Chapter 1: Agreement Flashcards

Question

3.4 Auction sales: (Payne v Cave (1789) 3 Durn & E 148).

Answer 1

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. This is consistent with the rules of revocation of an offer ie the bidder may revoke their offer at any time before the hammer falls.

Answer 2

A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner; and until the announcement is made any bidder may retract his bid.

Answer 3

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.

Answer 4

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.

Answer 5

The analysis of this case suggests that, 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.

Answer 6

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 If a reserve is not applied and the goods are withdrawn from sale there is a breach of this unilateral contract and the highest bona fide bidder is entitled to be compensated by the payment of damages

Answer 7

The highest bidder is not, however, entitled to the goods since this is dictated by the bilateral contract for sale. This approach has been approved by the Court of Appeal in Barry v Davies [2000] 1 WLR 1962.

Answer 8

* An invitation to treat is not an offer. * An invitation to treat is a first step in negotiations. * An offeror must show an intention to be legally bound: words such as ‘may be prepared to sell’ do not show this. * An invitation to treat cannot be accepted to form a binding contract. * Advertisements are generally invitations to treat, unless they relate to unilateral contracts. So are displays of goods for sale and websites. * Invitations to tender are generally invitations to treat, unless they commit to accept the highest or lowest bid (in which case they are, in fact, unilateral offers). * In most auctions, the bid is the offer, which is accepted by the fall of the auctioneer’s hammer. In an auction sale without reserve, the auctioneer can be sued if they refuse to sell to the highest bidder.

Answer 9

An offer can come to an end by rejection, lapse or revocation. In each case, the offer loses its legal effect and becomes incapable of acceptance.

Answer 10

An offer is terminated by rejection. 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.

Answer 11

An attempt to accept an offer on new terms may be a rejection of the offer accompanied by a counter-offer. Where an offeree makes a counter-offer, the original offer is deemed to have been rejected and cannot be subsequently accepted (Hyde v Wrench (1840) 3 Beav 334).

Answer 12

Where a counter-offer is accepted, its terms and not the terms of the original offer become the terms of the contract.

Answer 13

If these terms are different in any way, the offeree has in fact made a counter-offer. It is sometimes said that the person who fires the last shot wins the battle, in the sense that the person who last asserts that their own terms and conditions should apply is likely to prevail (although if each side simply continues to assert that its own terms and conditions prevail, and the parties do not move past this, then no contract will be formed).

Answer 14

Making a counter offer amounts to rejection, after which an offer cannot be accepted. Seeking of clarification: 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

Answer 15

In Stevenson, Jacques & Co. v McLean (1880) 5 QBD 346 the defendant offered to sell to the claimant 3,800 tons of iron ‘at 40s net cash per ton, open till Monday’

Answer 16

The claimant responded: ‘Please wire whether you would accept 40 for delivery over two months, or, if not, the longest limit you would give’. Having received no reply, at 1:34pm, the claimant despatched a telegram accepting the original offer. The court held that the claimant’s response was not a counter-offer but rather an enquiry which did not serve to reject the offer. Accordingly, a binding contract was made when the claimant sent the telegram accepting the offer.

Answer 17

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

Answer 18

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

Answer 19

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.

Answer 20

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.

Answer 21

The offeror may withdraw (ie revoke) their offer at any time before acceptance (Payne v Cave (1789) 3 Durn & E 148). 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

Answer 22

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 (Byrne v Van Tienhoven (1880) 5 CPD 344).

Answer 23

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 (Dickinson v Dodds (1876) 2 Ch D 463).

Answer 24

There is a danger arising from this rule: if the offeree receives notice of revocation from a third party, how do they know that the information from the third party is reliable?

Answer 25

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

Answer 26

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.

Answer 27

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.

Answer 28

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

Answer 29

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.

Answer 30

* An offer can come to an end, and cease to be available for acceptance, if rejected, if it lapses, or if it is revoked. * Once an offer is rejected, it cannot then be accepted. Rejection takes effect when communicated to the offeror. A counter-offer has the effect of rejecting the original offer. * In contrast, a request for further information about an offer is not a counter-offer and does not amount to a rejection of the original offer. * An offer will lapse if the offeror indicates that it can only be accepted in a particular time period. Otherwise, it will lapse after ‘a reasonable time’. It will also lapse on the offeree’s death, and if the offeree knows of the offeror’s death. * An offer can be revoked at any time prior to acceptance. * In relation to a unilateral contract, there is an implied obligation on the part of the offeror not to prevent the offeree from competing the required act, once the offeree starts to perform that act.

