Formation of Contract - Topic 1

OFFER / ACCEPTANCE / LEGAL INTENT / CONSIDERATION

Formation of a contract requires:

1. Offer

2. Acceptance

3. Intention to create Legal Relations

4. Consideration

Invitation to Treat (ITT)

Definition (AO1)

An ITT is an expression by words or conduct of willingness to negotiate

(Must distinguish from an offer in an exam Q!!!)

Invitation to Treat (ITT)

Examples

1. Display of goods in shop window

2. Display of goods on self-service display

3. Advertisements

4. Auctions

5. A Request for information / further inquiry

Invitation to Treat (ITT) - Display of goods in shop window

Case

(Fisher v Bell)

D had a flick knife displayed in shop window with price tag. Charged with ‘offering’ flick knives for sale. The court held that displaying the knife constituted an invitation to treat, not an offer.

Invitation to Treat (ITT) - Display of goods on self-service display

Case

(Pharmaceutical Society of GB v Boots)

The case involved Boots' self-service pharmacy where goods were displayed on shelves. The court ruled that the display constituted an invitation to treat, and a sale contract was formed when the customer presented goods at the checkout.

Invitation to Treat (ITT) - Advertisements

Case

(Partridge v Crittenden)

-D advertised birds in a classified section of a magazine. Protection of birds act made it an offence to ‘offer’ birds for sale. Conviction quashed as ad was ITT. This was too prevent the Offeror being bound to agreements when they were out of stock.

Invitation to Treat (ITT) - Auctions

Case

(British Car Auctions v Wright) - With reserve

Auctioneer charged with offering to sell unroadworthy car. Q was if bidding was ‘offering’ to sell. Final acceptance occurred when hammer fell.

(Barry v Davies) - Without reserve

Invitation to Treat (ITT) - A Request for information / a further enquiry

Case

(Harvey v Facey)

C asked for lowest price and D replied. C accepted that price but courts said that it was not an offer but just a reply to the request for info.

Offers

Definition (AO1)

An offer is an ‘expression’ by the offeror:

• by words or conduct

• of willingness to be bound by the terms of the offer

• as soon as the offer is accepted by the offeree

  (Must not include words of uncertainty i.e if or might)

Offers

Case

(Biggs v Boyd Gibbins)

• The defendant had made an offer to sell a property and later attempted to withdraw it, but the court held that an acceptance had already occurred when the plaintiff acted on the offer.

‘Mirror Image’ Rule

Definition (AO1)

If an offer is exactly matched by the acceptance, there is an agreement.

What amounts to an offer?

1. A Bilateral Offer

2. A Unilateral offer

3. A statement of price where an offer is also intended

How can an offer be made?

1. Oral

2. Written

3. Conduct

As long as there is objective evidence of intention to offer

Bilateral Offer

Definition (AO1)

An offer that is made to a specific party.

Unilateral Offer

Definition (AO1)

• A party will enter a contract with whoever carries out that specified conduct.

• The offer is made from ‘one to the world’

• ‘Often’ associated with rewards (lost cat etc) but don’t have to be

• Often referred to as ‘if’ offers “if you do this, I will enter a contract with you”

• Cannot be accepted by saying yes, only by some form of conduct.

Unilateral Offer

Case

(Carlill v Carbolic Smoke Ball Co)

In this landmark case, the court established that a unilateral offer is binding when the offeree performs the required action, demonstrating acceptance, as was seen when Mrs. Carlill used the smoke ball as instructed and became entitled to the reward.

A statement of price where an offer is also intended

Definition (AO1)

A simple statement of price is not binding, but if other factors indicate an offer is included in the statement then it will be binding.

A statement of price where an offer is also intended

Case

(Biggs v Boyd Gibbins)

Selling a house

Auction advertised as ‘with reserve’ when bidding starts

Definition (AO1)

A reserve price is a minimum price acceptable to the seller, no contract is formed unless the bidders reach this reserve price

Auction advertised as ‘without reserve’ when bidding starts

Definition (AO1)

‘Without reserve’ goods will become property of the highest bidder, once bidding opens

Auction advertised as ‘without reserve’ when bidding starts

Case

(Barry v Heathcote Ball & Co)

Rules - Termination of Offers (3 ways)

Definition (AO1)

An offer can be terminated - therefore not capable of being accepted:

