Chapter 2 - Agreement

Question 1

There can be no contract without agreement but what else must there be to create a valid legal contract?

Answer 1

Consideration and intent

Question 2

What was the historic (and no longer used) approach to establishing agreement?

Answer 2

The Courts would look for ‘consesus ad idem’ (a meeting of minds) and focused on what the parties thought at the time of entering into the contract.

Question 3

How do the courts establish whether there is an agreement? (and what case established these principles?)

Answer 3

An objective test requiring a Judge to look for factual evidence of intention to make agreement as viewed by a reasonable person looking at the things said and done by the parties involved. (Smith v Hughes [1871]) They focus on trying to find an offer from one party that is accepted by the other.

Question 4

What was the more relaxed (rejected) approach to establishing a contract as suggested by Lord Denning in both Butler Machine Tool Co v Ex-Cell-O Corporation (England) Ltd [1979] and Gibson v Manchester City Council [1979]?

Answer 4

To establish whether there was ANY evidence of an agreement between the parties. This approach has been rejected.

Question 5

Who is the party making the offer?

Answer 5

The offeror

Question 6

Who is the party to whom the offer is made?

Answer 6

The offeree

Question 7

What is an offer?

Answer 7

An expression of willingness to contract on certain terms on which the offeror is willing to be legally bound following acceptance.

Question 8

What was held by the House of Lords in the case of Scammell and Nephew Ltd v Ouston [1941] regarding interpretation of offers?

Answer 8

A term in the offer stating “on hire purchase terms” was interpreted in five different ways by five different judges and so the House of Lords held that there was no valid agreement formed because the phrase was too important and too vague.

Question 9

In the case of Openwork Ltd v Forte [2018], what did the Court of Appeal reiterate regarding the court’s role in matters of contractual clauses?

Answer 9

“The role of the court … is to give legal effect to what the parties have agreed…” and that the courts will “strive to give some meaning to contractual clauses… if it is at all possible to do so”

Question 10

What will happen if there is uncertainty on a minor part of the contract and what case law established this?

Answer 10

That particular term will be struck out and the rest of the contract will still stand if it makes sense, as per Nicolene Ltd v Simmonds [1953].

Question 11

What will happen if there is uncertainty on a major/central part of a contract and what case law established this?

Answer 11

The whole contract will be void for uncertainty, as per Scammell and Nephew Ltd v Ouston [1941].

Question 12

What is a unilateral contract also known as?

Answer 12

An “if” contract

Question 13

What is a unilateral offer?

Answer 13

When an offeror promises to do something in return for the offeree doing something. The offeree does not have to do what is requested by the offeror but IF they do then they will receive the benefit promised. (e.g. missing cat poster)

Question 14

What is a bilateral contract?

Answer 14

One in which both parties have obligations. For example, someone building an extension in exchange for payment.

Question 15

In which three ways can an offer be made

Answer 15

Orally, in writing or by conduct

Question 16

How did the case of Taylor v Laird [1856] illustrate the need for an offer to be successfully communicated to an offeree?

Answer 16

A ship’s captain formally resigned from his post but then assisted the crew in working the ship home (a potential new contract). However, because he did not communicate his offer to continue working on the ship to his employers, they could not accept or reject this and so there was no contract between the parties and no obligation for his employers to pay him.

Question 17

Describe the case of Carlill v Carbolic Smoke Ball Co Ltd [1893] regarding unilateral contracts and advertisements

Answer 17

Carbolic claimed their smoke balls could cure and prevent illnesses including influenza and promised a £100 reward to anyone who caught influenza after using the smoke ball as directed. Mrs Carlill used the smoke ball and caught the flu but Carbolic refused to pay claiming that they couldn’t have a contract with the whole world. Bowen LJ said that an advert was considered an offer to the whole world and so if someone performs the conditions from the ad, there would be a contract.

Question 18

What is an invitation to treat?

