Contract Law
There are 3 key elements to formation of a contract:
1. Agreement (offer + acceptance)
2. Intention to create legal relations.
3. Consideration.
Unit 1: Offer and Acceptance
Offer = a proposal
Acceptance = agreement to the proposal
Offer + Acceptance = Agreement
Offers
Professor Treitel defined an offer as: an expression of willingness to contract on certain terms, made with
the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed.
‘Expression’ may take many forms – letter, email, oral.
Objective approach to deciding whether there was an agreement between the parties. Look at what
was said and done from the point of view of a “reasonable person”. Smith v Hughes
An offeree must believe that the offeror actually intended to make an offer. Allied Marine Transport
v Vale do Rio Doce Navegacao
You can only accept an offer that was addressed to you.
There are 2 requirements for an offer:
1. “Willingness to be bound” to the proposal if it’s agreed to. A proposal should be volunteered.
2. “On certain terms”: sufficient certainty in the terms of the proposal. A proposal should not be
vague or missing important information.
Offer versus invitation to treat
An invitation to treat refers to preliminary statements before a contract is formed which simply invite
negotiation. Language is often “I am thinking of selling…”
Shop window displays are invitations to treat, not offers. The customer only offers to buy the good
when the customer reaches the checkout and acceptance takes place at the payment point.
Pharmaceutical Society of GB v Boots Cash Chemists
Requests for tenders are invitations to treat. Tenders themselves are offers.
Fisher v Bell the display knife was an invitation to treat, not an offer so the defendant (knife seller)
was acquitted (selling knives was illegal).
Adverts are generally invitations to treat. If they were offers, then anyone asking for advertised
goods would be accepting and this would be an issue if the advertiser ran out of stock. Partridge v
Crittenden
Advertisements of reward are offers. Williams v Carwardine.
Unilateral contracts = where the offeror makes a promise in return for an act. Typical example is
offer of reward. No one is bound to do the specified act. Commitment is one-sided. Carlill v Carbolic
Smoke Ball Company.
Bilateral contracts = where one party makes a promise in return for a promise from the other side.
Distinction between unilateral and bilateral contracts is important with regards to acceptance and
consideration.
,Auctions
The call for bids is an invitation to treat.
Bids themselves are offers which can be withdrawn before acceptance.
Under s 57 (2) of the Sale of Goods Act 1979, a sale by auction is complete on the fall of the
auctioneer’s hammer (that is the acceptance).
The fall of the hammer signals the formation of the contract. The auctioneer acts as the agent of the
owner and a bilateral contract is formed between owner and bidder.
‘Reserve price’: price agreed between auctioneer and seller as the lowest price which the
auctioneer may accept for the lot. Occasionally auction lots will be advertised as being ‘without
reserve’.
If an auction is advertised ‘without reserve’, then there is an offer of a unilateral contract by the
auctioneer (promise to accept the highest bid). If auctioneer refuses, the highest bidder will have a
claim in damages against the auctioneer. Barry v Davies
Tenders
When businesses decide to outsource a function, they will invite a number of contractors to submit
written tenders for the job. The tenders themselves are the offers.
Requests for tenders are generally invitations to treat. Spencer v Harding soliciting a tender is a
“mere proclamation” that a person is seeking offers. No obligation to even consider the tender, or
to award the contract to the cheapest offer.
In some cases, invitations to tender may give rise to a unilateral contract and so the invitations to
tender do constitute offers. Harvela investments Ltd v Royal Trust Company of Canada Ltd the
invitation to tender stated that the business would be bound to accept the highest offer received.
House of Lords held that this was an offer of a unilateral contract to sell to the highest bidder.
If there is an express promise to consider all tenders and the offeree does not, damages can be
awarded for loss of opportunity – Blackpool and Fylde Aero Club.
Termination of offer
3 ways:
1. Revocation
2. Rejection
3. Lapse
Revocation: offers can be withdrawn at any time before acceptance occurs. Routledge v Grant.
