Contract Law - Offer and Acceptance - Week 3

Question 1

Principles of Contract Law

Answer 1

A contract is also known as a legally binding agreement

Not all agreements are legally binding

Must be at least two parties but there can be more than two

Not all contracts have to be in writing or be in a particular form

As a consumer, your legal rights stem from existence of a contract. For example, if you buy a kettle from a supermarket then your legal rights flow from the contract with the seller

Most people see a contract as a signed document such as a contract for a mobile phone or the hire of a car

Contracts may be made orally or even inferred from conduct of parties

Make simple contracts everyday without considering w’re entering into legal relations, for example getting on a bus or buying something from a shop

Businesses enter into contracts without being aware of consequences and examine fine details of contractual terms in dispute

Question 2

Basic Principles - Essentials of a Binding Contract

Answer 2

To be a legally binding agreement of a contract must have;

• An offer
• Acceptance of that offer
• Exchange of something of value - consideration
• Intention to create legal relationship
• If a contract is valid, if the law states the parties are bound to do as they’ve promised. Parties have rights and obligations flowing from the agreement which the courts can enforce

Question 3

Useful to have a written contract

Answer 3

Help in the event of a dispute to know exactly what was decided

Contract that can have many clauses would be useful for each side to have a written copy of the terms of their agreement

There’s some contracts which must be in writing to be valid such as contracts to sell land under the Law of Property Act 1989, contracts to obtain credit under the Consumer Credit Act 1974, contract of marine insurance

Question 4

What is an offer?

Answer 4

Clear statement of the terms on which one party, (offeror) who makes the offer is prepared to make an agreement with another party

Offeror agrees to be bound by the terms if the offer is accepted

Question 5

What is a bilateral offer?

Answer 5

Exchange of two promises

For example, David agrees to buy a specific car for an agreed price for Tom and Tom agrees to deliver the car in the condition it was at the time of the agreement to David. If it was a new car then Tom must deliver a new car.

Question 6

What is a unilateral offer?

Answer 6

A unilateral offer is a promise

For example, to pay a sum in return for completion of a specific act

Betty may promise to pay £100 to anyone who returns her cat that’s missing. An offer can be made to a particular person, a group of people or to the world. If the offer is restricted, then only those that it’s addressed to can accept it but if the offer is made to the public then it can be accepted by anyone.

An offer can be unilateral or bilateral as it leads to the classification of contracts being either bilateral or unilateral.

Question 7

Offer must be capable of being legally binding

Answer 7

To be capable of being legally binding an offer must have the following;

• The term of the offer must be clearly stated (no ambiguity)
• The offeror must intend to be legally bound
• The intention to be legally bound must be communicated to offeree

Case of Guthing v Lynn (1831) is an example of a vague term.
The buyer of a horse made a promise to give the seller an extra £5 if the horse was ‘lucky for me’. It was held that the phrase ‘was lucky for me’ was too vague to be enforceable as it was hard to know what the buyer meant by the word ‘lucky’ → it could’ve had several meanings depending on the context.

Question 8

Offer terms must be clearly stated

Answer 8

To help solve any uncertainties the parties may turn to several resources to help create certainty

Example = would you like to buy my red car? (vague)

Example = would you like to buy my red car registration DB34 LJK, mileage 54,000 for £10.000? (not vague)

Question 9

Previous dealings and nature of relevant trade

Answer 9

Hillas v Arcos (1932)

Here a contract to supply wood for one year contained an option permitting the buyer to buy more wood next year. There were no other terms. It was held this was a valid offer as the terms could be clarified by looking at the previous dealings between the parties as well as from the custom and practice of the timber trade.

Question 10

Statutory implied term

Answer 10

This is a term contained in a statute/act of parliament

An offer to sell goods that are displayed without a price is valid as s8 Sales of Goods Act 1979 infers that a reasonable price will be paid

Question 11

Arbitration Clauses

Answer 11

An arbitration clause will refer to any disputes, in this case relating to vagueness, to be determined by an arbitrator.

For example, a company may not wish to fix a price in the future for the sale of goods as the product may be subject to heavy price fluctuations. This can occur when buying and selling commodities (what or sugar)

May refer it to an arbitrator for a conclusion if the parties are unable to agree on a price

Foley v Classique Coaches (1934) - Price of petrol was left to be agreed ‘from time to time’. Contract was binding as there was a mechanism in place (arbitration) to solve any disputes. The contract was still enforceable despite the core item not being agreed.

Question 12

Offeror must intend to be legally bound

Answer 12

An offer must be capable of being accepted by the offeree and must be clear that the offeror intends to be legally bound if the offer is accepted

If the offeror doesn’t intend to be legally bound then the offeree can’t accept the offer (because there isn’t one to accept)

Problems arise because some statements look like offers but they’re not:

1) Invitation to treat
2) Negotiations

Question 13

What is an invitation to treat?

