Law of Contract: Formation, Offer, Acceptance, and the Postal Rule

Comprehensive vocabulary flashcards covering contract formation, the objective test, offer versus invitation to treat, modes of acceptance, battle of the forms, and qualifications to the postal rule.

Contract

A legally binding agreement between two or more parties that creates and defines obligations based on the principle of consent.

Freedom of Contract

The classical theory of contract law providing that parties are free to contract with whomever they like on whatever terms they choose, with the court showing reluctance to interfere.

Deed

A formal contract binding upon the parties because specific formal requirements are satisfied, without requiring consideration.

Simple Contract

A contract not executed as a deed that requires no formal requirements or written document, but must be supported by consideration.

Bilateral Contract

A contract involving a mutual exchange of obligations or promises, creating binding duties for both parties.

Unilateral Contract

A contract binding on only one party, in which obligations arise exclusively upon the performance of a specified act by the other party.

Objective Test

The legal standard used to assess the existence of agreement and contractual intent by looking at the words and conduct of the parties from the perspective of a reasonable person rather than their subjective intentions.

Storer v Manchester City Council [1974]

A case demonstrating the objective test where Lord Denning MR stated that courts look at what a person said and did rather than subjective intent; a letter headed 'Agreement for Sale' was held to be an offer displaying contractual intent.

Gibson v Manchester City Council [1979]

A case holding that a local council's communication stating it 'may be prepared to sell' a house lacked contractual intent and amounted to an invitation to treat rather than an offer.

Offer

A clear statement and display of contractual intent on certain terms which, upon acceptance, immediately binds the parties into an enforceable contract.

Invitation to Treat

An expression of willingness to negotiate or do business that invites another party to make an offer, remaining strictly at the preliminary negotiation stage.

Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953]

A landmark case establishing that goods displayed on self-service supermarket shelves are an invitation to treat; the customer offers to buy at the cash desk, where the sale is accepted by the cashier under pharmacist supervision.

Fisher v Bell (1961)

A case confirming that displaying a flick knife labeled 'Ejector knife, 4 shillings' in a shop window was an invitation to treat rather than an illegal 'offer for sale' under the Restriction of Offensive Weapons Act 1959.

Partridge v Crittenden (1968)

A case establishing that advertisements for sale are generally invitations to treat, quashing a conviction under the Protection of Birds Act 1954, s.6 regarding an advert for Bramblefinches priced at 25s. each.

Multi-Acceptance Problem

The commercial risk that treating advertisements or displays as offers would force a seller to fulfill an unlimited number of contracts beyond their available stock.

Grainger v Gough (1896)

An authority establishing that a wine merchant's price list was an invitation to treat to avoid exposing the merchant to unlimited contractual liability upon acceptance.

Lefkowitz v Great Minneapolis Surplus Stores Inc (1957)

A case where an advert reading 'Saturday 9 A.M. Sharp. 3 Brand New Fur Coats Worth $100. First Come First Served. $1 Each' was held to be an offer because it was clear, definite, explicit, and left nothing open to negotiation.

Payne v Cave (1789)

The leading case on auctions establishing that an auctioneer's call for bids is an invitation to treat, a bidder's bid is an offer, and acceptance occurs upon the fall of the hammer, allowing bids to be retracted before the hammer falls.

Harris v Nickerson (1873)

A case ruling that advertising that an auction will take place at a specific time and place is an invitation to treat, defeating a prospective bidder's claim for travel expenses when lots were withdrawn.

Sale by Tender

A competitive purchasing process where an invitation to submit sealed bids is normally an invitation to treat, and the submitted bids constitute offers (Spencer v Harding (1870)).

Harvey v Facey [1893]

A Privy Council case ruling that stating the 'Lowest cash price for Bumper Hall Pen £900' was merely an indication of minimum price, not an offer capable of acceptance.

Acceptance

The final, unequivocal, and unreserved assent to the exact terms proposed by the offeror, judged objectively from the words, documents, or conduct of the parties.

Mirror Image Rule

The legal doctrine requiring an acceptance to be absolute and unreserved, matching the exact terms of the offer without variation or introduction of new terms.

