CONTRACT LAW NOTES
Contract formation
1. Has a contract been formed? A valid contract requires:
a. Agreement (Gibson v Manchester City Council [1979])
i. Offer: a clear expression of the offeror's willingness to be bound by its terms upon acceptance (Storer v Manchester City
Council [1974])
1. Revocation of an offer must be clearly communicated to the offeree, and it can only occur before acceptance (Byrne &
Co v Van Tien Hoven & Co [1880]).
2. If a communication is insufficient to amount to an offer, it is likely an invitation to treat
a. An ITT invites offers to purchase or negotiate from others, so is usually open to general consumers as opposed
to being part of a deal between specific parties. It does NOT indicate a willingness to be bound or give rise to
legal obligations. ITTs are usually:
i. Auctions without reserve: Payne v Cave (1789); ss57(2) Sale of Goods Act 1979
1. Exceptionally an auction can present a binding promise (auction with reserve): McManus v
Fortescue (1907); Barry v Davies (t/a Heathcote Ball & Co.) [2001]
2. Display of goods for sale Pharmaceutical Society of Great Britain v Boots Cash Chemists
(Southern) Ltd [1953]; Fisher v Bell [1961]) and presenting the prices of items (Harvey v Facey
[1893])
3. Advertisements: Partridge v Crittenden [1968]; Carlill v Carbolic Smoke Ball Co [1893]
a. The only exception is an advertisement which amounting to an offer for a unilateral contract,
where a one-sided promise is made in exchange in exchange for a specific act and
acceptance is communicated via conduct (Carlill). Contrast this with a bilateral offer, where
both parties exchange promises and acceptance is mutual. Sales agreements, etc. .
Acceptance of a bilateral offer occurs when the offeree returns a promise to the offeror.
, b. Items that are displayed with a price, even though they may be “offered for sale” usually do
not constitute offers but invitations to treat (Pharmaceutical Society of Great Britain v
Boots Cash Chemists (Southern) Ltd [1953]; Fisher v Bell [1961]).
4. Requests for bids or tenders: Spencer v Harding (1870)
3. Vending machines and car parks?
a. By analogy, an automatic machine could constitute an offer as long as it contains an item that can be gained
from it. Guidance can be found in Thornton v Shoe Lane Parking Ltd [1970], where it was held that an offer is
made when the proprietor of the machine presents it as ready to accept money; acceptance is established when
a customer inserts the money (“one is committed to the purchase as soon as the money is inserted”).
4. Internet shopping?
a. Because this is related to the presentation and sale of goods, Fisher and Pharmaceutical Society GB may apply,
which could make it an ITT. Regulation 12 of the Electronic Commerce (EC Directive) Regulations
2002 suggests the customer’s order may well be the offer so that the website would be an invitation to treat. It
could also be considered a unilateral offer following Carlill if there is sufficient willingness to be bound.
b. Crucial to examine the language of the website and how it is presented.
i. Sometimes retailers make errors
1. The argument that internet shopping sites, as a form of communication, constitute ITTs is stronger.
Even if they did amount to an offer, the vitiating factor of mistake would probably apply in this case,
with guidance and support from Hartog v Colin & Shields [1939], where it was held that a contract
is not formed if the offeree knows that the offeror is acting under a mistake as to the terms.
ii. Retailers often send automated emails telling a consumer that their order has been received
ii. Acceptance: clear, intentional, unambiguous assent to the offer (Taylor v Laird (1856))
1. Must be unequivocal and clearly communicated to the offeror (Entores v Miles Far East Corp. [1955]; Gibson v
Manchester City Council [1979])
a. Acceptance communicated through email is effective upon receipt, not when the offeror reads it (Brinkibon Ltd
v Stahag Stahl GmbH [1983]).
b. Generally, if acceptance via instantaneous communication (eg. face-to-face or via telephone) is not heard by the
offeror, it is invalid (Entores).
c. If the offeror waives the communication requirement, generally, a contract cannot be formed. There must be
outward communication of acceptance, whether expressly or by conduct. Generally, silence will not be treated
as acceptance (Felthouse v Bindley [1862]).
