LAW OF CONTRACT

Agreement (Offer and Acceptance)

Formation of a Contract

A contract maybe defined as a legally binding agreement between two or more persons. Frederick Pollock,
defined contract as a ‘promise or set of promises which the law will enforce’. The normal method of
enforcement is an action for damages for breach of contract, though in some cases the court may order
specific performance.

Requisites of a contract
 Offer
 Acceptance
 Consideration
 Intention to create legal relations
 Certainty of terms

An agreement is reached by valid offer and valid acceptance.

OFFER-

The intention to legally commit

An expression of willingness to contract made with the intention that it shall become binding on the offeror
as soon as the offeree accepts.

Storer v Manchester City Council, D sent C a letter stating, if you sign the agreement for sale, I will send you
the agreement signed on behalf of the council, C did as instructed. Before the council (D) signed, their
policy changed and they were unable to sign the agreement to sell house. D claimed the agreement had not
been formed because they had not yet signed it. Held, D made the offer to C and C accepted it within the
conditions laid out. The council not signing the form was irrelevant, the clear and precise offer had already
been made and upon acceptance by C, the contract was made. A contract is formed when there is, to all
outward appearance, a contract (Smith v Hughes).

Gibson v Manchester City Council, the council sent Gibson a document, stating they ‘may be prepared to
sell the house to him’. The House of Lords held that a contract had not been concluded because the council
had not made an offer capable of being accepted. It was noted that the words, ‘may be prepared to sell’ are
fatal to an offer and there was never an offer available to be accepted.

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NB// A valid offer must be communicated (i) Orally, (ii) In writing or (iii) by Conduct. [One of three ways]

An Offer is distinct from invitation to treat:

Example of invitation to treat:

a) A Commencement of negotiation

Pharmaceutical society v Boots, the society argued that a drug sale was completed when the
customer took the item from the shelf. The court held this was an invitation to treat.

b) Supply of Information

Harvey v Facey, the telegram that was used to indicate the lowest selling price, was regarded as a
simple request of information, rather than capable of forming a definite offer.

c) A statement of Intention

Harris v Nickerson, the plaintiff claimed that advertisement constituted an offer and the refusal
constituted a breach of contract. Court held, advertisement did not constitute an offer, rather was
merely a declaration of intent.

d) Display of goods
The display of goods with a price ticket attached in a shop window or on a supermarket shelf is not
an offer to sell but an invitation for customers to make an offer to buy. See Fisher v Bell,
Where goods are displayed in a shop together with a price label, such display is treated as an
invitation to treat by the seller, and not an offer. The offer is made when a customer presents the
item to the cashier together with payment. Acceptance occurs at the point the cashier takes
payment.

P.S.G.B v Boots chemists, they held that the display of goods was not an offer. Rather by placing the goods
into the basket, it was the customer that made the offer to buy the goods.

e) Auction, in an auction, the auctioneer’s call for bids is an invitation to treat, a request for offers. The
bids made by persons at the auction are offers, which the auctioneer can accept or reject or reject
as he chooses. Similarly, the bidder may retract his bid before it is accepted.

Payne v Cove, stands for the proposition that an auctioneer’s request for bids is not an offer which
can be accepted by the highest bidder. This case was qualified by Berry v Davis, which it states that if
the auction is advertised as being ‘without a reserve price’, then the auctioneer is bound to sell to
the highest bon a fide bidder.

f) Advertisements, advertisements of good for sale are normally interpreted as invitations to treat.

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 Patrige v Crittenden, it was noted that usually advertisements are treated as an invitation to treat.
Where there is no direct use of the words ‘offer for sale’. It was held that the advertisement in
question constituted in law an invitation to treat and not an offer to sell.

Exception
However, advertisement may be construed as offers if they are unilateral, i.e. open to all the world
to accept (i.e. offers for rewards).

Carlill v Carbolic Smoke Ball, the manufacturer advertised that the buyer who found the flue remedy
did not work would be rewarded £100. The company was found to have been bound by its
advertisement, because all the essential contractual element was present. The court of Appeal
unanimously rejected the company’s argument and held that there was a fully binding contract. (1)
the advert was a unilateral contract to the world, (2) satisfying conditions for using the smoke ball
constituted acceptance of the offer, (3) purchasing/ merely using the smoke ball constituted good
consideration if the company’s claim that £1000 was deposited at the bank showed the serious
intention to be bound.

g) Mere statement of price

Harvey v Facey, the Judicial Committee held that indication of lowest acceptance price does not
constitute an offer to sell, rather it is considered an invitation to treat.

