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Title: Contract law - offer & acceptance
Description: Detailed analysis of the case law on offers, acceptance, communication of acceptance, revocation of offer and counter-offers. Key cases include facts, ratio, interesting obiter dicta and judicial comments, as well as academic scrutiny. As these cover the fundamentals of contract law, recommended to any contract law student, or student studying contract law as a module as part of a non-law course. Information from Professor David Yates, Dr Janet O'Sullivan and Professor Hilliard.

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Contract supervision 1

Offers and invitation to treat
-

-

-

Offer – a statement by one party of a willingness to enter into a contract on stated
terms, provided that the terms are accepted by the person to whom the offer is
addressed
...
Also no restriction as to the amount of people the offer can
be made to - can be the whole world (Carlill v Carbolic Smoke Ball Co)
...
Parties often
insert the phrase ‘subject to contract’ in negotiations to make it clear that they do not
intend to be legally bound at this stage
...
g
...


The distinction between the two terms is one of intention – did the maker of the statement
intend to be bound by acceptance of its terms (offer), or did he intend his statement to be
part of a further negotiating process (invitation to treat)
...
Ltd (1893) – D was the maker of ‘The Carbolic Smoke Ball’
and issued an advert offering to pay £100 to any person who contracted influenza after having
used one of its smoke balls for the specified time and in the specified manner
...
D’s main argument was that no contract was intended due to the vagueness of
the advertisement, and that it was an offer to the whole world and contracts could only be
made with an identified individual
...
Bowen LJ – Answered D’s argument
that it was a contract with all the world and thus void in the negative – rather it was an offer
to become liable to anyone who performs the condition – although the offer is made to the
world, the contract is made with the limited group of people who perform the condition
...
Objective principle – the reasonable person
would think that the Company intended to be bound by the terms of the advert
...
D denied that a contract had been concluded
...
Meanwhile, Labour came to power and
abandoned the house-selling policy
...
Crucially, the word ‘may’ in D’s letter showed that
it was an invitation to treat and not a commitment to sell
...
Thus there was no
offer by D, and D had not accepted any offer by C to buy the house so no contract was
concluded
...
He
displayed the knife in his shop window with a price ticket behind it saying ‘ejector knife – 4s’
...
Lord Parker CJ – ‘quite impossible to say that an exhibition of goods in a
shop window is in itself an offer for sale’
...

Held that an advertisement constitutes an invitation to treat and not an offer
...

Harvey v Facey (1893) – Concerned whether D’s statement amounted to an offer
...
D replied
saying ‘£900’
...

Held that no contract had been concluded – first telegraph was a mere inquiry, D’s response
was not an offer to sell but a precise answer to C’s qn
...

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (1953) C (the Society) alleged that D (Boots chemists) had infringed s
...
C argued that the contract is complete when the
customer put the goods in the basket and thus because the customer was unsupervised at
this point, D was liable
...
Thus D was not liable as the
pharmacist was supervising at the time the contract was completed (at the checkout)
...
When the customer picks up the goods, they make an offer; the
shop makes no offer by displaying the goods (confirmed later in Fisher v Bell)
...
To hold that the contract is complete as soon as the
customer puts the goods in her basket would mean that the shopkeeper would be unable to
prevent the customer from taking the goods if he needed to – Winfield (1939) said ‘a shop is
a place for bargaining, not for compulsory sales’
...

Tenders
General rule is that if someone invites parties to bid for a particular project, this indicates that
he is inviting the parties to make offers for him to consider – he makes an invitation to treat,
not an offer
...

Blackpool and Fylde Aero Club v Blackpool Borough Council (1990)
Concerned invitation to tender and whether it could give rise to binding contractual
obligations
...
It had granted C, a flying club, the right to operate
pleasure flights from there
...
The form stated that D ‘does
not bind itself to accept all or any part of any tender’ and that ‘no tender received after the
last date and time shall be considered’
...
D then accepted a tender that turned out to be lower than that
submitted by C
...

Held that whilst an invitation to tender was normally no more than an offer to receive bids,
there COULD be circumstances whereby it gave rise to contractual obligations
...
D’s failure to consider thus rendered them contractually liable
...

Lord Bingham – to hold that D was under no legal obligation to consider tenders received
before the deadline, and that it had no legal obligation not to consider tenders received after
the deadline, would be unacceptable
...
If the invitee submits
a conforming tender before the deadline he is entitled, as a matter of contractual right, to
have his tender considered
...

