Chapter 1 - Agreement and Contractual Intention

Question 1

What are the elements of a binding valid contract?

Answer 1

1. Agreement (offer & acceptance)
2. Consideration (something given in exchange for the other party’s promise)
3. Intention (that the agreement should have legal consequences)

Question 2

How do parties reach an agreement?

Answer 2

One party must make an offer (definite promise to be bound by specific terms) which is accepted by the other

Question 3

What is meant by an offer?

Answer 3

Professor Treitel defines an offer as ‘an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed’ (Treitel, The Law of Contract, p.8).

Question 4

Who is the Offeror?

Answer 4

The person who makes the offer

Question 5

Who is the Offeree?

Answer 5

The person to whom the offer is made

Question 6

Explain ‘expression’ that is used in Treitel’s definition

Answer 6

this word used in the definition takes many forms, e.g. a letter, newspaper advertisement, email and even conduct, as long as it communicates the basis on which the offeror is prepared to contract

Question 7

Explain ‘intention’ in Treitel’s definition

Answer 7

doesn’t necessarily mean the offeror’s actual intention. The courts adopt an ‘objective’ approach in deciding whether there was agreement between the parties (Smith v Hughes [1871]). They can’t discover what was going in in the minds of the parties nor accept what they say their intention was (subjective approach).

Question 8

Explain the ‘objective approach in deciding whether there was ‘intention’ and agreement between the parties

Answer 8

courts look at what was said and done between the parties from the point of view of a ‘reasonable person’, and try to decide what a reasonable person would have thought was going on.

Question 9

Identify the subjective and objective intention in the example: Faheem was advised by motorcycle dealer to ask for £6,000 for his motorcycle. Faheem texted john offering to sell for £5,000. John immediately rang Faheem and agreed to pay £5,000. Faheem said he wouldn’t accept less than £6,000 and said sorry if the price stated in the text wasn’t £6,000 as it must have been an error which he hadn’t noticed.

Answer 9

Even though Faheem intended (subjectively) to sell for £6,000, the price in the text was £5,000. Assuming this communication was the only one between the parties regarding the price, a reasonable person would assume that £5,000 was the intended asking price, and so that was the objective intention. Also, John believed Faheem was making an offer to sell the bike for £5,000. Faheem would be bound to sell the motorcycle to John for £5,000.

Question 10

What is the case and authority for this objective/subjective distinction of intent?

Answer 10

Allied Marine Transport v Vale do Rio Doce Navegacao SA (1985)

Question 11

What was the distinction that Goff LJ’s statement made in relation to objective/subjective intention?

Answer 11

“If the offeror so acts that his conduct, objectively considered, constitutes an offer, and the offeree, believing that the conduct of the offeror represents his actual intention, accepts the offer, then a contract will come into existence”.
Although the test is objective, the offeree must believe subjectively that the offeror actually intended to make an offer, introducing a subjective element to what is otherwise an objective test of intention.

Question 12

In Treitel’s definition of an offer, who does he mean by ‘the person to whom it is addressed’?

Answer 12

This may be one person, class of persons or the whole world. Crucial point: you can only accept an offer that was addressed to you.

Question 13

Explain why the following statement is NOT and offer, but an invitation to treat: “I am thinking of selling my car. I have been told that £7,000 would be a realistic asking price. Would you be interested in buying it?”

Answer 13

This would NOT amount to an offer as he said he’s “thinking” of selling his car, and price is a potential price. He hasn’t committed himself to selling the car at that price.

Question 14

What is the general legal principle regarding goods on display in supermarkets and self-service shops? Give an authority too

Answer 14

Goods on display in shop windows or supermarket shelves are not actual offers but ‘invitations to treat’. Authority for this principle is case of Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953).

Question 15

Why are goods on display in shops considered invitations to treat rather than offers?

Answer 15

If goods on display were considered offers, a customer might be regarded as accepting that offer as soon as they selected the goods and put it in their basket, unable to change their mind without breaching contract.