, d. Where the contract is unilateral, the offeree signifies acceptance by conduct. Performance of an act or fulfilments
of the stipulations of an offer amount to acceptance (Carlill)
e. Acceptance of an offer or counteroffer is not valid where the offeree does not have clear knowledge of the offer
or it is badly communicated (Taylor v Laird [1856]; Inland Revenue Commissioners v Fry [2001]).
i. At the same time, ignorance of an offer may not necessarily preclude someone from claiming an award
where information was given and he later found out about the offer (Gibbons v Proctor [1891]. In this case,
though, the claimant was aware about the award by the time it was revealed that there was an offer.
f. The exception to the direct communication requirement is the postal rule from Adams v Lindsell [1818], which
holds that where acceptance is posted by letter, as long as the letter is addressed correctly, acceptance is valid
as soon as it has landed in the post. This is because the postal workers will be taken to have accepted the letter
on the offeror’s behalf. This applies even where the letter is lost in transit or delayed: Household Fire and
Carriage Accident Insurance Company (Limited) v Grant (1878-79)
i. Could pose some issues for terminating acceptance. A strict application of the postal rule would mean that
an offeree would not be allowed to revoke his acceptance by a later, quicker communication that reached
the offeror before the posted acceptance did, as suggested by the NZ case Wenkheim v Arndt (1873).
As long as the letter was posted first, acceptance is already established. There is no authority for this in
English law, but the Scots law case Dunmore v Alexander (1830) can give guidance. It was suggested
there that revoking an acceptance under these circumstances can be permitted.
2. A reasonable person interpreting the communication or the parties’ conduct must be able to conclude that there was
acceptance. (‘objective test’ from Smith v Hughes (1871)).
3. Must mirror the offer, meaning it must an exact, unaltered copy of the offer (‘mirror principle from Hyde v Wrench
[1840]). It should not introduce new proposals or stipulations (Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England
[1977]). If the acceptance does not mirror the offer, the offeree has introduced a counteroffer, which invalidates the
original offer (Hyde).
a. Seeking further information about an offer without proposing a counteroffer does not eliminate the original offer
(Stevenson Jaques & Co. v McLean (1880)). An offeree can unequivocally accept an offer while also making
a separate offer to modify a contract or clarify its terms (Society of Lloyds v Twinn (2000)). However, consider
the language. If there is a clear acceptance, a certain request may be more than a mere enquiry.
b. Consideration: “some right, interest, profit or benefit accruing to one party or some forbearance, detriment loss or responsibility,
given, suffered or undertaken by the other” (Currie v Misa [1875]); “something which is of some value in the eye of the law, moving
from the plaintiff; [which] may be some detriment to the plaintiff or some benefit to the defendant” (Thomas v Thomas [1842]).
Contract formation
1. Has a contract been formed? A valid contract requires:
a. Agreement (Gibson v Manchester City Council [1979])
i. Offer: a clear expression of the offeror's willingness to be bound by its terms upon acceptance (Storer v Manchester City
Council [1974])
1. Revocation of an offer must be clearly communicated to the offeree, and it can only occur before acceptance (Byrne &
Co v Van Tien Hoven & Co [1880]).
2. If a communication is insufficient to amount to an offer, it is likely an invitation to treat
a. An ITT invites offers to purchase or negotiate from others, so is usually open to general consumers as opposed
to being part of a deal between specific parties. It does NOT indicate a willingness to be bound or give rise to
legal obligations. ITTs are usually:
i. Auctions without reserve: Payne v Cave (1789); ss57(2) Sale of Goods Act 1979
1. Exceptionally an auction can present a binding promise (auction with reserve): McManus v
Fortescue (1907); Barry v Davies (t/a Heathcote Ball & Co.) [2001]
2. Display of goods for sale Pharmaceutical Society of Great Britain v Boots Cash Chemists
(Southern) Ltd [1953]; Fisher v Bell [1961]) and presenting the prices of items (Harvey v Facey
[1893])
3. Advertisements: Partridge v Crittenden [1968]; Carlill v Carbolic Smoke Ball Co [1893]
a. The only exception is an advertisement which amounting to an offer for a unilateral contract,
where a one-sided promise is made in exchange in exchange for a specific act and
acceptance is communicated via conduct (Carlill). Contrast this with a bilateral offer, where
both parties exchange promises and acceptance is mutual. Sales agreements, etc. .
Acceptance of a bilateral offer occurs when the offeree returns a promise to the offeror.
, b. Items that are displayed with a price, even though they may be “offered for sale” usually do
not constitute offers but invitations to treat (Pharmaceutical Society of Great Britain v
Boots Cash Chemists (Southern) Ltd [1953]; Fisher v Bell [1961]).
4. Requests for bids or tenders: Spencer v Harding (1870)
3. Vending machines and car parks?
a. By analogy, an automatic machine could constitute an offer as long as it contains an item that can be gained
from it. Guidance can be found in Thornton v Shoe Lane Parking Ltd [1970], where it was held that an offer is
made when the proprietor of the machine presents it as ready to accept money; acceptance is established when
a customer inserts the money (“one is committed to the purchase as soon as the money is inserted”).
