THE LAW OF CONTRACT LECTURE 1 - FORMATION OF A CONTRACT; OFFER AND INVITATION TO TREAT.

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1 THE LAW OF CONTRACT LECTURE 1 - FORMATION OF A CONTRACT; OFFER AND INVITATION TO TREAT. KEY POINTS: To have a binding contract you must have an offer and an acceptance. An offer must be sufficiently certain to be capable of acceptance. The concept of offer must be distinguished from an invitation to treat, this turns on the objective perception of the intention of the parties. A unilateral offer is an offer made to the whole world which is accepted by embarking upon performance. Tenders and auctions held without reserve have the potential to create a collateral contract as to the promise of how the tender process or auction will be run. 1. WHAT IS A CONTRACT? A contract is a legally binding agreement. It is the most common type of legal transaction. Examples of contracts include sale of goods, sale of land, contracts of employment, contracts of hire and contracts for the provision of services. Contracts may therefore be in writing, or may be oral, or may be inferred from conduct. So dispel immediately the idea that the law of contract only applies to an agreement contained in a written document, it applies just as much to the cup of coffee/tea/water/cuddly toy you bought in the refectory before entering the lecture hall. Contracts cover a wide range of transactions and sometimes statutory rules can vary in their application as to whether you are dealing purely in a commercial context in the course of business or as a consumer. You will study examples of these later in the course. Certain contracts are also subject to specific regulation according to subject matter; for instance contracts of employment. This course focuses on the general principles of contract law which apply to all species of contract in the absence of specific regulation. The defining feature of a contract, whether it be a multimillion pound commercial contract or an everyday consumer transaction is that it is a legal obligation which arises from the voluntary choice of the parties to enter into it. The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties. (Treitel) The concept of agreement is the key to this area of law. Parties to a contract are free to make any bargain they choose, this is referred to as the freedom of contract, to what extent should the law interfere with a freely entered transaction? Evidently if contracts were not legally enforceable business, and the running of a successful economy, would become very difficult, if not impossible but to what extent should the law regulate the content of agreements themselves or redress inequalities of bargaining power? Through the course you will be looking at: a) the formation of a contract, in other words what factors are required to render a bargain enforceable at law; b) the terms of a contract, expressly agreed by the parties themselves and implied from other sources; so called vitiating factors for example misrepresentation, mistake, duress and undue influence which may render a contract unenforceable as the parties did not freely or actually agree to the terms being put forward; 1

2 c) and finally the course will consider the potential consequences of one party not performing their obligations under the agreement in other words being in breach of contract and the potential remedies available. 2.SOURCES OF THE LAW OF CONTRACT. Contract law is primarily a common law subject that is its rules and principles have been formulated and laid down by judges in their judgements in actual cases this is known as case law. (You will need to be able to cite case law accurately, therefore get into the habit now of learning the legal principle with its supporting case). However, some rules of contract law are found in statute. Statute means acts of Parliament, or regulations made under the authority of acts of Parliament. Some statutes affecting contract law have mainly codified previous rules of case law, e.g the Sale of Goods Act 1979 but others have not simply reproduced and codified previous case law but also altered it e.g. Misrepresentation Act 1967 or the Unfair Contract Terms Act ( Remember that some legislative procisions will have been interpreted by the courts and you will need to be able to cite the cases to support your analysis of the statutory section). The United Kingdom has been a member of the European Union since European Union law has been applicable in the UK since then and therefore can be cited as a third source of contract law. The influence of EU law in contract law has become increasingly significant. An example, that we will come across later in the course, of contract law deriving from EU law, are the Unfair Terms in Consumer Contract Regulations 1999 and in the next couple of weeks the Consumer Protection (Distance Selling) Regulations (You must be able to use these legislative provisions accurately) When answering seminar questions or doing assessments you will always gain credit for supporting your legal analysis with the appropriate authority, Try to remember for each point you make identify the legal principle involved, support that analysis with appropriate case law, legislative provision or academic opinion, and apply it back to the question- ISA (identify, support and apply) 3.FORMATION OF A CONTRACT. + = OFFER ACCEPTANCE Enforceable Agreement. Establishing agreement The justification for enforcing contracts is that both parties have freely entered into the agreement. But not all contractual negotiations result in agreement. In order to determine whether agreement has been reached the law uses an analysis of offer and acceptance: so there are two stages, first, the law asks whether one party has made an offer, and, if so, secondly whether that offer has been accepted by the other party. In this lecture the first of these stages will be considered. Definition of an offer An offer is a proposition made by one party to another on terms that are fixed or capable of being fixed with the intention that it will be binding on him when accepted by the other person, for example: Do you wish to buy my car for 2,000? This is a firm proposal on terms (identity of the car, assuming you have only one, and price) that are fixed. If this offer is accepted then a contract between the two parties will be formed. If the offer is not accepted there is no contract. 2