Harvela Investments v Royal Trust (1985) –
D1 invited the claimant and D2 to make confidential bids for some shares and promised to
accept the highest bid in accordance with the terms laid down by D1
...
D1 accepted D2’s bid (as it was higher than
C’s) and entered into a contract with them for the sale of the shares
...

Held that C succeeded
...
It was held that D1’s invitation implicitly required the bids to
be of a fixed figure – so C’s bid was the highest and C accepted the offer, forming a contract
with D1
...
If there is a reserve price, it
is more straightforward
...
The offer
is then made by the bidder
...

British Car Auctions v Wright (1972) – An offer at an auction is made by the bidder –
acceptance was communicated by the fall of the hammer
...

Barry v Davies (2000) –
Customs and Excise put up 2 engine analysers for sale at auction with no reserve price
...
C bid £200 for each machine after the auctioneer
tried and failed to get bids of £5000 and £3000 for each machine
...
C
sued the auctioneer for breach of contract
...

This is a collateral contract, a contract that is collateral to, or separate from, the contract for
the sale of the goods
...


Acceptance
Acceptance is an unqualified expression of assent to the terms proposed by the offeror
...
The acceptance must coincide with the terms of the offer – a purported
acceptance which attempts to vary the terms contained in the offer is not an acceptance but
a counter-offer (Hyde v Wrench)
...
Leading case is
Butler (below)
...

Hyde v Wrench (1840) Concerned whether there was an unqualified acceptance of an offer or whether in fact a
counter-offer was made
...
D refused to sell the land for £950, so C wrote to D agreeing to
buy the land for £1000 but D still refused to sell
...

So an offer which introduces new terms, rather than accepting all the terms and conditions
of the offer, is not acceptance – it’s a counter offer
...

The reason for the requirement of communication = gives the offeror protection and
certainty – he needs to know when an offer has been accepted so that he knows whether he
has entered into a contract or not
...

It is open to the offeror to state in the terms of his offer that the acceptance must take a
particular form or be sent to a particular place
...

C made an offer by telex (similar to fax) to D, who was the agent for an American corporation
...
It mattered where the contract was made
because C wanted to serve notice of a writ on the American corporation in New York – only if
the contract was made in England did the court have jurisdiction
...
Lord Denning said that if the offeror has acted unreasonably and so does
not receive the communication of acceptance (e
...
if he does not ask over the telephone for
it to be repeated if for some reason he has not heard it) AND the offeree has done all he can
in good faith to communicate the acceptance, a contract is formed and the offeror is bound
– If it is the offeror’s fault that he does not get the communication then he is estopped from
using this as an excuse to say there is no contract
...
HoL approved Lord Denning’s judgment in Entores regarding instantaneous
communication such as through telex
...

Lord Wilberforce (obiter) said however that this was only a general rule – no universal rule
could cover all cases due to the many variations of telex communications that had emerged

Contract supervision 1

since Entores
...

This dicta was relied on in:
Mondial Shipping and Chartering BV v Astarte Shipping Ltd (1995) – issue was whether a
telex notice of intention to withdraw a vessel for non-payment of hire, sent by shipowners to
the charterers late one Friday evening (at 11
...
This mattered because on these facts
payment of the hire could lawfully have been made any time before midnight on Friday, so if
the notice took effect immediately the charterers would not have been in default at the time
the notice was served
...

Held that the notice was communicated at the start of business on the next working day
(Monday) and so it was not served before the charterers were in breach
...
But had the message been sent during business hours, parties will be presumed to
have read transmissions sent during business hours instantly
...

Silence is by its nature equivocal – could equally signal rejection of the offer as well as
acceptance
...
Held that there was not an
exception – no contract even though intentions matched
...
C wrote to the nephew making an offer
and saying ‘if I hear no more about him, I consider the horse mine’
...

D, an auctioneer, sold the horse to a third party at auction even though the nephew had told
D that the horse had already been sold
...
Held, C’s claim failed as he
couldn’t show that he had acquired title to the horse before it was sold by the auctioneer
...

Thus C had made an offer that stood open
...

But the nephew hadn’t communicated the intention to C, nor done anything to bind himself
in contract
...
So C didn’t own the horse when D sold it by mistake and couldn’t recover it
...

Brogden had suggested the railway company should enter into a formal contract for the
supply of coal
...

