Formation of Contract

Question 1

How do the courts distinguish between an offer and an invitation to treat?

Answer 1

Establish whether intention to be legally bound. If yes, then offer.

Question 2

The Satanita [1897]

Answer 2

Conduct alone can demonstrate offer and acceptance.

2 yachts in sailing club race, undertook to be bound by rules. One sank other.
Liable for all damages arising from a breach of rule. Could sue other yacht.

Question 3

The supply of information is not an offer.

Answer 3

Harvey v Facey

Sale of Bumper Hall Pen, asked for price. Replied with lowest price. H agreed but F did not respond. No contract as no intention to sell/be legally bound.

Question 4

Definition of an offer

Answer 4

“An offer is an expression of willingness to contract on specified terms, made with the intention that it is to become binding as soon as it is accepted by the person to whom it is addressed.”

(E. Peel, The Law of Contract (13th edn, Sweet & Maxwell, 2011) at p8)

Question 5

Why is an advertisement normally an invitation to treat?

Answer 5

Because otherwise advertiser would have binding contracts with everyone, even when supplies have run out.

Question 6

The advert of protected birds was not an offer

Answer 6

Partridge v Crittenden [1968]

Advert in cage and aviary periodical. Presumed in favour of advert as practical sense - be difficult to supply if bound to supply everyone who accepted.

Question 7

U.S. example of how advert can be offer if specific enough

Answer 7

Lefkowitz v Great Minneapolis Surplus Store

Advert for 3 fur coats for $1 each, first come first served. Advert limited to three customers so clear intention to make offer to first three customers.
US LAW NOT BINDING.

Question 8

Flick knife with price tag in window is not an offer.

Answer 8

Fisher v Bell

Criminal offence to offer flick-knives for sale. Display in window did not constitute an offer and was an invitation to treat.

Question 9

Display on shop self is an invitation to treat

Answer 9

Pharmaceutical Society of Great Britain v Boots Cash Chemists

Customer offers to buy by taking product to till where normally accepted by pharmacist. (About sale of poisons without supervision of pharmacist).

Question 10

Vending machines/car park machines amount to an offer, customer accepts by putting coins in

Answer 10

Thorton v Shoe Lane Parking Ltd

Question 11

Advert that an auction will be “without reserve” creates contract for auctioneer to sell to highest bidder

Answer 11

Warlow v Harrison (1859)

Sale of horse. Owner outbid claimant but this not bona-fide bidder. Auctioneer contract with claimant to sell.

Question 12

Advert that auction will take place on certain day is invitation to treat

Answer 12

Harris v Nickerson (1873)

Question 13

A tender may be an offer where it indicates that the highest or lowest bid may be accepted

Answer 13

Harvela Investments v Royal Trust Company of Canada [1986]
Invitation of companies to make bids for shares. Highest to be accepted. But one submitted referential bid too (i.e. or $101,000 in excess of any other bid submitted). Could not accept. Had to accept highest fixed bid.

Question 14

What is a unilateral offer?

Answer 14

An offer that is not made to a specific person. It can be made to the public - Carlill v Carbolic Smoke Ball Company.

Question 15

Carlill v Carbolic Smoke Ball Company [1893]

Answer 15

Unilateral offer.
Offered £100 to anyone who caught influenza after correct use of their product (smoke ball). Advert stated that had deposited £1000 in bank.
Held to be a fully binding contract - intention to be bound by deposit. Acceptance by performance of condition. Made a unilateral offer to purchasers.

Question 16

What is a bilateral offer?

Answer 16

An offer made to a specific person. Both parties are identified as taking on an obligation, normally by promising the other party something.

Question 17

An offer is effective when…

Answer 17

it is communicated to the offeree.

Question 18

No contract where 2 identical cross-offers are simultaneously made in ignorance of each other

Answer 18

Tinn v Hoffman & Co

H wrote to T offering to sell 800 tons of iron at 69s. per ton; on the same day, T wrote to H offering to buy 800 tons at 69s.
Unaware of the other’s offer so no binding contract.

Question 19

Offer by rendering services must be communicated to the other party.

Answer 19

Taylor v Laird (1856)

Otherwise no opportunity of rejection and no presumption of acceptance.
Without L’s knowledge, T helped to bring L’s vessel home; Held: no contract. Need unequivocal acceptance.

Question 20

What is the ‘mirror image’ rule for acceptance?

Answer 20

Acceptance must be absolute, unconditional & unequivocal

Question 21

A counter-offer ‘kills’ the original offer

Answer 21

Hyde v Wrench

Cannot accept the original offer once you have made a counter-offer.
Negotiations over sale price of farm.

Question 22

An inquiry as to whether the offeror will change his terms is not a counter-offer

Answer 22

Stevenson, Jacques & Co v McLean

Inquiry as to whether the offeror would accept credit rather than cash payment for delivery of iron. Mere inquiry does not modify terms of contract so can still accept original offer.

Question 23

‘Battle of the forms’ - the party firing the ‘last shot’ prevails

Answer 23

Butler Machine Tool Co Ltd v Ex-Cell-O Corporation

Parties try to contract on their own standard terms. The last one used when offer accepted prevails.

Question 24

Communication of acceptance rule?

Answer 24

Generally: acceptance is incomplete until it is communicated to offeror.
Main exception: postal rule.

Question 25

Acceptance can be inferred through conduct

Answer 25

Brogden v Metropolitan Railway

B suggested formal contract for long-term supply of coal. Met drew up terms of agreement, B inserted arbitrated, wrote approved and sent back contract. M filed document and did nothing else. Serious dispute occurred and B denied binding contract as M never showed acceptance.
Held: acceptance communicated by acting in agreement with contract.