3 Consider: Lofthouse v Roberts (1902) 18 TLR 532 where an West End salary to be mutually agreed by us was too uncertain to amount to an offer. (A West End salary can vary greatly between the fee for Johnny Depp and a member of the chorous). By contrast in Bear Sterns Bank Plc v Forum Global Equity Ltd [2007] EWCH 1576 there was sufficient certainty as to price and product to make a binding agreement although many terms had still to be agreed. From this you can deduce that an enforceable agreement can be formed even though there is uncertainty as to subsidiary matters. Terminology The party making the offer is called the offeror; the party to whom it is made is called the offeree. (Always ensure you use technical language accurately, you will gain marks in courseworks and examinations for doing so). Form of offer An offer may be made in writing, spoken or by conduct. Care must be taken however, to distinguish an offer, which will bind the offeror to its terms, if accepted, from an invitation to treat where the communication is intended to be no more than an expression of willingness to enter negotiations. 4.DISTINGUISHING AN INVITATION TO TREAT FROM AN OFFER. The distinction is a fine one, can be of great practical importance because whereas an offer can be turned into a legally-binding contract by the acceptance of the other party an invitation to treat cannot. Both the fineness of the distinction and its importance is illustrated by the following case: Harvey v Facey [1893] AC 552 The following telegraphs were sent: H: Will you sell us Bumper Hall Pen? Telegraph lowest cash price. F: Lowest cash price for Bumper Hal Pen 900. H: We agree to buy Bumper Hall Pen for 900 asked by you. Facey did not rely. The Privy Council held that there was no contract. The second telegraph was no more than a statement of the minimum price which Facey would accept if he decided to sell, not an indication that he had a present intention to sell. Hence, the second telegraph was an invitation to treat not an offer. Standard presumptions In order to achieve clarity and certainty, the courts have in previous cases laid down rules which will apply in certain standard commercial situations, such as goods on display in a shop, auctions or advertisements for the sale of goods or services. However, these rules are simply general rules or to use a more technical legal expression presumptions. This means that it is presumed that they normally apply in the situations to which they refer but they will not apply, and will be overridden, if it appears from the facts of the situation that they do not reflect the actual intention of the parties. (i) Displays of goods for sale: Displays of priced goods are not offers; they are only invitations to treat: 3

4 Fisher v Bell [1961] 1 QB 394 A shopkeeper who displayed flick knives in his window and had sold them to customers was charged under the Restrictions of Offensive Weapons Act 1959, which made it an offence to offer for sale these articles. He was found not guilty since the display of goods in a shop window is only an invitation to treat, not an offer. The offer is made by the customer, which the shopkeeper is free to accept or reject. The display rule is the same for display of goods on supermarket shelves - Pharmaceutical Society of G.B. via Boots Cash Chemists Ltd [1953] 1 QB 401. Sorry it is urban myth that a shop has to sell at the price displayed. They may commit an offence of interest to trading standards but they are not legally obliged to sell to you at that price. (ii) Advertisements: In Partridge v Crittenden [1968] 1 WLR 1204 it was an offence to offer bramble finches for sale. These advertisement will usually be invitations was an invitation to treat. to By treat their and very not nature an offer advertisements therefore no offence want was committed you to make using an a literal offer to approach buy their to goods the interpretation of services. of - the offence. In Grainger & Sons v Gough [1896] AC 325 the circulation of a price list was not an offer to sell at that price but an invitation to treat. Right at the beginning of this section we said that the distinction between an invitation to treat and an offer turned on intention. This can also apply to advertisements. Consider the advert in the shop window advertising a reward for the return of a lost kitten, which is capable of being a unilateral offer accepted by embarking upon performance. Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256 is the authoritative case in this area. The Smoke Ball Co advertised a reward of 100 to any customer who bought their product and having used it appropriately caught influenza. The company claimed that this was just an invitation to treat, their advertisement being no more than a mere puff to increase sales. The court held that the company had intended to be bound to their promise as they had deposited 1000 in the bank for such a purpose. It was a unilateral offer made to the whole world at large which could be accepted by anyone who complied with the terms. We will return to unilateral offers when we deal with revocation of an offer and acceptance. (iii) Tenders: A tender is an estimate given in response to a request. An invitation for tenders is an invitation to treat - it is not an offer to use the person quoting the lowest price. The offer comes from the person making the tender: Spencer v Harding (1870) LR 5 CP 561, which can then be accepted or rejected. Be aware of the potential creation of a collateral contract to accept the lowest or highest bid dependent on the terms of the invitation to tender. 4

