Formation of Contract Flashcards
How do the courts distinguish between an offer and an invitation to treat?
Establish whether intention to be legally bound. If yes, then offer.
The Satanita [1897]
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.
The supply of information is not an offer.
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.
Definition of an offer
“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)
Why is an advertisement normally an invitation to treat?
Because otherwise advertiser would have binding contracts with everyone, even when supplies have run out.
The advert of protected birds was not an offer
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.
U.S. example of how advert can be offer if specific enough
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.
Flick knife with price tag in window is not an offer.
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.
Display on shop self is an invitation to treat
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).
Vending machines/car park machines amount to an offer, customer accepts by putting coins in
Thorton v Shoe Lane Parking Ltd
Advert that an auction will be “without reserve” creates contract for auctioneer to sell to highest bidder
Warlow v Harrison (1859)
Sale of horse. Owner outbid claimant but this not bona-fide bidder. Auctioneer contract with claimant to sell.
Advert that auction will take place on certain day is invitation to treat
Harris v Nickerson (1873)
A tender may be an offer where it indicates that the highest or lowest bid may be accepted
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.
What is a unilateral offer?
An offer that is not made to a specific person. It can be made to the public - Carlill v Carbolic Smoke Ball Company.
Carlill v Carbolic Smoke Ball Company [1893]
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.
What is a bilateral offer?
An offer made to a specific person. Both parties are identified as taking on an obligation, normally by promising the other party something.
An offer is effective when…
it is communicated to the offeree.
No contract where 2 identical cross-offers are simultaneously made in ignorance of each other
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.
Offer by rendering services must be communicated to the other party.
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.
What is the ‘mirror image’ rule for acceptance?
Acceptance must be absolute, unconditional & unequivocal
A counter-offer ‘kills’ the original offer
Hyde v Wrench
Cannot accept the original offer once you have made a counter-offer.
Negotiations over sale price of farm.
An inquiry as to whether the offeror will change his terms is not a counter-offer
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.
‘Battle of the forms’ - the party firing the ‘last shot’ prevails
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.
Communication of acceptance rule?
Generally: acceptance is incomplete until it is communicated to offeror.
Main exception: postal rule.
Acceptance can be inferred through conduct
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.
The offeror may expressly or impliedly waive the need for communication of acceptance.
Bowen LJ in Carlill v Carbolic Smoke Ball Co
If communication of acceptance is drowned out by sound of aircraft overhead or telephone line drops dead then no contract at that moment
Denning LJ in Entores Ltd v Miles Far East Co
What is the postal acceptance rule?
Contract is formed once the letter of acceptance is posted.
Also determines where contract formed - where posted.
Postal rule: Adams v Linsell
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.
The postal rule does not apply to revocations of offers
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.
Consequence of postal rule: offeror bears the risk of the acceptance being delayed or lost
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.
Offeror may exclude the postal acceptance rule
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.
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
Getreide-Import-Gesellschaft mbh v Contimar SA Compania Industrial Comercial y Maritima [1953]
For instantaneous communication (e.g. teletex) contract is made where the offeror receives acceptance
Entores Ltd v Miles Far East Co.
Acceptance by telex from Holland to London, contract made in England
Silence is no acceptance
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.
Silence may exceptionally amount to acceptance where agreement/established practice between parties
Re Selectmove Ltd
If offeree suggests that acceptance unless indicates contrary then okay.
Silence constitutes acceptance when offeror waives requirement of notification of acceptance and offeree unequivocally manifests intention to accept
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.
The revocation of acceptance
Instantaneous communication: can be revoked as long as revocation reaches offeror first
Non-instantaneous: no English authority for postal rule but some case guidance
Revocation of offer & postal rule: No contract when revocation posted before acceptance received.
Not binding authority.
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.
More favourable view of postal rule and revocation: once acceptance is posted cannot revoke.
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.
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)
Scammell v Dicker [2001] 1 WLR 631 (CA)
The promise to keep an offer open is only binding where?
a) it is made in deed - Beesly v Hallwood Estates Ltd
b) the offeree provides consideration, thus buying the option to accept
Until when can a promise for the performance of an act be revoked?
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
Support for the view that there can be no revocation of an offer once performance has commenced
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.
The revocation of an offer is not effective until it is communicated
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
The message of revocation may come from a third party - cannot accept offer if aware that it has been revoked
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
An offer with no deadline lapses after a reasonable amount of time
Ramsgate Victoria Hotel v Montefiore
Offer of shares made on 8 June; acceptance on 23 November was considered too late.
