MGMT2021/MS27B

The Law of Contract
Elements of a Contract
Offer and Acceptance

Lecturer: Shirley-Ann Eaton

Concept of a Contract
A contract is an agreement which legally binds
the parties.
There must be:
1. An agreement which is made as a result of an offer
and acceptance;
2. An element of value known as consideration
(although a gratuitous promise is binding if made
by deed) in the agreement
3. An intention to create legal relations by the parties

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Elements of a Contract
• Offer and Acceptance
• Consideration
• Terms of Contract
• Vitiating Factors
• Discharge of Contract
• Remedies for Breach of Contract
• Agency
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Court examines all the circumstances to see if one party (the offeror) may be assumed to have made a firm “offer” and if the other (the offeree) may be taken to have “accepted” that offer. 4 . Offer and Acceptance • In order to determine whether it is reasonable to infer the existence of an agreement.

5 . Offer An offer is a definite promise to be bound provided that certain specified terms are accepted.

definite in substance 2. Offer An offer must be: 1. orally. or by conduct (but there are exceptions) 3. communicated in writing. made to a person or a group of persons or the public at large 6 .

where offeror promised to pay a further sum for a horse if it was ‘lucky’: Gunthing v Lynn • But vague offer can be made certain by implying terms or by reference to previous dealings within a trade as in Hillas v Arcos where a contract for the sale of timber ‘of fair specifications’ between persons in the timber trade was upheld 7 .g. Offer • Offer must be definite-cannot be vague e.

or inferred from conduct. conveyance or transfer of a legal estate in land • must be in writing e. oral.g. but some contracts: • must be by Deed e.g. bills of exchange such as cheques and promissory notes • must be evidenced in writing e. a contract of guarantee must be evidenced in writing although the contract itself may be oral 8 . Offer • Offer must be communicated in writing.g.

Offer • A plaintiff must prove the presence of a definite offer made to a particular person or to the public at large as illustrated in the case of Carlill v Carbolic Smoke Ball Co where an offer was held to be made to the public at large 9 .

They added that they had deposited £100 with their bankers ‘to show their sincerity’. The plaintiff on the faith of the advertisement. published advertisement in which they offered to pay £100 to any person who caught influenza after having used one of their smoke balls in a specified manner for a specified period. but caught influenza. Offer • The defendants who were the proprietors of a medical preparation called ‘The Carbolic Smoke Ball’. She sued for £100. bought and used the ball as prescribed. 10 .

that it was an illegal policy of insurance. that the advertisement was a ‘mere puff’ never intended to create a binding obligation. the plaintiff had failed to notify her acceptance 11 . that there was no offer to any particular person. and even if there were. Offer • The defendants argued that the transaction was a bet within the meaning of the Gaming Act.

Offer • The Court of Appeal held that it was an offer made to all the world which ripened into a contract with anybody who came forward and performed the condition. the contract was made with that limited portion of the public who came forward and performed the condition on the faith of the advertisement 12 . Although the offer was made to the world.

an invitation to treat is an indication that the inviter is willing to enter into negotiations but is not prepared to be bound immediately. It is an invitation to another person to make an offer 13 . Offer Offer distinguished from ‘invitation to treat’ • Whereas an offer is a definite promise to be bound provided that certain specified terms are accepted.

Offer Accordingly. the Courts have held that there is no intention to be bound in the case of: • The display of goods for sale-display is invitation to treat- customer taking of goods is offer and taking of payment by store is acceptance: Fisher v Bell • Auctioneers request for bids-request for bid is invitation to treat-bid is the offer – fall of auctioneer’s hammer is acceptance-until hammer falls bidder may retract bid • Invitations for tenders-does not amount to offer to employ person quoting lowest price unless tender solicited from specific group of persons and sets out prescribed clear procedure 14 .

since although he had displayed the goods. and sold the goods he had not offered them for sale. because goods on display are not an offer to sell. Offer Display of Goods for Sale • Fisher v Bell – the Restriction of Offensive Weapons Act 1959 made it an offence to ‘offer for sale’ certain weapons including ‘flick knives’. accepted buyers’ offers. A shopkeeper who displayed these knives in his window was found not guilty of the offence. they are an invitation to treat 15 .

paid £3 administration fee and forwarded his application. Offer Distinction between offer and invitation to treat illustrated in the case of Gibson v Manchester City Council. In November 1970 the council sent to its tenants details of a scheme for the sale of council houses giving terms as to prices and mortgages. G immediately replied. 16 .

