Law of Contract

Law of Contract. Offer & Acceptance.

Offer & Invitation to Treat. Invitation to treat cannot be “accepted” unlike an offer. It is an invitation to make an offer Once one party makes an offer, it can be then be accepted In Pharmaceutical Society of GB v Boots Cash Chemists Ltd (1953) The Court of Appeal held a contract was formed when goods were presented at the cash desk, not when taken from the shelf. Goods on the shelf were an invitation to treat, whereas when the customer presented the goods at the counter for payment, it was deemed to be an offer, whereas acceptance is when payment is received, thus the contract was concluded at the counter where the offer and acceptance occurred. Fisher v Bell (1961) Goods on display in a shop window is not considered to be offering it for sale. It is merely an invitation to treat. Only when someone takes the goods and bring them to the counter for payment would it be considered an offer. Partridge v Crittenden (1968) A newspaper or magazine advertisement would generally not be considered to be an offer, but merely an invitation to treat. Contrast this with the case of Carlill v The Carbolic Smoke Ball Co Ltd (1893) In this case, the company advertised a patented medicine, which was the smoke ball, with the promise a that if a purchaser used it correctly (according to the instructions given), and still got the flu, then the company would pay them £100. Mrs Carlill did contract the flu after using the smoke ball in the correct manner and hence brought a claim against the company. The Court held that this was a unilateral offer that could be accepted by anyone who followed the terms. It involved specific steps to be followed in order to accept the contract . The unilateral offer is considered to be made to the world at large and anyone who fulfils the requirements would have accepted this offer. Hence general rule, an advertisement is an invitation to treat Exception is where the advertisement contains a unilateral offer open to the whole world for those wanting to accept to perform some act, the performance of which would be considered to be acceptance..

Gibson v Manchester City Council (1979) An application form to purchase property is considered to be an invitation to treat Where the potential applicant fills up the application form and submits it, this is considered to be an offer The council can decide to accept or reject this offer. Hence when filling up forms to apply for something, it would be considered an offer, and acceptance is once the form filled up is accepted and a response given on whether or not the offeree accepts the offer by the offeror who fills up the forms This is the case in applying for loans with banks, or applying for credit cards or even applying for electricity and water connection by utilities companies. Harvey v Facey (1893) The mere fact that a party has indicated a price which he would find acceptable does not make it an offer. Here Harvey, who wanted to buy Facey’s farm sent a telegram stating “will you sell me Bumper Hall Penn? Telegram lowest price”. Facey’s telegram replied “Lowest price acceptable £900”. Harvey claimed that his acceptance of this formed an agreement but the Court held that a mere statement of price is not an offer, and hence, cannot be accepted. This is contrasted from the case of Biggs v Boyd Gibbins (1971) In this case, the Claimant wrote, in response to the offer of a lower price, that “For a quick sale, I will accept £26,000”. The Defendant had replied “I accept your offer”. The Court held that the first letter by the Claimant was an offer, that the Defendant had accepted. The statement of price was written in a way in which an offer is included, and the other factor to consider was also the fact that the Claimant was writing this amount in response to a request from the Defendant for a lower price Note: a counter offer is an offer made in response to another offer, and it supersedes the original offer..

Auction and bidding cases The auction itself is an invitation to treat, or more aptly described as an invitation to make a bid ( British Car Auctions v Wright (1972)). When a bid is made, it is considered an offer to buy. When the auctioneer’s hammer falls, it is considered to be acceptance and that is the point at which the contract is formed. As such, the auctioneer has the absolute right to withdraw any lots from an auction, even though these may have been advertised. In Harris v Nickerson (1873), the court held that the advertising of goods to be sold at an auction was considered to be an invitation to treat and hence the goods could be withdrawn from the auction at any time. The Court held that any contract could only be formed on the fall of the auctioneer’s hammer when the bid was accepted. This is contrasted with the case of Barry v Heathcote Ball & Co (Commercial Auctions) Ltd (2000) This was an auction ‘without reserve’, meaning the goods sold had no minimum prices that the goods need to be sold for. The auctioneer ignored bids worth £200 each for 2 machines worth £14,251 each and proceeded to withdraw the lots, and sold them privately for £750 each. The Court held that the highest bid rule should apply, accepting the decision in Warlow v Harrison (1859) and held that there was a collateral contract between the bidder who bid £200 for each machine, and the auctioneer and hence awarded £27,600 in damages to the bidder..