Must be communicated to the offeree, otherwise the offer is still open for acceptance. Byrne v Van
Tienhoven
o Exception – withdrawal still effective if the offeree chooses not to read notice of withdrawal
or it is sent to the last known address if the offeree had moved without notifying offeror.
o Revocation is communicated NOT when its read but when it SHOULD have been read.
o E.g. for an answerphone message, it is communicated when the receiver listens to the
message, not when the message was left.
A promise to keep an offer open is not binding if it is gratuitous. If the offeror withdraws their offer
within the time they promised to keep it open, they are still entitled to revoke the offer so long as it
has not been accepted. Routledge v Grant. Exception to this is Mountford v Scott - the court held
that the claimant had given consideration for the offeror’s promise to leave the offer open for 6
months (exchange of £1).
Revocation may be communicated by a reliable third party. Dickinson v Dodds
Difficulty arises in relation to revocation of offers of unilateral contracts (promise in return for an
act). Hard to ascertain when acceptance takes place. General rule is acceptance only occurs when
performance is complete.
o For unilateral contracts, there is an implied promise not to revoke the offer once the act has
started. Errington v Errington.
,Rejection: where the offeree rejects the offer. Expressly or impliedly (by way of counteroffer).
A counteroffer implies the rejection of the original offer. Hyde v Wrench - having originally made a
counteroffer to buy the defendant’s farm, the claimant then accepted the original offer, but was
refused the sale. The claimant sued but it was held that there was no contract since the counteroffer
was an implied rejection of the original offer.
Lapse: where the offer is terminated due to the passing of time.
Either the stated time when the offer is made, or after “a reasonable time” according to the law.
What is reasonable depends on the circumstances (how the offer was made and the subject matter
of the offer).
Acceptance
Acceptance is the complete and unqualified assent to all terms of the offer. It must be communicated to
the offeror.
“Assent”: the offeree must accept of their own volition.
“Unqualified”: offeree must completely accept all terms of the offer.
The offeree must know of the offer in order to accept. R v Clarke.
Acceptances must be distinguished from counteroffers and requests for further information.
Requests for further information are neither an acceptance nor a counteroffer. Stevenson Jacques v
McLean
‘Battle of the forms’: Butler v Ex-Cell-O Corp. where two businesses who are in negotiation purport
to contract on their own standard terms. E.g., when both parties pass their own Ts & Cs to the other
side for agreement. These are counteroffer after counteroffer. The ‘last shot’ will often win ‘the
battle’ and explains why businesses persist in putting forward their own standard terms.
o Even if there are negotiations still underway regarding each parties’ standard terms and
conditions, a contract exists so long as all the parties have reached an agreement on all
material points. Butler v Ex-Cell-O Corp.
o There’s no guarantee that the last shot wins TRW Ltd v Panasonic
Certainty and Completeness
Even if there is evidence of offer and acceptance, the courts may refuse to enforce an agreement if
there appears to be uncertainty about what has been agreed or if some important matter is still
left to be determined.
Whether an agreement has been made is judged objectively, but the facts have to be judged in
context, e.g.:
a) Whether the parties are in the same trade
b) Trade usage
c) Whether the agreement has been acted on for any length of time
d) Whether there is an objective mechanism for resolving uncertainty such as an arbitration clause.
Communication of acceptance
, General rule is that acceptance must be communicated. By either the offeree or its duly authorised
agent (not a reliable third party unlike notice of withdrawal).
Unilateral contracts: the offeror is generally taken to have impliedly waived the need of
communication of acceptance. Performance of the act amounts to acceptance. Carlill v Carbolic
Smoke Ball Co
But offeree’s silence cannot be taken to amount to acceptance. Felthouse v Bindley
The postal rule
= A letter of acceptance which is posted is complete on posting and the contract will be formed at that
point. Adams v Lindsell.
An exception to the general rule that acceptance must be communicated.
The postal rule applied even though the letter got lost in the post Household Fire and Carriage
Accident Insurance Co v Grant
Only applies to acceptances.
