Formation Of A Contract

Question 1

Re Hudson (1885):

Answer 1

Hudson had promised to pay 4000 pounds a year for five years to a religious charity to help it pay off chapel debts. He died before the two final installments can be paid and his executors claimed that his estate was not liable for the remaining 8000 pounds as there was no binding contract and law. The judge ruled that no consideration had been given by the charity in exchange for Hudson’s promise. The promise was gratuitous, and there was no contract in any legal sense of the word. Thus Hudson’s estate is not liable for the remaining installments.

Question 2

Storer v Machester City Council (1974):

Answer 2

In contracts you do not look into the actual intent in a man’s mind. You look at what he said and did. A contract is formed when there is, to all outward appearances, a contract.

Question 3

RTS Flexible Systems v Molkerei (2010):

Answer 3

Whether there is a binding contract between the parties, and if so, upon what terms that depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct.

Question 4

Gibson v Manchester City Council (1979):

Answer 4

My Lords there may be certain types of contract, though I think they are exceptional, which do not fit easily into the normal analysis of a contract is being constituted by offer and acceptance, but a contract alleged to have been made by an exchange of correspondence between the parties in which the success of communications other than the first are applied to one another is not one of these.

The conservative controlled Manchester city Council advertised the details of a scheme for tenants to buy their counsel houses from the corporation and the claimant expressed interest and asked to be told the price of buying his house. The city treasurer wrote in reply: “the corporation may be prepared to sell the house to you at 2180 pounds, but the letter was not to be regarded as a firm offer of a mortgage. Those quote the claimant had to fill in a form to make a formal application, which he did, leaving blank the purchase price and listing certain defects in the property. He was told by the Council that the price had been fixed in accordance with the condition of the property, and wrote that he wished to go ahead on the basis of his application. The Council took the house off the list of tenant occupied houses which had to be maintained by them, and put it on their house purchase list. As a result of a local election, labor gain control of the Council and reversed the policy of selling council houses. They would sell only those houses where you legally binding contract had already been concluded.

The trial judge and the Court of Appeal decided that there was a contract and ordered specific performance (i.e. an order compelling the Manchester Council to sell the property to the claimant). In the Court of Appeal, Lord Denning stated that the parties appeared to have reached agreement on all the material terms, and this was evidenced by their correspondence and conduct. He thought that it did not matter that all the formalities have not been gone through. He was critical of the traditional offer and acceptance approach, and that received the response from Lord Diplock, indicated earlier, that there are exceptional situations where it is not appropriate, but that it generally is, and particularly in a case concerning the chain of communications, each in response to the other.

The House of Lords allowed the Council’s appeal and made it clear that the Council’s statement of the price of the house was not an offer to Mr. Gibson. He was merely one stage in the negotiating process. The language of the treasurers letter indicated this with the praises: “may be prepared to sell”. In reply to the argument that the parties agreement could be shown by their conduct, it can be said that their conduct was equivocal. The house was taken off the list of properties maintained by the Council, but this could merely indicate that the house was expected to be sold in the near future, and not that an agreement had been reached. In addition, to the force of the use of the phrase “may be prepared to sell,” as indicating that the treasurer’s letter was not an offer, there was also the uncertainty over whether the claimant would be granted a mortgage: Would the claimant have wanted to go ahead if he had been unable to obtain one? Would he have expected to be obliged to do so? The success of communications between the parties show that they were feeling their way around towards an agreement, but that the negotiations had not yet ripened into a contract.

Question 5

Harvey v Facey (1893):

Answer 5

The claimant sent a telegram to the defendant: “Will you sell us Bumper Hall Pen? Telegraph lowest cash price.” The defendants telegram replied: “lowest price for bumper Hall pen, 900 pounds.” The claimant’s final telegram purported to accept this offer and agreed to buy the property for 900 pounds. The privy Council held that there was no contract, as the defendant was not making an offer merely by responding to the claimant’s request for information. There was no clear intention by the defendant to be found simply by the claimant’s expression of assent.

Question 6

Bigg v Boyd Gibbins Ltd [1971]:

Answer 6

During the course of negotiations for the sale of his property to the defendant, the claimant stated that” for a quick sale he would accept 26,000 pounds.” The defendant replied by the letter that he accepted this offer. The claimant wrote back, expressing his pleasure at the defendant’s decision and stating that he was putting the matter in the hands of his solicitor to proceed with the sale. The Court of Appeal held that the impression given by these communications was that the parties intended to and did achieve the formation of a contract.