5 Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1WLR there was a breach of contract in not considering a tender submitted in accordance with their rules. Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] AC 207. The tender promised to accept the highest price, in accepting an offer of C$2,100,000 in excess of any other offer was not legally an offer and therefore the claimants offer should have been accepted. (iv) Auction sales: Looks complicated but isn t. An advertisement that an event is going to be held is an invitation to treat- Harris v Nickerson (1872) LR 8 QB 286. The auctioneer inviting bids is an invitation to treat, the bidder is making an offer, which the auctioneer is free to accept or reject. Acceptance being communicated by the fall of the hammer and of course the offer can be withdrawn at any time before that Payne v Cave (1789) 100 ER 502. This situation is now covered by s.57(2) of the Sale of Goods Act Using the rationale we have just discussed with regards to tenders consider the situation where an auction is advertised as being held without reserve i.e that there is no minimum acceptable bid. In Warlow v Harrison (1859) 1 E & E 309 it was said biter that in advertising a sale without reserve a unilateral offer is made that the auctioneer will sell to the highest bidder. That offer is accepted by the person making the highest bid or perhaps only bid. If the auctioneer does not sell to that bidder he is in breach of a collateral contract with the highest bidder. The bidder can claim the damages from the auctioneer as to the difference between what he would have paid and the market value of the goods (which could be substantially more than the goods were actually sold for) as in Barry v Davies (t/a Heathcote Ball & Co) [2001] 1 WLR

6 LECTURE 2 TERMINATION OF AN OFFER. KEY POINTS: An offer can be revoked at any time before acceptance, it is only effective on receipt. A counter offer operates as a rejection of the original offer. The revocation of unilateral offer must be revoked in the same way as the original offer. Once performance has been embarked upon performance in a unilateral contract it is not possible to revoke the offer. Acceptance can be by conduct, orally or in writing. A method of communication can be prescribed but often an equally expedious means of communication will do 1. AN OFFER MUST BE COMMUNICATED TO THE OFFEREE. (start to focus on the concept of effective communication) You cannot accept an offer you know nothing about. This is a situation that often arises with regards to unilateral offers. eg the finder of lost property cannot claim the advertised reward unless he knew of the reward before he found it. Knowledge is sufficient - motive is not relevant: Williams v Cawardine (1833) 4 B & Ad entitled to the reward as although knew of it was motivated by the fact the claimant believed she had a short time to live. Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256 the claimant s primary motivation was the avoidance of contracting influenza. The leading UK case on this point is Gibbons v Proctor (1891) 64 LT 594 whereby a reward for the giving of information was given without knowledge of the reward offered but was known of by the time the information was delivered. In contrast the Australian case of R v Clarke (1927) 40 CLR 227 the claimant had known of the reward but had forgotten about it and gave information as he wished to secure a pardon as an accomplice. He was not entitled to the reward money. Consider cross offers. If A sends a text to B offering to buy his old contract text books for 50, and simultaneously B texts A offering to sell his text books for 50. Is a contract created by the two crossing texts? It would appear from the obiter dicta statements in Tinn v Hoffman (1873) 29 LT 271 that there would be no contract as the offeree had no knowledge of the offer at the potential time of acceptance. 2. TERMINATION OF AN OFFER An offer can no longer be accepted once it has come to an end. An offer can come to an end, or cease to exist, in the following circumstances: (i) Rejection by the offeree. If the offeree rejects an offer then the offer comes to an end. This point becomes interesting when looked at from the perspective of the concept of a counter offer. The first point we will cover when we look at the rules surrounding acceptance is that the acceptance must mirror the offer i.e the terms match. If they differ then you do not have an enforceable agreement but a counter offer which has the effect of the terminating the original offer. If the counter offer is accepted at that point you have a binding contract on the terms of the counter offer. Which terms have 6

7 been contracted on becomes key and we will look at this again when we consider the battle of the forms. Hyde v Wrench (1840) 3 Beav 334 the defendant offered to sell his farm for The plaintiff responded with an offer to buy at 950. This offer was rejected and the plaintiffs attempts to then accept the original offer were invalid as the counter -offer made operated as a rejection of the original offer. See also Pickfords Ltd v Celestica Ltd [2003] EWCA civ Compare this case with Stevenson Jaques & Co. v McLean (1879) LR 5 QBD 346, in which an offer was made for the purchase of iron ore which was to remain open until the following Monday. The Plaintiffs initially replied inquiring as to whether credit terms for payment would be given. No answer was received so they contacted the defendants to accept the offer on Monday afternoon. The goods had already been sold to a third party. It was held that the plaintiffs had made a request for information NOT a counter-offer, therefore a binding contract had been formed following the acceptance on Monday afternoon. (ii) Revocation (withdrawal) of an offer: a) An offer may be revoked or withdrawn by the offeror at any time before it is accepted. This is the case even if there is a promise to keep the offer open for a specified period and that period has not expired. However, to be effective that revocation must be effectively communicated to the offeree. In Dickinson v Dodds (1876) 2 Ch D 463 the revocation of an offer was effective as even though the offer was supposed to be open until the Friday and the defendant sold the property to a third party on the Thursday, and the claimant only heard of this from another third party. The source, however, must be a reliable one.(just watch out for any potential collateral contract that might exist in this situation if the promise to keep an offer open is supported by consideration think back to the last session on tenders). b) To be effective the revocation of an offer must be communicated to the offeree before acceptance: Byrne v Van Tienhoven (1880) 5 CPD 344.the letter purporting to revoke the offer only took effect when received which because of the effect of the postal rule (acceptance takes effect on posting see below) was after acceptance and therefore the revocation was too late. When a revocation is deemed to be received in today s commercial environment can be a complex issue, especially with diverse modes of communication such as , faxes, texts, voice mails which are capable of storing messages. Even the ordinary post can go through a process before reaching its addressee. A revocation can take effect if it reaches the offeree and failed to read it or if the revocation had been communicated to the address of the offeree but a change had not been notified. The time a withdrawal is deemed to be effective will depend very much on the individual circumstances and the usual business practices of the recipient. The Brimnes [1975] QB 929. c) Death of either party before acceptance: 7

