Contract Law

A contract is an agreement enforceable at law. All contracts are agreements but not all agreement
are contracts. A contract needs:

 an offer

 an acceptance

 consideration

 intention

 contractual capacity

There are three types of contract.

1. Unilateral contract

Unilateral contracts are created when one party pays another party to perform an action. Unilateral
contracts can come about as a result of reward, or through advertisements, when an advertiser
promises to pay members of the general public if they take a course of action.

2. Bilateral contract

A bilateral contract requires both parties to perform an action. It is a reciprocal arrangement

between two parties – both parties promise to perform an act in exchange for the other’s act.

3. Collateral contract

A collateral contract is secondary to the main contract, but it stands independently and separate.
Usually it is made between the original parties but it can be made with a third party. The reasons for
such a contract may be because some terms need to be added to the main contract, or there are
errors in the main contract, or if the contracting parties are different. A collateral contract may
override or supplement the main terms of the contract.

DEFINITION OF AN OFFER
An offer is an announcement of a person’s willingness to enter into a contract, either expressly or
impliedly. The offeror is the one who makes the offer, and the offeree is the one who receives it.
An offer cannot be vague.

Gunthing v Lynn
The offeror offered to pay a sum for a horse if it was ‘lucky’. It was held that the offer was too vague
and no contract could be formed. However, a offer may be certain if reference to the parties’
previous dealings can be made.

Hillas & Co Ltd v Arcos Ltd

The court held that the missing terms of the agreement could be ascertained by reference to the
parties’ previous transactions.

An offer may be made to the public at large.

Carlill v Carbolic Smoke Ball Co

The defendants’ advertisement stated that if anyone used their smokeballs and still caught flu, they
would pay the person £100, and that they had deposited £1000 to prove they are serious. Carlill
used a smokeball and caught a flu. When the defendants refused to pay, the court held that the
advertisement was an offer to the general public, which became a contract when it was accepted by
Carlill using the smokeball. She was entitled to the £100.
INVITATION TO TREAT
An invitation to treat is an attempt to stimulate the other’s interest to make an offer without any
intention to be bound. Negotiations to enter into a contract can be an invitation to treat but not an
offer.

Gibson v Manchester City Council

Council wrote to Mr. Gibson that it may be prepared to sell the house to him for £2180. Mr. Gibson
said that the path was in a bad condition, but the Council refused to change the price. Mr. Gibson
asked the Council to carry on with the purchase, but the Council said he could not buy it. It was held
that the letter giving the purchase price was merely a negotiation to enter into a contract, and can
only amount to an invitation to treat, not an offer. 

ADVERTISEMENTS
Advertisements for unilateral contracts
Advertisements for unilateral contracts, like that in Carlill v Carbolic Smoke Ball Co, are usually
offers, as it can be accepted without any need for further negotiations.

Advertisements for bilateral contracts

Advertisements for bilateral contracts are usually invitations to treat, as it may lead to further
bargaining and that stocks could run out.

Partridge v Crittenden
A person was charged for offering for sale a wild bird under the Protection of Birds Act 1954, but his
conviction was quashed on the grounds that the advertisement was not an offer, but an invitation to
treat.

Grainger & Sons v Gough

It was held that the circulation of a price-list by a wine merchant was not an offer to sell at those
prices, but an invitation to treat.

DISPLAY OF GOODS WITH PRICE TAG

Display of goods with price tag is usually an invitation to treat.

Fisher v Bell
The defendant had displayed flick knives in his shop window. His conviction of offering such knives
for sale was overturned, as the display of an article with a price in a shop window was only an
invitation to treat.

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd

Boots was charged with an offence concerning the sale of medicines which could only be sold under
the supervision of a pharmacist. The court held that shelf display was like an advertisement for a
bilateral contract, and hence, an invitation to treat. The offer was made by the customer when the
medicines were presented at the cash desk, and was only accepted by the shop at the cash desk,
which was supervised by a pharmacist.
TIMETABLES AND TICKETS FOR TRANSPORT
For timetables and tickets for transport, the legal position is unclear.

Thornton v Shoe Lane Parking Ltd

It was suggested that passengers asking for tickets to their destination are making an invitation to
treat. The bus company make an offer by issuing the tickets and when the passengers accept the
tickets without objection, there is a contract.

