Agreement

Question 1

What must be present to create a binding contract?

Answer 1

Offer and acceptance; Intention to create legal relations; and Consideration.

Question 2

What constitutes offer and acceptance?

Answer 2

For a contract to exist, one party needs to make a clear and certain offer displaying an intention to be bound and the other party needs to communicate an unequivocal acceptance.

Question 3

What constitutes agreement?

Answer 3

The court is not concerned with the inward mental intent of the parties but rather with what a reasonable person would say was the intention of the parties, having regard to all the circumstances.

A contract is formed when there is, to all outward appearances, a contract. The idea of offer and acceptance is that it shows a ‘meeting of minds’: but the law applies an objective test when it comes to identifying agreement.

Question 4

What constitutes a certain offer?

Answer 4

The Council’s letter stating that it ‘may be prepared to sell’ was not sufficiently clear and certain to be an offer. It was merely the first step in negotiations, lacking the requisite intention to be legally bound.

Question 5

What constitutes an intention to be legally bound?

Answer 5

‘If you will sign the agreement and return it to me I will send you the agreement signed on behalf of the corporation in exchange’ (emphasis added) did demonstrate an intention to be bound. Remember that the court takes an objective approach to ascertaining whether there was an intention to be bound. What matters is what a reasonable person would say.

Question 6

What is the distinction between a bilateral and a unilateral contract?

Answer 6

Bilateral contract: Each party assumes an obligation to the other party by making a promise to do something.

Unilateral contract: One party makes an offer or proposal in terms which call for an act to be performed by one or more other parties. Only actual performance of the required act will constitute acceptance.

Question 7

Are advertisements invitations to treat?

Answer 7

The general rule regarding advertisements is that they are regarded as statements inviting further negotiations or invitations to treat. It should be noted that the general rule concerning advertisements does not apply where the advertisement amounts to a unilateral offer.

Carlill makes clear that there are two requirements of a unilateral offer:
(a) A prescribed act; and
(b) A clear intention to be bound.

Question 8

Are displays of goods for sale invitations to treat?

Answer 8

The general rule is that price-marked goods displayed in a shop window are not an offer for sale but an invitation to treat.

The same general principle applies equally to goods displayed on the shelves of a self-service store. Websites are regarded as equivalent to a display of goods, and so, an invitation to treat.

Question 9

Are invitations to tender invitations to treat?

Answer 9

A request for tenders is used where a party (usually a company or public body) wishes to purchase a major item or service. The requestor invites tenders (ie offers) from those interested in supplying the goods or the services required. This action of inviting parties to tender is, as a general rule, deemed an invitation to treat. The requestor can accept or reject any tender, even if it is the most competitive.

A displacement of the general principle has been firmly recognised where the invitation to tender expressly contains an undertaking to accept the highest or the lowest bid. This is a form of unilateral contract.

An invitation to tender could give rise to a binding contractual obligation to consider tenders in circumstances where: (1) the tenders had been solicited from specified parties who were known to the requesting party; (2) there was an absolute deadline for submission; (3) the party requesting
tenders had laid down absolute and non-negotiable conditions for submission.

Question 10

Are auction sales invitations to treat?

Answer 10

The general rule in relation to auction sales is that the auctioneer’s request for bids is an invitation to treat. The bidder makes an offer which the auctioneer is then free to accept or reject. Acceptance of the bidder’s offer will be indicated by the fall of the auctioneer’s hammer.

Many auction sales have a ‘reserve’ price: if no bid above this price is received, the seller keeps the goods. However, in an auction without reserve the seller promises to sell to the highest bidder whatever that bid turns out to be. If the sale of the item in question is expressed to be ‘without reserve’ the auctioneer may be sued for breach of contract if they refuse to sell to the highest bona fide bidder.

Where the sale is expressed to be without reserve, there are in fact two contracts. The first bilateral contract proceeds on the usual analysis of an auction sale whereby the bidder makes an offer which is capable of acceptance or rejection by the auctioneer. This contract determines who is entitled to the goods. The second contract is a unilateral contract based on the promise that the auction will be without reserve. If a reserve is not applied and the goods are withdrawn from sale there is a breach of this unilateral contract and the highest bona fide bidder is entitled to be compensated by the payment of damages. The highest bidder is not, however, entitled to the goods since this is dictated by the bilateral contract for sale.

Question 11

How can an offer be terminated?

Answer 11

An offer can come to an end by rejection, lapse or revocation.

Question 12

What constitutes rejection of an offer?

Answer 12

Once an offer is rejected, it cannot then be accepted (unless the offeror makes the same offer again). A rejection does not take effect until it is actually communicated to the offeror as only then will the offeror know that they are free from the offer.

