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The making of contracts (1) – offer and acceptance
Essential reading for Chapters 2 to 7
It is strongly recommended that you should buy your own copy of:
McKendrick, E. Contract Law. (Basingstoke: Macmillan, 2000) fourth edition [ISBN 0 3337 9427 3].
for everyday use as the foundation text to be read, re-read and thoroughly digested. You should also buy a casebook; the one we recommend is:
Poole, J. Casebook on Contract Law. (London: Blackstone, 2001) ﬁfth edition [ISBN 1 8417 4217 1].
Because these books are not intended to be as comprehensive in their coverage of the materials as the traditional University undergraduate texts for law, you will need to refer from time to time to the more advanced texts mentioned below.
The more detailed textbook currently considered to be best suited to the needs of external students is:
Furmston, M.P. Cheshire, Fifoot and Furmston’s Law of Contract. (London: Butterworths, 2001) 14th edition [ISBN 0 4069 3058 9].
You may also wish to consult a more detailed casebook. Here the choice lies between:
Beale, H.G., W.D. Bishop and M.P. Furmston Contract: Cases and Materials. (London: Butterworths, 2001) fourth edition [ISBN 0 4069 2404 X]. Smith J.C. Smith and Thomas: a Casebook on Contract. (Sweet & Maxwell, 2000) 11th edition [ISBN 0 4217 1690 8].
Smith and Thomas is a traditional casebook concentrating on purely legal materials. The other takes a wider, some would say a more adventurous, approach and seek to make the student aware of the wider context in which legal issues arise. The authors Beale, Bishop and Furmston are particularly interested in economic considerations and how the law works in practice. Our advice would be to use Beale, Bishop and Furmston in the ﬁrst case, with the others in reserve, but it is important that you resort to the book which you ﬁnd easiest to read. It is not suggested that you must purchase the books mentioned under Further reading: they should be available for reference in your college or other libraries. Other books
Treitel Law of Contract. (Sweet & Maxwell/Stevens & Sons, 1999) 10th edition [ISBN 0 4216 3460 X]. This is a very detailed and comprehensive account of the law which may be referred to on occasion for elaboration of difﬁcult or controversial points.
but what meaning a reasonable person in the other party’s position would have understood him to be conveying. This is a very clear and comprehensive account of the modern law of contract which deals well with difﬁcult points. or has not done it properly. It is most important to appreciate that this does not refer to the parties’ actual intentions (which may well have been conﬂicting) but to the ‘proper inference’ from the facts as a whole. In commercial situations the expectations of the parties tend to follow a relatively ﬁxed pattern which helps the courts draw the necessary inferences. Laissez-faire: the theory of government abstention from interference in the workings of the market or courts. This reliance on actual intention was an expression of laissez-faire1 philosophies and a belief in unfettered freedom of contract. for the particular purpose of practising the art of writing examination answers. in spite of the disappearance of the subjective approach to the making of contracts. The relationship between the law of contract and tort will be discussed later in the context of Chapter 8. In general. though its inﬂuence can still be detected in certain rules. The ‘consensus’ theory of contract and objective interpretation Formerly writers and courts placed much emphasis on the need for a ‘meeting of minds’ or ‘consensus ad idem’ for the making of contracts. many shorter books have been published in recent years aimed at the student market. The defendant is alleged to be under a liability to the plaintiff because he promised to do something and has not done it. you may ﬁnd it helpful to have: Brown and Chandler Law of Contract in Blackstone’s Law Questions and Answers Series (London: Blackstone. the law frequently uses ‘the intention of the parties’ as a test for resolving difﬁculties. • • Hartog v Colin and Shields (1939) Centrovincial Estates v Merchant Investors (1983). This is known as the process of ‘objective interpretation’. what matters today is not what meaning a party actually intended to convey by his words or conduct. you will generally not ﬁnd that there is much beneﬁt to be gained from these other works. You should image that the courts infer intention from the outside (like a ﬂy sitting on the wall) watching events and inferring intention from statements and actions. At the other end of the scale. tempered by the justice of the case as much as upon any inference in the strict sense. This subjective approach to the making of contracts has now largely been abandoned. 1 Finding ‘the intention of the parties’ You will soon discover that. 1996) third edition [ISBN 1 84174 0990 3]: but do not be misled into thinking that this will provide you with ‘model answers’ which can be learnt by heart and reproduced from memory in the examination.Introduction to the common law Beatson Anson’s Law of Contract (Oxford University Press 2002) 28th edition [ISBN 0 1987 6576 2]. When deciding what is the ‘proper’ inference. Every examination question requires a speciﬁc answer and ‘pre-packaged’ answers do not serve the purpose. General remarks The law of contract is concerned with the enforcement of promises. a judge has considerable room for manoeuvre and is in reality reaching a conclusion based upon experience. However. For an instructive illustration of this process in action see the judgment of Denning LJ in: • Oscar Chess v Williams (1957) 14 . If you are using McKendrick and Poole.