Offer & Acceptance. Competitive tendering Normally an invitation to tender for the supply of goods or services is an invitation to treat. E.g. when a company wants to have their office painted, they invite tenders from different firms Various decorators respond with different prices and offerings for the job. The company is free to choose any of the decorators, not necessarily the cheapest. However, if the wording of the tender is such as that the company agrees that the work will go to the tender with the lowest price, then it is bound to give the work to the bidder with the lowest price. In Harvela Investments Ltd v Royal Trust Co of Canada Ltd (1986), the Trust company had invited tenders from two interested parties for the purchase of some land. The sale would go to the party making the highest bid. The party that made the lowest bid had tendered a price of $2,100,000 But they also included an alternative bid of $101,000 in excess of any other offer. The Trust company had accepted the ‘alternative bid’ Harvela , the company making the highest bid, found out and sued the Trust company successfully. The court held that the wording of the invitation to tender made it an offer that could only be accepted by the highest bidder . Since Harvela was the highest bidder, and there is no provision made for “alternative bids”, Harvela should get the tender..

Offer & Acceptance. Competitive bidding There is an obligation on the party inviting tenders to consider all tenders regardless of whether a tender is accepted. In Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council (1990) The Club had held the concession to run pleasure flights from the council’s airport for many years. When the concession was due for renewal, the Council had put it out to a competitive tender and invited tenders from other parties. The terms of the tender were that: All tenders were to be submitted in unmarked envelopes in a particular box by 12 noon on a specific date The Council would not be bound to accept any particular bid. The Club had placed it bid by 11am but by accident the box was not emptied after this time and its bid therefore not considered. The concession was therefore given to another group, R. R. Helicopters. When the Council later discovered the mistake they at first decided to repeat the exercise But for this they were threated with legal action by R. R. Helicopters and the Council didn’t conduct the tender again The Club claimed the breach of a contract to consider all tenders delivered by the due time, which the Court had upheld The Court held that the Council is bound by an implied undertaking to operate by the rules that they had set, even though the invitation to tender for the concession was only an invitation to treat..

Rules governing an offer. Offers need to conform to certain rules in order to be a valid offer The offer must be communicated to the offeree In Taylor v Laird (1856), Taylor gave up the captaincy of a ship and then worked his passage back to Britain as an ordinary crew member. As there was no means of communicating instantaneous back then, the ship owner had received no communication of Taylor’s offer to work in that capacity, and hence the Court held that it was impossible for an offeree to accept an offer which he had no knowledge of. Hence his claim for wages failed. The offeree must have knowledge of the offer for it to be valid and enforceable and this was reiterated in Inland Revenue Commissioners v Fry (2001) The IRC claimed that Mrs Fry owed them £113,000, and her husband had sent a cheque for £10,000 to the IRC with a letter stating that the cheque was ‘in full settlement’ and if presented for payment it would mean the IRC has accepted his offer. The IRC procedure was for cashiers to bank cheques received before accompanying correspondence was then sent on to a case worker. When the case worker received the letter she immediately phoned the Defendant to say that the £10,000 would be treated as part payment, or she could have the money back. Mrs Fry on the other hand insisted that the IRC were bound to accept the offer, having cashed in the cheque. The Court held that while an offeree could accept a unilateral offer which prescribed its manner of acceptance by acting in accordance with that manner, there had to be knowledge of the offer and in this case the IRC was actually ignorant of the offer and hence there was no acceptance. An offer can be made to one person or made to the whole world Anyone who has notice of the offer can accept it. In Carlill v The Carbolic Smoke Ball Co Ltd (1893), the company’s claim that they had no contract with Mrs Carlill had failed in Court. It was held that they had made their offer generally to the world at large, and Mrs Carlill had accepted it by buying the smoke ball, using it and still contracting the flu..

Rules governing an offer. The terms of the offer must be certain If the words of the offer are too vague then the parties might not really know what they are contracting for, and should not then be bound. In Guthing v Lynn (1831), when a horse was purchased by one party, with a promise to pay £ 5 more “if the horse is lucky”, could not be an offer as it was too vague It is possible to withdraw an offer anytime before offer is accepted In Routledge v Grant (1828), Grant offered his house for sale on the understanding that the offer would remain open for six weeks. When he took it off the market before the six weeks were up, the Court held that the offeror is legitimately entitled to do, and hence the potential buyer than purported accepted after he withdrew the offer was not a good acceptance and hence there was no valid and binding contract between parties. If, however, the offeree paid money to the offeror to keep the offer open, then he would be bound to do so. The offeror must communicate the withdrawal of the offer to the offeree Byrne v Van Tienhoven (1880) highlights the importance of keeping track of dates and other information during contractual determination On 1 st October, Van Tienhoven wrote to Byrne offering to sell certain goods. On 8 th October, he changed his mind and sent a letter withdrawing the offer, however, before the letter had reached, Byrne accepted the offer in a telegram on 11 th October and confirmed the same in writing on 15 th October. The letter withdrawing the offer only reached Byrne on 20 th October, but it was invalid since the communication was only effective/received after the valid acceptance by Byrne. Communication of withdrawal of the offer can be by a reliable third party It need not be done personally, but the third party must be a reliable source of information. In Dickinson v Dodds (1876), Dodds had offered to sell houses to Dickinson. However, a mutual acquaintance, Berry, had informed Dickinson that Dodds had withdrawn his offer. The Court held that the communication of revocation via Berry was acceptable as Berry was a mutual acquaintance whom both could rely on..