8 If the offeree knows of the offeror s death, he cannot accept. If the offeree does not know that the offeror has died, the offer continues in existence and can be accepted provided that the contract is capable of being carried out by the offeror s personal representatives: Bradbury v Morgan (1862) 1 H&C 249. On the other hand, if the offeree dies before acceptance, the offer probably comes to an end. d) Failure of a condition to which the offer was made subject: An offer which expressly states that it will cease on the occurrence of a condition cannot be accepted if such condition occurs. Similarly a condition may be implied: e.g. Financings Ltd v Stimson [1962] 3 All ER 386 (HP of a car - condition implied that the car would be in substantially the same condition at acceptance as it was at time of offer.) e) Lapse of time If an offer is made for a definite period only, it will automatically come to an end at the end of that period if it has not been accepted. If no definite time is stated, it will lapse after a reasonable time - this will depend on the circumstances, e.g. an offer to sell land will not lapse as quickly as an offer to sell perishable goods. iii) Revocation in unilateral contracts It would be impossible to ensure that all those persons that had been the subject of unilateral offer could be individually notified of its revocation. It would appear from the US case of Shuey v United States (1875) 92 US 73 that it would be sufficient to notify the revocation in the same way as the original offer was made. Revocation of a unilateral offer can cause a problem if the offeree has started, but not yet completed performance. For example, suppose that X offers to pay Y 100 to walk from London to York. Can X revoke his offer once Y has started to walk? Y of course can only accept X s offer, and thereby be entitled to the 100, by completing the walk. However, once the offeree has started to perform the normal rule permitting the offeror to revoke at any time prior to acceptance would cause injustice. To avoid this result, the generally accepted view is that, for the purpose of revocation of a unilateral offer, part-performance constitutes acceptance, thus preventing X from revoking his offer once Y has started walking - but that consideration is only provided by actually reaching York Errington v Errington [1952] 1KB 290 A father promised to sign a house over to his son and daughter in law. He died before this was done and his estate sought to revoke the offer. He could not do so as the offerees had commenced performance. 3 ACCEPTANCE: An acceptance is a final and unqualified assent to the terms of an offer. Once acceptance has taken place a binding contract has come into effect and the parties are bound by its terms. 8

9 i) Acceptance must be effectively communicated; this can be by conduct, verbally or in writing. Brogden v Metropolitan Railway (1877) 2 App Cas 666 provides authority that acceptance can be made by conduct. However, usually silence cannot constitute acceptance Felthouse v Bindley (1862) 11 CB (NS) 869: The offeror,the Uncle in this case said : If I hear no more about him I shall consider the horse mine at that price, the nephew s silence or lack of reply could not be deemed to be an acceptance of that offer. As such silence cannot constitute acceptance on the part of the offeree, unless potentially it is at his suggestion, Re Selectmove [1995] 2 All E R 531. Contrast the difference where the offeror can waive the need for the offeree to communicate acceptance in unilateral contracts, Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. The rule if Felthouse v Bindley (1862) 11CB (NS) 869 has been applied to so called inertia selling in both the Unsolicited Goods and Services Act 1971 as amended by the Consumer Protection ( Distance Selling) Regulations ii) The method of acceptance can be prescribed by the offeror and any deviation from that may make the acceptance ineffective. However, if he the words are unclear that the offer may be accepted in that way and by no other form of communication then an equally expedious means of communication will suffice. In other words the means of communication should not disadvantage the offeror and should not be any slower than the prescribed means. Tinn v Hoffman (1873) 29 LT 271 the reply was to be by return of post, this was held to mean that any method which would arrive before the return of post would be sufficient. In Manchester Diocean Council for Education v Commercial and General Investments Ltd. [1969] 3 All ER 1593 the acceptance of a tender bid would be sent to the address given on the tender. The acceptance was sent to the surveyor at a different address. There was still found to be a contract as it was the claimant that had inserted the requirement and he could waive compliance as long as the defendant would not be adversely affected. Perhaps we can conclude from this that the courts will only insist on precise compliance with a prescribed mode of communication where the words are absolutely clear that nothing else will do if equally quick and not disadvantageous. Consider also the possibility that the courts view themselves as enforcers of bargains and not overly willing to allow a party to escape form a bad bargain on a technicality (see below the battle of the forms.). Even where a particular method of communication is not expressly stipulated it may be implied by a court. For instance where an offer is made by a quick method of communication, such as the telephone or , in a fast moving commercial environment a court may find that acceptance by a slow method such as the post is not valid. However, if an offeree were given a week to respond tit might be. (iv) Acceptance and the receipt rule. Do yourselves a favour have a look at Lord Dennings Judgement in Entores v Miles Far East Corporation [1955] 2 QB 327 in advance of next weeks lecture. 9