1. By revocation by the offeror

2. By rejection / Counter off by the offeree

3. By lapse of time

4. Death

Termination of Offers - Revocation by the offeror

Principle (AO1)

Offeror can revoke the offer:

• At any time prior to acceptance

• Including within the specified time for acceptance

• Provided revocation is communicated to the offeree

  (Communication of revocation need not be by offeror)

Termination of Offers - Revocation by the offeror

Cases

(Routledge v Grant) - Within specified time for acceptance

(Byrne v Tienhoven) - After Acceptance

(Dickinson v Dodds) - Offeree heard of revocation from third party

Termination of Offers - Revocation of a Unilateral Offer

Principle (AO1)

A unilateral offer can be revoked any time before offeree starts to perform terms of the offer.

Exception - The offeror is not bound by the offer until offeree’s performance is complete

Consider:

• Method / notice of revoking a unilateral offer

• By same / similar method as offer originally made.

  (Shuey v US)

Termination of Offers - Revocation of a Unilateral Offer

Case

(Daulia v Four Millbank Nominees)

The offeror is entitled to require full performance of the condition he has imposed, but that he has an implied obligation not to do anything to prevent the condition being satisfied

Termination of Offers - Rejection / counter offer by offeree

Principle (AO1)

A rejection of offer or counter offer by the Offeree ‘kills’ the original offer.

Distinguish between:

• Rejection

• Counter Offer

• Mere request for info (Stevenson v McClean)

Termination of Offers - Rejection / counter offer by offeree

Case

(Hyde v Wrench) - Counter Offer

Termination of Offers - Lapse of Time

Definition (AO1)

An offer will be terminated by:

• Expiry of specified period for acceptance

  Or

• Expiry of reasonable time

What is reasonable time?

Look at subject matter of offer i.e Perishable items will lapse over a short time

Termination of Offers - Lapse of Time

Case

(Ramsgate Victoria Hotel v Montefiore)

• Lapse of time occurred after the expiration of the reasonable period for acceptance. Offered to buy shares

Termination of Offers - Death

Definition (AO1)

-Death may end an offer if the offeree is aware that the offeror has died and the contract is one that requires personal performance

-However if the contract can be performed by another person (someone from the deceased’s company) and the oferee was unaware of the offeror’s death, then it may be decided that the offer has not ended.

Termination of Offers - Death

Case

(Bradbury v Morgan)

Acceptance

Definition (AO1)

Acceptance is the expression by the offeree (by words or conduct) of assent to all the terms of the offer.

Must be a ‘mirror’ acceptance of all the terms - Cannot vary

Acceptance

Case

(Society of Lloyds v Twinn)

“The acceptance must correspond with the offer and must be clear and unqualified and would fail to take effect, if it attempts to vary the terms of the offer or to add new terms”

3 Methods of Acceptance:

Definition (AO1)

1. Words

2. Conduct

3. Performance

Methods of Acceptance - Conduct

Side note

Where the person does the conduct required to accept an offer without actually being aware of its existence (or has forgotten about the reward), this is not valid acceptance.

(Gibbons v Proctor) - Not aware

(R v Clarke) - Forgotten reward

Methods of Acceptance - Conduct

Case

(Brogden v Metropolitan Railway)

B suplied M with coal regularly without a contract. R sent a written contract to B. B altered, signed and returned the contract. Railway placed in a draw and continued to order coal. Seen as Acceptance when continuing to buy coal

Methods of Acceptance - Performance

Case

(Carlill v Carbolic Smoke Ball Co) - Performance
C performed terms of the offer

Acceptance by Silence

Rule (AO1)

There can be no acceptance from silence!

Acceptance by Silence

Rule (AO1)

(Felthouse v Bindley)

Uncle wanted to buy Nephew’s horse and said “if I don’t hear from you, I’ll consider him mine.” Nephew was happy with this and told auctioneer to not sell the horse as had been sold to Uncle. Nephew's inaction did not amount to acceptance, confirming that silence cannot constitute valid acceptance.

Electronic Communication of Acceptance
Rule (AO1)

Acceptance must be communicated to and received by the offeror

TIMING IS KEY!!!