Offer The City Treasurer replied saying:”The corporation may be prepared to sell the house to you at the purchase price £2. please complete the enclosed application form and return it to me as soon as possible 17 . £2. If you would like to make a formal application to buy your council house.” The letter gave details about a mortgage and went on “This letter should not be regarded as a firm offer of a mortgage.180 (freehold).725 less 20 per cent.

The corporation replied that they had taken into account the state of the property in fixing the price and they could not undertake to do the repairs. saying in a covering letter that repairs needed to be done and asking the corporation to lower the price or repair the premises. 18 . Offer G filled in and returned the form but left the purchase price blank.

Offer On March 18. Labour took control of the council from the Conservatives and instructed their officers not to sell council houses unless they were legally bound to do so. 19 . G replied: In view of your remarks I would be obliged if you will carry on with the purchase as per my application already in your possession. The council declined to sell to G and 350 tenants in a similar situation.” In May.

Lord Diplock in delivering the judgment noted that the Treasurer’s reply saying: “The corporation may be prepared to sell the house to you…… 20 . Offer The House of Lords held that the City Treasurer’s letter of February was at most an invitation to treat and therefore G’s application was an offer and not an acceptance.

To make it quite impossible to construe this letter as a contractual offer capable of being converted into a legally enforceable open contract for the sale of land by Mr. “seems to me. The words may be prepared to sell are fatal to this. please complete the enclosed application form and return it to me as soon as possible... 21 . Offer If you would like to make a formal application to buy the house. Gibson’s written acceptance of it.

” 22 . not. Offer So is the invitation. it is to be noted to accept the offer. It is a letter setting out the financial terms on which it may be the council would be prepared to consider a sale and purchase in due course. but to make formal application to buy on the enclosed application form.

Termination of Offer Offer may be terminated by: • Revocation i.e. withdrawal of the offer • Refusal or Counter Offer • Lapse of time • Failure of a condition subject to which the offer was made • Death 23 .

e. buys an option to purchase)offer cannot be revoked without breach of option contract 24 . Termination of Offer Revocation – Withdrawal of Offer A promise to keep an offer open for a fixed period does not prevent its revocation within that period but if person buys a promise to keep offer open for fixed period (i.

Termination of Offer Revocation – Withdrawal of Offer • Revocation must be communicated to the offeree and communication by third party is valid • Offer to sell item is withdrawn by implication if item is sold to another person • Offer consisting of promise to pay money for the performance of an act cannot be revoked once performance has commenced 25 .

Alan and a Mr. D sold the house to Mr. On Thursday. Termination of Offer Revocation –Withdrawal of Offer In Dickenson v Dodd. The court held that there was no contract as the offer had been withdrawn before acceptance. Berry told P of the sale. D offered to sell a house to P for £800 and the offer was to be left open until 9 am Friday. P nevertheless wrote a letter of acceptance which he handed to D before 9 am Friday. communication by a third party being valid 26 .

P then said he would pay £1. Termination of Offer Refusal or Counter Offer A refusal or counter offer terminates an offer as in case of Hyde v Wench where D offered his farm to P for £1.000.000. P wrote saying he would give £950 which D refused.000 there was no offer in existence and therefore no contract was formed. 27 .000 but D had by then decided that he did not wish to sell to P. When P purported to accept at £1. P’s suit for breach of contract failed as his offer of £950 was a counter offer which terminated D’s offer of £1.