Question 16

At what point does a customer make an offer to buy goods in a self-service shop and when does acceptance take place?

Answer 16

• The customer offers to buy the goods when they present them at the payment point.
• Acceptance takes place when the shop takes payment for the goods.

Question 17

What was the key issue in the case of Fisher v Bell [1961]?

Answer 17

The defendant was charged with offering for sale a flick knife contrary to s 1(1) of the Restriction of Offensive Weapons Act 1959, by displaying the knife in a shop window.

Question 18

What was the court’s decision in Fisher v Bell?

Answer 18

The court held that the display of the knife was simply an invitation to treat and acquitted the defendant of the charge.

Question 19

In what limited circumstances might a display of goods amount to an offer?

Answer 19

A display of goods may amount to an offer in very limited circumstances where there is a clear intention to be bound, such as a display of goods in a special sale.

Question 20

What is the general legal status of advertisements, menus, and promotional materials?

Answer 20

Generally, they are regarded as invitations to treat, not offers.

Question 21

What case is an authority for advertisements being invitations to treat?

Answer 21

Partridge v Crittenden [1968]

Question 22

What were the facts in Partridge v Crittenden?

Answer 22

• The defendant was charged with ‘offering for sale’ a live wild bird contrary to s 6(1) of the Protection of Birds Act 1954.
• Defendant placed an advert in a periodical stating the price of 25 shillings each.

Question 23

What was the court’s decision in Partridge v Crittenden?

Answer 23

The court held that the defendant was not guilty of the offence, as the advertisement was
simply an invitation to treat (ie inviting the public to offer to buy a bird at 25s).

Question 24

Why are advertisements generally not considered offers?

Answer 24

If such advertisements were offers, it would mean that anyone asking for the advertised goods would be accepting, in which case it would be a problem if the advertiser had run out of stock.

Question 25

Which specific type of advertisement is treated as an offer, and what case is it associated with?

Answer 25

• An advertisement of a reward has traditionally been treated as an offer.
• In the case of Williams v Carwardine (1833)

Question 26

What is the policy reason behind treating reward advertisements as offers?

Answer 26

Treating the advertisement of a reward as an offer means that the money has to be paid once the offer is accepted by the supply of the information. No
negotiation is involved. This should encourage people who have information to come forward.

Question 27

Under what special circumstances might an advertisement amount to an offer?

Answer 27

If there are special circumstances which show an intention to be bound, an advertisement may amount to an offer – an offer of a unilateral contract.

Question 28

What is the difference between bilateral and unilateral contracts? and why are unilateral contracts referred to as ‘if’ contracts?

Answer 28

• Most contracts are bilateral (a promise in return for a promise), while in unilateral contracts only one party is making a promise.
• “if you do X, I promise to do Y”

Question 29

What is the case name for the famous example of unilateral contract formation?

Answer 29

Carlill v Carbolic Smoke Ball Company [1893]

Question 30

What are the facts of the Carlill v Carbolic Smoke Ball Company case?

Answer 30

• To guarantee effectiveness of the smoke ball remedy, the company offered a £100 reward to anyone who used the remedy and contracted flu.
• Company also confirmed it had deposited £1,000 in a bank account ready to make payments under its promise, showing their confidence in the smoke ball
• Once aware of the (unilateral) offer, Mrs Carlill accepted it when she purchased the smoke ball, completed prescribed course & contracted flu
• She sued for £100

Question 31

What was the courts’ result?

Answer 31

Court held that the company’s promise to pay £100 was an offer of a unilateral contract, a promise in return for the specified act that Mrs Carlill had performed.

Question 32

What proposition is the Carlill case authority for?

Answer 32

Carlill is authority for the proposition that an advertisement can constitute an offer to ‘the world’ (that is anyone who learns of it).

Question 33

In an auction, what legally constitutes the offer and acceptance?