Tenders

Harvela Investments Ltd v Royal Trust of Canada, this concerns the validity of referential bids in
competitive tenders. Royal Trust Co owned shares in a company and invited bids for them. Harvela
bid $2,175,000 and Leonard bid $2,100,000 or $101,000 in excess of any offer. Expressed as a fixed
monetary amount, whichever is higher’. Royal Trust accepted Leonard’s bid as being $2,276,000.
Harvela sued for breach of contract saying a referential bid was invalid.
The House of Lords succinctly and cogently summarized the reasons for referential bids as
follows:

‘The very essence of sealed competitive bidding is the fair compliance with which
not only the owner but the other bidders are entitled. To give effect to this bidding
practice in which the dollar amount of one bid was tied to bids of another would be
to recognize means whereby effective sealed competitive bidding could be wholly
frustrated. A submission by bids of others is invalid and unacceptable as in
consistent with and potentially destructive of the very bidding in which it is
submitted.’

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Blackpool & Fylde Aero Club v Blackpool Borough Council, this is a leading English contract law case
on the issue of an offer and acceptance in relation to call for bids. In it the Court of Appeal decided
that tenders and request for tender are accompanied by a collateral contract implying that the
requestor will inspect the bid.

Communication of the offer

There cannot be assent without knowledge of the offer.

R v Clarke, (a case decided by the Australian high Court in law of contract). The claimant wanted to
compel the crown to pay a reward it had offered for information leading to the conviction of a
murderer. He told the police ‘exclusively in order to clear himself’ (given he was also under
investigation). The judge interpreted evidence as to say the claimant had forgotten about offer of
the reward. Held, it was necessary to act in reliance on an offer to accept it and therefore to create a
contract. Here it was held that the evidence showed that Mr Clarke was not acting on the offer.

Termination of an offer
An offer may be terminated in one of the following five ways:

1. Revocation- The offer may be revoked by the offeror at any time until it is accepted.
However, the revocation of the offer must be communicated to the offeree(s). Unless
and until the revocation is so communicated it is ineffective.

Ryrne v Van Tienhoven, It was ruled that an offer is only revoked by direct
communication with the offeree, and that the postal rule does not apply in
revocation; while simply posting a letter counts as a valid acceptance, it does not
count as valid revocation.

The revocation need not be communicated by the offeror personally, it is sufficient if

it is done through a reliable third party. See.

Dickinson v Dodds, Dodds delivered a signed letter to Dickinson offering to sell his
house, leaving the offer open for the next two days. Mr Berry told Mr Dickinson that
Dodds had offered to sell the house to somebody else.
Held, it was clear that before there was any attempt of acceptance, he was
well aware that Dodds had changed his mind. It was impossible to say therefore that
there was ever that existence of the same state of mind between the two partners,
which is essential in point of law to the making of an argument.

Where an offer is made to the whole world, it appears that it may be revoked by
taking reasonable steps. See.

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 Shuey v United States, The secretary of War published an announcement in the
public newspaper offering a reward for information leading arrest of certain
criminals. The president issued an order revoking the offer which was published in a
similar way. The claimant discovered and identified one of the criminals, unaware of
the notice of revocation. It was held there was no contract. The offer had been
revoked with the same ‘notoriety’ as the original offer and this was sufficient to
cancel it for even those who had not read it.

Once the offeree has commenced performance of a unilateral offer, the offeror may
not revoke the offer. See.

Errington v Errington, before the father died, he made a promise to his daughter-in-
law and son that he would transfer the title in their names; if they paid the mortgage.
The daughter-in-law began payments of the mortgage.
Held, the offeror cannot revoke unilateral offer, once the offeree had begun part
performance.

2. Lapse of Time- where an offer is stated to be open for a specific length of time, then
the offer automatically terminates when that time limit expires. Where there is no
express time limit, an offer is normally open for a reasonable time. (Offard v Davies)
An offer maybe made subject to certain conditions, if the condition is not satisfied the
offer is not capable of being accepted. An offer may lapse through:

i. Passage of time: Financing Ltd v Stimson

ii. Failure of a condition (Express or implied), Financing Ltd v Stimson
iii. Death: The offeree cannot accept an offer after notice of the offeror’s death. If
the offeree doesn’t know of the offeror’s death and there is no personal
element involved, then the offer maybe accepted (Bradbury v Morgan).

3. Rejection ( termination by the offeree)- a rejection may be either express or implied

i.e. a counter offer (a verification of terms or a new term will result in a counter offer)
Hyde v Wrench, Wrench offered to sell his farm to Hyde for £1,200 an offer which
Hyde decline. Another occasion, Wrench wrote to Hyde offering to sell the farm for £
1000, stating it to be the final offer and that he would not alter from it. Hyde offered
£950, Wrench refused to accept. Hyde then agreed to buy the farm for £1000 but
wrench refused.
Held, counter offer cancelled the original offer.