In a number of situations. the question. however. See for example: • Clarke v Dunraven (1897) where the courts inferred a number of different contacts. (London: Butterworths. ‘Has the defendant promised?’ usually becomes. J. Cheshire.Chapter 2: The making of contracts (1) – offer and acceptance where the court had to decide whether a warranty was intended. and therefore no agreement. Percy Trentham Ltd v Archital Luxfer Ltd (1993): after full performance it was ‘implausible’ to argue that there was no evidence of a contract ever having been concluded. the courts have developed a set of criteria by which to answer the question..P. by the development of the rules of ‘offer and acceptance’. agreements between two parties which involve undertakings. ‘Has agreement been reached?’ These rules can best be understood by taking them in simple stages and by remembering always that it is not the subjective intentions of the parties which determine the legal effect of their words or actions but the objective inference by the courts of these intentions. to the terms she is proposing if the offeree says ‘Yes’. Poole. on both sides) so that. Fifoot and Furmston’s Law of Contract. 2000) fourth edition [ISBN 0 3337 9427 3] 26–42. Most promises are made as part of bilateral agreements (i. M. in each case. There can be no acceptance. Further reading Furmston. ‘Have the parties reached agreement?’ This question could. 2001) ﬁfth edition [ISBN 1 8417 4217 1] 24–39. See: • Gibson v Manchester City Council (1979): note the ﬁrm rejection by the House of Lords of the Court of Appeal’s unorthodox approach to offer and acceptance. In some situations the analysis may be rather artiﬁcial but is used nevertheless because it provides a basis for a just decision. see: • G. In practice. For a recent example of a contract made by conduct which the court did not ﬁnd necessary to analyse precisely into offer and acceptance. An offer exists whenever the objective inference from the offeror’s words or conduct is that she intends to commit herself legally. namely: ‘What is an offer?’ The offer Essential reading McKendrick. unless there was an offer in the ﬁrst place. E. i. • By making an offer. but it is clear that it is the court’s responsibility to draw the inference and that the intelligent bystander is merely an alias for the judge. Note that Lord Denning deﬁnes the test by reference to ‘an intelligent bystander’. the courts have concluded that general expressions of 15 . Inland Revenue Commissioners v Fry (2001) the cashing of a cheque was held not to have amounted to acceptance of a compromise offer by the taxpayer. Nowhere is this more crucial than in relation to the very ﬁrst question. promises. 2001) 14th edition [ISBN 0 4069 3058 9] 30–37. Contract Law. the offeror is surrendering the initiative to the offeree: he is leaving it to the offeree to decide whether there is to be a contract or not. for practical purposes. without further negotiation.e. Casebook on Contract Law. (Basingstoke: Macmillan.e. (London: Blackstone. be answered as a matter of impression based on the facts.
against the need of the other party (who has raised those expectations) for protection against unreasonable demands. The device of the collateral contract is relatively rare. See on the former: • • Harvey v Facey (1893) Clifton v Palumbo (1944) but contrast: • Bigg v Boyd Gibbins (1971). See also: • Harvela Investments v Royal Trust of Canada (1986) where the invitation to treat included a binding commitment to accept an offer which satisﬁed the stated conditions. In all these cases the court is being asked to balance one party’s expectations. The existence of a collateral contract does not affect the ability to accept or reject the main offer. saying that the defendant was ‘merely supplying information’ or making an ‘invitation to treat’. Note. namely: • • • • • Partridge v Crittenden (1968) Fisher v Bell (1961) Pharmaceutical Society of GB v Boots (1953) Grainger v Gough (1896) Harris v Nickerson (1873). such as those of the customer who thinks he will obtain goods as displayed in the shop window. The facts concerned the advertisement of an auction sale as being ‘without reserve’. It can take the form of. This was considered in Society of Lloyd’s v Twin (2000). With regard to invitations to treat. the courts’ readiness to infer an offer in certain categories of advertisement: the advertisement of rewards and (very exceptionally) other ‘offers to all the world’: • • Carlill v Carbolic Smoke Ball (1893) Wilkie v London Passenger Transport Board (1947). • • 16 . Blackpool and Fylde Aero Club v Blackpool BC (1990) where damages were awarded for breach of an implied undertaking in the invitation to treat to consider all conforming tenders. You could usefully ask yourself whether the courts have not been too reluctant to draw the inference of an offer in some of these cases. ‘When you make me an offer I will promise not to take the item out of the sale’. self-service shops. Is this decision consistent with Harris v Nickerson? Warlow v Harrison was followed in Barry v Heathcote Ball & Co (Commercial Auctioneers) Ltd (2001) where an auctioneer who had put up goods as ‘without reserve’ was held to have made a collateral contract with the highest bidder. catalogues and advertisements. see the cases on shop window displays.Introduction to the common law willingness to do business should not pass the initiative to the other party. Note also the controversial decision in: • Warlow v Harrison (1859) which conﬁrmed the existence of a collateral contract in auction situations. however.
