – Legally Binding
How often have we consumers and buyers found ourselves in negotiations for work or services at the receiving end of a quote? ‘More often than not’ would be a common response and observation. First time home buyers for example love shopping around for quotes before taking the plunge. After buying the perfect house, painters and contractors are brought in. These service providers will 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 turn into a contract in some situations. The recent judgment delivered by the Supreme Court of New South Wales in Megalift v Terminals  NSWSC 324 warns parties to exercise care and diligence when negotiating a quote as an innocent conversation could turn into a contractually binding offer.
In the above case, Terminals had used the services of Megalift. The latter party was required to discharge a huge storage sphere from a barge on the former party’s premises. It was later discovered that the sphere could not be discharged without excavating some of the land. This miscalculation or oversight caused inconvenience, delay and added costs. Megalift, having provided an unexpected service, not initially quoted for, claimed the extra amount. Terminals on the other hand counter claimed for the excavation costs.
On 28 April 2006, Mega lift had sent a revised quotation to Terminals. Subsequently, both parties entered into a contract on 1 May 2006. The Supreme Court was faced with the question of whether a contractual relationship existed prior to 1 May 2006.
The facts of this case are unique in that two agreements allegedly existed. Mega lift disputed that its first letter dated 21 March 2006 was an offer capable of acceptance. According to their understanding of quotes and legally binding contracts, this was simply a ‘quotation’ or ‘budget offer’. Terminals treated this as well as the purchase order as a contract, on 4 April 2006. Based on their comprehension of legal obligations, they held Megalift responsible for breaching the first agreement.
So, which agreement was legally binding? Justice Bergin ruled in favour of the first one (4 April 2006), where an offer was made and accepted. Both parties were already in negotiation, discussing terms and details such as transportation and delivery. These conversations involved quotations and although no fixed price was agreed upon, it was nonetheless a contract which was legally binding. Moreover, her Honour disregarded the quotation for the purpose of a budget only. This did not prevent the parties from contracting.
How did the court reach this conclusion? A contract requires an offer and an acceptance. However, are price quotations offers and if they are, when do they become legally binding? Each case should be decided on the facts. The question is one of objective intention of the parties involved. “We quote you” has been held not to be an offer but “shall be happy to have an order from you to which we will give prompt attention” was held to be an offer in a Canadian case. In Canadian Dyers Association v. Burton it was further stated that – “In each case of this type, it is a question to be determined upon the language used, and in light of the circumstances in which it is used, whether what is said by the vendor is a mere quotation of price or in truth an offer to sell. “
The commercial context of such negotiations as well as the circumstances in which quotations are discussed, are important considerations. A way to avoid being bound by a mere estimate is to ensure that the quotation clearly states that it is not a binding offer. The next time you make a quote or accept one, just make sure you expressly convey your intention and desire to be bound by the quote.