Answer 18

An invitation to others to make an offer or open negotiations. It is common in commercial relations as parties tend to negotiate prior to committing to a contract. It cannot be made into a contract by being accepted, an offer must be made in response to it.

Question 19

What are the five main situations established as usually being an invitation to treat?

Answer 19

Advertisements, auctions, requests for tenders, displays of goods for sale and mere statements of price.

Question 20

Why was the advertisement in the matter of Partridge v Crittenden [1968] considered an invitation to treat but the advert in Carlill was not?

Answer 20

In Partridge, a bird was offered for sale in a magazine which was considered an invitation to treat because an offer to purchase the bird is made in response, which can then be accepted by the seller. By contrast, Carbolic’s advert promised to be bound if conditions were performed so is viewed as an offer which can be accepted.

Question 21

Which one of unilateral and bilateral contracts is usually considered an offer and which an invitation to treat?

Answer 21

Generally, an advertisement for a unilateral contract will be viewed as an offer and one for a bilateral contract will be viewed as an invitation to treat

Question 22

In an auction, how are invitations to treat distinguished from offers?

Answer 22

An item with a reserve is an invitation to treat. The offer is the bid on the item and the acceptance is the auctioneer bringing down the hammer. (British Car Auctions v Wright [1972] An item without a reserve is an offer as the auctioneer promises to sell the item to the person placing the highest and final bid (who is the person accepting the offer) (Warlow v Harrison [1859].

Question 23

What is a request for tender?

Answer 23

When someone advertises or writes to relevant parties requesting them to submit a bid or quotation in the hope of securing a contract. Generally considered an invitation to treat unless wording promises to accept a tender meeting specific requirements. The request for the quotes is the invitation to treat, the quotes in response are the offers.

Question 24

What are requests for tenders usually considered to be and what case law established this?

Answer 24

They are usually an invitation to treat, established by Spencer v Harding [1870]

Question 25

What happened in Harvela Investments Ltd v Royal Trust Co of Canada [1986] that meant a request for tenders became an offer and not an invitation to treat?

Answer 25

The request for tenders indicated that the highest bidder would be accepted, and so was an offer that would be accepted by the highest bidder.

Question 26

What is the rule on displays of goods for sale and what case established this?

Answer 26

Displays of goods for sale are considered an invitation to treat, and the offer is made by the customer bringing the product to the checkout and the agreement is completed when the money changes hands. Established in Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953]

Question 27

What are the two reasons why it is important that displays of goods for sale are considered invitations to treat and not offers for sale?

Answer 27

It allows customers to change their minds and put things back on the shelves (instead of being contractually bound to buy something as soon as they pick something up) and it means that in the circumstance of an age restricted product such as alcohol, the seller can choose to accept or decline a purchaser’s offer to buy.

Question 28

What did the Court hold in the case of Clifton v Palumbo [1944] about the statement “I am prepared to sell my Lytham estate for £600,000”

Answer 28

That it was not an offer, but a preliminary statement as to price.

Question 29

Why was there no contract in Gibson v Manchester City Council [1979] when the Council said they “may be prepared” to sell Mr Gibson his council house?

Answer 29

The letter containing that statement and the potential sale price was considered an invitation to treat. Mr Gibson’s application to buy the house was the offer to buy, and as this was not accepted prior to the Council changing its policy and deciding not to sell the house, meant there was no contract.

Question 30

What are the four main circumstances in which an offer will end?

Answer 30

Revocation, rejection (usually by a counter-offer), lapse of time, acceptance.

Question 31

What is the general rule regarding revocation of bilateral offers and what case established this?

Answer 31

They can be revoked at any time prior to acceptance (Payne v Cave [1789]). The offeree must be informed of the revocation and are free to accept an offer until they know it has been revoked.

Question 32

What is the general rule on revocation by post and in what case was this illustrated?

Answer 32

Revocation is only valid when received and not when it is put in the post. Byrne v Van Tienhoven [1888]

Question 33

What is the leading case on revocation by a reliable third party?