Brogden v Metropolitan Railway co, in signing a contract, the claimant left blank
certain aspects of it and said to be subject to arbitration for difference that may arise.
For a whole both of the partners acted according to the terms of the agreement. But
when a serious disagreement occurred, the claimant said there had been no formal
contract.
Held, the contract had arisen by the conduct of the partner. A mere mental assent to
the agreement’s term would not have been enough, but having acted on the terms

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 made it so. Lord Blackburn also held, that the onus of showing that both partner had
acted on the terms of an agreement which had not been in due form, executed by
either, lies upon the person alleging such facts.

4. If a condition in the offer is not fulfilled, the offer terminates.

Financings Ltd v Stimson, held, there was an implied condition in the offer that the
subject matter of the offer would remain substantially in the same condition it was at
the time of the offer.

5. Death, if the offeror dies, the offer may lapse.

Bradbury v Morgan

Acceptance

Definition:

i. Unconditional assent to the terms of the offer without qualifications.

ii. A final and unqualified acceptance of the terms of an offer.

Felthouse v Bindley, after expressing an intention to buy a horse, the uncle wrote to his nephew saying,
‘If I hear no more about him, consider the horse mine’. The nephew did not respond.
Held, acceptance must be communicated clearly and cannot be imposed due to silence of one of the
parties. The uncle had no right to impose sale through silence whereby the contract would fail by
repudiation.

Acceptance by Conduct

Brogben v Metropolitan

Reliance on an offer

Williams v Carwardine, this case raises interesting questions about the necessity of reliance on an offer
in the formation of a contract (unilateral) V’s brother, D offered a reward of £20 for information leading
to the discovery of the murderer. C gave information which lead to conviction of two men (including the
Claimant’s husband). She claimed the reward D refused to pay. It was found that she knew about the
reward, but that she did not gave information specifically for the reward.
The trial judge noted that,
My opinion is that the motive is not material. The advertisement amounted to a general promise or
contract to pay the offered reward to any person who performed the condition mentioned on it,
namely, who gave the information. If the person knows about the thing and does it, that is quite
enough. We cannot go into the plaintiff motives. Held, she was entitled to the reward.

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 Method of Acceptance

Manchester Diocesan Council v Commercial & General Investment, It was held that although an offeror
is entitled to insert an acceptance in a particular way, where a method of acceptance is merely
prescribed, any equally efficient method of acceptance will suffice. If the offeror wants to be bound only
if the offer is accepted in some particular way, he must make this clear.

The following rules have been developed with regard to acceptance:

Counter Offers

A counter offer also amounts to a rejection of the original offer which cannot then be subsequently
accepted.
Hyde v Wrench

A counter offer should be distinguished from a mere request for information. See.

Stevenson v Mclean, It was held that the plaintiff’s telegram was not a rejection of the offer but a mere
inquiry about whether the terms could be modified.
If A makes an offer on his standard document and B accepts on a document containing his conflicting
standard of terms, a contract will be made on B’s term if A acts upon B’s communication, the situation is
known as the ‘battle of forms’

Butler Machine Tool v Excell-O-Corp, the offer to sell machine on terms provided by B was destroyed by
the counter offer made by E. Therefore the price verification form was part of the contract. The contract
was concluded on E’s terms since B signed the acknowledge slip accepting those terms. Where there is a
battle of forms, whereby each party submits their own terms. The last shot rule applies where by the
contract is concluded on the terms submitted by party who is last to communicate those terms before the
performance of the contract commences.

Conditional Acceptance

If the offeree puts a condition in the acceptance, then it will not be binding. But a request for
information does not destroy the offer.

Request for information

At the end the test will be- what was the intention of the offeree (Stevenson v Mclean)

Tenders

A tender is an offer, the acceptance of which leads to the formation of a contract.

Communication of Acceptance

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 The general rule is that an acceptance must be communicated to the offeror until and unless the
acceptance is so communicated, no contract comes into existence.

Entores v Miles For East Corp, Lord Denning found that the regular postal rule did not apply for
instantaneous means of communication such as telex. Instead, acceptance occurs where the message of
acceptance is read. The postal rule does not apply to instantaneous communication such as telephone or
email. A contract is also formed when and where the medium of agreement was received. When
instantaneous method of communication is used it will take effect when and where it is received.