10 LECTURE 3 - THE TIMING OF ACCEPTANCE: (THE POSTAL RULE v THE RECEIPT RULE) & THE BATTLE OF THE FORMS. Key Points: Acceptance is subject to the receipt rule. An exception to this is the postal rule. UK law favours the last shot approach in the battle of the forms. As we already know an enforceable agreement comes into being when an offer is accepted. We discussed last week that the offeror can prescribe the means by which acceptance can be made. The timing of an acceptance is crucial as sometimes it will be crucial in determining with whom a contract was formed or perhaps as we have seen whether an offer had been revoked in time to defeat any purported acceptance. The general rule is that acceptance takes place on receipt (see post), but the postal rule is a fundamental exception to this. 1.THE POSTAL RULE. This rule states that.where acceptance is by post, communication takes place as soon as the acceptance is posted: Adams v Lindsell (1818) 1 B & Ald 681. Therefore acceptance takes place potentially before the offeror is even aware of its existence. There will be a contract even where the letter of acceptance is delayed in the post or even where the letter is lost in the post provided that it was properly addressed and stamped: Household Fire Insurance Co Ltd v Grant (1879) 4 Ex D 217. Thus the postal rule can operate harshly on an offeror. As a result of this there are various limits on its operation. The postal rule does not automatically apply simply because the post is used as a method of communication of acceptance. Holwell Securities v Hughes [1974] 1 All ER 161. The parties can oust the operation of the rule by demonstrating an intention to do so; in this case notice in writing was interpreted as meaning being received and read by the offerror. (note the court s criticisms of the postal rule almost from its inception Byrne & Co. v Van Tienhoven &Co. (1880) 5 CPD 344) Furthermore it must be reasonable to use the post and its use must not lead to manifest absurdity. The postal rule has been held to apply to telegrams ( of historic interest only) as well as to letters but does it apply to other methods of distance communication such as fax, telex, telephone answering machine, or interactive website? Some interesting academic debate has been instigated around the similarities between and snail mail and the rationale for NOT expanding the postal rule. Hill Flogging a Dead Horse The Postal Acceptance Rule and (2001) 17 Journal of Contract Law151) Chwee Kin Keong v Digiland Mall.com Pte Ltd [2004] SGHC 71 which suggests that if you are to expand the use of the postal rule then web transactions have the characteristics of instantaneous transactions and internet communications share some characteristics of the post. Following the line of argument formulated in the answer such a distinction would be an unnecessary and unjustifiable complication hampering certainty in the commercial markets of today. 10

11 2. THE RECEIPT RULE This rule provides that acceptance and therefore a binding contract comes into effect when acceptance is received. The postal rule is an exception to this. When is acceptance deemed to be received? Consider a commonplace mode of communication these days a text message. If it was a communication of acceptance would the acceptance take effect when received in the inbox, or when actually read by the offeror, or at the time the sender would reasonably expect it to be read? What if something goes wrong and the message is sent but never arrives at its destination even though the sender used the correct details? Entores Ltd v Miles Far East Corp [1955] 2 QB 327. Lord Denning s judgement is key to understanding this point of law. He distinguishes between instantaneous and non instantaneous forms of communication. The former being subject to the receipt rule and the latter to the postal rule- hence the debate above pre dates today s technologies which can store data and be read later are these forms of communication instantaneous or non instantaneous? Denning also dealt with the situation where the communication fails, he uses the analogy of shouting an acceptance across a river and the person trying to communicate his acceptance his voice is drowned out by aircraft noise. In that situation acceptance has not taken place as the acceptance has not been communicated effectively and must be repeated effectively in order to have a binding contract. If two people are communicating by phone and the line goes dead then again the responsibility is on the acceptor to ensure his acceptance was communicated. However, if the fault of the non receipt of the acceptance lies with the recipient then in that circumstance a contract was formed at the time the contract was made. This might for indtance arise today if a message on a voice mail was inadvertently wiped before being heard. Denning s judgement in this regard has stood the test of time and has been applied to new technologies where there has been a delay in sending and actually reading/ hearing a communication. The Brimnes [1975] QB 929, Mondial Shipping [1995] Com LC However, a certain amount of uncertainty still exists. The Brinkibon [1983] 2 AC 34.Lord Wilberforce in this case referred to the new emergent technologies by which communications of acceptance may not reach or be intended to reach the recipient immediately, or may be subject to delay in transmission by a third party. Unfortunately Lord Wilberforce did not attempt to address the issue of when acceptance is effective precisely. Instead he left us with a very erudite it depends on the circumstances: No universal rule can cover all such cases; they must be resolved by reference to the intention of the parties, by sound business practice and in some cases by a judgement where the risks should lie. Remember, however, that the parties can expressly agree between themselves how and when acceptance will take place. Is it possible to revoke an acceptance? The question has arisen where an acceptance could be overtaken by a speedier means of communication is it possible to revoke an acceptance. So if a letter of acceptance is posted on 1 st October, but will not be received until 2 nd October will it be possible to revoke that acceptance by after posting but before delivery of the letter. There is no direct English authority on the point but differing answers are sometimes drawn from a Scottish case- Countess of Dunmore v Alexander (1830) 9 Shaw 190 which says yes you can and two Commonwealth cases Wenckheim v Arndt (1873) 1 JR 73 and A to Z Bazaars (Pty) Ltd v Minister of Agriculture (1974) (4) SA 392 which say no. Note the legislative intervention of the Consumer Protection ( Distance Selling) Regulations 2000 which 3. give THE the BATTLE right of withdrawal OF THE FORMS. within 7 days of acceptance. Remember this only applies to business to consumer transactions and only those concerned with distance selling. 11