Rules governing an offer. A unilateral offer cannot be withdrawn if the offeree is performing Since a unilateral offer is one where the offeree actually accepts by performing his side of the bargain, it would clearly be unfair to prevent this once the other party has begun performance. In Errington v Errington & Woods (1952), a father bought a house and mortgaged it in his own name. He promised his son and daughter-in-law that it would become theirs when they had paid off the mortgage. When the father died and other members of the family wanted possession of the house, their action failed as the father’s promise could not be withdrawn so long as the couple kept up the mortgage repayments, after which the house would be theirs. Termination of an offer occurs when it is accepted and there is a valid and binding contract It is rejected, in which case there is no valid and binding contract It is met with a counter offer, which terminates the original offer and now the other party has to decide whether to accept or reject it It is properly withdrawn (withdrawal being effectively communicated) The time limited for its acceptance lapses A reasonable time has lapsed, if time is not specified (offers cannot remain open indefinitely) This was held in Ramsgate Victoria Hotel Co Ltd v Montefiore (1866) One of the parties die If the offeree dies then this will cause the offer to lapse and his estate (or representatives) cannot accept on his behalf If the offeror dies, his estate may be bound by an acceptance that is made in ignorance of the offerors death. If the offeree has knowledge of the death then unlikely to be able to accept..

Acceptance. Positive and unqualified confirmation of all the terms of the offer A contract comes into existence upon there being acceptance Acceptance is subject to certain rules Mirror image rule Acceptance must correspond exactly and in every detail to the offer. If this is not the case then there can be no acceptance Counter Offer If the offeree adds new terms, it becomes qualified acceptance Hence no contract is formed Accepting the offer but changing the terms makes it a counter offer Hyde v Wrench (1840) Wrench offered to sell his farm to Hyde for £1,000. Hyde offered to pay £950 but was rejected by Wrench. Hyde then tried to accept the offer of £1,000. When Wrench sold the house to another party, Hyde sued for breach of contract. The Court held that the counter offer amounted to a rejection of the original offer, and following the rules an offer, that offer has come to an end. In effect, Hyde wanting to “accept” the offer of £1,000, was actually in fact an offer, rather an acceptance..

Acceptance. Acceptance is subject to certain rules Counter Offer Even if the main terms of an agreement are accepted, there can still be a counter offer (and hence rejection of the original offer), if some of the ancillary or additional terms of the agreement are not agreed. Jones v Daniel (1894) The Defendant offered to sell the Claimant land for £1,450. The Claimant accepted the amount but said he wanted a signed document of sale together with details of payment and evidence of title to the property It was held there could be no contract until the Defendant had accepted these ancillary terms. Even though the matters were ancillary, they in fact amounted to a counter offer. Request for further information A mere enquiry about some part of the contract would not amount of a counter offer and hence destroy the original offer. Not everything said during negotiations would amount to a counter offer Much will depend on phrasing of the statement In the event a request for further information is made, the offeror will not be entitled to treat the offer as ended and make a deal elsewhere. Stevenson v McLean (1880) Offeree enquired as to whether the iron he was buying from the offeror could be delivered in stages rather than all at once. Having heard nothing from the offeror, he proceeded to accept the offer. By then the iron had been sold to a third party, the offeror’s claim that there had been a counter offer had failed. There was no rejection of the offer and it was merely an enquiry of the details and the offer was still open for acceptance..

Acceptance. Acceptance is subject to certain rules Battle of the forms When both parties use their own standard form contracts when dealing with parties, the ‘last shot’ principle applies. Butler v Ex-Cell-O Corporation Ltd (1979) The Claimant quoted the Defendants a price for industrial machinery on his standard forms, which included a price variation clause. The Defendants responded with an order containing its own standard form, which did not contain a price variation clause. The return slip issued by the Defendants was returned by the Claimants with a note stating that they were supplying the machine on the Claimant’s original terms. However, the Court held that the Defendant’s standard terms were held to be the overriding conditions because the Claimant had accepted the counter offer issued by the Defendant, through the return of the delivery slip. The note attempting to reaffirm the Claimant’s terms was not sufficient to constitute a counter offer The Claimant’s failure to reinstate the terms, by more than just reference, meant that they were not incorporated, and were negated on the “final shot” principle. G. Percy Trentham Ltd v Archital Luxfer Ltd (1993) The Claimants were main contractors employed to design and build industrial units, and entered into a subcontract with the Defendants to install doors and windows. A dispute occurred after the work had been carried out and the Defendants denied there had ever been a valid subcontract. This is because the doctrine of the battle of forms came out inconclusive The Court of Appeal held that regardless of whether an offer had been matched by an acceptance, the contract could have come into existence as a result of the performance of the work. This is acceptance of an offer by conduct..

