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UCL FACULTY OF LAWS

LAW OF CONTRACT
2009-10

1. INTRODUCTION
What is contract?
Contract is “an agreement giving rise to obligations which are enforced or recognised by law”
(Treitel The Law of Contract)

What is it for?
“… the purpose of the law of contract is not to punish wrongdoing but to satisfy the
expectations of the party entitled to performance” as per Lord Hoffman in Co-operative
Insurance Society v Argyll Stores (Holdings) Ltd [1997] 3All ER 297.

19th century contract law – still relevant today?


‘.. contracts, when entered into freely and voluntarily, shall be held sacred and shall be
enforced by the Courts of Justice’ Printing & Numerical Registering Co v Sampson (1875) LR
19 Eq 462.

2. FORMING THE AGREEMENT


OFFER & ACCEPTANCE

INTRODUCTION
4 ingredients must be present for a contract to be binding.

1. Offer
2. Acceptance
3. Intention to create legal relations
4. Consideration

AGREEMENT (Offer and Acceptance)


How to ascertain agreement - the objective or subjective test?
Smith v Hughes (1871) LR 6 QB 597

‘if whatever a man’s real intention may be, he so conducts himself that a reasonable man
would believe that he was assenting to the terms proposed by the other party, and that other
party upon that belief enters into the contract with him, the man thus conducting himself
would be equally bound as if he had intended to agree to the other party’s terms’

An agreement may be made:


• in writing; or
• by word of mouth (orally); or
• by inference from the conduct of the parties and the circumstances of the case;
• or
• by any combination of the above modes
Bilateral and Unilateral Contracts:
Bilateral: most common form. Parties make each other a promise to do something. Eg. Sell
item in exchange for payment.
Unilateral: one party makes an offer which calls for an act to be performed by one or more
other parties. Eg. offer calling for lost item to be returned for a reward.
*Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256

“Why should not an offer be made to all the world which is to ripen into a contract with
anybody who comes forward and performs the condition?” per Bowen LJ

Carlill considered and applied in Bowerman v Association of British Travel Agents (CA) 24th
November 1995 (The Times)

OFFER
a. What is an offer?

“An offer is an expression of willingness to contract on specified terms, made with the
intention that it is to be binding as soon as it is accepted by the person to whom it is
addressed.”

Grecoair Inc v Tilling [2005] Lloyds Rep 151

If an offer is NOT made, then there is no contract and so there can be no breach.

b. Is it an offer or is it something else?

Is it an invitation to treat?
*Gibson v Manchester City Council [1978] 1 WLR 520 (CA); [1979] 1 WLR 294 (HL)
*Storer v Manchester City Council [1974] 1 WLR 1403

General Guidelines to help distinguish an offer from an invitation to treat:


1. Displays and Adverts
*Pharmaceutical Society of GB v Boots [1953] 1 QB 101
Fisher v Bell [1961] 1 QB 391
Partridge v Crittenden [1968] 2 ALL ER 121
2. Timetables and Automatic Vending Machines
Trains:
Denton v Great Northern Railway Co [1856] 5 E. & B. 86
Buses:
Wilkie v London Passenger Transport Board [1947] 1 All E.R. 258
3. Auctions
An auction involves a number of steps:
• Advertising the auction
• Putting up goods for sale
• Bid
• The fall of the hammer
The problem arises with auctions when an auction is without reserve (without minimum price)
Warlow v Harrison [1859] 1 E & E 309
Barry v Davies [2000] 1 W.L.R. 1962
4. Tenders
General rule; an invitation to tender is an invitation to treat
Offer is made by persons submitting tender
Acceptance is made when the person inviting the tenders accepts one of them
Harvela Investments Ltd v Royal trust Co of Canada (CI) Ltd [1986] A.C. 207
Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 W.L.R. 1195
c. Communication of the offer
Offer must be communicated to the offeree
Taylor v Laird [1856] 25 LJ Ex 329

An offer may be communicated to a particular person or group of people or


generally to the whole world
Carlill (see above)

Problems with electronic media


see eg. WHSmith internet terms and conditions:
“Pricing Errors

Although we make every effort to ensure the prices on the website are
correct, mistakes may sometimes be made. If we discover a mistake in the
price of the products you have ordered, we will tell you and give you the
option of either reconfirming your order at the correct price or cancelling
your order. If we are unable to contact you or we receive no reply from you,
we will cancel your order. If your order is cancelled and you have already
paid for the products you will receive a full refund.”

ACCEPTANCE
The offer must be accepted to form a contract

“A contractual acceptance has to be a final and unqualified expression of


assent to the terms of the offer.” per Black J in Day Morris Associates v
Voyce [2003] EWCA Civ 189 at para 35.

General Rules:
The acceptance must correspond with the terms of the offer
The acceptance must be given in response to the offer
The acceptance must be made by the appropriate method
The acceptance must be communicated to the offeror

a. Correspondence with the offer


Mirror image rule:
Acceptance must mirror the terms of the offer.

*Is it an acceptance, or just a counter offer?


*Hyde v Wrench (1840) 49 ER 132

*Is it a counter offer, or just a request for further information?


*Stevenson Jacques & Co v McLean [1880] 5 QBD 346

*‘Battle of the Forms:’ confusion over the sequence of events


*Butler Machine Tool Co. Ltd v Ex-Cell-O Corp. (England) Ltd. [1979] 1
ALL ER 965

b. Acceptance must be in response to the offer


Gibbons v Proctor (1891) 64 LT 594
Upton RDC v Powell [1942] 1 ALL ER 220
Williams v Carwardine (1833) 5 C&P 566
R v Clarke (1927) 40 CLR 227 (N.B. This is an Australian case and is NOT
BINDING on English courts, although they can see it as persuasive when
considering the arguments of the parties).

c. Appropriate method
An offer must be accepted in a specific way. Either, the offer itself will
specify how it is to be accepted e.g. ‘Let me know by email..’ OR, any

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words or conduct which objectively shows the offeree had an intention to
accept the offer is sufficient.