An attempt to accept an offer on new terms may be a rejection of the offer accompanied by a counter-offer. However, if an offeree responds seeking clarification of the extent and terms of the offer, or to ascertain if the offeror would consent to changing certain ancillary aspects of the offer, then the offeree’s request may be construed as a request for further information. In this event, since there has been no counter-offer, the original offer remains open for acceptance.

Question 13

What constitutes a lapse in time?

Answer 13

An offer may lapse and thus become incapable of acceptance:
(a) By passage of time;
(b) By the death of one of the parties.

An offer will lapse through passage of time in the following circumstances:
(a) Where acceptance is not made within the period prescribed by the offeror;
(b) Where no period is prescribed and acceptance is not made within a reasonable time. What is reasonable will depend on the circumstances of the case.

In relation to the death of the offeror it appears that, if the offeree knows that the offeror has died, the offer will lapse; if the offeree is unaware of the offeror’s death, it probably will not. It seems that the death of the offeree will cause the offer to lapse and so that the offer cannot be accepted after the offeree’s death by the offeree’s representatives.

Question 14

What constitutes revocation of an offer?

Answer 14

The offeror may withdraw (ie revoke) their offer at any time before acceptance. However, once a valid acceptance has been made, the offeror is bound by the terms of their offer. An offer cannot be revoked after acceptance.

Revocation of an offer is effective only upon actual notice of it reaching the offeree. Where revocation is communicated by post it takes effect from the moment it is received by the offeree and not from the time of posting.

Provided the offeror has shown, by words or conduct, a clear intention to revoke their offer and notice has reached the offeree, the revocation is effective. The means of communication do not matter, so the revocation will be effective even if communicated by a third party.

In relation to unilateral contracts, acceptance is perceived as the complete performance of the act(s) required by the terms of the unilateral offer. Consequently, it remains possible to revoke the offer at any time prior to the completion of the required act. However, an exception to this rule may apply where the offeree has partly performed the obligation and is willing and able to complete - it would undoubtedly cause hardship to the offeree to allow the offeror to withdraw the offer in this situation. In these circumstances the
offeror may be under an implied obligation not to revoke the offer once performance has commenced. The offeree’s acceptance and consideration for this implied promise is starting to perform the required act.
In Errington v Errington & Woods [1952] 1 KB 290 a father agreed to give his house to his son and daughter-in-law if they paid off the mortgage on the house. The act required of the couple was therefore paying off a building society mortgage loan. The couple had made several payments towards paying of the loan when the father sought to revoke the offer. The court held that the promise could not be revoked after the couple had started to pay the instalments and as long as they continued to be paid.

It has been stated that a unilateral offer can be made to the ‘whole world’ and that there is no requirement that those embarking on performance should communicate their intention to accept to the offeror: Carlill v Carbolic Smoke Ball Co (1893). Consequently, where such an offer has
been made, the offeror may well have no knowledge of who or, indeed, how many, potential offerees may be responding to the offer. In such circumstances, communication of revocation is almost impossible, and it seems likely that revocation will be effective if the offeror takes reasonable steps to bring the revocation to the attention of all those who may have read the offer.

Question 15

What are the 4 rules of acceptance?

Answer 15

(a) Acceptance must be in response to the offer.
(b) Acceptance must be unqualified.
(c) It may be necessary to follow a prescribed mode of acceptance.
(d) Acceptance must be communicated.

Question 16

What does it mean for acceptance to be unqualified?

Answer 16

Acceptance must be unqualified and must correspond exactly with the terms of the offer. This is sometimes called ‘the mirror image rule’. Not all transactions lend themselves to an easy analysis in terms of ‘offer’ and ‘acceptance’. Yet the court will always examine the communication between the parties to discover whether, at any one time, one party may be deemed to have assented to all the terms, express and implied, of a firm offer by the other party. An assent which is qualified in any way does not take effect as an acceptance.

Question 17

What constitutes a prescribed mode of acceptance?

Answer 17

Acceptance may be communicated in any manner whatsoever. Generally, the offeree may decide for themselves the manner of acceptance but if the offeror prescribes the mode of acceptance, the question arises as to whether communication of acceptance in any other manner will suffice.

It is open to the offeror to prescribe a mode of acceptance ‘in terms insisting that only acceptance in that mode shall be binding’. Particularly clear words would be required of the offeror to make their chosen mode mandatory: if an offeror intends that he shall be bound only if his offer is accepted in some particular manner, it must be for him to make this clear. If the offeror makes it clear that they will not be bound unless acceptance is communicated in that precise way and by no other then only acceptance by that mode will suffice. However, unless
the prescribed mode of acceptance is made mandatory, another mode of acceptance which is no less advantageous to the offeror will bind them.

Question 18

How must acceptance be communicated?