Company’s manager received the document and then ordered and received coal on the basis
of the arrangements in the document
...
Held that by inserting the name of the arbitrator, Brogden had made a
counter-offer
...


Butler Machine Tool Company Ltd v Ex-Cell-O Corporation Ltd (1979)(‘Butler’) –
Concerned ‘battle of the forms’ cases where the court has to decide from the parties’
correspondence alone what the terms of the contract are
...
D replied to the quote giving an order with differences from C’s
quote and stating that the order was on the buyers’ terms and conditions, which did NOT
include a price escalation clause
...
Sellers returned this slip with a covering letter stating
that delivery was to be ‘in accordance with our quotation’
...

Held, that the price escalation clause was ineffective because the contract had been
concluded on the buyer’s terms
...

Lord Justice Bridge and Lord Justice Lawton both took an orthodox offer and acceptance
approach
...

They held the buyers’ reply with the tear-off slip constituted a counter-offer which the seller
then accepted by returning the tear-off slip
...

But Lord Denning took a radical route – rejecting the traditional offer and acceptance analysis
in favour of a two-stage process, asking first whether a contract had been formed (formation)
and then on what terms the contract would be
...
When working out what the terms of the contract would be,
Denning said ‘the documents have to be considered as a whole’ – sometimes the deciding
terms would be the party who made the last offer, sometimes the party who made the first
offer, sometimes a reasonable compromise between the two
...
He reached the same conclusion as Bridge LLJ and
Lawton LLJ by deciding that the sellers’ acknowledgement by tear-off slip was the deciding
document, so contract on buyer’s terms
...
This ‘postal rule’ is justified on the
basis that if both parties contemplate post may be used, on posting the letter the offeree has
done all he can reasonably be expected to do to bring the acceptance to offeror’s attention
...

Courts are not likely to abolish this rule as it has some antiquity, going back almost 200 years
...
So in
Holwell Securities Russell LJ set out requirements that must be satisfied before the postal rule
became applicable:
-

Parties must have contemplated that postal service would be used for acceptance
...


Whereas Lawton LJ said that the rule wouldn’t apply if it would lead to ‘manifest
inconvenience and absurdity’
...
Revocation must have been communicated to the offeree
prior to his acceptance (Byrne)
...
The offer was an option to purchase
within 14 days
...
This acceptance letter was posted during business hours but did not
arrive until D’s office had closed so D did not open the letter until the following morning
...


Contract supervision 1

Held that D was bound to sell because the contract was formed when C posted his
acceptance letter
...

Because C lived in Birkenhead, some way from Liverpool, it must have been in contemplation
that he would accept by post
...
The postal rule doesn’t apply for
revocations – the offeree must have actual notice of a revocation, whereas acceptance is
made as soon as it is posted
...
C were in New York
and didn’t receive the letter until 10 days after it was sent
...
This second letter was received in NY 12 days later (after the
acceptance telegram had been sent)
...
D argued they had
validly revoked the offer before it was accepted by C
...
To be effective, a revocation must be communicated to the offeree
...

This is justified on the ground that any other conclusion would be unjust as an offeree is
entitled to rely upon an offer of which he has no notice of revocation
...

Holwell Securities Ltd v Hughes (1974) –
Under a contract with D, C were granted an option to purchase land
...
C purported to exercise this option by sending a
letter, but D never received it
...
C sought performance on the option agreement
...

Russell LJ said that the postal rule was an exception to the general rule that actual
communication was required
...

Lawton LJ said that the postal rule would not apply if the offeror in his offer expressly specifies
that acceptance must actually reach him
...

Both judges held that clause 2 required the acceptance to actually reach the offeror – it didn’t
merely say ‘this may be accepted in writing within six months’, it specifically used the word
‘notice in writing’ suggesting that the postal exception does not apply as it the parties had
contracted out of it
...

Hyde v Wrench (1840) – a counter-offer kills the original offer making it incapable of
subsequent acceptance
...
McLean –
Confirmed that where one party makes a mere inquiry, this is not to be seen as a counteroffer
...
Wrench will apply
...
So when D tried to argue that there was
no contract with C after C had made an inquiry before later accepting D’s offer, D failed
...


Knowledge of offer and cross-offers
General rule is that performance of the requested act does not amount to an acceptance
unless the party performing the act did so with knowledge that an offer existed
...
But in the case
of the unilateral contract the point has not been resolved by the courts
Gibbons v
...
There was a reward that had been offered to
anybody who handed in this offender
...