Question 7

Spencer v Harding (1870):

Answer 7

The defendant sent out a circular: “we are instructed to offer certain business stock to the wholesale trade for sale by tender”. The claimant’s tender for the stock was the highest that the defendant received, but the defendant refused it. The claimant’s contention was that the circular amounted to an offer and contained a promise to sell to the highest bidder. Generally, advertisements are not regarded as offers, but the claimant tried to draw an analogy with advertisements of rewards for information, where there is a promise to pay the first person who supplies the information. But the court rejected this line of reasoning; there was no promise to sell to the highest bidder.

Question 8

Harvela Investments Ltd v Royal Trusts Co. of Canada (1984):

Answer 8

D1 owned a parcel of shares which would give effective control of the company to either the claimant or D2, who were rivals bidding for the shares. D1 Invited both parties to submit, by sealed bid, a single offer for the whole parcel by a particular time and date. In making the invitation, they stated that: “we find ourselves to accept the highest offer.” The claimant made a single bit, but D2’s bid was really to bids, being (a) for a fixed monetary amount (which was less than that bid by the claimant); and (b) a referential bid which offered 101,000 pounds in excess of any other offer that D1 received. D1 Accepted D2’s referential bid and entered into a contract with them for the sale of the shares. The claimant claimed that D2’s successful bid was nonvalid as it was not within the terms of the original invitation to bid (because it was not a single offer). The claimant succeeded in this action. Despite reversals in the Court of Appeal, the House of Lords restored the original decision in the claimant’s favor.

Question 9

Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990]:

Answer 9

The defendant counsel Bowden Airport, from which it permitted an air operator to run pleasure trips. This concession had been granted to the claimant club on previous occasions. On the expiry of the last concession, the Council invited the claimant and six other parties to tender for the rights to operate pleasure flights from the airport. A very clear procedure for submitting bids was laid down by the Council, and it was stated that the tenderers received after noon, 17 March 1983, would not be considered. Only the claimant and two others responded to this invitation. The claimant’s tender was put in the town hall letterbox one hour before the deadline, but due to an oversight the letter box was not cleared by the Council staff at noon that day as it was supposed to be. The Council accepted that this was due to administrative error. The claimant’s tender was recorded as late, and was not considered. The claimant contended that the counselor was contractually bound to consider any tender that was validly made, and received, by the deadline. It sought damages from the Council.

It was clear from the wording of the Council’s invitation to tender that it was not promising to accept the highest tender and received. But was it bound at least to consider all tender submitted within the specified period? The Court of Appeal held that the Council is liable in damages to the club for breach of contract. It held that, in certain circumstances, an invitation to tender could give rise to a contractual undertaking by the inviter to consider tenders which conforms with the stipulated conditions of tender.

Question 10

Grainger & Sons v Gough [1896]:

Answer 10

The transmission of such a pricelist does not amount to an offer to supply an unlimited quantity of the wine described at the price named, so that as soon as an order is given there is a binding contract to supply that quantity. If it were so, the merchant might find himself involved in any number of contractual obligations to supply wine of a particular description which he would be quite unable to carry out, his stop of wine of that description being necessarily limited.

Question 11

Carlil v Carbolic Smoke Ball Co (1893):

Answer 11

The defendant company place an advertisement in the newspaper offering a reward of 100 pounds to anyone who bought one of its smoke balls, and used it in the prescribed manner, and yet caught influenza. The advert stated that, to show its sincerity in the matter, the company had deposited 1000 pounds with its bank. Relying upon the advertisement, the claimant bought a smoke ball and used it as directed – and, needless to say, still caught influenza. The claimant sued successfully for the 100 pound reward and the defendant company appealed against the decision.

It was argued that the other was too vague and that the defendants did not intend to be bound by it. The arguments were rejected by the Court of Appeal which held that both of the meaning and the effect of the advertisement were clear, particularly with the statement as to the deposit of 1000 pounds. It was also argued that there was no contract, as the claimant had not notified the defendants of her acceptance. However, although acceptance does generally have to be communicated, this is not the case where the offer is unilateral. The contract is made by carrying out the relevant act or condition.