Prolonged silence or inactivity may in some rear case amount to communication of acceptance.
The Hannah Blumenthal

Instantaneous Termination

Tenex Steamship v The Brimnes, the plaintiff sent defendant, a telex to terminate the contract. It was sent
during the normal office hours, but the defendant did not see it until the next day.
It was held that the withdrawal telex was effective from the time it arrived not the time it was read.

Note this was a case relating to withdrawals of offers not acceptance, but it is a useful analogy.

Exceptions to the need for communication

a) Where the offeror has waived the requirement of communication

Carlil v Carbolic Smoke Ball- Because it is a unilateral contract

b) The Postal Acceptance Rule

Adams v Lindsell, (First case on postal rule in which letter was misdirected by the defendant)
It was held that there was a binding contract when the letter was posted by the postal acceptance
rule. In Henthorn v Fraser, that the court determined the precise timing of the acceptance, that is
the moment the letter of acceptance, is posted.

Household Five Insurance v Grant, held, that there was a valid contract, because the rule for the
post is that acceptance is effective even if the letter never arrives (this aspect as overruled in Holwell
Securities v Hughes). He noted that if anyone can opt out of the rule and that even if it sometimes
causes hardship, it would cause even more hardship to not have the rule. Once someone posts
acceptance, he argued there is a meeting of minds, and by doing that decisive act a contract should
come into effect.

Henthorn v Fraser, The claimant received a note from the defendant with an offer to purchase a
certain property within 14 days. Claimant accepted via mail the next day. The defendant withdraws
the offer before receiving the acceptance, but after the acceptance was posted.

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 Held, claimant was entitled to specific performance. Where the circumstances are such that
it must have been within the contemplation of the partner that according to the ordinary usage of
mankind, the post must be the means of communicating the acceptance of an offer, the acceptance
is complete as soon as it is posted.

Soundfile
Offer

This is an expression of willingness to a contract on specified terms without further negotiations, so that
it requires only acceptance for a binding agreement to be formed.
One must be able to differentiate an offer from all other statement which is made in the course of
negotiation, in particular an invitation to treat. As only an offer is capable of immediate translation into a
contract by the fact of acceptance.

Do not be thrown off by the way examiners label something, they may show you an invitation to treat but
then suggests that Tom has accepted Mary’s offer, when in fact all Mary has done was put an advert selling
her car, which as we all know is an invitation to treat. But the examiner may call it an offer, but what you
need to do is to identify and discuss what exactly it is.
In most cases you can distinguish between what is an offer and an invitation to treat. You must look at
whether the communication is sufficiently specific in terms of the main obligation and price to be capable of
immediate acceptance and whether it is made with an intention to be bound upon acceptance. The
intention to be bound is determined objectively so you have to look at the language used. Gibson v
Manchester City Council, the House of Lords looked at the language use of the correspondents to
determine whether there was an intention to be bound. The House of Lords held that the word maybe
prepared to sell was not an offer but an invitation to treat. The council was inviting the plaintiff to make an
offer, and although he had made such offer his offer had not been yet accepted, at the time of the policy
change.
This is often contrast with Stoner v Manchester City Council, where the court said a binding contract had
been concluded as the language used namely; ‘If you will sign the agreement and return it to me, I will send
you the agreement signed on behalf of the council’. The court said the council’s intention to be bound was
clearly evident and that was an offer.

The general rule in respect of advertisement, brochures and pricelist are that they amount to an invitation
to treat.

Exception to the General Rule

Where the advertisement is unilateral, then it binds itself to perform a stated promise upon performance of
the requested act, and as such the promisee gives no commitment to perform but if he does perform then
the promisor will be bound. If you get a problem question you relate back to Carlil v Carbolic Smoke Ball. In
respect of a unilateral offer, although it was an advertisement it was held to be an offer rather than an
invitation to treat, not just because of its unilateral nature but because it saw the deposit of funds into a
bank which evidenced the company’s willingness to be bound or legally bound in the circumstance that
someone caught influenza.
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What if you are given a website situation? Well, the argument maybe that websites are the electronic
equivalent of displays, advertisements or catalogue. This would mean in general that website would
constitute an invitation to treat. So then if the website arguably constitutes an invitation to treat. The offer
will come from the customer at the check-out stage when the customer clicks the relevant instruction to
process the order.
Generally tenders are invitations to treat but under certain circumstances would constitute a valid offer.

Communication of an Offer

An offer does not take effect unless communicated to the offeree. This may not be a straight forward as it
sounds. What you have to look at is whether they have used a scenario where the person who is making the
offer says I am about to post it. Please do not go down the route of postal rule. If the person making the
offer has to post it, it is no good until it has actually been communicated to the offeree.