Answer 31

There are four aspects to identifying whether there has been the communication of an unequivocal acceptance needed to form a contract. (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.

Answer 32

Only the person/people to whom an offer is made (the offerees) can accept the offer. For example, it would not be possible to accept an offer you overheard that was not addressed to you. Where an offer is made generally to the world at large then everyone with notice of the offer is an ‘offeree’, and a valid acceptance may be made by any person with notice of the offer: Carlill v Carbolic Smoke Ball Co. (1893)

Answer 33

Acceptance must be unqualified and must correspond exactly with the terms of the offer: Hyde v Wrench (1840) 3 Beav 334. 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.

Answer 34

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.

Answer 35

In Manchester Diocesan Council for Education v Commercial and General Investments [1970] 1 WLR 241, Buckley J explained that it is open to the offeror to prescribe a mode of acceptance ‘in terms insisting that only acceptance in that mode shall be binding’. Buckley J made it clear that particularly clear words would be required of the offeror to make their chosen mode mandatory:

Answer 36

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

Answer 37

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.

Answer 38

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.

Answer 39

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.

Answer 40

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.

Answer 41

The postal rule is at best an arbitrary one, based on an attempt to do justice as between the offeror and the offeree in circumstances where one party will inevitably be prejudiced in the event of a letter being delayed or lost. Rule places greater burden on the offerer than the offeree. Clearly the rule places a greater burden on the offeror than the offeree – possibly justified by the fact that it is easier to prove posting than it is to prove receipt of a letter.

Answer 42

The rule applies even where the acceptance is delayed or lost in the post: Household Fire and Carriage Accident Insurance Co. v Grant (1879) 4 Ex D 216.

Answer 43

It must, however, have been contemplated that the post would be used. The case of Henthorn v Fraser [1892] 2 Ch 27 makes it clear that the postal rule is applicable only where it was reasonable in all the circumstances for the offeree to have used the post. It has been held to be unreasonable to use the post when there is an implied condition that prompt acceptance is required.

Answer 44

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 (Byrne v Van Tienhoven (1880) 5 CPD 344).

Answer 45

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.

Answer 46

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. The courts have interpreted this quite broadly, and so in Holwell Securities v Hughes [1974] 1 WLR 155 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.

Answer 47

The general rule is that the acceptance takes place at the moment the acceptance is received by the offeror (Entores v Miles Far East Corporation [1955]). As Denning LJ explained, in cases of instantaneous communication, the person sending the message of acceptance knows, or ought to know, whether their message has been received.

Answer 48

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.

Answer 49

Blair J expressed the view that 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).

Answer 50

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

Answer 51

The case of Mondial Shipping and Chartering BV v Astarte Shipping Ltd [1995] CLC 1011 deals 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.

Answer 52

The communication of acceptance is waived in a unilateral contract. Carlill v Carbolic Smoke Ball Co. (1893) 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

Answer 53

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.

Answer 54

* Only the person/people to whom an offer is made (the offerees) can accept an offer. * Acceptance must be of precisely the same terms as offered. * If a mode of acceptance is prescribed, then unless expressed to be mandatory, the offeree can use any alternative mode which is no less advantageous to the offeror. * Acceptance is effective from when it is communicated to the offeror. * Silence does not constitute acceptance, even if the offeror indicates it will. * A third party with authority can effectively communicate acceptance on behalf of the offeree. * The postal rule is an exception to the rule that acceptance must be communicated: acceptance takes effect from the moment the letter of acceptance is properly posted. * There are exceptions to the postal rule if it is not contemplated that the post would be used, if the letter is incorrectly addressed or if the offeror disapplied the postal rule. The rule does not apply to letters revoking offers. * Where acceptance is made by instantaneous communications (such as by telephone) it is effective when the communication is received by the offeror, but the offeror may be prevented from denying receipt of a communication if they are at fault for the non-receipt. Depending on the facts, such a communication might not be deemed received until the start of office hours after receipt.

Answer 55

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 (RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Company KG (UK Production [2010] UKSC 14). If an agreement is incomplete or uncertain, a court may not be able to enforce it.