AUCTION SALES
For auction sales, under s.57(2) Sale of Goods Act 1979, the general rule is that the auctioneer’s
request for bids is an invitation to treat, and each bid is an offer. An advertisement of an auction is a
mere declaration of intention.

Harris v Nickerson
The claimant failed to recover damages for travelling to an auction which was subsequently
cancelled.

An auction ‘without reserve’ is when the goods will be sold at the highest bidder, however low their
bid.

Warlow v Harrison
It was held that in an auction ‘without reserve’, the advertisement becomes an offer to the public,
that in the auction, they will sell to the highest bidder. The offer is accepted when someone bids,
and that acceptance completes the contract. An auctioneer who puts a reserve price breaches this
contract.

Barry v Davies
The claimant was the only person interested and placed a bid of just £200. The auctioneer refused to
accept the bid, but was successfully sued for breach of contract.

TENDER
As a general rule, a request for tenders is an invitation to treat, so there is no obligation to accept
any of the tenders (Spencer v Harding).

Exception #1: An exception to this is, firstly, where a tender makes it clear that the lowest (or
highest) tender will be accepted.

Harvela Investments Ltd v Royal Trust Co of Canada (Cl) Ltd

The defendants’ telex stating ‘we bind ourselves to accept the highest offer’ was a unilateral offer,
which is followed by a bilateral contract with the highest bidder.

Exception #2: Secondly, it may be an offer to consider all tenders correctly submitted, even if it is not
an undertaking actually to accept one.

Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council

The Council mistakenly thought the claimant’s bid arrived late and refused to consider it. The court
held that although the Council was not obliged to accept any tenders, the terms of their invitation to
tender was an offer at least to consider any tender which was submitted in accordance with their
rules.
A referential tender is when the tenderer offers to top anyone else’s bid.

Harvela Investments Ltd v Royal Trust Co of Canada (Cl) Ltd

A party offered to pay more ‘in excess of any other offer’, if this was not the highest bid. It was held
that this type of referential tender was not legally an offer.

Specific tenders specify that a particular quantity of goods is required on a particular date. Agreeing
to the tender will be acceptance of offer, thus creating a contract.

Non-specific tenders simply state that certain goods may be required, up to a particular quantity,
with deliveries to be made ‘if and when’ requested. Once approved, it becomes a standing offer.

Percival v LCC
The LCC approved Percival’s non-specific tender, but placed its orders with other suppliers. The court
held that acceptance of the non-specific tender did not constitute a contract.

Great Northern Railway Co v Witham

The nature of standing offer was considered in Great Northern Railway Co v Witham, the railway
company accepted the defendant’s non-specific tender. When the defendant refused to supply, it
was held that the defendant was in breach, as the railway company could accept the standing offer
each time it placed an offer, thereby creating a contract each time.

SALE OF LAND
The rules of contract are applied on sale of land more strictly.

Harvey v Facey
It was held that the telegram from the defendant (“Lowest price for Bumper Hall Pen, £900”) was
just a statement of what the minimum price would be, hence it was not an offer.

Bigg v Boyd Gibbins

One party wrote: “For a quick sale I would accept £2600.” The other party wrote: “I accept your
offer.” It was held that this amounted to an acceptance.

TERMINATION OF OFFER
An offer may cease to exist under certain circumstances.

1. Specified time

Where an offeror states that an offer will remain open for a specific time, it lapses when the time is
up.

2. Reasonable length of time

Where not specified, an offer will lapse after a reasonable length of time has passed. In Ramsgate
Victoria Hotel Ltd v Montefiore, the court held that five months was not a reasonable length of time
for acceptance of an offer to buy shares, due to its fluctuating prices.

3. Preconditions not met

An offer will lapse when certain preconditions are not met. In Financings Ltd v Stimson, the
defendant decided to buy a car on hire-purchase terms. Not knowing the car had been damaged, the
claimant signed the ‘agreement’. The court held that the ‘agreement’ was an offer by the defendant
which was subject to the implied condition that the car remained in the same state. As the condition
had been broken, the offer was no longer open.
4. Rejection

An offer lapses when the offeree rejects it.

5. Counter-offer

A counter-offer terminates an original offer.

Hyde v Wrench
The defendant offered to sell his farm for £1000, and the claimant responded by offering to buy it at
£950 (counter-offer). When the claimant tried to accept the previous offer, it was held that this offer
had been terminated by the counter-offer.

*Requests for information

A request for information does not amount to an offer, so the original offer remains open.