Answer 33

According to s 57(2) of Sale of Good Act 1979..
* Offer - the bids are offers which can be withdrawn any time before acceptance.
* Acceptance - a sale of an auction is complete on the fall of the auctioneer’s hammer (the hammer is acceptance).
* If auctioneer accepts a bid by the fall of the hammer, a contract is formed between bidder and owner of goods (with auctioneer acting as the agent of owner).

Question 34

What is the auctioneer’s call for bids legally considered as?

Answer 34

The auctioneer’s call for bids is considered an invitation to treat.

Question 35

What is a ‘reserve price’ in an auction?

Answer 35

A reserve price is the lowest price agreed between the auctioneer and the seller that the auctioneer may accept for the lot.
* If the bidding doesn’t reach that minimum price, the lot is withdrawn

Question 36

What does ‘without reserve’ mean in an auction?

Answer 36

The item will be sold to whoever makes the highest bid, regardless of the amount.

Question 37

What was the key issue in Barry v Davies (2000)?

Answer 37

• 2 machines were being sold at auction “without reserve”.
• Mr Barry made highest bids for the machines but auctioneer didn’t accept the bid as he knew he could get a much higher price elsewhere.

Question 38

What was outcome of Barry v Davies?

Answer 38

• Mr Barry successfully sued the auctioneer for breach of contract (unilateral contract because one party had made a promise, the auctioneer).
• Mr Barry couldn’t sue the owner of the machines as the auctioneer hadn’t accepted the bid so there wasn’t a contract yet.

Question 39

How were damages calculated in Barry v Davies?

Answer 39

Damages were calculated as the difference between Mr Barry’s bid (£400) and the total value of the machines (£28,000), totaling £27,600.

Question 40

What is the general rule regarding invitations to tender and offers?

Answer 40

Generally, requests for tenders are invitations to treat, and the tenders themselves are offers that may or may not be accepted by the business inviting them.

Question 41

Describe the key principle arising from Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council.

Answer 41

This case suggests that an invitation to tender might imply a promise to consider all conforming tenders, creating a separate unilateral contract alongside the main bilateral contract for the awarded tender.

Question 42

What are the ways in which an offer can be terminated?

Answer 42

An offer can be terminated by revocation, rejection by the offeree, or lapse of time.

Question 43

Explain the general rule of revocation of an offer.

Answer 43

An offer can be revoked any time before acceptance, even if the offeror has promised to keep it open for a specific period.

Question 44

When does revocation of an offer become effective?

Answer 44

Revocation of an offer must be communicated to the offeree to be effective.

Question 45

Can revocation of an offer be communicated by a third party?

Answer 45

Revocation of an offer can be communicated by a reliable third party, even if they are not authorized by the offeror. The third party must be objectively perceived as reliable by the offeree.

Question 46

What is the rule regarding revocation of offers of unilateral contracts?

Answer 46

Revocation of a unilateral contract may be prevented once the offeree has begun performing the act of acceptance.

Question 47

What constitutes rejection of an offer?

Answer 47

An offer can be rejected expressly or impliedly, such as by making a counter-offer, which introduces new terms.

Question 48

Does a request for information terminate an offer?

Answer 48

A request for information does not terminate the offer. The offeree can still accept the original offer after seeking clarification.

Question 49

How does lapse of time affect an offer?

Answer 49

An offer can lapse after a specified time or, if no time is specified, after a reasonable time.

Question 50

What are the requirements for a valid acceptance?

Answer 50

Acceptance must be a complete and unqualified acceptance of all the terms of the offer. The offeree must also be aware of the offer.

Question 51

What is the “battle of the forms” in contract law?

Answer 51

The battle of the forms occurs when two businesses exchange standard forms with conflicting terms. The last form sent before performance is often considered to have its terms prevail.

Question 52

Explain the significance of Butler Machine Tool v Ex-Cell-O Corp.