Question 12

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953]:

Answer 12

Had to be decided at what point the contract is concluded in a self-service shop where the goods are priced and displayed on shelves, selected by customers, and then taken to the cash desk for payment. The case arose under section 18 (1) of the Pharmacy and Poisons Act 1933 which stated that “it shall not be lawful – (a) for a person to sell any listed poison, unless the sale is effected by, or under the supervision of a registered pharmacist.” The case was brought to establish whether the defendants were breaking the law by positioning their registered pharmacist adjacent to the cash desk. If the display of goods on the shelves were regarded as an offer to sell, and could be accepted by the customer when they were picked up and put into the basket provided, then the defendants were breaking the law, as the sale would not be supervised by the pharmacist as required by the statute. But if the display of items was merely an invitation to treat and it was the customer who made the offer at the cash desk, then Boots were complying with the law. It was decided that the contract was concluded at the cash desk. The customer made the offer, and this could be accepted or rejected by the defendants. Therefore, sales were supervised by the registered pharmacist.

The court took the line that if the display of items on the shelf amounted to an offer, a customer who picked up items and put them into the basket provided with thereby accept the offer and be contractually bound to pay for the goods even if the customer later changed his or her mind and did not want the goods.

Question 13

Fisher v Bell (1961):

Answer 13

It was also held that the display of a flick knife in a shop window is not an offer to sell it.

Question 14

Payne v Cave (1989):

Answer 14

The auctioneer is merely inviting offers from bidders, but she can either accept or reject. 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. An offer cannot be withdrawn once it has been accepted, but it may be revoked at any time before acceptance has occurred.

Question 15

Barry v Davies (2001):

Answer 15

Two machines were advertised for sale by auction without reserve. The claimant was the sole bidder in his bid of 200 pounds for each of them fell a long way short of the commercial value of the machines. The defendant, the auctioneer, refused to sell the machines to the claimant and withdrew them from the sale. The trial judge and the Court of Appeal held that, in doing this, the defendant was in breach of contract. In an auction sale without reserve, it was not open to the auctioneer to reject the highest bid: in this case the only bid; simply because it was not high enough.

Question 16

Routledge v Grant (1828):

Answer 16

The offer may generally withdraw the offer even if it was expressly stated that it would remain open for a fixed period, unless there was consideration for such a promise (i.e. a separate contract that the main offer would remain open for a specified period – a collateral contract).

The defendant offered to take a lease of the claimant’s premises, giving the claimant six weeks to make up his mind. Three weeks later, the defendant withdrew the offer and, afterwards, the claimant purported to accept within the six week period. The court held that there was no contract, as the defendant was free to withdraw the offer at any time before acceptance by the offeree. Despite the defendants promise, the offer did not have to remain open for six weeks.

Question 17

Dickinson v Dodds (1876):

Answer 17

The defendant made an offer to the claimant for the claimant to buy certain land from the defendant for 800 pounds, and the defendant promised that the offer would remain open for two days (until 9 AM on 12 June). But the defendants sold the land to someone else on 11 June, and the claimant learned of this later the same day, by chance, via a third party. The claimant then proceeded to notify the defendant of his acceptance of the offer before 9 AM on 12 June. The Court of Appeal held that the claimant’s action for specific performance failed, as there was no contract between the claimant and the defendant. We’ve seen already that a promise to keep and offer open for a specific period is not, by itself, binding on the offeror.

Question 18

Hyde v Wrench (1840):

Answer 18

An offer is terminated if the offeree rejects the offer. It is not possible for the offeree to subsequently change his or her mind and accept. It will be seen that a counter offer amounts to a rejection of the original offer.

Question 19

Stevenson, Jacques, & Co v McLean (1880):

Answer 19

The offer he does not make a counteroffer, where he or she merely seeks further information from the offeror.

Question 20

Ramsgate Victoria Hotel Co. v Montefiore (1866):

Answer 20

An offer to buy shares, which was made in June, could not be accepted in November.

Question 21

Bradbury v Morgan (1862):

Answer 21

If it is an offer of a personal contract (involving a personal services such as employment or agency), the offer should come to an and with the death of the offeror. Otherwise, it is possible for an offer to continue even after the death of the offeror, where the offeree accepts without knowing of the offeror’s death. In this event the obligations under the contract will fall on the offeror’s personal representatives.

Question 22

Jones v Daniel (1984):

Answer 22

the defendant wrote an offer to buy the claimant’s property for 1450 pounds and received a reply from the claimant’s solicitor which purported to accept the offer, and enclosed a contract for the defendant’s signature. However, the document contained important new terms, they were not part of the defendant’s original offer, and the defendant refused to sign it. It was held that there was no contract between the parties. The letter from the claimant’s solicitor (with its draft contract) was not an acceptance, but counteroffer, which the defendant was free to accept or reject. Similarly, if a person offers to pay a fixed price for services and materials, this will not be accepted by a promise to provide the services and materials at a variable price.