Further reading Furmston. (Basingstoke: Macmillan. (London: Blackstone. 2001) ﬁfth edition [ISBN 1 8417 4217 1] 40–59. (London: Blackstone. E. Cheshire. and thus incapable of acceptance. How were the facts of Carlill v Carbolic Smoke Ball different from the normal situation involving an advertisement? 3. (London: Butterworths. Fifoot and Furmston’s Law of Contract. if the person performing the act was unaware at the time that a reward was being offered. Poole. Contract Law. Contract Law. 1997) third edition [ISBN 0 3337 1980 8] 42–53. Poole. J. 17 . Cheshire. unless communicated to the offeree. Fifoot and Furmston’s Law of Contract. E. Activities 1. How would an English court have decided the case of Lefkowitz v Great Minneapolis Surplus Stores? 4. How does an invitation to treat differ from an offer? 2. An offer is said to be ineffective.P. See: • • R v Clarke (1927) Williams v Carwardine (1833).Chapter 2: The making of contracts (1) – offer and acceptance Activities 1. where the general view is that a reward cannot be claimed. 2001) ﬁfth edition [ISBN 1 8417 4217 1] 19–21. 2001) 14th edition [ISBN 0 4069 3058 9] 33–40. 2001) 14th edition [ISBN 0 4069 3058 9] 40–61. Do you think the decision might have been different if Clarke had been a poor but honest widow? Acceptance Essential reading McKendrick. The principal application of this rule is in reward cases.P. Was the decision in R v Clarke inﬂuenced by the consensus theory of contract? Should it have been? 2. Note also: • Tinn v Hoffmann (1873) on cross-offers. (Basingstoke: Macmillan. M. Casebook on Contract. Further reading Furmston. even though the act for which the reward was offered has been performed. 2000) fourth edition [ISBN 0 3337 9427 3] 31–42. Casebook on Contract Law. J. (London: Butterworths. Does a railway timetable constitute an offer? Communication of the offer Essential reading McKendrick. M.
however. it may be held that the offeree has passed the initiative back to the offeror by making a counter-offer which destroys the original offer. ‘Accept your price of £10 for Premium Quality. The offeror cannot. Cheshire. In the latter case. See: • Felthouse v Bindley (1862). soon after A read B’s letter. A wrote to B offering 300 bags of cement at £10 per bag. because it would be unreasonable of the offeror to rely on the absence of a communication which would have been superﬂuous or which no reasonable person would expect to be made. M. J. Fifoot and Furmston’s Law of Contract. See: • • Brogden v Metropolitan Railway (1877). 2000) fourth edition [ISBN 0 3337 9427 3] 42–51. (London: Butterworths. Casebook on Contract Law. B heard a rumour that the price of cement was about to rise. 2001) 14th edition [ISBN 0 4069 3058 9] 52–61. When the offeree queries or seeks to change the terms. Jacques v McLean (1880). 2001) ﬁfth edition [ISBN 1 8417 4217 1] 48–60. What is the position under the ‘last shot rule’ if. He immediately sent a fax to A stating. (Basingstoke: Macmillan. Note also: • Butler Machine Tool v Excell-o (1979) adopting the last shot rule in the ‘battle of forms’.’ Assuming that the cement actually is Premium Quality. 18 . E.Introduction to the common law Acceptance occurs when the offeree’s words or conduct give rise to the objective inference that the offeree assents to the offeror’s terms. Acceptance is not effective as a general rule unless communicated to the offeror but there are several important exceptions. waive communication if that would be to the detriment of the offeree. whether it was Premium Quality cement b. Activities 1. does the price include delivery?) 2. (London: Blackstone. B wrote in reply that he was very interested but needed to know: a. Contract Law. acceptance by conduct Carlill v Carbolic Smoke Ball (1893). after the exchange of forms.P. the seller fails to deliver the goods? Communication of the acceptance Essential reading McKendrick. Poole. is there a contract? (If so. Further reading Furmston. whether the price included delivery to his (B’s) yard. Contrast: • • Hyde v Wrench (1840) Stevenson. communication of the acceptance may be said to be waived. The following morning.