12 At the outset we defined acceptance as being an unconditional and unqualified acceptance of the offer. The acceptance should mirror the terms of the offer, otherwise potentially you have a counter-offer which will operate as a rejection of the original offer. Just refresh your memories of the following two cases : Hyde v Wrench (1840) 3 Beav 334. The counter offer here operating as a rejection of the original offer which could not then be accepted at a later date and Stevenson, Jacques and Co v McLean (1880) 5 QBD 346, which was a request for information and did not destroy the original offer which could still be accepted. Now bearing these principles in mind consider the common commercial situation whereby an offeror submits his standard form contract to an offeree who accepts by returning his standard terms. Both parties have agreed on material terms such as price, quantity, and delivery dates but the standard terms are at variance; for instance their might be an arbitration clause in one but not in the other or a difference in cancellation rights. If the terms do not absolutely mirror one another does it mean there is no contract? Following the principle in Hyde v Wrench (1840) 3 Beav 334 the second set of standard terms would amount to a counter offer which the original offeror would be free to accept or reject. Often in these situations the contract has gone ahead and some performance has been rendered and as we know conduct can amount to acceptance, Brogden v Metropolitan Railway Co. (1877) 2 App Cas 666. In such a situation the courts are willing to overlook inconsistencies in subsidiary matters, Nicolene v Simmonds (1953) 1 QB 543. In Hillas v Arcos (1932) 43 LIL 359 the courts were at pains to point out that the courts were not the destroyer of bargains and would be unwilling to allow a party to escape from a contractual obligation on a technicality. However, the courts do follow a very formulaic approach as to whose terms have been contracted upon. Using the aforementioned principles of offer and counter-offer the courts have favoured a last shot approach to the terms that formed the terms of the contract. This has the potential consequence that one of the parties may end up being bound by terms he did not intend. Butler v Machine Tools v Ex-Cell-O Corp (1979) 1 WLR 401 Defendants express an interest in buying a machine to be delivered in ten months time. The plaintiffs supplied a quotation on their standard terms including a price variation clause if price rise before time of delivery (=OFFER)- also had a clause asserting that their terms would prevail over any others. Defendants responded by placing an order which was stated to be on their own terms and conditions which were on the order form- this was found to be a counter offer. Plaintiffs returned tear off slip from but also sent letter stating the order was accepted in line with earlier quote.= (ACCEPTANCE the letter was held to be merely confirming type and price and not the conditions.) When the machine was delivered the plaintiffs sought an extra 2892 in line with the price variation clause. Tekdata Interconnections Ltd v Amphenol Ltd [2010] 1 Lloyd's Rep 357, is a modern application of the last shot approach. It is arguable that the last shot approach should be used to find that a contract has come into existence but that perhaps a more sophisticated approach to the actual terms that have been agreed to should be adopted. GHSP Incorporated v AB Electronic Ltd [2010] All ER (D) 217 (Jul) It is perhaps ironic that we have seen that when acceptance takes place is dependent on individual circumstances, but what was actually agreed to as terms of the contract adopts a formulaic approach. This can have the repercussion on giving effect to terms which by chance happened to be put on the table last rather than always being a true reflection of both parties intentions. It is unlikely that the parties in their negotiations were focused on the effect of 12