D offered to sell iron to P for cash but P wrote and asked for a month’s credit. terminate an offer. In Stevenson v McLean. 28 . by itself. Termination of Offer Refusal and Counter Offer Counter offer must be distinguished from a request as to whether or not other terms would be acceptable as request does not. It was held that the inquiry was not a counter offer but a request for information and thus did not terminate D’s offer.

It was held that the refusal was justified since P’s delay has caused D’s offer to lapse:Ramsgate Victoria Hotel v Montefiore 29 . In November he allotted shares to D. which D refused to take. or if no period is fixed. Termination of Offer Lapse of Time An offer will terminate at the end of the period stated in the offer. it will terminate after a reasonable time In June 1864 D offered to take shares in P’s hotel and P did not reply to this offer.

On March 25 the finance company signed the form. It was held that D was not bound to take the car as there was an implied condition in D’s offer that the car would be in substantially the same condition when the offer was accepted as when it was made 30 . The form stated that the agreement would only be binding when the finance company signed the form. D who wished to purchase a car signed a hire purchase form on March 16 which was the offer. Termination of Offer Failure of a condition subject to which offer made In Financings Limited v Stimson. On March 24 the car was stolen from the dealer’s premises and recovered badly damaged.

the offer lapses if offeree knows of the death at the time of his purported acceptance. or if contract requires personal performance by the offeror e.g playing in an orchestra 31 . the offer lapses • If offeror dies. Termination of Offer Death Termination of offer is dependent on who dies • If offeree dies.

Acceptance An acceptance is a final and unqualified assent to all the terms of the offer 32 .

Acceptance There must be proof of an offer to enter into legal relations upon definite terms which must be followed by the production of evidence from which the courts may infer an intention by the offeree to accept the offer.The rules to be applied by the courts may be placed under two heads: (a) the fact of acceptance. and (b) the communication of acceptance 33 .

g dispatching goods in response to an offer to buy. 34 . Acceptance • Acceptance may be in writing. or may be inferred from conduct e. particularly when negotiations between the parties may have covered a long period of time or are contained in protracted correspondence. But inferring assent from conduct and fixing the precise moment the assent may be said to emerge is difficult. or oral.

B had for years supplied the defendant co. The parties decided to regularise their relations and the co’s agent sent a draft form of agreement to B. signed it and returned it. B inserted the name of an arbitrator in a space which had been left blank for this purpose. with coal. marked ‘approved’ 35 . Acceptance In Brodgen v Metropolitan Rly Co.

Both parties acted thereafter on the strength of its terms. supplying and paying for the coal in accordance with its clauses. until a dispute arose between them and B denied any binding contract 36 . Acceptance The co’s agent put it in his desk and nothing further was done to complete its execution.

“It could not be argued that the return of the draft was an acceptance since B by inserting the name of an arbitrator had added a new term which the co. had no opportunity of approving or rejecting. 37 . Acceptance The House of Lords held that a contract came into existence either when the company ordered its first load of coal from B upon the terms in the agreement or at least when B supplied it.

with the addition of the arbitrator’s name. was a final and definite offer to supply coal on the terms contained in it.” 38 . and it was impossible to infer assent from the mere fact that the document remained without remark in the agent’s desk. Acceptance But assuming that the delivery of the document by B to the co. the subsequent conduct of the parties was explicable only on the assumption that they mutually approved the terms of the draft. On the other hand. when was that offer accepted? No further communication passed between the parties.

Acceptance Similarly in complex commercial contracts resulting from lengthy negotiations. it can be difficult to say when an offer has been made and accepted as any draft agreement may go through several changes. what was agreed by the parties. on an objective basis. In the event of a dispute the court will need to look at all the correspondence and take oral evidence to decide. 39 .

who were subcontractors. P tried to claim a contribution from D towards a penalty they had incurred under the main contract. After D had completed the work and been paid. P. entered into negotiations with D. to supply and install doors and windows. nor any agreement as to whose standard terms would govern the contract. Acceptance In Trentham v Architel Luxfer. the main contractors on a building contract. 40 . D argued that no contract existed because although there had been various telephone calls and letters there was no matching offer and acceptance.

during and as a result of. 41 . Acceptance The Court of Appeal held that there was a contract and that the approach to the issue of formation should be objective ( that is. performance. it does not take into account subjective expectations and unexpressed reservations of the parties) and a precise match of offer and acceptance is not necessarily required where a contract is alleged to have come into existence.