Only applies where it was reasonable for the acceptance to be sent by post (e.g., no express need
for prompt response).
Letter must be properly stamped, addressed, and posted.
The offeror may exclude the rule, either expressly or by implication. Holwell Securities Ltd v Hughes
There is no English authority on retracting a postal acceptance when the postal rule applies. If the
rule does not apply, then retraction of acceptance is clearly possible until the acceptance is actually
communicated.
SBAQ suggest that postal rule is often impliedly excluded. If offeror says they “need to hear”, this
impliedly excludes post as means of communicating acceptance.
Intention to create legal relations
For the courts to treat an agreement as binding, the parties themselves must have intended it to be legally
enforceable (i.e., enforceable in the courts).
It is presumed that commercial agreements do have the intention to create legal relations.
o Leading case is Edwards v Skyways in which a pilot who was made redundant was promised
a payment which was then not received. Judge ruled that the agreement obviously related
to business matters and so the presumption of intention to create legal relations holds.
o In a commercial context, clear words are needed to rebut the presumption of an intention to
create legal relations.
o The onus of rebutting is heavier.
o Rose and Frank Co v Crompton Bros presumption was rebutted because a clause specifically
stated that it was not entered into as a formal or legal agreement.
It is presumed that domestic agreements do not have the intention to create legal relations.
o Leading case is Balfour v Balfour between husband and wife. Judge ruled that the parties
never intended to be sued upon. Policy reason is the need to prevent the courts being
inundated with claims.
Both of these presumptions are “rebuttable”, meaning that if the facts show otherwise, then the
presumption does not hold.
o In commercial agreements, the presumption of intention to create legal relations can be
rebutted if the agreement is stated to be “binding in honour only”.
o In domestic agreements, the presumption that there is no intention to create legal relations
can be rebutted by a number of factors: how close the parties’ relationship is, how much
money is at stake, use of very clear words. E.g. a cousin is a fairly weak relative and if they
are a decorator by trade asked by their cousin to do a paint job, the presumption will be
rebutted such that there IS intention to create legal relations.
There are 3 key elements to formation of a contract:
1. Agreement (offer + acceptance)
2. Intention to create legal relations.
3. Consideration.
Unit 1: Offer and Acceptance
Offer = a proposal
Acceptance = agreement to the proposal
Offer + Acceptance = Agreement
Offers
Professor Treitel defined an offer as: an expression of willingness to contract on certain terms, made with
the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed.
‘Expression’ may take many forms – letter, email, oral.
Objective approach to deciding whether there was an agreement between the parties. Look at what
was said and done from the point of view of a “reasonable person”. Smith v Hughes
An offeree must believe that the offeror actually intended to make an offer. Allied Marine Transport
v Vale do Rio Doce Navegacao
You can only accept an offer that was addressed to you.
There are 2 requirements for an offer:
1. “Willingness to be bound” to the proposal if it’s agreed to. A proposal should be volunteered.
2. “On certain terms”: sufficient certainty in the terms of the proposal. A proposal should not be
vague or missing important information.
Offer versus invitation to treat
An invitation to treat refers to preliminary statements before a contract is formed which simply invite
negotiation. Language is often “I am thinking of selling…”
Shop window displays are invitations to treat, not offers. The customer only offers to buy the good
when the customer reaches the checkout and acceptance takes place at the payment point.
Pharmaceutical Society of GB v Boots Cash Chemists
Requests for tenders are invitations to treat. Tenders themselves are offers.
Fisher v Bell the display knife was an invitation to treat, not an offer so the defendant (knife seller)
was acquitted (selling knives was illegal).
Adverts are generally invitations to treat. If they were offers, then anyone asking for advertised
goods would be accepting and this would be an issue if the advertiser ran out of stock. Partridge v
Crittenden
Advertisements of reward are offers. Williams v Carwardine.
Unilateral contracts = where the offeror makes a promise in return for an act. Typical example is
offer of reward. No one is bound to do the specified act. Commitment is one-sided. Carlill v Carbolic
Smoke Ball Company.