Answer 33

Dickinson v Dodds [1876] (in which the offeree was told the seller proposed to sell the house to someone else from a reliable third party)

Question 34

How can an offer be revoked by implication and what case demonstrates this?

Answer 34

By making a second, separate offer prior to the first being accepted. In the case of Pickfords Ltd v Celestica Ltd [2003], Celestica could not accept the first quote as it had been revoked by the second so the attempt at acceptance was instead seen as a counter offer

Question 35

What is the usual rule on revocation of unilateral offers as per Errington v Errington and Woods [1952]?

Answer 35

Revocation of a unilateral offer cannot take place once the offeree begins the act of acceptance

Question 36

What did the Court of Appeal state in Soulsbury v Soulsbury [2007] regarding revocation of unilateral offers

Answer 36

“once the promisee acts on the promise… the promisor cannot revoke or withdraw his offer”

Question 37

What is the general approach to how a unilateral offer should be revoked, and what American case law suggested it?

Answer 37

That reasonable steps should be taken to bring the revocation to the attention of the affected parties, suggested by Shuey v United States [1875].

Question 38

What happens when an offer is rejected?

Answer 38

It is ended. The offeree cannot reinstate an offer once they have rejected it unless all parties are in agreement.

Question 39

What is a counter offer and what is an important case in this regard?

Answer 39

When an offeree answers an offer with another offer containing new terms. This rejects the original offer and the offeree then becomes the offeror. Hyde v Wrench [1840] demonstrates this.

Question 40

What happens when an offeree responds to an offer by trying to add terms to an offer, and what case law shows this?

Answer 40

They are rejecting the original offer and making a counter-offer. Jones v Daniel [1894] is the case law on this point.

Question 41

What is the “battle of the forms” and which party will ‘win’ the battle?

Answer 41

Battle of the forms is the process between commercial parties when negotiating is taking place. As per Butler Machine Tool Co v Ex-Cell-O Corporation (England) Ltd [1979], the ‘winner’ is generally the party who sent their terms last, as each redraft is considered a new offer countering the offer before.

Question 42

What must counter-offers be distinguished from?

Answer 42

Mere requests for further information. The case on distinguishing between the two is Stevenson, Jacques and Co v McLean [1880].

Question 43

How can lapse of time end an offer?

Answer 43

If it has reached a date specified within the offer or a “reasonable time” has passed. What is reasonable will be decided by the court on case facts.

Question 44

What is an example case demonstrating lapse of an offer? (think childhood beach!)

Answer 44

Ramsgate Victoria Hotel v Montefiore [1866]

Question 45

What is acceptance?

Answer 45

A final, unconditional assent to all terms of an offer.

Question 46

In which three ways can acceptance be communicated?

Answer 46

Orally, by conduct or in writing

Question 47

What is the “mirror image” rule in relation to acceptnace?

Answer 47

Acceptance must correspond exactly with the offer terms as well as being final and unconditional. Therefore, if attempted acceptance introduces new terms or it is subject to conditions then it will not be an acceptance but instead a counter offer (Hyde v Wrench [1980]) as it does not mirror the exact terms offered.

Question 48

What is ‘subject to contract’ acceptance?

Answer 48

A form of conditional acceptance which does not initially bind any party as the offer has been accepted on the condition that a formal binding contract can be agreed later. Important in house sales.

Question 49

What is the general rule relating to acceptance which was established in Entores v Miles Far East Corporation [1955]?

Answer 49

Acceptance must be communicated to the offeror.

Question 50

What is the leading case on silence and acceptance and what does the rule prevent?

Answer 50

Felthouse v Bindley [1862] - the rule that silence is not acceptance prevents a contract being imposed on a party who fails to respond to an offer.

Question 51

What rule was highlighted in Friends Life Ltd v Siemens Hearing Instruments Ltd [2014] regarding acceptance?