Acceptance The Court further held that where a contract comes into existence. 42 . during and as a result of performance it will often be possible to hold that the contract impliedly and retrospectively covers pre-contractual performance.

Acceptance This case is important as: i. that work will generally be regarded as covered by the agreement. ii. that is. it will have a retrospective effect 43 . it recognises that where work is done before any formal agreement is reached. it weakens the dominance of the “offer and acceptance” approach to contract formation and revives view that court should look at the correspondence as a whole and the conduct of the parties.

a person may be satisfied with the general details of a proposed transaction. 44 . such as an attorney-at-law. a conditional assent whereby offer is accepted subject to contract is insufficient e. Accordingly: i. Acceptance • Acceptance must be unqualified and must correspond to the terms of the offer. but feels that expert guidance is required before committing herself to a binding obligation and thus makes acceptance conditional (subject to contract) upon the advice of a third party.g. This approach is common in the purchase of land. The result is that neither party is subject to an obligation.

000 and P wrote saying he would give £950. D by now had decided that he did not wish to sell to P. P sued for breach of contract. Acceptance ii.000 after all.000 and thus when P purported to accept at £1. A counter-offer is therefore insufficient and causes the original offer to lapse as in Hyde v Wench above (where D offered to sell P his farm for £1. The court held P’s offer of £950 was a counter-offer which terminated D’s offer of £1.000 there was no offer in existence and therefore no contract was formed) 45 . D refused and P then said he would pay £1.

Acceptance The Communication of Acceptance – General Rules • Acceptance is not effective until communicated to and received by the offeror. or because the offeree’s words are too indistinct to be heard by the offeror. • For example. if acceptance is not received because of interference on a telephone line. there is no contract 46 .

P applied for the post of headmaster. P failed in his action for breach of contract as the acceptance had not been properly communicated to him 47 . was interviewed and selected by resolution of the managers who did not make any arrangements for notifying him. Acceptance • Acceptance must be communicated by the offeree or by someone with his authority • For example in Powell v Lee. One of the managers. without authority informed P that he had been appointed but the managers subsequently re-opened the matter and appointed another candidate.

Acceptance
• The method of communication may
expressly or impliedly be prescribed by the
offeror, but there will be valid acceptance if
the offeree adopts an equally expeditious
method unless the offeror has made it clear
that no method other than that prescribed
will be adequate.

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Acceptance
• In Entores Ltd v Miles Far East Corp. the
plaintiffs who were a London company telexed an
offer to the defendants, who were an American
corporation with agents in Amsterdam, to buy
goods from them. The defendants accepted the
offer by telefax. The plaintiffs then alleged that
the defendants had broken the contract and wished
to serve a writ on them. This they could do
although the defendants were an American
corporation with no branch in England, provided
that the contract was made in England
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Acceptance
• The defendants contended that they had accepted the offer
in Holland and that the contract had been made in that
country. The Court of Appeal held that the parties were
in the same position as if they negotiated in each other’s
presence or over the telephone, that there was no
binding acceptance until it had been received by the
plaintiffs, that this took place in London and that a writ
could therefore be issued. “So far as telex messages are
concerned, though the despatch and receipt of a message is
not instantaneous, the parties are to all intents and purposes
in each other’s presence just as if they were in telephonic
communication”.
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51 . The auctioneer inadvertently sold the horse to a third party at an auction on February 25. ‘If I hear no more about him. Acceptance • A condition that silence shall constitute acceptance cannot be imposed by the offeror without the consent of the offeree. in Felthouse v Bindley. an auctioneer who was going to sell his stock. I consider the horse mine at that price” The nephew made no reply to this letter. Paul Felthouse wrote to his nephew on February 2 offering to buy his horse at £30. the plaintiff. and adding. that the horse was to be kept out of the sale. but intimated to the defendant. • For example.15.