Consider almost instantaneous means of communication:

• Telephone - When offeror hears the acceptance

• Email - When acceptance is received not necessarily read (Thomas and Gander v BPE solicitors)

• Text - When offeror receives acceptance message

• Internet - Once customer is notified that goods have been shipped

Electronic Communication of Acceptance - Email
Rule (AO1)

Postal rule does not apply:

• The burden is on the offeree to make sure the acceptance gets through

• If acceptance message is interrupted and offeree knows this then he should repeat it and make sure it is received.

• If offeror knows the message is being sent but does not receive it, he should ask offeree to repeat it

• If message does not go through and no one is at fault then acceptance has not been communicated

Electronic Communication of Acceptance - Email
Case

(Thomas v BPE Solicitors) - 6pm was held to be in office hours

If an email is sent in office hours, acceptance takes place when the email is received, as sender can reasonably expect the recipient to be checking their messages i.e. 9am-5pm (office hours vary)

(Mondial Shipping v Astarte Shipping) - Outside office hours

Messages sent outside office hours will be deemed to have been received at the start of the next working day

Electronic Communication of Acceptance - Email (Consumer Contract)
Rule (AO1)

Under The Consumer Contracts (Information, cancellation and Additional Payments) Regulations 2013:

“Obligation is imposed on seller to provide certain information to consumers before acceptance is complete”

Info includes:

1. Description of Goods/Services

2. Details of price and any additional charges

3. Information about the seller

“An exchange of emails prior to a contemplated written contract does not amount to a completed contract

Buyer has an automatic right to cancel within 14 days

Electronic Communication of Acceptance - Email (Consumer Contract)
Case

(Pretty Pictures v Quixote Films)

Purchases Via a Website
Rule (AO1)

Business to Business = Electronic Commerce Regulations 2002

R12: “Display of items on the internet is an invitation to treat; customer’s order may be the offer”

Consumer Contracts = Distance Selling Regulations 2000

The Seller must:

1. Give the buyer clear information

2. Give Written information

3. Allow a cooling off period of 7 days to allow the buyer to change their mind.

International Communication of Acceptance
Case

(Entores v Miles Far East Corp)

C sent telex from England to Amsterdam. Q was where acceptance took place and held that the acceptance took place and was valid when received in England.

Acceptance by Post (Postal Rule)

Rule (AO1)

An exception to the general rule that it must be communicated and received. Contract is formed when acceptance letter is posted.

Exception:

1. Offeror can exclude postal rule by requiring notice of acceptance

2. Rule only applies where it is reasonable to use post in the first place

Acceptance by Post

Cases

(Adams v Lindsell) - Key case

Acceptance is effective once the letter of acceptance is posted, even if it is delayed or lost in transit.

(Holwell Securities Ltd v Hughes) - Excluded postal rule

Offeror required ‘notice in writing’ - Postal rule will not apply where it would lead to ‘manifest inconvenience or absurdity’

(Henthorn v Fraser) - Reasonable to use post

What is meant by ‘Posted’

Definition (AO1)

Posted means correctly stamped and addressed and put in a postbox or given to a mail worker authorised to accept letters for delivery.

The postal rule will not apply if a mistake in posting acceptance is the offeree’s fault i.e. not correctly stamped etc

What is meant by ‘Posted’

Case

(Re London v Northern Bank) - Definition of ‘posted’

(Getreide Import v Contimar) - Mistake in posting acceptance

Postal rule being unjust

Case

(Household Fire v Grant) - Unjust outcome

Methods of Communicating Acceptance

Rule (AO1)

When Offeror prescribes mode of acceptance:

• Offeree may accept by any method provided no less advantageous to the offeror.

Therefore - For the offeror to make method of communication mandatory, the offeror must expressly state that it is binding in the offer.

Where no method is prescribed - Offeree must use any reasonable method depending on:

• The nature of offer

  &

• Method of communicating offer

Methods of Communicating Acceptance

Case

(Manchester Diocesan Council v Commercial Investments Ltd)

O requested Acceptence to be sent to his address but the offeree responded in a different manner, which was still valid as it did not disadvantage the offeror.

Acceptance of a Unilateral Offer

Principle (AO1)

Where offeror makes offer requiring performance by offeree:

• Offeree is not bound to perform

• Offeror bound by offer when performance is complete

• Offeror cannot revoke offer after offeree has started to perform.

• There is no need to communicate acceptance to offeror

Acceptance of a Unilateral Offer

Case

(Errington v Errington) - Implied obligation

father promised to let son and daughter have his house if they paid the mortgage. Father died but agreement still legally binding since the young couple started paying the mortgage.