Question 23

Hyde v Wrench (1840):

Answer 23

the defendant made a written offer to sell this farm to the claimant for 1000 pounds, to which the claimant replied that he would give 950 pounds for it. The defendant refused to sell at the lower price and, a few days later, the claimant wrote to the defendant agreeing to pay 1000 pounds for the property. The defendant had not withdrawn his original offer, but he now refused to sell to the claimant. The court held that there was no contract. The claimant’s counter offer of 950 pounds was a rejection of the defendant’s original offer and brought it to an end. It could not be revived afterwards by the claimant simply purporting to accept it.

Question 24

Stevenson, Jacques & Co v McLean (1880):

Answer 24

the defendant wrote to the claimant offering to sell a quantity of iron at 40s per ton net cash, and stating that the offer will remain open until the following Monday. It was clear from communications between the parties that the claimant, in turn, was looking for buyers and that the market was unsettled. Early on Monday morning, the claimant sent the defendant a telegram: “please wire whether you would accept 40 for delivery over two months, or if not, longest limit you would give.” The defendant did not answer the claimant’s question and sold the iron to a third party. On Monday afternoon, the claimant (having had no reply) sent another telegram accepting the defendants offer to sell at 40s cash. The claimant’s final telegram was sent before the defendants withdrawal of the offer reached the claimant. The claimant sued for breach of contract, and the defendant claimed that the claimant’s telegram of Monday morning amounted to a counter offer and therefore rejection of the defendant’s offer. The court ruled in favor of the claimant. The claimant did not make a counter offer.

Question 25

Brogden v Metropolitan Rly Co. (1877):

Answer 25

B had supplied the Metropolitan Railway Company with coal for some years without a formal agreement. The parties decided to formalize their transactions and the Metropolitan Railway Company sent B a draft agreement. B completed certain details in the draft which had been left blank, including the name of an arbitrator, and B then signed it and wrote “approved,” and returned it to the Metropolitan Railway Company whose manager put it in his desk. Nothing further was done formally with the document, but for some time the parties acted in accordance with its arrangements by supplying and paying for the coal. Finally a disagreement arose and B denied that there was a binding contract between the parties.

The addition of the arbitrator’s name by B was a new term, and therefore a counteroffer. Did the Metropolitan Railway Company accept this offer? Obviously, the manager merely putting the document in his desk could not amount to acceptance. Not only was it an equivocal action, it also did nothing to communicate to the other party. However, the Metropolitan Railway Company Pl. in order for, and accepted call, on the basis of the agreement.

Question 26

Felthouse v Bindley (1962):

Answer 26

The claimant entered negotiations with his nephew, J, for the purchase of J’s course. He wrote to J, shortly after, offering to buy the horse and stating: “if I hear no more about him, I consider the horse is mine at 30 pounds 15s.” J did not reply to his uncles letter, but he did instruct the auctioneer (D) not to sell the horse along with his, J’s, farming stock. D forgot this instruction in six weeks after C’s letter, the horse was sold by D to another person. C sued D for conversion (in tort) basing his action on the contention that there was a concluded contract between C and J for the sale of the horse, and that, therefore, the horse belonged to C at the time of the auction. But was there a binding agreement between C and his nephew?

The court decided that the action for conversion failed. Although the nephew may have decided to sell the horse to his uncle, there is no communication of this decision to the uncle. Accordingly, there was no binding agreement between C and J, and the horse never became the uncle’s property. This illustrates that X cannot turn Y’s silence into acceptance, merely by stating that it is to be the case.

Question 27

Adams v Lindsell (1818):

Answer 27

the defendant wrote to the claimant offering to sell wool and requested a reply in the course of post. The defendant misdirected the letter and this caused it to be delayed for a couple of days. On receiving the letter, the claimant replied immediately, by posting a letter of acceptance. After the claimant’s acceptance was posted, but before it arrived, the defendant sold the wool to a third party, in the belief that the claimant was not interested. The court decided that a contract was concluded between the defendant and the claimant when the letter of acceptance was posted by the claimant.

Question 28

Holwell Securities Ltd v Hughes (1974):

Answer 28

the defendant offered to sell a house to the claimant in the form of an option exercisable by notice in writing to the intending vendor (the defendant) at any time within six months. Within the six-month period, the claimant solicitors wrote to the defendant, notifying him of the claimant’s acceptance of the offer. The letter was correctly stamped, addressed, and posted, but it never arrived. A copy was received by the defendants solicitor, but the claimant admitted that this was not sufficient notice. No other written acceptance was given or sent to the defendant before the time limit expired. The claimant claimed specific performance, arguing that the contract was concluded on posting the letter of acceptance to the defendant.