The Court upheld the defence stating that there was no acceptance of the plaintiff’s offer before February 25. no title to maintain conversion. Acceptance • The plaintiff.) D’s defence was that the horse did not belong to the plaintiff as there was no valid contract between Felthouse and his nephew. The uncle had no right to impose upon the nephew a sale of his horse for £30. 52 . Felthouse sued D in conversion ( a tort alleging wrongful disposal of the plaintiff’s property by the defendant. therefore at that date. because the condition that silence constituted acceptance was ineffective.15 unless he chose to comply with the condition of writing to repudiate the offer. and the plaintiff had.

A offers to sell his car to B for $500 and B offers to buy A’s car for $500 53 . Although there is ‘consenting minds’ there is no acceptance e. the fact that he has a motive for acceptance.g. Acceptance • Acceptance is not effective if communicated in ignorance of the offer. does not prevent the formation of a contract • There is no contract if two offers identical in terms cross in the post. other than that contemplated by the offeror. however if a person knows of the offer.

a submission by one bidder of a bid dependant on its definition on the bid of others is invalid. This rule is illustrated in the case of Harvela Investments v Royal Trust Company of Canada 54 . Acceptance • Sealed Competitive Bids • Where it is intended to make a contract by means of sealed bids.

Ousterbridge’s bid stated that they offered Can. Acceptance Royal Trust ( a seller of shares) by a telex dated 15 September agreed to accept the highest bid made by Harvela or Ousterbridge.000 in excess of any other offer which was received –whichever was higher.$2. On 29 September Royal Trust telexed Ousterbridge stating that in the circumstances they were bound to accept their offer. $2.175.100.000. Harvela bid Can.000 or $101. Harvela objected and commenced an action. 55 .

Was there a second contract (as claimed by Ousterbridge) as a result of the telex of the 29 September? 56 . Acceptance The House of Lords had two issues to decide: i. Was the status of the telex of the 15 September such that a contract had been formed between Royal Trust and Harvela? ii.

Such an event could only be done by one of the promisee’s. Since the intention. Acceptance The House of Lord held that the telex of 15 September was not an invitation to treat but a unilateral offer conditional upon the happening of a specified event. not both. the Court rejected Ousterbridge’s referential bid and held that a binding contract existed between Royal Trust and Harvela. Any other decision would recognise a means by which sealed competitive bidding could be wholly frustrated 57 . was to create a fixed bidding sale.

Royal Trust’s only intention. the Court held that no such contract had been formed because there was no intention on the part of the parties. manifested in the telex of the 28 September was to perform the legal obligation that it mistakenly thought it had incurred. 58 . Acceptance With reference to the second contract.

Acceptance Communication of acceptance . Performance of the act is sufficient acceptance but consideration is not complete until performance has finished 59 .Exception Unilateral contracts • contracts where offer consists of promise to pay money in return for the performance of an act.

the ‘post rule’ will not apply 60 . even if the letter is lost in the post • But if the letter is lost or delayed in the post because the offeree addressed it incorrectly. acceptance is complete when the letter is posted. Acceptance Communication of acceptance .Exception Postal Rules • Where the parties contemplate acceptance by post.

the general rule applies) • ‘Posted” means put in the control of the post office in the usual manner and not e.Exception • The ‘post rule’ applies to telegrams (but where communication is instantaneous e. or telex.g telephone. handing it to the postman 61 .g. Acceptance Communication of acceptance . fax.

62 . • The post rule will also be excluded if it is clearly inconsistent with the nature of the transaction and/or the words used by the parties • In Holwell Securities v Hughes. in international sales. where the possibility of delayed communication is much greater. D granted P an option to purchase land to be exercised ‘by notice in writing’. Acceptance • The parties may decide to exclude the operation of the post rule by contrary agreement e.g.

It was held that the words ‘notice in writing’ meant that the notice must actually be received by the vendor 63 . Acceptance • A letter exercising the option was lost in the post.