4. Internet shopping?
a. Because this is related to the presentation and sale of goods, Fisher and Pharmaceutical Society GB may apply,
which could make it an ITT. Regulation 12 of the Electronic Commerce (EC Directive) Regulations
2002 suggests the customer’s order may well be the offer so that the website would be an invitation to treat. It
could also be considered a unilateral offer following Carlill if there is sufficient willingness to be bound.
b. Crucial to examine the language of the website and how it is presented.
i. Sometimes retailers make errors
1. The argument that internet shopping sites, as a form of communication, constitute ITTs is stronger.
Even if they did amount to an offer, the vitiating factor of mistake would probably apply in this case,
with guidance and support from Hartog v Colin & Shields [1939], where it was held that a contract
is not formed if the offeree knows that the offeror is acting under a mistake as to the terms.
ii. Retailers often send automated emails telling a consumer that their order has been received
ii. Acceptance: clear, intentional, unambiguous assent to the offer (Taylor v Laird (1856))
1. Must be unequivocal and clearly communicated to the offeror (Entores v Miles Far East Corp. [1955]; Gibson v
Manchester City Council [1979])
a. Acceptance communicated through email is effective upon receipt, not when the offeror reads it (Brinkibon Ltd
v Stahag Stahl GmbH [1983]).
b. Generally, if acceptance via instantaneous communication (eg. face-to-face or via telephone) is not heard by the
offeror, it is invalid (Entores).
c. If the offeror waives the communication requirement, generally, a contract cannot be formed. There must be
outward communication of acceptance, whether expressly or by conduct. Generally, silence will not be treated
as acceptance (Felthouse v Bindley [1862]).
, d. Where the contract is unilateral, the offeree signifies acceptance by conduct. Performance of an act or fulfilments
of the stipulations of an offer amount to acceptance (Carlill)
e. Acceptance of an offer or counteroffer is not valid where the offeree does not have clear knowledge of the offer
or it is badly communicated (Taylor v Laird [1856]; Inland Revenue Commissioners v Fry [2001]).
i. At the same time, ignorance of an offer may not necessarily preclude someone from claiming an award
where information was given and he later found out about the offer (Gibbons v Proctor [1891]. In this case,
though, the claimant was aware about the award by the time it was revealed that there was an offer.
f. The exception to the direct communication requirement is the postal rule from Adams v Lindsell [1818], which
holds that where acceptance is posted by letter, as long as the letter is addressed correctly, acceptance is valid
as soon as it has landed in the post. This is because the postal workers will be taken to have accepted the letter
on the offeror’s behalf. This applies even where the letter is lost in transit or delayed: Household Fire and
Carriage Accident Insurance Company (Limited) v Grant (1878-79)
i. Could pose some issues for terminating acceptance. A strict application of the postal rule would mean that
an offeree would not be allowed to revoke his acceptance by a later, quicker communication that reached
the offeror before the posted acceptance did, as suggested by the NZ case Wenkheim v Arndt (1873).
As long as the letter was posted first, acceptance is already established. There is no authority for this in
English law, but the Scots law case Dunmore v Alexander (1830) can give guidance. It was suggested
there that revoking an acceptance under these circumstances can be permitted.
2. A reasonable person interpreting the communication or the parties’ conduct must be able to conclude that there was
acceptance. (‘objective test’ from Smith v Hughes (1871)).
3. Must mirror the offer, meaning it must an exact, unaltered copy of the offer (‘mirror principle from Hyde v Wrench
[1840]). It should not introduce new proposals or stipulations (Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England
[1977]). If the acceptance does not mirror the offer, the offeree has introduced a counteroffer, which invalidates the
original offer (Hyde).
a. Seeking further information about an offer without proposing a counteroffer does not eliminate the original offer
(Stevenson Jaques & Co. v McLean (1880)). An offeree can unequivocally accept an offer while also making
a separate offer to modify a contract or clarify its terms (Society of Lloyds v Twinn (2000)). However, consider
the language. If there is a clear acceptance, a certain request may be more than a mere enquiry.
b. Consideration: “some right, interest, profit or benefit accruing to one party or some forbearance, detriment loss or responsibility,
given, suffered or undertaken by the other” (Currie v Misa [1875]); “something which is of some value in the eye of the law, moving
from the plaintiff; [which] may be some detriment to the plaintiff or some benefit to the defendant” (Thomas v Thomas [1842]).