Contract supervision 1

R v Clarke (1927) –
Is someone who doesn’t intend to accept the offer when they perform the specified conduct
entering into a contract, even if they know the offer exists? NO!!
Gov’t of Western Australia publicly offered a reward ‘for such info as shall lead to arrest and
conviction of the person who committed the murders’
...

In giving evidence he’d been found to be acting ‘exclusively to clear himself from a false
charge of murder’ but nonetheless brought a claim to recover the reward
...
In providing the info, C had not acted on or in reliance upon the offer of a
reward and so wasn’t entitled to it
...

Tinn v Hoffman & Co (1873) –
This case is evidence that knowledge of the offer is required
...
Neither can be construed as acceptance - two assenting minds – it
is two parties making promises but it is not clear whether a party has accepted
...


Letters of Intent
Commonly used in commercial practice, particularly in the construction industry where it is
not infrequent for work to begin before the contract is concluded
...


Certainty –
In order to create a binding contract the parties must express their agreement in a form
which is sufficiently certain for the courts to be able to enforce
...

But the courts are inclined to be flexible, because in a commercial environment there are
often clauses in contracts that give the parties room to manoeuvre in a fluctuating
economy
...

But courts are less likely to find existence of a contract where the parties are in
disagreement over one or more essential term (British Steel)
...
So there is tension between the
traditional refusal of courts to make contracts for the parties and a desire of courts to put
into effect what they believe to be the intention of the parties
...
The manufacturer began to work on the components at considerable expense,
assuming that a formal contract would later be concluded
...

The letter of intent did not give rise to a contractual obligation itself
...

In nearly all cases, work carried out in reliance of a letter of intent will be able to be recovered
under the law of restitution, but here as there was never an agreement on the price the claim
could not be for breach of contract – there was never an acceptance and thus no contract
...

RTS Flexible Systems v Muller (2010) –
RTS, a plastic pot manufacturer, agreed to install machinery in Muller’s factory
...
M had already paid RTS 70% of the agreed price
...
Lord Clarke said the
parties had entered into an informal agreement by conduct – the payment of 70% and the
installation – reciprocal conduct
...
SC held that parties had successfully
negotiated on all the key points
...

NOTE: distinguishable from British Steel as in this case there were no unresolved prenegotiation matters and so the parties’ conduct prevailed
...

But whilst the revocation must be communicated to the offeree, it need not have been
communicated by the offeror – in some cases the revocation can be communicated to the
offeree by a third party – Dickinson v Dodds
...
g
...


Dickinson v Dodds (1876) –
D offered to sell C his land for £800
...
C then
communicated his acceptance of the offer, but D refused to accept it on the ground that he
had already sold it
...

Held that C was aware of the revocation (as his agent had told him D had already sold the
land) before his purported acceptance, so this acceptance was not valid and there was no
contract between the parties
...
A third party can communicate that the offer has been revoked
to the offeree
...

Ramsgate Victoria Hotel v
...

Byrne v Tienhoven – A revocation made after the offer has been accepted will be ineffective
and a contract will still be formed
...


Unilateral contracts
A contract that only places obligations upon one party – only one party makes a promise
...

It’s for the offeror to lay down how the offer is to be accepted
...
g
...

Silence, as per the general principle (Felthouse) does not constitute acceptance for
unilateral contracts
...

Father told them that the house would be theirs if they paid off the mortgage on the house
...
Father died before mortgage paid off and in his

Contract supervision 1

will he left the house to his widow who brought a claim for the house against the daughterin-law
...
The father’s promise was a unilateral
contract – promise of the house in return for them paying instalments
...
As the daughter-in-law had continued making
payments, the contract stood and the house was to be transferred to her once it was paid
off
...
Reliance a key issue in decision in favour of couple –
they had relied on the offer and attempted to perform conduct
...
But there is
no obligation on the promise to continue the act which was required to accept – it is just
that if she does so she is not entitled to claim the promised sum
...


Intention to create legal relations
In order to create a valid, binding contract parties must have had an intention to create legal
relations – they must have intended to be bound by the terms of their agreement
...

So the doctrine of intention to create legal relations is most important in domestic and social
agreements
...
But this presumption is not irrebuttable
...
They lived abroad but returned to UK when D (husband) had
some leave from work
...
Shortly before D left, C alleged that they made an oral agreement
by which he would pay her £30 per month until she returned to their home overseas
...
C sought to enforce the oral agreement to get the £30 per
month
...