Fifoot and Furmston’s Law of Contract. These decisions establish that acceptance is complete when posted. When the parties communicate by letter. What reasons have been given by the courts for the postal acceptance rule? Are they convincing? 2. Although often called a rule. What rule do you think the courts would adopt for acceptance sent by fax or e-mail? 19 .P. Postal communication Essential reading McKendrick. in all other cases. (Basingstoke: Macmillan. Further reading Furmston. the interval of time between the posting of a letter and its receipt by the addressee and the possibility of a letter’s being delayed in the post or lost altogether gives rise to problems. (London: Blackstone. Activities 1. Although maintaining the general principle that a letter is effective only if and when it arrives. 2000) fourth edition [ISBN 0 3337 9427 3] 47–51. Cheshire.Chapter 2: The making of contracts (1) – offer and acceptance Activities 1. Poole. thus putting the risk of delay and loss on the offeror. the courts departed from this principle in the case of letters (or telegrams) of acceptance. What was the detriment to the offeree in Felthouse v Bindley? 2. Note also the courts’ refusal to extend the postal principle to acceptance by telex: • • Entores v Miles Far East Corp (1955) Brinkibon v Stahag Stahl (1982). Is there such a fundamental difference in practice between communicating by telex and sending a telegram? 3. M. (London: Butterworths. the principle of these cases is really an exception to the general requirement of actual communication which will prevail where the circumstances or the terms of the offer show that it should. E. Contract Law. J. Casebook on Contract Law. see: • • Adams v Lindsell (1818) Household Fire Insurance v Grant (1879). see: • Holwell Securities v Hughes (1974). 2001) ﬁfth edition [ISBN 1 8417 4217 1] 49–54. 2001) 14th edition [ISBN 0 4069 3058 9] 57–61. Could an offeror use this case to avoid liability? The most important exception relates to postal communication and is dealt with in the following section. at least in certain situations.
Though the conduct must point clearly to the existence of the contract. 2000) fourth edition [ISBN 0 3337 9427 3] 51–53. Further reading Furmston. 2001) ﬁfth edition [ISBN 1 8417 4217 1] 46–48. Casebook on Contract Law. Further reading Furmston. M. Acceptance can sometimes be inferred from conduct. 2000) fourth edition [ISBN 0 3337 9426 3] 42. Poole. 2001) ﬁfth edition [ISBN 1 8417 4217 1] 46–48.Introduction to the common law Method of acceptance Essential reading McKendrick. but must the offeree comply with this instruction? See: • • Eliason v Henshaw (1819) Manchester Diocesan Council for Education v Commercial and General Investments (1970). (London: Blackstone. Activities 1. Fifoot and Furmston’s Law of Contract. may the offeree choose to use another (equally effective) method of communicating his acceptance? Whose interest should prevail? 2. (London: Butterworths. see: Brogden v Metropolitan Rly Co (1877) where coal was supplied to a railway company without the terms of the written agreement being ﬁxed. See: • Quenerduaine v Cole (1883). The required method for communicating acceptance may also be inferred from the manner of making the offer. (London: Butterworths. Cheshire. E. Where a method of acceptance has been prescribed by the offeror. E. (London: Blackstone. Fifoot and Furmston’s Law of Contract. see: IRC v Fry (2001) where the cashing of a cheque by the IRC was held not to be acceptance by them of a compromise offer by the taxpayer.P. The offeror may state that the acceptance should be conveyed to him in a particular manner. J. J. Casebook on Contract Law. 2001) 14th edition [ISBN 0 4069 3058 9] 62–67. Can an offer made by fax be accepted by letter? Change of mind Essential reading McKendrick. (Basingstoke: Macmillan. M. Contract Law. 20 .P. 2001) 14th edition [ISBN 0 4069 3058 9] 54–55. (Basingstoke: Macmillan. Poole. Cheshire. Contract Law.