Answer 13

Partridge v Crittenden (1968):

The defendant placed an advert in a magazine offering wild birds for sale. It was an offence to sell these birds under the Wild Birds Act 1954. The defendant was found not guilty as the advert wasn’t an offer (could reject or accept). The advert was an invitation to treat.
Products in catalogues, menus and items displayed in shops are known as ‘invitation to treat’, not offers for sale. They’re inviting potential customers to make an offer to buy the product.
All items in stores are invitations to treat and it’s only when a consumer goes to the till to purchase the product that you make the offer to buy

Fisher v Bell:

The defendant, having placed a flick knife for sale in his shop window was accused of ‘offering for sale an offensive weapon. He wasn’t guilty as he hadn’t made an offer. The placing of a flick knife in a window was an invitation to treat and not an offer. The customer makes the offer when he attempts to buy the product and the shop owner can accept or reject this offer.

Pharmaceutical Society v Boots Cash Chemist (1953):

Boots were prosecuted for selling drugs without the supervision of a registered pharmacist. It was held they weren’t guilty as the medicines on display were just invitations to treat and the
offer was made when the customer presented the goods at the till at which a pharmacist was present and the pharmacist could refuse the customers offer if need be.

Question 14

Negotiations

Answer 14

When finalising a contract, the parties will spend time negotiating to iron out all the details.

Problems occur when one party takes one of the negotiation statements as an offer and tries to accept it

A court will have to decide if the statement is an offer or just part of the negotiations

Question 15

Harvey v Facey (1893)

Answer 15

Case concerned the sale of land

Land wasn’t advertised for sale but claimants sent a message asking the lowest price that would be accepted.

Defendant replied saying the lowest cash price for Bumper Hall Pen was £900

Claimant sought to accept the offer and sued when the defendant refused to sell

It was held there was no contract as the statement regarding the price was a reply to a request for information

It was a supply of information

Question 16

Gibson v Manchester City Council (1979)

Answer 16

An existing council tenant contacted the council regarding the purchase of his council house

Council replied stating the council may be prepared to sell and invited a formal application

Tenant applied but his application was rejected due to a change of council policy. It was held that the council letter wasn’t an offer. The offer was made by the tenant which the council rejected.

Statements made in the council’s letter ‘may be prepared to sell..’ and ‘to make formal application’ were an invitation to treat and not an offer. Gibson made the offer by sending in the application form. There wasn’t acceptance by the council and therefore no contract had been made

Question 17

Intention to be legally bound must be communicated to the offeree

Answer 17

Offeree must know of the offer and its terms to be able to accept it

A person can’t accept an offer which they’re unaware of. If a person offers a reward for the return of a lost watch and someone returns it without knowing about the offer, they can’t claim the reward

An offer can be accepted in many ways such as word of mouth, in writing or by gesture, e.g. when you take goods to the cashier in a shop.

Bilateral offers are commonly made to one other person

Unilateral offers can be made to the whole world and if this is the case then there may be several acceptances of the offer.

Question 18

Carlill v Carbolic Smoke Ball Co (1893)

Answer 18

A smoke ball company advertised their smoke ball for sale stating it could prevent influenza. They promised to pay £100 to any person who used the smoke ball correctly and caught influenza and they also placed the money in a local bank to show their sincerity.

Mrs Carlill bought the smoke ball, used it then caught influenza so she claimed £100.

Company said the advert was a advertising puff but it was held that the advert was an offer and the placing of the money in a bank was taken as intention of an offer

The case established that offers can be made to the whole world and that adverts can be offered.

Question 19

Termination of Offers

Answer 19

Offers if not accepted can come to an end in several ways

1) Death:
- If the offeror dies then the offer normally dies too. It’ll survive if it can be performed by someone else
For example, a debt can be satisfied out of someone’s estate

2) Rejection and Counter Offers:
- If an offer is rejected it will cease to exist
For example, if someone offers to sell their bicycle for £20 and you say ‘no thanks’ then the offer is no longer valid. If you decide that £20 isn’t a bad price and you’d like to buy the bike after all, when you offer to buy it, you’ll be making a new offer that can be rejected or accepted.

A counter offer works in a slightly different way:
- Offer to sell a bike for £20 and you say ‘Will you accept £15’, this is a counter offer as you’re attempting to vary the terms of the original offer. A counter offer is a rejection and a new offer but is termed a counter offer

Question 20

Hyde v Wrench (1840)

Answer 20

The defendant offered to sell his farm for £1000. The claimant said he wanted to pay £950 but then he came back saying he would pay the full price.

It was held that the statement to pay £950 was a counter offer which destroyed the original offer. The subsequent statement to pay the original price was a fresh offer.

Question 21

You’ll need to be aware of the consequences if a party asks for clarification (or requests further information), this isn’t a counter offer or outright rejection so it won’t destroy the offer

Answer 21

Stevenson v McLean (1880):
- Held that an offer to sell iron at a certain price wasn’t destroyed when the offeree enquired if delivery payment could be made in instalments. These inquiries didn’t destroy the original offer.

Question 22

3) Lapse of Time

Answer 22

Ramsgate Hotel v Montefiore (1866)

A defendant applied for shares in a company in June but didn’t hear back until November.

It was held that no contract had been formed as the time between the offer and acceptance was too long → offer had lapsed.