Bilateral contracts = where one party makes a promise in return for a promise from the other side.
Distinction between unilateral and bilateral contracts is important with regards to acceptance and
consideration.
,Auctions
The call for bids is an invitation to treat.
Bids themselves are offers which can be withdrawn before acceptance.
Under s 57 (2) of the Sale of Goods Act 1979, a sale by auction is complete on the fall of the
auctioneer’s hammer (that is the acceptance).
The fall of the hammer signals the formation of the contract. The auctioneer acts as the agent of the
owner and a bilateral contract is formed between owner and bidder.
‘Reserve price’: price agreed between auctioneer and seller as the lowest price which the
auctioneer may accept for the lot. Occasionally auction lots will be advertised as being ‘without
reserve’.
If an auction is advertised ‘without reserve’, then there is an offer of a unilateral contract by the
auctioneer (promise to accept the highest bid). If auctioneer refuses, the highest bidder will have a
claim in damages against the auctioneer. Barry v Davies
Tenders
When businesses decide to outsource a function, they will invite a number of contractors to submit
written tenders for the job. The tenders themselves are the offers.
Requests for tenders are generally invitations to treat. Spencer v Harding soliciting a tender is a
“mere proclamation” that a person is seeking offers. No obligation to even consider the tender, or
to award the contract to the cheapest offer.
In some cases, invitations to tender may give rise to a unilateral contract and so the invitations to
tender do constitute offers. Harvela investments Ltd v Royal Trust Company of Canada Ltd the
invitation to tender stated that the business would be bound to accept the highest offer received.
House of Lords held that this was an offer of a unilateral contract to sell to the highest bidder.
If there is an express promise to consider all tenders and the offeree does not, damages can be
awarded for loss of opportunity – Blackpool and Fylde Aero Club.
Termination of offer
3 ways:
1. Revocation
2. Rejection
3. Lapse
Revocation: offers can be withdrawn at any time before acceptance occurs. Routledge v Grant.
Must be communicated to the offeree, otherwise the offer is still open for acceptance. Byrne v Van
Tienhoven
o Exception – withdrawal still effective if the offeree chooses not to read notice of withdrawal
or it is sent to the last known address if the offeree had moved without notifying offeror.
o Revocation is communicated NOT when its read but when it SHOULD have been read.
o E.g. for an answerphone message, it is communicated when the receiver listens to the
message, not when the message was left.
A promise to keep an offer open is not binding if it is gratuitous. If the offeror withdraws their offer
within the time they promised to keep it open, they are still entitled to revoke the offer so long as it
has not been accepted. Routledge v Grant. Exception to this is Mountford v Scott - the court held
that the claimant had given consideration for the offeror’s promise to leave the offer open for 6
months (exchange of £1).
Revocation may be communicated by a reliable third party. Dickinson v Dodds
Difficulty arises in relation to revocation of offers of unilateral contracts (promise in return for an
act). Hard to ascertain when acceptance takes place. General rule is acceptance only occurs when
performance is complete.
o For unilateral contracts, there is an implied promise not to revoke the offer once the act has
started. Errington v Errington.
,Rejection: where the offeree rejects the offer. Expressly or impliedly (by way of counteroffer).
A counteroffer implies the rejection of the original offer. Hyde v Wrench - having originally made a
counteroffer to buy the defendant’s farm, the claimant then accepted the original offer, but was
refused the sale. The claimant sued but it was held that there was no contract since the counteroffer
was an implied rejection of the original offer.
Lapse: where the offer is terminated due to the passing of time.
Either the stated time when the offer is made, or after “a reasonable time” according to the law.
What is reasonable depends on the circumstances (how the offer was made and the subject matter
of the offer).
Acceptance
Acceptance is the complete and unqualified assent to all terms of the offer. It must be communicated to
the offeror.
“Assent”: the offeree must accept of their own volition.
“Unqualified”: offeree must completely accept all terms of the offer.
The offeree must know of the offer in order to accept. R v Clarke.
Acceptances must be distinguished from counteroffers and requests for further information.