Counter-Offer

A response to an offer that introduces new terms or varies existing terms, which operates as a rejection that extinguishes the original offer and renders it incapable of subsequent acceptance.

Hyde v Wrench (1840)

A landmark case where the claimant's counter-offer to buy a farm for £950 destroyed the defendant's original offer to sell for £1,000, preventing the claimant from later reviving the contract by accepting the £1,000 offer.

Request for Information

A mere inquiry seeking clarification or exploration of contract terms that does not constitute a rejection and leaves the original offer open for acceptance.

Stevenson v McLean (1880)

A case distinguishing inquiries from counter-offers; an inquiry regarding whether iron priced at 40s. per ton could be paid for over two months was a request for information that did not destroy the seller's offer.

Battle of the Forms

A conflict arising when contracting businesses exchange standard form terms; the traditional approach dictates that the party that sends the 'last shot' without objection will prevail.

Butler Machine Tool Co v Ex-Cell-O Corpn (1979)

A battle of the forms case where the buyers' order terms (lacking a price variation clause) prevailed because the sellers returned a tear-off acknowledgment slip explicitly subject to the buyers' conditions, firing the decisive 'last shot'.

Felthouse v Bindley (1862)

The leading case establishing that silence cannot be deemed acceptance by an offeror; an uncle's letter stating 'If I hear no more about him, I consider the horse is mine at £30 15s.' formed no contract.

Communication of Acceptance

The fundamental common law rule that acceptance must be communicated and brought to the notice of the offeror to be effective, as established in Entores v Miles Far East Corpn (1955).

Doctrine of Estoppel (Fault in Communication)

The principle stated obiter by Lord Denning in Entores whereby an offeror is barred from denying the existence of a contract if their own fault prevented receipt of the acceptance (e.g., failing to ask words to be repeated over the phone).

Carlill v Carbolic Smoke Ball Co (1893)

An authority showing that in unilateral contracts, communication of acceptance is dispensed with and performance of the prescribed condition constitutes valid acceptance.

Eliason v Henshaw (1819)

A case establishing that if an offeror prescribes a mandatory method of communicating acceptance and specifies that no other mode will suffice, attempting acceptance by a different method prevents contract formation.

Postal Rule

An exception to the receipt rule providing that where post is the prescribed or reasonable mode of communication, acceptance is effective immediately when properly posted via the Royal Mail, even if delayed, lost, or destroyed.

Adams v Lindsell (1818)

The seminal case establishing the postal rule; an acceptance posted to purchase wool was complete upon posting, making the defendants liable for selling the wool to a third party before receiving the letter.

Household Fire Insurance Co v Grant (1879)

A case reaffirming that an acceptance sent by post creates a binding contract at the time of posting, even if the letter of acceptance is lost in the post and never reaches the offeror.

Re London and Northern Bank (1900)

An authority demonstrating that the postal rule requires proper posting; handing a letter of acceptance to a postman authorized only to deliver mail does not trigger the postal rule.

Contimar’s Case (1953)

An authority holding that a misaddressed letter of acceptance cannot rely on the postal rule.

Korbetis v Transgrain Shipping (2005)

A case accepting Professor Treitel's proposition that when a letter of acceptance is misdirected, it takes effect, if at all, at the time least favorable to the party responsible for the misdirection.

Henthorn v Fraser (1892)

A case ruling that it was reasonable to accept an oral offer by post where the contracting parties resided in different towns, making the postal rule applicable.

Entores v Miles Far East Corpn (1955)

A Court of Appeal decision establishing that the postal rule does not apply to instantaneous modes of communication (such as telephone or telex); acceptance is only effective when and where received.

Brinkibon v Stahag Stahl (1983)

A House of Lords decision confirming the Entores receipt rule for instantaneous communications, noting that exceptions must be resolved by the intentions of the parties, sound business practice, and risk allocation.

Holwell Securities v Hughes (1974)

A case demonstrating that an offeror can displace the postal rule by requiring actual communication; an option requiring acceptance 'by notice in writing' precluded contract formation when a letter was posted but never received.

Acceptance by Email

Electronic acceptance governed by instantaneous communication principles (Entores and Brinkibon) rather than the postal rule, completing contract formation only upon receipt by the offeror.