Tenders

Rule (AO1)

A party submitting a tender makes an offer. There is no obligation to accept any of them

Standing offer tenders are accepted anew with each order, forming a new contract. Revocation must occur before the order is made.

Tenders

Cases

(Spencer v Harding) - Tender Rule

(Great Northern Railway Co v Witham) - Standing order Tender

Intention To create Legal Relation (ITCLR) - AKA Legal intent

Definition (AO1)

For an agreement to be legally binding, both parties must intend to create legal relations.
The intention of the parties are assessed ‘Objectively’ by that of the RP.

There are 2 types of scenarios: Domestic / Social agreements and Commercial agreements.

Presumption

Definition (AO1)

The view adopted by the court in a certain situation to begin with
Presumptions can be rebutted, meaning that the court’s mind can be changed in a particular case, but they indicate the starting point from which the court begins.

Domestic / Social Agreements

Definition / Presumption (AO1)

An agreement between family members / friends.

Presumption - Parties to a social / domestic agreement do not intend legal relations. (Due to floodgates)

Exception - This may be rebutted by clear (objective) evidence that parties do intend to create legal relations.

Exam Tips: How certain are the terms? Have the parties relied on the terms? The seriousness of the situation

Domestic / Social Agreements

Cases

(Balfour v Balfour) - Presumption

Husband promised £30 a month of income to wife while he worked abroad. The court ruled that this was a domestic agreement made at an ‘amicable time’, and thus not legally binding.

(Merritt v Merritt) - Rebutted

Husband promised wife an income if she paid the outstanding mortgage. Seen as a business setting as they were separated at the time

Domestic / Social Agreements (Rebutted)

Examples (AO1)

1. Pre-nuptial agreement between spouses now divorced

2. Commercial agreement between family members

3. Agreement to share competition winnings

4. When security is given away

Domestic / Social Agreements (Rebutted examples)

Cases

1. (Granatino v Radmacher) - Pre-nup

2. (Snelling v Snelling) - commercial agreement between family members

3. (Simpkins v Pays) - sharing winnings

4. (Parker v Clarke) - loss of security

Commercial Agreements

Definition / Presumption (AO1)

Agreements between commercial parties for commercial purposes

Presumption - Parties to a commercial agreement do intend to create legal relations

But - Presumption may be rebutted by evidence (such as clauses) that parties do not intend to create legal relations. Look for clear words to rebut presumption and if it is fair

Commercial Agreements

Case

(Esso v Commrs for Customs and Excise) - Presumption

Agreement for garage to supply World Cup coins to customer with every four gallons of petrol. Seen as a commercial agreement

(Rose & Frank v Compton) - Rebutted

Agreement had an ‘Honourable Pledge’ clause saying that agreement was not legally binding.

(Edwards v Skyways) - Unfair Rebuttal so not valid

The term ‘ex gratia’ is not enough to rebut the presumption.

Consideration

Principle (AO1)

For an agreement to be a legally binding contract, the agreement must be supported by consideration.

“Both parties must suffer a loss or detriment that is of measurable value (more than mere emotion)” - Objective.

Distinguish between:

• A gratuitous promise - Not Binding

• A bargain - Binding

Consideration may also be Executed or Executory

Meaning of Consideration

Definition (AO1)

Consideration is the benefit or detriment (of objective measurable value) suffered by each party in an agreement (i.e. fuel, money, a promise for money)

Note: A contract must show mutuality of consideration at the time the contract is formed, not after!!!"

Meaning of Consideration

Case

(Currie v Misa) - Case for benefit & detriment

Executory Consideration

Definition (AO1)

X makes a promise in return for promise by Y:

• Promise is to be performed at a future time

• Promise is binding at moment made

  Will happen happen at some point - Yet to be completed

Executed Consideration

Definition (AO1)

X makes promise in return for promise by Y:

• X’s promise binding only if Y performs

• Y not bound to perform.

Both promises have occurred and agreement is complete

Consideration Must be Sufficient (SNNBA)

Principle (AO1)

Consideration must have some value as the price of the promise for which it is given:

• Either benefit to the promisor

  and/or

• Detriment to the promise

Consideration may be:

• Money or goods

• Services or performance

• Undertaking not to do something i.e. not suing when a person has a legal right to do so. (High v Brooks)

Consideration Must be Sufficient (SNNBA)

Cases

(White v Bluett) - Not Sufficient

Father promised son money in return for son ceasing to nag and complain. Emotion is not consideration

(Chappell v Nestle) - Was Sufficient

Consideration consisted of chocolate wrappers, which were deemed sufficient as they had economic value.