Answer 18

The general rule is that acceptance must be communicated to the offeror. Acceptance applies from the moment it is communicated. Where the offeree merely intended to accept, but did not communicate that intention to the offeror, there is no contract, ie mere mental assent is not sufficient. Moreover, the offeror may not stipulate that they will take silence to be acceptance and thus bind the offeree.
As a general proposition, the rule that silence cannot amount to acceptance seems a sensible one. Unless the offeror clearly waives the need for acceptance to be communicated, the offeror will want to know when they are bound. Furthermore, if silence in the face of an offer could amount to acceptance, this would place an unnecessary burden on the offeree to respond.

It is possible for a contract to come into existence where a person other than the offeree informs the offeror of acceptance; in other words, where a third party has informed the offeror of the fact of acceptance. However, no contract will arise if the communication is made by a third party without the authority of the offeree, in circumstances indicating that the offeree’s decision to accept was not yet regarded by them as irrevocable.

Question 19

What is the postal rule?

Answer 19

This case laid down the postal rule and can be seen as a further exception to the rule that acceptance must be communicated to the offeror. It held that where post is deemed to be a proper means of communication, the acceptance takes effect from the moment the letter of acceptance is properly posted – not from the moment it is received by the offeror. A letter is properly posted when it is put into an official letter box or into the hands of a postal operative who is authorised to receive letters.

Applies even if the acceptance is delayed or lost in the post
Does not apply if it is not contemplated that post would be used. It has been held to be unreasonable to use the post when there is an implied condition that prompt acceptance is required.
Does not apply to letters revoking offers
The rule applies only to letters of acceptance, not to letters revoking an offer. Revocation of an offer must be received in order to be effective.

Does not apply if the acceptance is incorrectly addressed It appears that the rule may be displaced if the acceptance is incorrectly addressed, the rationale
being that the offeree, by their own carelessness, has lost the benefit of the postal rule.
Does not apply if disapplied by offeror
It is always open to the offeror to redress the imbalance of the postal rule by requiring actual communication, for example, the offeror might state in their offer that they require receipt of
acceptance. If the offeror sets aside (‘ousts’) the postal rule, a letter of acceptance would only be effective if and when it is received. The courts have interpreted this quite broadly, and so where the offer stipulated that ‘notice in writing’ was required the court held that this implied that the acceptance had to be received and the postal rule was set aside.

Question 20

What constitutes communication by instantaneous means?

Answer 20

Where an acceptance is made by an instantaneous mode of communication, the general rule is that the acceptance takes place at the moment the acceptance is received by the offeror. In cases of instantaneous communication, the person sending the message of acceptance knows, or ought to know, whether their message has been received. Consequently, where the message of acceptance is not received, without any fault on the part of the offeror, no contract has been concluded.
On the other hand, if the acceptor reasonably believes that they have communicated their acceptance but this is not so because of the fault of the offeror (e.g. they do not hear the entirety of the acceptance due to their poor mobile reception but do not ask for it to be repeated) then the offeror may be prevented from saying that they did not receive the acceptance.

The postal rule is inapplicable to email communications, therefore an acceptance by email is not effective when sent, but only when received (ie when the email arrives on the offeror’s email server).
The Brimnes was a case concerning an instantaneous communication sent during
ordinary office hours. The Court of Appeal concluded that a message that had been sent during ordinary office hours on Friday, but not been seen by office staff until the following Monday, was effective when received. The decision recognised the possible negligence of the office staff in
failing to note the message in circumstances where the offeree could reasonably assume that there was an effective communication. Blair J in Thomas v BPE Solicitors (a firm) makes clear that what is ‘office hours’ will depend on the particular context of the communications.

The question arises as to what the position will be if the instantaneous communication is sent outside ordinary office hours, a common problem in relation to international communications. The
case of Mondial Shipping and Chartering BV v Astarte Shipping Ltd specifically with this point. A message was sent on 23:41 on Friday, 2 December. It was held that the message was received at the start of business on Monday, 5 December.

Question 21

How is communication of acceptance done in unilateral contracts?

Answer 21

The communication of acceptance is waived in a unilateral contract. Carlill v Carbolic Smoke Ball Co. is authority for this general principle. It was held in that case that the advert amounted to an offer, which was open to acceptance by performance of the acts required in the offer. Such
performance was sufficient in itself to amount to acceptance and there was no need for separate notification of acceptance to be given to the offeror.
The same principle would apply in reward cases where a reward is offered for the return of lost property. All those who search for the item in question need not inform the offeror of their intention to do so; the acceptance is complete when the finder returns the object to the offeror.

Question 22

What constitutes certainty?

Answer 22

A binding contract requires all material terms to be certain and complete. Only an agreement which is sufficiently certain can be enforced by a court. To determine whether the parties have reached an agreement on all material terms the court applies an objective test, asking whether, in all the circumstances of the case, the parties have agreed all the terms they considered to be a precondition to creating legal relations. If an agreement is incomplete or uncertain, a court may not be able to enforce it.