but see: • Ramsgate Victoria Hotel v Monteﬁore (1866). Fifoot and Furmston’s Law of Contract. In a unilateral contract. The offeror is entitled to assume that acceptance will be made fairly promptly or not at all. that she rejects the offer. Should the act of posting an acceptance prevail over the information actually conveyed to the offeror? In the absence of English cases the books refer to a number of cases from other jurisdictions – see Dunmore v Alexander (1830: Scotland) and Wenkheim v Arndt (1873: New Zealand). it is rarely necessary to resort to the principle of lapse.Chapter 2: The making of contracts (1) – offer and acceptance In principle there is no legal commitment until a contract has been concluded by the acceptance of an offer and. However. Cheshire. she informs the offeror by telephone. 21 . up to that point. The offeror may set a time limit for acceptance but. because of the ease with which offers can be revoked. before the letter arrives. when has the offeree started to perform the act (so as to prevent revocation by offeror)? Does the offeror need to know? 3. that he accepts the offer? Lapse of offer Essential reading Furmston. see: • Byrne v Leon van Tienhoven (1880).P. before the letter arrives. see: • • Offord v Davies (1862) Routledge v Grant (1828). M. even without a limit. it is important to emphasise that they are not binding (and indeed some have very little persuasive authority) so that the question must be answered primarily as a matter of principle. (London: Butterworths. How can the offeror inform all potential claimants that the offer of a reward has been cancelled? 4. Why can the offeror break his promise to keep the offer open for a stated time? 2. either party is free to change his mind and withdraw from the negotiations. after posting a letter of acceptance. Note the special problems of withdrawal of an offer of a reward or other unilateral contract: • • • Errington v Errington (1952) Daulia v Four Millbank Nominees (1978) Shuey v US (1875). Note how the requirement of actual communication is maintained in considering whether an offer has been revoked. However. 2001) 14th edition [ISBN 0 4069 3058 9] 67–69. Must the revocation be communicated by the offeror or merely to the offeree? See: • Dickinson v Dodds (1876). Different problems arise when it is the offeree who changes her mind: for example if. when citing them. Activities 1. the offeree cannot let the offeror wait indeﬁnitely. Will there be a contract if the offeree posts a letter rejecting the offer but then informs the offeror by telephone.
you should be able to: • • • • distinguish between an offer and an invitation to treat deﬁne and apply the requirements for acceptance discuss the scope and effect of the postal rule for acceptance explain the effect of change of mind by either party. The fact that some of these problems are not covered by authority does not make them any less attractive to an examiner. He wrote to Davina. if Cyril disregarded Davina’s letter and sold the stamp to Eric for £600 Note: in two-part questions such as this you must answer both parts unless instructed clearly that candidates are to answer either a or b. Contract Law. Sample examination question Cyril. for example: • • • • • Is a statement an offer or an invitation to treat? Is there a counter-offer or mere enquiry? Does a posted acceptance fall outside the postal rule? Was the offeror or offeree free to have second thoughts? When is a telephone call recorded on an answering machine actually received? There are also several everyday transactions where the precise contractual analysis is not immediately apparent – the motorist ﬁlling up with petrol (gas). 22 . Learning outcomes By the end of this chapter and the relevant reading. a collector who specialises in Illyrian stamps. 2000) fourth edition [ISBN 0 3337 9427 3] 53–55. The detailed rules of offer and acceptance provide a ready source of problems and difﬁculties on which an examiner can draw. the passenger riding on a bus. 2 b. asking whether she would be interested in purchasing it. (Basingstoke: Macmillan. E. I will consider it mine at that price unless I hear to the contrary from you and will collect it from your shop on Friday next week. the opposite might well be the case.’ Advise Davina as to the legal position: a. Davina wrote in reply.Introduction to the common law Summary Essential reading McKendrick. a stamp dealer. the tourist buying a ticket for the underground (subway) from a machine and so on. had a rare Illyrian ﬁve cent blue for sale. The key to most problems of offer and acceptance is the idea that the law should give effect to actual communication wherever possible. indeed. ‘I am willing to pay £500 for the ‘blue’. if Cyril put the stamp on one side in an envelope marked ‘Sold to Davina’ but 2 Davina decided that she no longer wished to buy it.
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