Answer 51

That if an offeror provides for one particular method of communication of acceptance, then the offeree should comply with this.

Question 52

What is the rule if an offeree states a PREFERRED method of acceptance and what is a case example?

Answer 52

If a preferred method is given, the offeree must accept either by the prescribed method or by any means not less effective. Yates Building Co Ltd v R J Pulleyn & Sons (York) Ltd [1975]

Question 53

Who can communicate acceptance?

Answer 53

Someone authorised to accept (Powell v Lee [1908]).

Question 54

What are the three main exceptions to the rule on communication of acceptance?

Answer 54

acceptance by conduct, acceptance of unilateral offers and acceptance by post.

Question 55

What is acceptance by conduct, and what is the leading case law on this point?

Answer 55

Acceptance by conduct will occur when an offeree has not formally responded to an offer in words but starts to act in accordance with the terms of the same. If the offeror then also acts in accordance with the obligations they suggested in their offer, the courts will likely hold that the offer has been accepted by conduct. Leading case is Brogden v Metropolitan Railway [1877].

Question 56

Which case established that unilateral offers do not require notice of acceptance apart from notice of performance?

Answer 56

Carlill v Carbolic Smoke Ball Co Ltd

Question 57

What is the postal rule and which case established it?

Answer 57

The postal rule states that acceptance sent by post will form a binding contract on the day of posting, not the day of receipt. This was established in Adams v Lindsell [1818].

Question 58

What is the purpose of the postal rule?

Answer 58

To create certainty where one party is at a disadvantage. The courts will favour an offeree (who has done all they can to communicate acceptance by posting the letter) over the offeror (who could have stipulated to exclude the rule if they wished).

Question 59

What are the four main exceptions to the postal rule and the two related case law examples?

Answer 59

It only applies if the letter is stamped and addressed correctly (Korbetis v Transgrain Shipping BV, The Alexia M [2005]). The parties can exclude the rule (Holwell Securities Ltd v Hughes [1974]). It applies only when the post is a reasonable method , for example when the offer itself wasn’t made by a faster method. The rule does not apply if it would “lead to manifest inconvenience and absurdity” as per Holwell Securities.

Question 60

Using the Scottish case law of Dunmore v Alexander [1830], what is the court’s likely position in a case where acceptance is revoked by a quicker method before the posted acceptance has actually been received?

Answer 60

The courts are likely to hold that the contract is invalid. Even though the acceptance is valid as soon as posted, in the case law, the revocation overrode the postal rule.

Question 61

What is the common law rule regarding acceptance by ‘modern’ instantaneous methods of communication whereby an offeree thinks acceptance has been received but an offeror has not yet received it, and in which case was this suggested?

Answer 61

The rule as stated by Lord Denning in Entores v Miles Far East Corporation is that the offeror will be bound if acceptance is communicated by a modern method, because it is the offeror’s own fault they did not receive it (because they didn’t check their email or listen to their voicemails etc.).

Question 62

What did Lord Wilberforce say in Brinkibon Ltd v Stahag Stahl … [1982] in relation to what should be considered when dealing with acceptance by modern methods of communication?

Answer 62

The issue should be resolved “by reference to the intentions of the parties, sound business practice and in some cases by a judgement where the risks should lie”.

Question 63

When, according to Lord Wilberforce (in Brinkibon), does acceptance by a modern method of communication become binding?

Answer 63

If sent during normal office hours, then as soon as it is ‘received’ (i.e. into an email inbox etc.) rather than when it is read. If sent outside of office hours, it will have effect when the sender could reasonably expect it to be read, so usually when the office re-opens.

Question 64

What is the key piece of legislation in relation to contracts formed electronically (such as ordering goods via a website) and what does it state?

Answer 64

Electronic Commerce (EC Directive) Regulations 2002. At reg 11 it states that the contract is formed once a consumer can access the acknowledgement of receipt from the seller.