Question 23

4) Revocation

Answer 23

Dickinson v Dodds (1876):

Dodds made an offer to sell property to Dickinson but sold it to a third party before Dickinson had time to respond. Dickinson heard about the sale from a third party but still tried to accept the offer (even though he knew the house had been sold). Offer had been revoked so couldn’t be accepted.

Offers can be withdrawn at any time before acceptance but it’s only effective if the offeree knows of the withdrawal. Notice of withdrawal can be in person or it can be assumed that the offeree knows by other means

Question 24

Last thoughts on termination of offers

Answer 24

With a unilateral offer (offer made to the whole world) the offeror must take reasonable steps to state the offer is no longer open.

E.g. an advert placed in the same way as the original offer to this effect would satisfy

Unilateral - if someone has begun but hasn’t completed the act required, for example, return of a lost pet then the offer can’t be revoked for the person as it’s not fair

Question 25

Acceptance

Answer 25

The offeree, by accepting the offer agrees to be bound by all the terms of the offer
Acceptance must be;

• A mirror image of the offer
• Unconditional
• Communicated to the offeror

Acceptance can be by words, oral or written, or may be implied from conduct. The courts will only infer acceptance through conduct if it appears reasonable to conclude that the actions of the offeree showed an intention to accept the offer

Question 26

A mirror image of the offer

Answer 26

Offeree must accept the offer given, anything else can be viewed as a counter offer → when an offeree tries to introduce new terms.

Neale v Merrett (1930):
- One party offered to sell property for a £280 lump sum. The other party accepted by sending £80 and promising to pay the remainder by monthly instalments. This was ineffective as the offeree hadn’t accepted the original sum offer

Question 27

Unconditional Acceptance

Answer 27

If there’s a condition attached it’s not binding as it’s not mirroring the offer.

Offeree must agree to the exact terms set out in the offer made by the offeror

Question 28

Acceptance must be communicated to the offeror

Answer 28

Communication is only effective if made by an authorised person

Question 29

Methods of Communication - Conduct

Answer 29

Conduct - Brogden v Metropolitan Railway Co (1877):

Brogden has been supplying coal to the railway company for years. The company suggested they should form a new contract and duly sent a draft to brogden.

Brogden added a few terms of his own, including the name of an arbitrator, marked it as approved and sent the signed form back to the railway company. The parties continued the trade.

It was held that the contract sent by brogden had been accepted by conduct and the contract sent by brogden was a counter offer accepted by the company when they placed an order

Question 30

Methods of Communication - Verbal

Answer 30

Acceptance is only valid when the offeror knows of the acceptance. This is straightforward when parties are face to face but more problematic when they’re not.

Acceptance by telephone is held to be effective only on being heard by the offeror.

Problems can arise if an oral contract is being made over the phone when there could be interference on the line and the offeree is unaware that the offeror hasn’t heard his acceptance.

Question 31

Postal Rule

Answer 31

Rule states that an acceptance of an offer is valid when it’s posted. This is an exception to the general rule that communication needs to be communicated.

Question 32

Adam v Lindsell (1818)

Answer 32

2nd September, the defendants sent a letter of an offer to sell wool to the claimant, they stated that any acceptance must be by return of post. The letter was wrongly addressed so didn’t arrive until the 5th september.

Claimants posted their acceptance immediately which arrived on the 9th. On the 8th, believing the claimants didn’t want the wool, the defendants sold it to a third party. Claimant sued for breach of contract.

it was held that the claim should succeed. The claimant had complied with the terms of the offer by posting the acceptance immediately. Once the letter was posted it accepted the offer and the delay in communication was the fault of the defendants.

Even if the letter never arrived, it’s still valid acceptance provided, it’s not the fault of the sender because the letter wasn’t addressed correctly or stamped.

Question 33

What rule can’t offerors waive?

Answer 33

Communication rule

Question 34

FeltHouse v Bindley (1862)

Answer 34

Claimant offered to buy a horse and said he would assume the seller agreed unless he heard differently. The seller intended to accept and asked the horse to be withdrawn from auction but it was sold by mistake.

The claimant sued the auctioneer. His claim failed as he wasn’t the owner of the horse. The seller had never communicated acceptance to the buyer and it still belonged to the seller when it was sold.

In a bilateral contract, the silence of the offeree can;t be accepted. The offeror states that he will assume the offeree accepts unless he states he doesn’t.

Question 35

Offeror may require a specific method of communication

Answer 35

Parties are free to contract on terms that suit them so those making offers are free to state the method of acceptance.

Question 36

Unilateral Contracts

Answer 36

When a person makes an offer to enter into a unilateral contract, he impliedly indicates that he doesn’t require notification of acceptance of the offer.

A person who offers £100 for the return of their lost dog doesn’t expect every person who may find the dog to first contact the offeror to inform him of their intention to return the dog when they find it.

In the Carlill case, Mrs Carlill wasn’t required to inform the Carbolic Smoke Ball Company that she was accepting their offer before using the smoke ball.

This rule on unilateral contracts and the postal rule are two exceptions to the rule that acceptance must be communicated.