13 getting in the last shot their major concern being the deal/ bargain being struck. Putting in a clause saying that you only intend to deal on your own terms will have little if any effect if that offer is superseded by a counter offer as the original offer is treated as being rejected in its entirety. 4. ANSWERING QUESTIONS ON OFFER AN ACCEPTANCE. (1+2=contract) You will not score highly on this topic are unless you have treated as one whole topic. You need to understand the principles across these three lectures, support your analysis of these issues with appropriate authorities and apply your knowledge back to the question asked or problem set. In approaching this topic area ensure you can deal with all the following in depth and ask yourself the following when approaching any question: 1. Has there been an OFFER or an INVITATION TO TREAT? you know rules that apply?) Is it a Unilateral Offer ( do the special revoked? Has the offer been regards to auctions/tenders? information. Are you a battle of the forms Do you need to consider the position with Has there been a counteroffer/request for dealing with scenario? 2 Has there been ACCEPTANCE? Did that acceptance have to be communicated in a specified manner? Does the receipt rule apply- if not effectively communicated who was at fault? Consider whether this affects the validity of the acceptance. Does the postal rule apply or has its application been ousted? 13

14 LECTURE 4 CONSIDERATION: SUFFICIENCY AND ADEQUACY This lecture will consider the various definitions of consideration and the doctrinal disputes that have accompanied the attempts to reach a consensus as to the meaning of the concept. We will then look at the various rules developed by the courts when applying consideration and thus consider the many functions of consideration. Offer and acceptance is a necessary element in establishing a legally enforceable contract but it is not by itself sufficient. Another element, known as consideration, is also required unless the agreement is contained in a special form of written agreement known as a deed, for English law regards a deed as equivalent to consideration. In order to explain the meaning of consideration in this contractual sense it is helpful to bear in mind that the structure of a contract consists, at least in the case of a bilateral contract, of an exchange of promises. (A unilateral contract consists of an exchange of a promise for an act but this case, which is the less common form of contract, will be disregarded for the moment.) Hence in a contract of sale the seller promises to transfer the property, whether land, goods or intangible property such as company shares, in return for the buyer s promise to pay the price. If after the contract is made one or other party breaks the contract, for example the seller fails to deliver the property or the buyer fails to pay the agreed price the action of the innocent party to sue for breach of contract is an action for breach of the other party s promise to either transfer the property or pay the price as the case may be. This element of exchange of promises is usually concealed in everyday contracts such as buying items in a shop because the making of the contract and its performance take place more or less simultaneously, the contract being both formed and performed when the customer pays at the till and takes the purchased items away. But in commercial contracts or in consumer contracts for large-value items which are to be delivered subsequent to purchase the element of exchange of promises is more evident: for example, a seller of goods may promise to deliver them to the buyer at some agreed time in the future and the buyer may, in return, promise to pay the agreed price on delivery. If either party fails to carry out their promise they can be sued for breach of promise by the other party. Even a contract which is carried out at the same time as it is made, such as a purchase of goods from a shop may involve implied, if not express, promises as to the quality and durability of the goods. The basic rule is that such promises are not legally enforceable unless some consideration is provided in return. To make a valid contract - there must be consideration, i.e. the price for which the other party s promise or act is bought. This consideration is, in the case of a bilateral contract, the promise that is given in return for the other party s promise, and in the case of a unilateral contract is performance of the act requested in the other party s promise of a reward This notion of bargain, quid pro quo, is what turns an agreement into a contract. The result is that a so-called bare promise, that is a promise not given in return for another promise or for other valuable consideration, for example a promise to make a gift to charity, is not generally enforceable. As already mentioned there is an exception to this if the bare promise is made in a special legal document called a deed because a deed is accepted as equivalent to consideration. DEFINITIONS: Consideration has not proved easy to define. The classic definition of consideration was given in: Currie v Misa (1875) LR 10 Ex

15 consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. Another definition was given by Sir Frederick Pollock in a treatise on Contract Law: An act or forbearance of the one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable. Pollock, Principles of Contract Law (13 th ed.,) p.133. This definition was adopted by Lord Dunedin in Dunlop v Selfridge [1915] AC 847 at 855. In short, consideration means any benefit to the promisor or detriment to the promisee. It means giving, doing or allowing something in return for the other party s act or promise. This view is supported by Professor Treitel. If you do not give consideration, you cannot sue for breach of contract, eg if A promises to give B 10, B cannot sue A if A fails to do so (thus, a gift can only be made legally binding if made by deed). A third definition, challenging the classic definition was given by Professor Atiyah : the truth is that the courts have never set out to create a doctrine of consideration. They have been concerned with the much more practical problem of deciding in the course of litigation whether a particular promise in a particular case should be enforced It seems highly probable that when the courts first used the word consideration they meant no more than there was a reason for the enforcement of a promise. If the consideration was good, this meant that the court found sufficient reason for enforcing the promise. Consideration: A Restatement in Oxford Essays 1986 THE SCOPE OF THE DOCTRINE: 4.1 Consideration need not be adequate Though it must be of some value, consideration need not be equivalent to the other party s act or promise, i.e. the courts will not help you if you make a bad bargain, eg selling a car for a 1. Inadequacy of consideration, however, is a factor to be considered if fraud is alleged. Since consideration need not be adequate, even trivial acts can amount to consideration - Thomas v Thomas (1842) 2 QB 851. See also Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 Nestle had offered the record called Red Shoes + 3 wrappers to promote their chocolate. Record normally sold for 6s 8d. The wrappers were thrown away, but were held to be good consideration when Chappell sued for breach of copyright. Lord Somerwell: A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the peppercorn 4.2 Consideration must be sufficient Consideration need not be adequate, but it must be sufficient, ie something that the law will recognise as being valid consideration (some books refer to it as real consideration). 15