Requests for further information are neither an acceptance nor a counteroffer. Stevenson Jacques v
McLean
‘Battle of the forms’: Butler v Ex-Cell-O Corp. where two businesses who are in negotiation purport
to contract on their own standard terms. E.g., when both parties pass their own Ts & Cs to the other
side for agreement. These are counteroffer after counteroffer. The ‘last shot’ will often win ‘the
battle’ and explains why businesses persist in putting forward their own standard terms.
o Even if there are negotiations still underway regarding each parties’ standard terms and
conditions, a contract exists so long as all the parties have reached an agreement on all
material points. Butler v Ex-Cell-O Corp.
o There’s no guarantee that the last shot wins TRW Ltd v Panasonic
Certainty and Completeness
Even if there is evidence of offer and acceptance, the courts may refuse to enforce an agreement if
there appears to be uncertainty about what has been agreed or if some important matter is still
left to be determined.
Whether an agreement has been made is judged objectively, but the facts have to be judged in
context, e.g.:
a) Whether the parties are in the same trade
b) Trade usage
c) Whether the agreement has been acted on for any length of time
d) Whether there is an objective mechanism for resolving uncertainty such as an arbitration clause.
Communication of acceptance
, General rule is that acceptance must be communicated. By either the offeree or its duly authorised
agent (not a reliable third party unlike notice of withdrawal).
Unilateral contracts: the offeror is generally taken to have impliedly waived the need of
communication of acceptance. Performance of the act amounts to acceptance. Carlill v Carbolic
Smoke Ball Co
But offeree’s silence cannot be taken to amount to acceptance. Felthouse v Bindley
The postal rule
= A letter of acceptance which is posted is complete on posting and the contract will be formed at that
point. Adams v Lindsell.
An exception to the general rule that acceptance must be communicated.
The postal rule applied even though the letter got lost in the post Household Fire and Carriage
Accident Insurance Co v Grant
Only applies to acceptances.
Only applies where it was reasonable for the acceptance to be sent by post (e.g., no express need
for prompt response).
Letter must be properly stamped, addressed, and posted.
The offeror may exclude the rule, either expressly or by implication. Holwell Securities Ltd v Hughes
There is no English authority on retracting a postal acceptance when the postal rule applies. If the
rule does not apply, then retraction of acceptance is clearly possible until the acceptance is actually
communicated.
SBAQ suggest that postal rule is often impliedly excluded. If offeror says they “need to hear”, this
impliedly excludes post as means of communicating acceptance.
Intention to create legal relations
For the courts to treat an agreement as binding, the parties themselves must have intended it to be legally
enforceable (i.e., enforceable in the courts).
It is presumed that commercial agreements do have the intention to create legal relations.
o Leading case is Edwards v Skyways in which a pilot who was made redundant was promised
a payment which was then not received. Judge ruled that the agreement obviously related
to business matters and so the presumption of intention to create legal relations holds.
o In a commercial context, clear words are needed to rebut the presumption of an intention to
create legal relations.
o The onus of rebutting is heavier.
o Rose and Frank Co v Crompton Bros presumption was rebutted because a clause specifically
stated that it was not entered into as a formal or legal agreement.
It is presumed that domestic agreements do not have the intention to create legal relations.
o Leading case is Balfour v Balfour between husband and wife. Judge ruled that the parties
never intended to be sued upon. Policy reason is the need to prevent the courts being
inundated with claims.
Both of these presumptions are “rebuttable”, meaning that if the facts show otherwise, then the
presumption does not hold.
o In commercial agreements, the presumption of intention to create legal relations can be
rebutted if the agreement is stated to be “binding in honour only”.
o In domestic agreements, the presumption that there is no intention to create legal relations
can be rebutted by a number of factors: how close the parties’ relationship is, how much
money is at stake, use of very clear words. E.g. a cousin is a fairly weak relative and if they
are a decorator by trade asked by their cousin to do a paint job, the presumption will be
rebutted such that there IS intention to create legal relations.
