CHAPTER 1. The question requires a discussion of the law with regard to offer an acceptance. For a contract to be valid it must be:

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1 CHAPTER 1 property of 1stclasslawnotes lawstoreuk Formation Formation of Contract The question requires a discussion of the law with regard to offer an acceptance. For a contract to be valid it must be: 1. a result of a binding agreement between parties 2. made with the intention to be legally bound; and 3. consideration (sufficient) by both parties must be provided. Ben needs to be advised that in order for the courts to find that a contract has arisen there must be an offer and an acceptance. This is assessed objectively by paying attention to what is said and done by the parties. 1. Offer & Invitation to Treat - Has there been an offer? The first question to ask is whether an offer has been made, or merely an invitation to treat. An offer is an expression or 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 (Trietel). It is different from what is known as an invitation to treat, where one party merely invites offers from another party and which he is then free to accept or reject (Carlill v Carbolic Smoke Ball Company). In distinguishing an offer from an invitation to treat, the courts will infer an intention to be bound where the (i) terminology used in the proposal is certain (Scammell v Ouston); its (ii) language is definite and consistent with an intention to be legally bound (Storer v Manchester CC); and (iii) where there is a limit to the number of potential recipients (unless it is the intention of the person to be bound to everyone who accepts). Generally speaking goods on display and advertisements in newspapers or periodicals that the advertiser has goods for sale are not offers (Fisher v Bell). Neither are catalogues or price lists (Grainger & Son v Gough). The display of these items is merely an invitation to treat; for the customer to offer to buy the goods and which the shopkeeper can accept or reject. The reason for this conclusion is that otherwise the advertiser, catalogue publisher and shopkeeper would be obliged to sell to every person who had accepted such an offer, even where supplies had run out (Partridge v Crittenden) - or alternatively, if the display were an offer, once the shopper selected an article they would have no right to change their mind (Pharmaceutical Society of GB v Boots Cash Chemists). However, in Carlill v Carbolic Smoke Ball Company it was provided that an advertisement did constitute an offer where the defendant clearly intended to be legally bound and was not merely inviting the appellant to make an offer. An announcement inviting tenders is not normally an offer; unless accompanied by words indicating that the highest or the lowest bidder will be accepted (Harvela Investments Ltd v Royal Trust of Canada). Where there is no offer to contract with the highest or lowest bidder, but the invitation to tender prescribes a clear, orderly and familiar procedure, it may be an offer to consider all conforming tenders (Blackpool & Fylde Aero Club). 2. Acceptance - Has there been acceptance? If the contract is bilateral, for acceptance to be valid it must- (i) (ii) coincide exactly with the terms of the offer; and be communicated to the offerer The requirement that the acceptance coincide exactly with the terms of the offer is summed up in the general rule known as the "mirror image" rule: that the acceptance must be absolute and leave no doubt as to the fact of acceptance, and must correspond exactly with the terms of the offer (Rees v Warwick). 1

2 Any acceptance which attempts to vary the terms contained in the offer will be considered as a rejection of the original offer and interpreted as a counter-offer which is open to acceptance or rejection by the original offeror (Hyde v Wrench). However, merely requesting information or inquiring whether the offerer will modify his terms will not be treated as a rejection of the original offer and the original offer will therefore still be open to acceptance (Stevenson, Jacques & Co v McLean). 3. Has acceptance been communicated? Acceptance will not be complete unless there is actual communication of the acceptance to the offeror either by the offeree or a third party (Entores Ltd v Miles Far East). An offer can be accepted either in writing, through oral communication or by the conduct of the parties (Brogden v Metropolitan Railway Co D didn t express acceptance of amended terms, but still supplied coal), but silence will not suffice (Felthouse v Bindley). Where acceptance is sent by post the acceptance is complete once it is posted, even if the letter is never received (Household Fire and Carriage Accident Insurance Co v Grant) - though the operation of the postal rule applies only when it is reasonably to use the post as a means of communicating acceptance (Henthorn v Fraser); and it may be excluded if the offerer makes actual communication to himself of the acceptance a requirement (e.g. no later than date X) (Holwell Securities v Hughes). Where the offeror prescribes a particular method of communication, the offeree will not be bound to this mode so long as the mode used was an equally effective acceptance method (Manchester Diocesan Council for Education v Commercial and General Investments) - unless the offeror explicitly states otherwise (Yates Building Co v RJ Pulleyn & Sons). 4. Termination of Offer - Is acceptance effective? An offer may be terminated by 1. revocation An offer can be withdrawn at any time prior to acceptance (Payne v Cave), but becomes irrevocable after acceptance (Great Northern Railway Co v Witham). For a revocation to be effective, it must be communicated to the offeree (Bryne & Co v Leon Van Tienhoven - the postal rule does not apply) and where the offer was made to the whole world (i.e. an advert in a newspaper) it can be withdrawn by taking reasonable steps (i.e. placing a withdrawal advert in the same newspaper) (Shuey v US). The postal rule does not apply because the revocation must be communicated, but a letter is effective on arrival, even if the offeree refrains from opening the letter (Tenax SS Co Ltd v The Brimmes). The revocation need not be communicated by the offeror - a third party will suffice provided that third party can be reasonably relied upon (Dickson v Dodds). 2. by rejection An offer will held to have been terminated once it has been rejected by the offeree (Hyde v Wrench). 3. through lapse of time If an offer is subject to an express time limit, it cannot be accepted after the expiry of that time - though the offeror could waive this condition and treat the late acceptance as valid if he so wished. If there is no such time limit, then the offer remains open for a reasonable time (Ramsgate Victoria Hotel Co v Montefiore). 4. on the occurrence of a condition An offer may expressly indicate or imply that its continuance is conditional upon the existence of circumstances: for example, if before acceptance to purchase a brand new car, the car is stolen and returned in a damaged condition - the offer will lapse (Financings Ltd v Stimson). 5. death Where the contract is concerned with "personal services", the death of the offeror or offeree will terminate the contract. If the contract is of a non-personal nature, then it is possible that the executors of the deceased may be able to conclude the contract (Harris v Fawcett). 5. Unilateral Contracts - Are there any rules that mean you should depart from the usual rules of Offer & Acceptance? A unilateral contract is an arrangement whereby only one party assumes an obligation. It is a promise for an act, and not a promise for a promise, e.g. A offers to pay a sum of money, if B will do, or refrain from doing something without B actually promising to do so (classic example is Carlill v Carbolic Smoke Ball). Acceptance of a unilateral contract does not need to be communicated to the offer and acceptance is made by the other party's performance of the act. A unilateral contract cannot be revoked once performance of the act has begun (i.e. once it has been accepted), but it will cease to be binding where the act is left incomplete (Errington v Errington and Woods). 2