Answer 56

* If an agreement is incomplete or uncertain, a court may not be able to enforce it. * 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

Answer 57

A. The campervan owner’s email is an invitation to treat. The interested buyer’s response is an offer. B. The interested buyer’s response is a request for further information. The campervan owner’s offer is extinguished. C. The interested buyer’s response is a counter offer. The campervan owner’s offer is extinguished. D. The interested buyer’s response is a request for further information. The campervan owner’s offer remains open for acceptance. E. The interested buyer’s response is a conditional acceptance. The parties will have a contract for the sale of the campervan provided it has a full-service history. Correct Answer: D Correct Correct. The statement is a request for further information as the interested buyer is making an enquiry about an ancillary matter. The answer correctly states the legal effect of a request for further information (see Stevenson Jacques v McLean [1880] 5 QBD 346). The other answers seem plausible, but they are not correct. A request for further information does not terminate the offer (see Stevenson Jacques v McLean [1880] 5 QBD 346) A valid acceptance must be unconditional (see Hyde v Wrench 49 ER 132) A counter offer must propose alternative terms for acceptance (see Hyde v Wrench 49 ER 132).

Answer 58

A. The man has not made an offer to contract because it is possible that the dog will never be found. B. The man has not made an offer to contract because a very large number of people might read the notice and search for the dog. C. The man has made an offer which is accepted by someone finding the dog. D. The man has made an offer which is accepted by someone returning the dog to the man. E. The man has made an offer which is accepted by someone looking for the dog. Correct Answer: D Correct: this is what the case of Carlill v Carbolic Smoke Ball Company suggests. This is a unilateral contract. Only returning the dog will constitute acceptance – simply finding the dog would be insufficient.

Answer 59

A. The notice constitutes an invitation to treat which was rejected by the woman’s counter-offer in her letter dated 5 February. The Council’s letter of 11 February is an acceptance. B. The notice constitutes an invitation to treat. The woman’s letter dated 5 February is an offer. The Council’s letter of 11 February is an acceptance. C. The notice constitutes an offer which was accepted by the woman’s letter dated 5 February. The council’s letter of 11 February is a request for further information. D. The notice constitutes an offer which was rejected by the woman’s counter-offer in her letter dated 5 February. The Council’s letter of 11 February is a request for further information. E. The notice constitutes an offer which was rejected by the woman’s counter-offer in her letter dated 5 February. The Council’s letter of 11 February is an acceptance. Correct Answer: B Correct: you have correctly identified the invitation to treat, offer and acceptance

Answer 60

A. The advert is a unilateral offer. Consequently, it will be construed to entitle the first person to shoot ten goals to be entitled a token. Only the woman is entitled to a token. B. The advert is an invitation to treat. By contacting the club, the woman has formed a bilateral contract with the sports club and is entitled to a token. C. The advert is a unilateral offer. The woman and the man are both entitled to a token as they have completed the act prescribed by the advert. D. The woman is the only participant who is entitled to a token as she was the only participant who communicated her intention to accept prior to completion of the prescribed act. E. The advert is an invitation to treat. Consequently, none of the participants are entitled to a token. Correct Answer: C Correct. This answer correctly applies the principles relating to unilateral offers.

Answer 61

A. The auctioneer is in breach of a bilateral contract and the antique collector is entitled to damages. B. There is no contract between the parties and the antique collector is entitled to nothing. C. The auctioneer is in breach of a bilateral contract and the antique collector is entitled to buy the table for £500. D. The auctioneer is in breach of a unilateral contract and the antique collector is entitled to nominal damages. E. The auctioneer is in breach of a unilateral contract and the antique collector is entitled to damages. Correct Answer: E Correct Although a request for bids at an auction is usually no more than an invitation to treat, a statement that an item will be auctioned ‘without reserve’ constitutes a unilateral offer which is accepted by the act of a bona fide bidder making the highest bid (Warlow v Harrison, confirmed in Barry v Davies). No contract for sale of the table has been concluded between the parties, as the auctioneer’s hammer has not fallen (which would otherwise constitute acceptance of the antique collector’s offer – Payne v Cave). As a result, the antique collector is not entitled to the table. However, the antique collector has accepted the auctioneer’s unilateral offer by making the highest (albeit the only) bid at the auction and is therefore entitled to damages for breach of that separate collateral contract (Barry v Davies).