Stevenson Jacques & Co v McLean

The defendant offered to sell iron at a cash-on-delivery price. It was held that the claimants’ reply to
ask if they could buy on credit was a request for information and not a counter offer

6. Withdrawal of offer

An offer will be terminated if withdrawn or revoked. Payne v Cave established that an offer may be
withdrawn at any time until it is accepted.

Routledge v Grant
The defendant offered to buy the claimant’s house at a price, ‘a definite answer to be given within
six weeks’. It was held that the defendant could withdraw the offer, even though the time limit had
not expired.
The general rule is that withdrawal must be communicated.

Byrne & Co v Leon Van Tienhoven

It was held that there was a binding contract, as the acceptance of the defendant’s offer took place
before revocation was received (i.e. before the second letter to revoke the offer reached the
claimants).

Dickinson v Dodds
The court held that the offer had already been revoked when Dickson heard from a fourth man, that
Dodds had sold the house to a third party.

The exceptions to this general rule is where an offeree moves to a new address without notifying
the offeror. But, where a withdrawal reaches the offeree, but the offeree simply fails to read it, the
withdrawal still takes effect.

Pickfords Ltd v Celestica Ltd

The first fax estimated the cost being £100,000. The second fax fixed the cost at £98,760. The third
fax, titled ‘Confirmation’ was referring to the first fax. It was held that something more than the
mere submission of the second fax is required to indicate that Pickfords had withdrawn the first
offer.

The general rule for an offer to enter into unilateral contract is that cannot be revoked once the
offeree has commenced performance.
 Errington v Errington, The father offered the son and daughter-in-law that the house would be
signed over once the mortgage was paid off by them. After the father died, the courts held that it
was too late to withdraw the offer, as they had already begun to pay the mortgage.

The exceptions to this general rule is that part-performance prevents revocation, especially in the
context of paying commission for the sale of a property.

Luxor (Eastborne) Ltd v Cooper

An owner of land promised to pay commission to an estate agent. The court held that the owner
could revoke his promise before the sale was completed, even if the agents had made efforts or had
stopped trying to find a buyer.

Where a unilateral offer is made to the world at large, it can probably be revoked without the need
for communication if the revocation takes place before performance has begun.

Shuey v United States

It was held that an offer made by advertisement in a newspaper could be revoked by a second
advertisement, even though the second one was not read by all the offerees.

DEFINITION OF ACCEPTANCE
Acceptance is the unconditional agreement to all terms of an offer.

Brogden v Metropolitan Rail Co

When Brogden added a new term to the contract, he was offering to supply coal under that
contract. The court held that an acceptance by conduct of that offer could be inferred from the
parties’ behaviour.

Mere silence cannot amount to acceptance.

Felthouse v Bindley
The nephew did not reply the uncle’s offer letter, but did tell the auctioneer to keep the horse out of
sale. It was held that there was no contract, as the nephew’s attempt to keep the horse out of sale
did not necessarily imply that he intended to accept the uncle’s offer.

Re Selectmove Ltd
It was held that acceptance by silence could be sufficient if the offeree suggested that their silence
would be sufficient.

Acceptance must be unconditional and accept the precise terms of an offer.

Tinn v Hoffman
One party offered to sell the other 1200 tons of iron. It was held that the other party’s order for 800
tons was not an acceptance.
BATTLE OF THE FORMS
Where parties carry on negotiation, it may be difficult to pinpoint when an offer has been made and
accepted. This can be more difficult where “battle of the forms” occurs, where one party sends a
form stating that the contract is on their standard terms of business, and the other party responses
with a form of their terms.

The general rule is that the last shot wins.

British Road Services v Arthur V Crutchley & Co Ltd

The court held that stamping the delivery note with “Received under our conditions” amounted to a
counter-offer, which BRS accepted by handing over the goods.

An exception to this general rule can be seen in Butler Machine Tool Ltd v Ex-Cell-O Corp Ltd.

Butler Machine Tool Ltd v Ex-Cell-O Corp Ltd

The claimants supplied a quotation and stating that its terms would prevail. The defendants placed
an order containing their own terms with tear-off acknowledgement slip. This amounted to a
counter-offer which the claimants accepted when they returned the slip that stated “we accept your
order on the terms”.