3 CHAPTER 2 Certainty...of Terms Certainty of Terms An agreement which is incomplete or vague lacks certainty and is not enforceable, and the law of restitution provides a remedy in the form of payment on quantum meruit. As a minimum, a valid contract typically includes an indication of the parties, a description of the goods or work, time for performance and a price (though where the parties are silent as to price, a "reasonable sum" must be paid by operation of s8(2) Sale of Goods Act 1979 and s15(1) Supply of Goods and Services Act 1982). Agreements to agree are not valid contracts (May & Butcher), though the courts may look to uphold the agreement where it can find certainty (Hillas v Arcos). The court will also more readily resolve uncertainty where the parties have partly or fully performed the agreement (Foley v Classique Coaches) - though it will depend on the facts of each case (BSC v Cleveland Bridge). 3

4 CHAPTER 3 Intention to create Legal Relations Intention to be legally bound Where an agreement is of a social nature (e.g. friends) or domestic nature (e.g. husband and wife) it is presumed that there is no intention to be legally bound, but this may be rebutted on the facts of the case (Balfour v Balfour; Simpkins v Pays). The intention of the parties will be judged objectively, but the court is more likely to find intention where, for e.g. the parties were not in amity when the agreement was made (Merritt v Merritt); where the agreement was essentially a commercial one (Snelling v John G. Snelling); or where one party has acted to their detriment in reliance upon the agreement (Parker v Clark). Where an agreement is of a commercial nature, the general presumption is that these agreements are intended to be legally binding, but this may be rebutted where the words used have the effect of nullifying an intention to be legally bound (This was the difference in Rose and Frank v JR Compton and Edwards v Skyways). In express agreements, the onus of proving there was no intention is on the party who asserts no legal effect is intended. However, where an agreement is implied contract inferred from conduct, the onus of proving there was on a contract is on the party who asserts that legal effect was intended (Baird Textile Holdings v Marks & Spencer). 4