The Court of Appeal decided that the offer, stipulating actual notice to the defendant could not be accepted merely by the claimant posting a letter of acceptance. The offer was so framed as to require that the acceptance be received by the offeror, and therefore the postal rule did not apply.

The offeror can stipulate that the acceptance must be made in a particular way. He or she may require to be sent to a certain place, or to take a particular form, such as by letter or fax. In order to complete a binding agreement the offeree must normally comply with prescribed methods of acceptance. If the offeror stipulates a particular form of acceptance, and states that only the stipulated form will suffice, the offeree must comply with the offerors requirement in order for there to be an effective acceptance. However, the offeror may have requested a particular method of acceptance for specific purpose, for example, to obtain a speedy reply. If the offeree uses some other method which equally achieves the offeror’s purpose, this should be a valid acceptance.

Question 29

Entores Ltd v Miles Far East Corporation (1955): **

Answer 29

in the early days of its existence, the postal rule was extended to acceptance sent by telegram. However, when it came to be considered whether it should be extended to communication by telex the courts concluded that it should not be: the general rule applied, and acceptance was not effective until received.

Question 30

Henthorn v Fraser (1892): *****

Answer 30

Use of the post must be reasonable for the postal rule to apply.

Question 31

David Baxter Edward Thomas and Peter Sandord Gander v BPE Solicitors (a firm) (2010): **

Answer 31

The view was taken that the postal rule is not applicable to email as it was instantaneous. One problem with this is that there is no consensus as to whether email is instantaneous, but this is hardly surprising.

Question 32

Carlil v Carbolic Smoke Ball Co. (1893): *****

Answer 32

The offeree does not have to communicate acceptance to the offeror, and the offeree never becomes obliged to do anything. It is simply that, if the offeree carries out the relevant acts, the offeror is obliged to make the promised payment, or carry out the promise act.

Question 33

Errington v Errington and Woods (1952): *****

Answer 33

the father wanted to provide his son and daughter-in-law with the home and he bought a house for 750 pounds, borrowing 500 pounds on a mortgage from the building society. The ownership of the house remained in the father’s name, and he also paid the rates. He promises son and daughter-in-law that if they continue to occupy the house and paid all the mortgage installments, he would transfer the property to them. Until the father’s death nine years later, the couple occupy the house and pay the mortgage. On the death of the father all of his property including the house occupied by the couple, was left to his widow. The sun left the daughter-in-law and moved out of the house. The widow brought an action for possession against the daughter-in-law. The Court of Appeal decided that the widow is not entitled to possession.

The father’s promise was a unilateral contract – a promise of the house in return for their active paying the installments. He could not be revoked by him once they coupled entered on performance of the act, but it would cease to bind him if they left it incomplete and unperformed.

Question 34

Gibbons v Proctor (1891):

Answer 34

the court appear to decide that ignorance of an offer did not preclude a person from claiming a reward where he gave information, and then later learned of the existence of the offer.

Question 35

Tinn v Hoffmann:

Answer 35

cross offers. It is thought that there is no contract and the situation was one of the parties replies to the other except the others offer. He would lead to uncertainty if cross offers, with nothing further, amounted to a binding agreement.

“only this method of acceptance will do.”

Any equally expeditious form of acceptance will do, unless the stated otherwise by the offeror.

Question 36

British Road Services Ltd v Arthur V Crutchley & Co Ltd (1968):

Answer 36

applying the traditional rules of offer and acceptance, the party who last gets in his or her standard terms, which the other party then acts upon, wins. This is often put in terms of the party who fired the last shot at winning. The claimant’s delivered goods to the defendants warehouse and presented a delivery note which stated: “all goods are carried on the claimant’s conditions of carriage.” However, when the claimant’s driver presented the delivery note to the defendants, he was rubberstamped by the defendants with the words received under the defendants conditions. In this way the delivery note was transformed into a note of receipt and handed back to the claimant’s driver. In the course of action for negligence against the defendants, it was disputed whose conditions prevailed. Although the defendants were liable to the claimants and negligence for not adequately protecting the goods against the, the Court of Appeal held that the defendant’s liability was limited in accordance with their conditions which were incorporated into the contract between the parties. The defendants, rather than the claimants, conditions prevailed as they got in the final word or “shot,” without any further riposte from the claimants.