Atkin LJ said that agreements in a domestic setting are not contracts because the parties did
not intend that legal consequences should result
...
‘Each
house is a domain into which the King’s writ does not seek to run’
...

Held that this was a family arrangement which depended on the good faith of the promises,
NOT INTENDED to be rigid binding agreements
...

Edwards v Skyways (1964) – D employers promised to make an ‘ex gratia payment’ to
employers who were made redundant
...
Held that the promise was legally binding
...

Also a rebuttable presumption that parties to a commercial agreement intend to carry out
legal relations
...
Marks & Spencer (2002) Baird had been supplying textiles to M&S for over 30 years
...

Mance LJ: An intention to create legal relations is judged objectively
...
It was held in this case that there was no intention to enter
into legal relations
...

An example of the court deciding not to attempt to fill in the gaps in the agreement to make
a contract because it decided that the parties didn’t intend to be bound
...

Certainty - general principles - will the court fill the gaps?

Contract supervision 1

Partly performed agreements – court more likely to find the contract is sufficiently certain if
it’s been at least partly performed by at least party BUT see British Steel – even though one
party manufactured and delivered steel nodes, it was still held there was no contract because
the lack of agreement on many factors suggested the parties didn’t intend to be legally bound
...

Standard types of agreement – if the agreement is standard, such as for sale of goods, it’s
easier for court to fill the gaps/resolve ambiguities because it’s more familiar with the terms
that normally govern these agreements
...
g
...
8(2) – if parties say
nothing about what the price should be, a reasonable price will be implied
...


Thorny issues with certainty
An agreement to agree –
When parties reach an agreement on some matters but expressly say that other matters (e
...

price) are to be agreed at a later date, this causes problems for courts
...

May & Butcher v The King (1934) – the agreement provided for the price to be agreed but
parties unable to do so
...
But this is a bit extreme,
holding that expressly leaving an important matter to be agreed at a later date will always
make an agreement void for uncertainty
...

-

-

-

The agreement may contain criteria for determining the unresolved matters – Hillas v
Arcos had an option that didn’t expressly state the price to be paid buy provided a
particular way it was to be calculated (using an official price list)
...
E
...

it may state that a particular matter is to be determined by one party, or is to be
referred to arbitration
...
C agreed to sell his petrol station to D on condition
that D entered into an agreement to buy petrol exclusively from C, at ‘a price to be
agreed by the parties from time to time’
...


Contract supervision 1

An agreement to negotiate –
If parties negotiate with a view to agreeing a contract later
...
It’s not about working out what the parties
would have agreed but working out whether the parties have genuinely tried to negotiate an
agreement
...
Denning said both are too uncertain to have any binding force
...

An agreement to negotiate in good faith –
This is just a particular type of agreement to negotiate, so Walford v Miles is authority that
such an agreement is too uncertain to enforce
...
It was agreed that in return for C
providing a letter of comfort from their bank, D wouldn’t negotiate with anyone else (a
lockout clause)
...

C claimed breach of contract
...

Held, C lost on both claims for breach
...
He rejected an obligation
to act in good faith – ‘each party to the negotiations is entitled to pursue his own interest, so
long as he avoids making misrepresentations’
...
It is not the English way to give effect
to the subjective intentions of the parties
...
It also means that the law doesn’t protect unreasonable
expectations
...

He likes it because the objective test is needed to provide fairness for parties
...


Contract supervision 1

Classical doctrine means a contract is only valid if there is congruence of offer and acceptance
...

Meanwhile, work starts, payments are made
...
Yet reason tells us that neither party should be able to withdraw unilaterally from
the transaction
...

Good faith – Steyn finds it odd that Walford v Miles affirmed the rule that an agreement to
negotiate in good faith is void for uncertainty
...


**Essay by next Wednesday (1week!!) written
answers to qns 2 and 4 on handout for warden
*** Due 30/10


Title: Contract law - offer & acceptance
Description: Detailed analysis of the case law on offers, acceptance, communication of acceptance, revocation of offer and counter-offers. Key cases include facts, ratio, interesting obiter dicta and judicial comments, as well as academic scrutiny. As these cover the fundamentals of contract law, recommended to any contract law student, or student studying contract law as a module as part of a non-law course. Information from Professor David Yates, Dr Janet O'Sullivan and Professor Hilliard.