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d. Communication of the acceptance

i. Acceptance by conduct

Brogden v Metropolitan Railway Co. (1877) 2 App. Cas. 666

“If the parties have by their conduct said that they act upon the draft which
has been approved of by Mr Brogden, and which if not quite approved of by
the railway company, has been exceedingly near it, if they indicate by their
conduct that they accept it, the contract is binding.” per Lord Blackburn

*Day Morris Associates v Voyce [2003] as above

“…it seems to me that…the conduct in question must be clearly referable


to the offer, and, in the absence of knowledge of the offeree’s reservations,
not reasonably capable of being interpreted as anything other than
acceptance.” per Black J, para 35

ii. Acceptance by silence

Felthouse v Bindley (1862) 11 CBNS 869


Day Morris Associates v Voyce [2003]

iii. Acceptance by post

*Adams v Lindsell (1818) 1 B&Ald 681


*Henthorn v Frazer [1892] 2 Ch. 27
*Household Fire and Carriage Accident Insurance Co. Ltd. v Grant (1879)
4 ExD. 216
*Holwell Securities v Hughes [1974] 1 ALL ER 161
Re London & Northern Bank ex parte Jones [1900] 1 Ch. 220

Further Reading:
Gardner: “Trashing with Trollope: A Deconstruction of the Postal Rules in
Contract” (1992) 12 Oxford Journal of Legal Studies

iv. Acceptance by instantaneous communication

*Entores v Miles Far Eastern Corporation [1955] 2 ALL ER 493


*Brinkibon Ltd. v Stahag Stahl [1983] AC 34
Henkel v Pape (1870) LR 6 Ex 7

Problems with modern forms of communication


Also consider the implications of contracts concluded by email and over the
Internet.
The Eastern Navigator [2005] EWHC 600
Chwee Kin Keong v Digilandmall.com Pte.ltd [2004] 2 SLR 594 (Hong
Kong case)

Further reading:
Capps: “ ‘You’ve Got Mail:’ Does the Postal Rule Apply to Email?” (2003)
153 NLJ 906
Capps: “Electronic mail and the Postal Rule” (2004) 15(7) ICCR 207
Deveney: “When an Agreement Via Email is Not a Contract” (2003) 8(3)
Comms L 298
Rogers: “Snap! Internet ‘Offers’ Under Scrutiny Again” (2002) 23(3)
Business Law Review 70. This article addresses the Kodak and Argos
internet pricing problem.

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See Electronic Commerce (EC Directive) Regulations 2002 (SI 2002/2013)
on this issue generally.

A solution to the internet problem?


e.g. WHSmith terms and conditions for purchasing items from their
website.

“No contract will subsist between you and WHSmith Direct for the sale of
products by us to you until your credit/debit card has been charged. This
will be deemed to be our acceptance of your offer and to have been
effectively communicated to you. This is to be interpreted and enforced
with the laws of England, in its entirety and will be subject to the jurisdiction
of the English courts.”

v. Acceptance in unilateral contracts


The difference between bilateral and unilateral contracts is important in
certain circumstances:
1. Acceptance
“…where a person in an offer made by him to another person, expressly or
impliedly intimates a particular mode of acceptance as sufficient to make
the bargain binding, it is only necessary for the other person to whom such
an offer is made to follow the indicated method of acceptance; and if the
person making the offer, expressly or impliedly, intimates in his offer that it
will be sufficient to act on the proposal without communicating acceptance
of it to himself, performance of the condition is a sufficient acceptance
without notification.” Per Bowen LJ in Carlill v Carbolic Smoke Ball Co.

2. Time for revocation of the offer


*Errington v Errington [1952] 1 ALL ER 149
Luxor (Eastbourne) Ltd. v Cooper [1941] AC 108
*Daulia v Four Millbank Nominees Ltd. [1978] 2 ALL ER 557

3. Communication of the revocation to the rest of the world

TERMINATION OF OFFER
Rules for Bilateral Contracts:
a. Rejection
Hyde v Wrench (see earlier)
Rejection must be communicated

b. Revocation
Payne v Cave (1789) 3 Term Rep. 148
*Routledge v Grant (1828) 4 Bing 653
*Byrne v Van Tienhoven (1880) 5 CPD 344
The Brimnes [1975] QB 929
*Dickinson v Dodds (1876) 2 ChD 463

c. Lapse of Time
Ramsgate Victoria Hotel v Montefiore (1866) LR 1 EX 109
Korbetis v Transgrain Shipping BV [2005] EWHC 1345 (Queen’s Bench)

FORMALITIES FOR CREATING CONTRACTS


NONE generally required, BUT see e.g.:

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• Promise of Gift (no consideration or ‘exchange’ of promises
element): must be by deed: ss1(2) & 1(3) Law of Property
(Miscellaneous Provisions) Act 1989
• Contracts of Guarantee (need for evidence in writing): s. 4 Statute
of Frauds 1677
• ss. 52 & 54 Law of Property Act 1925 leases for more than three
years need to be by ‘deed’: ss.1(2) & 1(3) Law of Property
(Miscellaneous Provisions) Act 1989
• requirement that contracts for sale or other disposition in land can
only be made in writing: s.2 Law of Property (Miscellaneous
Provisions) Act 1989

CAPACITY
• Who can enter into a contract?
• Who is barred from entering into a contract?
• What policy underlies notions of capacity?

See McKendrick Ch. 21 on capacity. This topic is not covered directly by


this course.

Dr. Fiona Smith


September 2009