5 CHAPTER 4 Consideration Consideration In order to be entitled to enforce a promise a promisee must have given something in return for the promise where there is no consideration, it is merely a promise to make a gift which is not enforceable unless it is made in a deed. Consideration may consist either in some right accruing to one party, or some forbearance suffered or undertaken by the other (Currie v Misa). The requirement of consideration can therefore be satisfied by the presence of detriment or benefit; both elements need not be present but it is also necessary that the consideration, the right accrued or the forbearance suffered, is something of value in the eyes of the law e.g. promises of love will not suffice (Trietel). 1. Consideration must be sufficient but need not be adequate Where consideration is monetary, the court will readily find that consideration is sufficient. There is no requirement that the consideration is adequate, i.e. of market value, so 1 in exchange for a house would be sufficient (Chappell v Nestle). Where consideration is nonmonetary, the court reserve the right to decide whether the alleged consideration has in law any value and so whether or not it amounts to consideration - though in commercial cases the court tends to give credence to what the parties decide is or is not of value (Bainbridge v Firmstone). 2. Consideration must not be past Where the promise to perform is given after the relevant act of the other party has already been performed (e.g. A paints house, then B offers to pay 100 for painting house), this will not amount to good consideration (Re McArdle). However, there may be consideration for a promise made after acts have been performed where: 1. the act is done at promisor's request; 2. the parties understood that the act would be remunerated by payment/other benefit; and 3. the payment/benefit is legally enforceable if promised in advance (Lampleigh v Braithwait). 3. The pre-existing duty rule a. Performance of contractual duty for a 3 rd party Where X contracts with Y to do something for a sum of money, and X contracts with Z to carry out his pre-existing contractual duty to Y for another sum of money - the performance of, and the promise to perform a pre-existing contractual duty owed to the third party, Y, will constitute valid consideration (Shadwell v Shadwell). b. Performance of duty imposed by law Where a duty to perform is imposed by law, performance of this duty or the promise to perform this duty does not in law amount to consideration (Collins v Godefroy). However, where the claimant exceeded their duty in some way and done more than they are legally bound to do, this may amount to valid consideration (Glasbrook Brothers v Glamorgan CC). c. Performance of contractual duty owed to the promisor (increasing pact) Where there is a contract between A and B, and then there is an alteration agreement whereby A promises to pay B more for doing the same work (an increasing pact), but refuses to honour his promise after the work is completed - the traditional view is that B cannot claim the additional money because he has simply performed his existing contractual duty and performance of an existing contractual duty is not good consideration (Stilk v Myrick; Foakes v Beer). However, where the claimant goes beyond their existing duty (Hartley v Ponsoby); or the defendant obtains a practical benefit as a result of the claimant's promise to perform his existing contractual duty, such as having the work completed on time, consideration may be found (Williams v Roffey Bros). d. Part-payment of debt (decreasing pact) Where there is a contract between A and B, and then there is an alteration agreement whereby B agrees to accept less than was due under the original contract (decreasing pact), the part-payment of the debt will not extinguish the obligation to pay the whole because there is no consideration (Pinnel). This was approved in Foakes v Beer. However, there are exceptions, including where at the promisor's request part-payment is made (i) before the due date; (ii) with a chattel ("hawk or robe"); or (iii) to a different destination. In addition, other the debt will be discharged where part-payment is made by a third party (Hirachand Punamchand v Temple); or where the defendant can successfully raise the defence of "promissory estoppel" (Central London Trust v High Trees). 5

6 4. Consideration must move from the promisee and not be illegal The consideration must come from the promisee, i.e. from someone who is privy to the contract, and not a third party. However, a person who is not party to a contract (a third party) may enforce a term of the contract if (a) the contract expressly provides that he may; or (b) the term purports to confer a benefit on him, though the third party must be expressly identified by name, as a member of a class or as answering a particular description. If it appears that neither party intended the term to be enforceable by a third party, s1(1)(a) and (b) will not apply (Contract (Rights of Third Parties) Act 1999). If consideration amounts to an illegal act, it will not be enforceable (Foster v Driscoll). 5. Establishing the necessary link In order to constitute consideration the act must have been performed at the request, express or implied, of the promisor (Combe v Combe). The Defence of Promissory Estoppel Where there is a promise but it has no consideration (e.g. A accepts part-payment of a debt and promises not to sue for the rest of the debt at a later debt), the defence of promissory estoppel may prevent the party withdrawing its promise if the other party has reasonably relied on that promise. What is required for promissory estoppel is: (i) a contractual relationship must exist (Brikom v Carr). (ii) there must be a clear and unambiguous promise by the promisor that he will not enforce his legal rights. it would be up to the court to decide based on all of the facts if this was so Scandanavian Tanker Trading Co. v Flota Petrolera Ecuatoriana). (iii) there must be reliance on the promise by the promisee. In Hughes v Metropolitan Railways, the court held that there must be detrimental reliance, but in W J Alan v El Nasr Export & Imports the court said there need not be detriment, the promisee must have been led to act differently than he would otherwise have done. Also in James v Heim Galleries, the court said that the promise must be made with the intention or at least the knowledge that it would be acted upon. (iv) it must be inequitable for the party to go back on his promise (i.e. the defendant must have acted honestly and reasonably, DC Builders v Rees). Whether estoppel suspends or extinguishes rights is debatable. Tool Metal v Tungsten Electric Co said it suspends rights but the High Trees case says it extinguishes rights, e.g. it could extinguish claimant's rights to reclaim 500. (v) estoppel must be used as a shield and not as a sword (Combe v Combe). Consolidation Offer + Acceptance = agreement to be enforceable, must demonstrate - - consideration; and - intention to create legal relations However, in alteration agreements to an original contract, the enforceability of promises has extra facets: Increasing pact: to be given more money for same work, to make it enforceable claimant needs to show that alteration promise was supported by - - extra legal consideration; or - practical benefit Decreasing pact: to accept less under a debt enforceable, the defendant (who is being sued for the full amount of debt) needs to show that alteration promise was supported by - -extra legal consideration (horse, robe, hawk, etc); or - that promissory estoppel can be used using the case of Collier, despite the fact that this conflicts with Foakes v Beer. 6