Question 26

The offeror may expressly or impliedly waive the need for communication of acceptance.

Answer 26

Bowen LJ in Carlill v Carbolic Smoke Ball Co

Question 27

If communication of acceptance is drowned out by sound of aircraft overhead or telephone line drops dead then no contract at that moment

Answer 27

Denning LJ in Entores Ltd v Miles Far East Co

Question 28

What is the postal acceptance rule?

Answer 28

Contract is formed once the letter of acceptance is posted.

Also determines where contract formed - where posted.

Question 29

Postal rule: Adams v Linsell

Answer 29

Not necessary for the acceptance to have reached offeror as long as it has been posted.
Could not argue that acceptance too late (reply for due course of post) as offeror posted original letter incorrectly addressed.

Question 30

The postal rule does not apply to revocations of offers

Answer 30

Henthorn v Fraser

Revocations of offers are only communicated when they reach the offeror. If an acceptance has been posted it is binding, unless the offeror has already received the revocation.

Question 31

Consequence of postal rule: offeror bears the risk of the acceptance being delayed or lost

Answer 31

Household Fire and Carriage Accident Insurance v Grant

D applied for shares in C’s company. Company allotted the shares to D. Company posted to D a letter containing the notice of allotment. D never received the letter.
Held: D was a shareholder.

Question 32

Offeror may exclude the postal acceptance rule

Answer 32

Holwell Securties Ltd v Hughes

Postal rule should not apply where it would lead to manifest inconvenience or absurdity.
Given 6 months to respond ‘by notice in writing to D’. Letter posted week before never arrived, no contract as not got to D.

Question 33

Where delay or loss of postal acceptance is due to offeree’s fault (e.g. wrong address), contract only formed if and when offeror receives acceptance

Answer 33

Getreide-Import-Gesellschaft mbh v Contimar SA Compania Industrial Comercial y Maritima [1953]

Question 34

For instantaneous communication (e.g. teletex) contract is made where the offeror receives acceptance

Answer 34

Entores Ltd v Miles Far East Co.

Acceptance by telex from Holland to London, contract made in England

Question 35

Silence is no acceptance

Answer 35

Felthouse v Brindley

“If I hear no more the horse is mine”. Nephew did not reply but told auctioneer not to sell. Mistake and horse sold. But no contract as no effective acceptance.
Cannot impose silence as acceptance.

Question 36

Silence may exceptionally amount to acceptance where agreement/established practice between parties

Answer 36

Re Selectmove Ltd

If offeree suggests that acceptance unless indicates contrary then okay.

Question 37

Silence constitutes acceptance when offeror waives requirement of notification of acceptance and offeree unequivocally manifests intention to accept

Answer 37

Rust v Abbey Life Insurance Co Ltd

C applied for units in D’s property bonds. D sent C policy, and allocated units to C. C raised no objections for 7 months. Then C wanted money back, arguing that there was no contract.
Held: there was a contract; if D made offer, C accepted by not objecting for 7 months.

Question 38

The revocation of acceptance

Answer 38

Instantaneous communication: can be revoked as long as revocation reaches offeror first
Non-instantaneous: no English authority for postal rule but some case guidance

Question 39

Revocation of offer & postal rule: No contract when revocation posted before acceptance received.

Not binding authority.

Answer 39

Countess of Dunmore v Alexander (Scottish!)

Offering services as a maid. 5 Nov: D wrote to A accepting the offer. 6 Nov: D wrote to A withdrawing acceptance. A received both letters at the same time.

Question 40

More favourable view of postal rule and revocation: once acceptance is posted cannot revoke.

Answer 40

A to Z Bazaars (Pty) Ltd v Minister of Agriculture (South Africa)

18 Feb: offeree posted acceptance letter. 23 Feb: offeree purported to revoke acceptance by telegram. Offeror received telegram before letter.
Held: contract was formed on 18 Feb.

Question 41

Until it is accepted an offer may be revoked at any time (regardless of whether the offeror said it would be open for a certain period)

Answer 41

Scammell v Dicker [2001] 1 WLR 631 (CA)

Question 42

The promise to keep an offer open is only binding where?

Answer 42

a) it is made in deed - Beesly v Hallwood Estates Ltd

b) the offeree provides consideration, thus buying the option to accept

Question 43

Until when can a promise for the performance of an act be revoked?

Answer 43

Traditional view: until the act has been completely performed.
However, the offeror may have to compensate the offeree’s expense - Morrison Steam-ship Co Ltd v The Crown

Question 44

Support for the view that there can be no revocation of an offer once performance has commenced

Answer 44

Errington v Errington

Father purchased house for son and daughter-in-law to live in as long as they paid mortgage payments. Could not be revoked, but would cease to bind him if they stopped performance.

Question 45

The revocation of an offer is not effective until it is communicated

Answer 45

Byrne v Van Tienhoven

1 Oct: D posted a letter of offer to C. 8 Oct: D posted a letter of withdrawal.
11 Oct: C accepted offer by telegram. 15 Oct: C accepted offer again by letter
20 Oct: C received letter of withdrawal
Held: contract was formed on 11 Oct

Question 46

The message of revocation may come from a third party - cannot accept offer if aware that it has been revoked

Answer 46

Dickinson v Dodds

10 June: Dodds offered Dickinson land, saying that offer would be open until 12th. 11 June: Dodds sold property to 3rd party. Dickinson learnt of the sale from 4th party. He accepted Dodds’ offer before deadline
Held: no contract, promise to keep offer open was not binding; Dickinson could not accept in awareness of revocation

Question 47

An offer with no deadline lapses after a reasonable amount of time

Answer 47

Ramsgate Victoria Hotel v Montefiore

Offer of shares made on 8 June; acceptance on 23 November was considered too late.