GHSP Incorporated v AB Electronic Ltd

The court held that although the parties had entered into a contract, the terms were not to be found
in either of the parties’ respective standard terms of business. The contract was an unwritten
contract containing the terms implied by the Sales of Goods Act 1979 and s.14(2) implies that the
goods supplied will be of satisfactory quality.

SPECIFIED METHODS OF ACCEPTANCE

If an offeror states that his offer must be accepted in a specific way, then only acceptance by that
method or an equally effective one will be binding. It should not be slower than the method
specified, nor have any disadvantages for the offeror.

Tinn v Hoffman
It was held that where the offeree was asked to reply ‘by return of post’, any method which would
arrive before return of post would be sufficient.

Yates Building Co Ltd v R J Pulleyn & Sons (York) Ltd

The court held that acceptance was still effective despite the purchaser sending his acceptance by
ordinary letter post, and not by registered or recorded delivery as stated by the seller.

Felthouse v Bindley
The offeror cannot stipulate that silence shall amount to acceptance. There is only acceptance if the
offeree was aware of the offeror’s terms (of which acts may amount to an acceptance) and intended
their acts to amount to an acceptance.

Inland Revenue Commissioners v Fry

Fry wrote to Inland Revenue with a cheque, stating that if they accepted her offer in final settlement,
it should cash the cheque. After cashing the cheque, they informed Fry that her offer was
unacceptable. The court held that there was no evidence that Inland Revenue knew of Fry’s offer.
Although the cashing of the cheque gave a presumption of acceptance. This was rebutted, as a
reasonable observer would not assume that there was an intention of accepting the offer in the
letter.
THE COMMUNICATION RULE & THE POSTAL RULE
The communication rule states that acceptance must be communicated.

Entores Ltd v Miles Far East Corporation

An acceptance does not usually take effect until it is communicated, as Lord Denning explained.

Exception to the communication rule #1: The exceptions to the communication rule include, firstly,
where it is implied or stated that acceptance need not be communicated. Unilateral contracts do not
usually require acceptance to be communicated.

Carlill v Carbolic Smoke Ball Co

The court held that the unilateral offer implied that performance of the terms would be enough to
amount to acceptance.

Exception to the communication rule #2: Another exception is the postal rule, which states that an
acceptance by post takes effect when it is posted, rather than communicated.

Adams v Lindsell
The defendants wrote to claimants offering to sell sheep fleeces, answer required in course of post.
The claimants posted the acceptance, but before the defendants received it, they had already it to a
third party. The court held that a contract was concluded as soon as the acceptance was posted,
therefore the defendants breached the contract.

There are, though, exceptions to the postal rule.

Exception to the postal rule #1: Such as when an offeror makes it a term that acceptance will only
take effect when it is communicated.

Holwell Securities Ltd v Hughes

The defendants’ offer stated that the acceptance had to be ‘by notice in writing’. The court held that
‘notice’ meant communication, and so the postal rule does not apply here.

Exception to the postal rule #2: Secondly, the postal rule does not apply to telephone or telex.

Entores v Miles Far East Corporation

It was held that since telex allows almost instant communication, the postal rule did not apply and
acceptance does not take effect until it is received by the claimants. Since the acceptance had been
received in London, the contract was deemed to have been made there.

Brinkibon v Stahag Stahl

The facts were similar with Entres, except that the offer was accepted by a telex from London to
Vienna, hence the contract was made in Vienna. It was held that a telex message sent outside
working hours would not be considered instantaneous.

Thomas v BPE Solicitors

 The postal rule would not apply to a contract made by e-mail.

The effect of the postal rule is that a postal acceptance can take effect when it is posted, even if it
gets lost in the post.

Household Fire Insurance v Grant

Grant was bound to pay the balance, despite the letter saying shares had been allotted to him being
lost in the post, because the contract was completed when the letter was posted.
IGNORANCE OF OFFER
It is generally thought that ignorance of an offer cannot be acceptance.

Williams v Carwardine
Despite not wanting to receive the money, the court held that she was entitled to the reward as she
was aware of the offer and had complied with the terms, and her motives were irrelevant.

Fitch v Snedaker
It was held that a person who gives information without knowledge of the offer of a reward cannot
claim it.

Gibbons v Proctor
The claimant attempted to claim the reward, even though he had not originally known of the offer.
He was allowed to receive the money, as he did know of the offer by the time the information was
given.

R v Clarke
Clarke gave the information, but forget about the reward. He remembered it later, but it was held
that he was not entitled to the money.