Answer 52

This case illustrates the “last shot” principle in the battle of the forms. The defendant’s terms prevailed because their form, which included a fixed price term, was accepted when the claimant signed and returned the tear-off slip.

Question 53

How did the court decide the “battle of the forms” in TRW Ltd v Panasonic Industry Europe GmbH?

Answer 53

The court found that Panasonic’s “first shot” prevailed despite TRW’s subsequent “last shot.” This was because TRW had previously signed Panasonic’s customer file, agreeing to their terms and conditions, including a provision disapplying any conflicting terms unless expressly agreed to in writing.

Question 54

When will courts refuse to enforce an agreement despite the presence of offer and acceptance?

Answer 54

Courts may refuse to enforce an agreement if it lacks certainty or completeness, meaning essential terms are vague or missing.

Question 55

Provide examples of situations where uncertainty in an agreement might be resolved.

Answer 55

• If the parties are in the same trade and have established practices.
• If the agreement includes a mechanism for resolving uncertainty, like a market price reference for goods.
• If a provisional agreement exists pending a formalized document, indicating the parties’ clear intention to be bound.

Question 56

State the general rule regarding communication of acceptance.

Answer 56

Acceptance must be communicated to the offeror, either by the offeree or an authorized agent.

Question 57

Are there exceptions to the rule requiring communication of acceptance?

Answer 57

The offeror can waive communication, often implied in unilateral contracts where acceptance is through performance. Silence does not constitute acceptance unless the offeree has explicitly agreed to this.

Question 58

Explain the outcome of Felthouse v Bindley.

Answer 58

This case demonstrated that silence cannot be imposed as acceptance. The uncle’s statement that he would consider the horse his if he didn’t hear back did not create a contract, as the nephew’s silence was not a valid form of acceptance.

Question 59

What is the postal rule?

Answer 59

The postal rule states that acceptance by post is complete upon posting the letter, not upon receipt by the offeror.

Question 60

What are the limitations to the postal rule?

Answer 60

The postal rule:
* Applies only to acceptances, not revocations.
* Applies only when it’s reasonable to use post.
* Requires a properly addressed and posted letter.
* Can be excluded by the offeror.

Question 61

What was decided in Holwell Securities Ltd v Hughes concerning the postal rule?

Answer 61

The offeror’s requirement for “notice in writing” was interpreted as implying the exclusion of the postal rule. The acceptance needed to be received by the offeror to be valid.

Question 62

Is it possible to retract a postal acceptance?

Answer 62

There is no clear English law authority on retracting a postal acceptance when the postal rule applies.

Question 63

When is acceptance by electronic communication considered effective?

Answer 63

Based on Entores v Miles Far East Corp, acceptance by instantaneous communication, like telex or email, is generally effective when and where it is received.

Question 64

How is the time of receipt determined for electronic communications?

Answer 64

There is no universal rule. Courts will consider factors such as the reasonable expectation of the parties, sound business practices, and where the risks should lie.

Question 65

What is meant by “intention to create legal relations”?

Answer 65

For an agreement to be legally binding, the parties must intend it to have legal consequences and be enforceable in court.

Question 66

Explain the presumption of intention in domestic agreements.

Answer 66

In domestic and social agreements, the presumption is that the parties do not intend to create legal relations unless proven otherwise.

Question 67

Describe the presumption of intention in commercial agreements.

Answer 67

In commercial agreements, there is a strong presumption that the parties intend to create legally binding relations, which is difficult to rebut.

Question 68

Explain the significance of Edwards v Skyways regarding contractual intention.

Answer 68

This case demonstrated that clear wording is required to rebut the presumption of intention in a commercial context. The use of “ex gratia” did not negate the intention to create a legally binding agreement for a redundancy payment.

Question 69

When advising a client on a contractual issue, what is the first step you must take?

Answer 69

The first step is to determine if a contract exists. This involves verifying the presence of agreement (offer and acceptance), contractual intention, and consideration. Without these, enforcing a contract is impossible.