Revocation

 Personal service contracts are revoked by death of the offeror.

 Where an offer is being revoked by a third party he must be reliable (emphasis added)

Acceptance

How do we identify if an acceptance has occurred. The general principle is that to constitute acceptance,
the offeree’s unequivocal expression of intention and assent must be made in response to an exactly
matched terms of the offer, also the matching acceptance must be communicated to the offeror. So there
are two aspects to it (i) The fact of acceptance and (ii) The fact of communication.

A Qualifying Cover Letter

What happens if you have sign the contract and send it back but you send a cover letter saying this is what I
intend or don’t intend (Society of Lloyds v Twins), D said they did not accept a reconstruction and renewal
agreement which was offered to Lloyds name and that they could not be in breach of the agreement
because although they had completed the application form, they had put in a cover letter saying that they
would not be able to pay the some due from them under the settlement.
Held, there was an unconditional acceptance of the offer because there was a completed application
form, and the cover letter was separate and collateral and had nothing to do with the contract itself.

Rule in relation to acceptance

The person accepting must know of the offer.

R v Clarke
Vs

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Williams v Caradine, there is a suggestion that once the offeree did have knowledge of the offer and accept
it in response to that, his motive for doing so is irrelevant. In Gibbson v Proctor, at first sight it appears to be
at odds with the principle that there must be knowledge of the offer in order to claim the reward. But in the
decision it has been explained as turning on the particular requirements of offer, which said that it require
the particular information to be given to a particular person. Although the information was given to another
person at that time, when there was no knowledge of the reward. The offeree had the necessary
knowledge at the time when the information reached the particular person. It stands for the proposition
that you still need to have knowledge of the offer in order to accept.
This case held that the advertisements of rewards for information leading to the arrest or conviction of
the perpetrator of crime, is treated as an offer as the inspection to be bound is inferred from the fact that
no further bargaining is expected to result from them. Inspection of the case reveals that the party claiming
the reward possessed full knowledge of the offer at the relevant time in giving the information.
(As Opposed to Unilateral Contracts)

In bilateral contract, the general rule is that the offeror cannot wave the need for communication
(Felthouse v Bindly), in the said case it was seen that silence will not amount to acceptance.

There might be a question whether it may be possible to retract a postal acceptance before it reaches the
offeror? In other words could the offeree post an acceptance, change his mind and telephone the offeror to
tell him he does not want to accept. There is no English case on this point and you should say this, but there
is a Scottish case, Dunmore v Alexander, it is a highly obvious authority (emphasis added). Although it is
sometimes cited in support of the conclusion that it is possible to overtake a postal acceptance following
Dunmore v Alexander, arguably you can retract by quicker method but by the strict postal rule in English
law, there is no retraction once you have validly posted letter it will amount to an acceptance.

Instantaneous Method of Communication

Instantaneous method of communication can only take effect on receipt. Generally the onus is on the
communicator to get his message through. There are some instances where the actual communication
would be non-instantaneous even though they have use an instantaneous method (Brinkibon v Stahog).
For all irregularities that may occur with the many warrants of telecommunication such as: message not
reaching the recipient immediately, message sent out of office hours, or message may be sent at night with
the intention or on the assumption that they will be read at a later time and many other remark may occur.
No universal rule can cover all such cases; (1) they must be resolved by the intention of the parties, (2) by
sound business practice and (3) in some cases by a judgement where the risk should lie certain irregularity
may amount to instantaneous method of communication being treated as non-instantaneous method of
communication, this happens when a message is sent after 5:00pm, looking at the rules in turn then. If you
are communicating with another office, follows that the offeree would reasonably expect the offeror to be
monitoring the fax machine. I would expect communication to occur when the message was received.
Accordingly communication to that machine would be actual communication. Equally, messages would be
at the risk of the recipient, if the recipient failed to manned his telex/ fax machine.

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 What about Message left on Telephone Answering Machine

There is no case and you should argue by analogy. So if you apply the general principle of what the offeree
could expect, the conclusion might be that the message will not be communicated until it is played back,
since anyone leaving a message could reasonably assume that as the machine is switched on the message
will not be communicated immediately. Of course there is a practical point to this that the person could be
screening and be right there, but that aside what you have to consider is if the person leaving the message
is doing so in order to accept that he really ought to consider that it will not be communicated to the
person until it is played back. In which case it will possibly fall into the non-instantaneous variety.

Emails

When you are looking at emails there may be a postal rule analogy, but the better approach seem to be
that it will be dealt with under the receipt rule. In that it would seem better to apply an actual
communication, because the sender will know if the message had not been sent and can resend it. One has
to consider has there been an offer?

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