Consideration Need Not Be Adequate (SNNBA)

Principle (AO1)

Consideration need not match the (real) value of the promise for which it is given.

This allows for bargains to be made

Consideration Need Not Be Adequate (SNNBA)

Case

(Thomas v Thomas)

Widow allowed to occupy marital home for rent of £1 a year.

The £1 was seen as good consideration even though it was far below the market value

Past Consideration

Definition (AO1)

Where X makes a promise after Y’s performance:

• Y’s performance = past consideration for X’s promise

• Therefore: X’s promise is unenforceable

  = Gratuitous Promise

Exception: Where the act was performed at the promisor’s request and it was implied all along that the goods or services were to be paid for. The later promise is seen as just setting the level of payment.

Past Consideration

Cases

(Re McArdle) - Not enforceable

• W voluntarily improved a family house - not owned by W

• Family, after performance was completed, promised to pay W.

• Not enforceable

(Lampliegh v Braithwait) - Enforceable

Royal pardon case

(Pao On v Lau Yiu Long) - Enforceable

Rules:

1. The original act is performed at request of promisor

2. The parties understood that the promisee would be paid for the act

3. The promise that was eventually made must be one that would have been enforceable if made before the act.

Performance Of Existing Duty

Principle (AO1)

Starting Point: Performance of an existing contractual duty will not be good consideration.

However, it can be good consideration for a new promise provided:

“The promisor receives a practical/commercial benefit from the performance of the duty. i.e. Confidence in the completion of the contract”

Performance Of Existing Duty

Cases

(Stilk v Myrick) - Not Enforceable from ‘performing existing duty’

Captain promised to pay crew extra to cover work of 2 deserters.

(Hartley v Ponsonby) - Enforceable from ‘Going beyond Existing Duty’

Captain promised to pay crew extra to cover work of 18 deserters

(Williams v Roffey) - Enforceable from ‘Practical Benefit’

D received the benefit of not having to find a new carpenter and therefore avoiding the penalty clause in the main contract. - Only applies to goods and services (Re Selectmove)

Part Payment Of Debt

Principle (AO1)

A promise to pay part of a debt is not good consideration for paying off the debt. Already an ‘Existing Duty’

“Payment of a lesser sum cannot be any satisfaction for the whole”

But - “Payment of a lesser sum earlier than the date for full payment may be good consideration (As long as both parties agree)”

Also - “Other items of value may be sufficient for consideration (as long as both parties agree)”

Part Payment Of Debt

Case

(Pinnel’s Case)

(Foakes v Beer)

F owed B money from a court settlement. Both parties agreed that F could pay in installments. B demanded interest (which is always payable on a judgement debt) and sued when F refused. B was entitled to interest despite agreeing to installments. Can be seen as unfair but enforces certainty

Promissory Estoppel

Definition (AO1)

Where A promises something to B, and B relies on that promise to his detriment, then A should be stopped from going back on his promise.

Regarding Part Payment - If A promises to let B off from paying part of the debt, and B relies on this to his detriment, A is estopped from going back on his promise

Can only be used to defend a claim “It is a shield not a sword”

The Doctrine of Promissory Estoppel

Definition (AO1)

A procedure where the courts prevent a party from going back on their promise if the other party has relied on that promise to their detriment. It prevents inconsistency and ensures fairness in contractual relationships.

Promissory Estoppel

Case

(Central London Property v High Trees House)

High Trees rented block of flats but made no profit due to war time conditions. The court held that the landlord could not insist on full rent during the war due to the promise made to reduce rent.

Consideration Must Move From the Promisee
Principle (AO1)

Each of the parties to the contract must ‘give’ some consideration, however, it does not need to move to the other party. (Same effect as doctrine of privity where only parties in a contract are able to enforce or have it enforced on them.)

Consideration Must Move From the Promisee
Case

(Tweddle v Atkinson)

Fathers of bride and groom made an agreement to pay the groom a sum of money on the occasion of marriage. When bride’s father failed to to pay, the groom sued. Not enforceableas the groom provided no consideration.