ã Intisar Castelli, 2016
Contract Law Revision
Formation of a contract: Offer and Acceptance
• A contract is only formed in law where the following can be shown to exist:
§ An agreement (mutuality) – valid offer followed by valid acceptance.
§ Consideration
§ Intention.
• Butler Machine Tool Co: L. Denning – judges should decide whether a contract existed by
examining all the evidence rather than sticking to strict offer and acceptance terms.
Offer
• An unconditional statement of a person’s intention to be bound by terms of offer made.
• An invitation to treat is an invitation to a part to make an offer to buy – not the same as an offer.
Invitation to treat
• Goods displayed on shelves in a shop: this is not an offer, but it is an invitation to treat (invitation to
the buyer to make an offer to buy).
§ Boots case: contract is made at the cash desk – the customer an offer to buy and it is up to
the shop assistant to agree to the sale – if they do then it is an acceptance and the contract
is formed.
Situations which are not invitations to treat
• Certain wordings may be of particular significance – may change an offer to an invitation to treat
and vice versa.
• Advertisements involving a unilateral offer: same rule as invitation to treat applies but it will not if
the advert indicates a willingness to be automatically bound to those who perform the acts stated
in the advert.
§ Carlill case: ‘carbolic smoke ball’ designed to cure the flu. Ad stated that anyone who
contracted the flu after using the smoke ball (in accordance to guidelines) would receive
£100. Mrs. Carlill used it as directed, but contracted the flu. She sued the company for the
£100. The company contested that the advertisement could not give rise to liability. Held
that it was a valid offer as the company had intended to be bound.
• A statement of price where an offer is also intended: when other parties act on the statement in
fact, it may be an offer.
§ Biggs: negotiations for a house. Court held that seller’s first letter of acceptance of a lower
price was an offer that the seller had accepted.
• Competitive tendering: invitation to tender is an invitation to treat but if the advertisement agrees
to a certain outcome, it is bound to do so.
§ Harvela: The claimants submitted a fixed price bid for shares in the defendant’s company.
Another party made a referential bid; of a fixed amount more than any other offers. A
referential bid is not binding in law, therefore the claim was accepted.
• Auctions advertised as ‘without reserve’: auctioneer is promising that no reserve price will be on
the goods. The goods will be sold to the highest bona fide buyer.
§ Barry v Davies: there is a binding bilateral contract not to apply any reserve price, therefore
to sell it to the highest bidder. Person entitled to damages.
Communicating the offer
• The offer must be communicated to the offeree in order to be accepted. An offeree cannot accept
an offer which they know nothing about.
Contract Law Revision
Formation of a contract: Offer and Acceptance
• A contract is only formed in law where the following can be shown to exist:
§ An agreement (mutuality) – valid offer followed by valid acceptance.
§ Consideration
§ Intention.
• Butler Machine Tool Co: L. Denning – judges should decide whether a contract existed by
examining all the evidence rather than sticking to strict offer and acceptance terms.
Offer
• An unconditional statement of a person’s intention to be bound by terms of offer made.
• An invitation to treat is an invitation to a part to make an offer to buy – not the same as an offer.
Invitation to treat
• Goods displayed on shelves in a shop: this is not an offer, but it is an invitation to treat (invitation to
the buyer to make an offer to buy).
§ Boots case: contract is made at the cash desk – the customer an offer to buy and it is up to
the shop assistant to agree to the sale – if they do then it is an acceptance and the contract
is formed.
Situations which are not invitations to treat
• Certain wordings may be of particular significance – may change an offer to an invitation to treat
and vice versa.
• Advertisements involving a unilateral offer: same rule as invitation to treat applies but it will not if
the advert indicates a willingness to be automatically bound to those who perform the acts stated
in the advert.
§ Carlill case: ‘carbolic smoke ball’ designed to cure the flu. Ad stated that anyone who
contracted the flu after using the smoke ball (in accordance to guidelines) would receive
£100. Mrs. Carlill used it as directed, but contracted the flu. She sued the company for the
£100. The company contested that the advertisement could not give rise to liability. Held
that it was a valid offer as the company had intended to be bound.
• A statement of price where an offer is also intended: when other parties act on the statement in
fact, it may be an offer.
§ Biggs: negotiations for a house. Court held that seller’s first letter of acceptance of a lower
price was an offer that the seller had accepted.
• Competitive tendering: invitation to tender is an invitation to treat but if the advertisement agrees
to a certain outcome, it is bound to do so.
§ Harvela: The claimants submitted a fixed price bid for shares in the defendant’s company.
Another party made a referential bid; of a fixed amount more than any other offers. A
referential bid is not binding in law, therefore the claim was accepted.
• Auctions advertised as ‘without reserve’: auctioneer is promising that no reserve price will be on
the goods. The goods will be sold to the highest bona fide buyer.
§ Barry v Davies: there is a binding bilateral contract not to apply any reserve price, therefore
to sell it to the highest bidder. Person entitled to damages.
Communicating the offer
• The offer must be communicated to the offeree in order to be accepted. An offeree cannot accept
an offer which they know nothing about.