Acceptance. Acceptance is subject to certain rules There must be communication of the acceptance Only the genuine offeree can communicate acceptance 3 rd parties are not allowed to accept on behalf on offerees, except an authorised agent of the offeree. Acceptance is said to be communicated when it is actually brought to the attention of the offeror. Unless the offeror has indicated a particular method of acceptance as being the only way an acceptance can be valid, there are no specific rules on how acceptance must be communicated. It can be writing, verbal or even by conduct. Silence An offeror cannot impose liability on an offeree by stating that silence shall be deemed to be consent Felthouse v Bindley (1863) An uncle and nephew were negotiating for the sale of a horse that was up for auction. At the conclusion of the negotiations, the uncle said ‘If I hear no more from you I shall consider the horse mine at £30.15s’. At the auction, the auctioneer failed to withdraw the horse though instructed to do so by the nephew. When the horse was sold, the uncle took an action against the auctioneer. The action failed as the uncle could not prove that the horse was his The was no contract between the uncle and nephew, as the nephew had not actually accepted the uncle’s offer to buy..

Acceptance. Acceptance is subject to certain rules Silence Common law approach is reinforced by The Consumer Protection (Distance Selling) Regulations 2000 A recipient of unsolicited goods is not bound to accept them Regulation 24 (4) makes it an offence to seek payment for such goods Nevertheless, if the offeror specifically waives the need to communicate acceptance, the offeror runs the risk of being contractually committed through silence. Such waivers could be expressed or implied, and normally brought about through unilateral contracts, such as in Carlill v Carbolic Smoke Ball Co (1893) Postal Rule The postal rule is an exception to the general rule that acceptance must be communicated. Acceptance by post takes effect as soon as the letter is validly posted. In Adams v Lindsell (1818), the seller asked for acceptance of the sale of wool by post The buyer accepted the offer by post the same day the offer was received, though the letter did not arrive until sometime later, by which time the seller had sold the wool elsewhere. The buyer could sue for breach of contract as acceptance was effective from the date of posting. Properly posted means that the letter must be properly stamped and addressed, and there must be evidence of postage..

Acceptance. Acceptance is subject to certain rules Postal Rule This rule is only applicable where: Postal acceptance is specified by the offeror; or Postal communication is reasonable in the circumstances Meaning if a better mode of communication (faster) was made to make the offer, it would be unreasonable to accept by post In Holwell Securities v Hughes (1974), the Defendant sent the Claimant an option to purchase some land, which had to be exercised in writing to the Defendant before a certain date. The Claimant posted the acceptance but the Defendant never received it. The wording of the offer required acceptance in writing, and hence the postal rule was not applicable as there had to be actual communication of acceptance. As long the postal rule meets all of the above criteria, it applies even if the post is not received, not just delayed. In Household Fire Insurance v Grant (1879), the Defendant made a written offer to buy shares in the Claimant. The Claimant posted the allotment of shares which was the acceptance of the offer, but it was never received and the Claimant then went into liquidation. The liquidator claimed the payment for the shares, which the Defendant denied. The Court held that he was a shareholder and owed money to the company even though he wasn’t aware of it..

Acceptance. Acceptance is subject to certain rules Instantaneous forms of communication It is effective the moment it is actually communicated, i.e. when read, received or heard. In Entores Ltd v Miles Far East Corporation (1955), an acceptance was sent by telex from Holland to England. Acceptance was held to have occurred when the communication was received in England, not when it was sent from Holland In Brinkibon v Stahag Stahl (1983) The House of Lords endorsed the Court of Appeal decision in Entores on the timing of acceptance of instantaneous communication. However, in this case, the telex was received out of work hours The House of Lords held that the acceptance was deemed to be effective, and the contract formed, upon the office being reopened. Although messages are sent instantaneously, they are only communicated when opened or heard. E.g. a WhatsApp message, or SMS, containing acceptance, may only be effective when it is opened by the other party. Emails are not covered by the postal rule, and require receipt of message for effective communication ( Chwee Kin Keong v Digiland.com Pte Ltd (2004) – persuasive authority as this case is from Singapore) Emails may or may not be covered by the rule in Brinkibon . In Thomas & Another v BPE Solicitors (2009), the High Court affirmed that the postal rule was inapplicable to email communications, but the Courts would have to look at a case by case basis on whether an email is deemed to be effectively communicated when it is received, or when the offeror could reasonably be expected to read it..