16 The following are not sufficient consideration: 1. Intangible consideration It is often said that consideration must be real, that is tangible and of some actual value: so the Courts will not enforce vague promises, or promises where there is no benefit or detriment, eg a promise to do the right thing - White v Bluett (1853) 23 LJ Ex 36. A son owed his father money on a promissory note. When the father died and the executors tried to recover the money, son refused. He claimed an agreement with the father that the son would not complain about the distribution of the assets in the will. He failed because the promise was too intangible to be consideration for the father s promise to forego the debt. However, it is also the case that the requirement of actual value is not applied very strictly where the contracting party has specifically stipulated that consideration Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87; conclusion also valid for trivial acts. Contrast these cases with Pitt v PHH Asset Management Ltd (1994) 1 WLR 327 and Hamer v Sidway (1891) 27 NE 256 Uncle agreed with nephew that if he wd refrain from drinking liquor, using tobacco, swearing and playing cards or billiards for money till he became 21, the uncle wd pay the nephew $ 5000.Def tried to argue that the promise was not a detriment but a benefit to the nephew: promosor was not benefitted. But promise was held enforceable despite the fact that it is difficult to see it in terms of benefit and detriment: more A QUESTION OF RELIANCE (Atiyah) 4.3. Consideration which does not move from the claimant A claimant in a breach of contract case must always show that he provided consideration, eg if X promises A to pay A 10 if Y also pays A 10, and if Y pays and X fails to do so, A cannot sue X, because he, A, has provided no consideration for X s promise. Still less can A sue if the promise was not made to him, A - he is then a complete stranger to the contract and therefore cannot sue on it - this is known as the doctrine of privity of contract - Tweddle v Atkinson (1861) 1 B&S 393. However, a limited statutory exception to this has been introduced by the Contract (Rights of Third Parties) Act This will be considered later (under Privity of Contract). The promisee himself must provide the consideration either by incurring some detriment or by conferring a practical benefit on the promisor,as we saw in Williams Consideration which is past Something done in the past is no consideration for a promise made today - Roscorla v Thomas (1842) 3 QB 234. Whether consideration is past or not is a question of fact, depending on all the circumstances of the case - the wording of the contract alone is not decisive: see Re McArdle [1951] Ch 669. There is a possible exception to the rule that past consideration is no consideration. This arises from the old case of Lampleigh v Braithwait (1615). Where A has done something at the express or implied request of B this is regarded as sufficient consideration to enforce a subsequent promise to pay. However, this case is often explained on the basis that at the time of B s request there was an implied promise by B 16

17 to pay A if the latter performed the requested act, the exact sum of money to be agreed later. If this is the correct explanation of Lampleigh v Braithwait (1615) it is not a true exception to the rule against past consideration because the implied promise by B to pay comes before not after A s performance. 4.5 Performance of an existing duty There are two categories here: a) performance of an existing contractual duty and b) performance of a duty under the general law (a) Duty under a contract.: this is a very controversial aspect of consideration Where A promises something to, or does something for B which he is already contractually bound to B to do, A does not give consideration for another promise by B - Stilk v Myrick (1809) 2 Camp 317 Stilk (i) had agreed to sail to the Baltic and back at a rate of 5/month. There were 11 crew but 2 men deserted so S agreed to share the wages of the 2 deserters with the rest of the crew in order to ensure that the ship got back to port. In London S demanded his share of the money but the master refused to pay. S sued for the money but was not successful. 1 but compare Hartley v Ponsonby (1857) 7 crew men out of 36 deserted (so the remaining crew were halved).the desertion of so many made it unsafe to continue the voyage and so the remaining men were promised extra pay on the completion of the voyage. The master refused to fulfil his promise on their return to the home port, but the court agreed with the men that they had provided consideration and therefore the master s promise should be enforced. (ii) And Williams v Roffey Bros [1991] 1 QB 1. Defs were building contractors. They had a contract with a housing association to refurbish some flats. In this agreement, there was a penalty clause: if the contractors failed to complete the work by a set date, they would have to pay the housing association a sum of money. The defs engaged the claimants to carry out some carpentry work for After 6 months, it was clear that the claimants were in financial difficulties and would not be able to complete the work. The def promised to pay them a further! at a rate of 575 per flat. Def failed to pay and claimant sued. Def relied on Stilk, but the CA held that the claimants had provided consideration and could succeed.. The DECISION IN THIS CASE IS VERY CONTROVERSIAL AND YOU SHOULD CONSIDER THE JUDGES OPINIONS AND ACADEMIC DISCUSSION WITH CARE. You should note in particular: 1) how this decision can be reconciled with Stilk and 2) what is to be understood by practical benefit as referred to by Glidewell LJ 17