Formation of a Contract To start with it needs to be identified whether and which party is alleging a contract. For a contract to be valid it must be: 1.! An agreement 2.! Contractual intention 3.! Consideration Agreement An agreement is formed if there is a valid offer and an acceptance. There must be certainty in the offer and acceptance otherwise the court would not uphold the contract (Scammell v Ousten).! Hillas v Arcas the use of timber of fair specification was not too vague to form a contract as the parties had dealt with each other before and were well acquainted with the timber industry Offer 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 13 th Ed; confirmed in Allied Marine Transport). This will be assessed objectively (Smith v Hughes) This is distinguished from an invitation to treat (ITT), which is where one party merely invites offers from another party and which he is then free to accept or reject.! Carlill v Carbolic Smoke Ball Was considered an offer not ITT even though it had aspects if an ITT. This was because the defendant had taken actions (depositing 1,000) to indicate that it took the promise seriously, thus it was an offer to anyone who satisfied the conditions, even if they didn t communicate acceptance as it waived the requirement Case Law:! Fisher v Bell Generally speaking goods on display and advertisements in newspapers or periodicals that the advertiser has goods for sale are not offers 1
! Partridge v Crittenden advertisements are generally an ITT! Grainger v Gough Similarly catalogues or price lists are also ITT. The display of these items is merely an invitation to treat! Boots Cash Chemist The same applies to goods on display and self-service displays in a shop! Williams v Carwardine Advertisements for a reward are treated as offers as there is intention to be bound as soon as information is given The reason for this distinction 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; Boots Cash Chemist). Tenders: An announcement inviting tenders is not normally an offer (Blackpool & Fylde Aero Club); unless accompanied by words indicating that the highest or the lowest bidder will be accepted (Harvela Investments). 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). Auctions: In an auction with a reserve price, contract is formed between the seller and the bidder once the auctioneer completes the sale (S57 SGA 1979). Where the auction doesn t have a reserve price there will be a unilateral contract between the bidders with the highest bid (Barry v Davies). Failing to accept the highest bid allows the highest bidder to sue for damages. Acceptance Acceptance is an unconditional expression of assent to the terms of an offer. If the contract is bilateral, for acceptance to be valid it must; a)! coincide exactly with the terms of the offer (Rees v Warwick; Treitel); and b)! be communicated to the offerer 2
Offeree must know they are accepting an offer (R v Clarke Australian Case). In contrast, knowing about an offer and performing its acceptance for mixed motives will still be held as a valid acceptance (Williams v Carwardine). Counter offers: 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 v McLean).! Brogden v Met railway; Butler Machine Tool In the case of battle of forms the last terms to be proffered or final terms contracted on will take precedence because it is considered a counter offer which the other party accepts Communication: Acceptance will not be complete unless there is actual communication of the acceptance to the offeror (Entores v Miles East).! Brogden An offer can be accepted either in writing, through oral communication or by the conduct of the parties! Felthouse v Bindley Silence will not suffice for communication of acceptance! Re Selectmove An offeree can bind themselves by silence e.g. by stating if you don t hear from me by tomorrow, then assume I ve accepted Postal Rules:! Adams v Lindsell Where acceptance is sent by post the acceptance is complete once it is properly posted! Household Fire v Grant Even if the letter is never received, so long as it was a reasonable method of communication, properly posted and not excluded! Henthorn v Fraser The operation of the postal rule applies only when it is reasonably to use the post as a means of communicating acceptance 3
! Holwell Securities v Hughes Posting may be excluded if the offerer makes actual communication to himself of the acceptance a clear requirement! Brinkibon In deciding when an acceptance is communicated, there is no universal rule, rather reference should be made to the parties intention, sound business practice and in some cases judgement as to where risks should lie Termination of Offer An offer may be terminated by Revocation Rejection Lapse of time Occurrence of a condition Death Revocation: An offer can be withdrawn at any time prior to acceptance even if offeror promised to keep it open (Routledge v Grant), but becomes irrevocable after acceptance (Great Northern Railway). The offeree may also give consideration for the offerror for keeping the offer open (Mountford v Scott).! Bryne & Co For a revocation to be effective, it must be communicated to the offeree! Dickson v Dodds The revocation need not be communicated by the offeror a third party will suffice provided that third party can be reasonably relied upon! Shuey v US 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) note that it s a US case! The Brimmes The postal rule does not apply but a letter is effective on arrival where it is reasonable to expect a member of staff to read it! Errington v Errington If it s a unilateral contract, revocation not possible once act of acceptance has begun 4
Rejection: An offer will be held to have been terminated once it has been rejected by the offeree (Hyde v Wrench) Lapse of time: If an offer is subject to an express time limit, it cannot be accepted after the expiry of that time. Although 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 v Montefiore) 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). Intention to Create Legal Relations (ITCLR) This involves an objective assessment of parties intention (Smith v Hughes) Commercial agreements: Where an agreement is of a commercial nature, the general presumption is that these agreements are intended to be legally binding (Edwards v Skyways), but this may be rebutted where the words used have the effect of nullifying an intention to be legally bound (Rose & Frank v Compton). 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 an 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 v Marks & Spencer). Non-commercial agreements: 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 (Balfour v Balfour), but this may be rebutted on the facts of the case (Simpkins v Pays). 5
The intention of the parties is rebuttable and will be judged objectively, but the court is more likely to find intention where, for example the parties were not in good relations when the agreement was made (Merritt v Merritt); where the agreement was essentially a commercial one (Snelling v Snelling); or where one party has acted to their detriment in reliance upon the agreement (Parker v Clark). 6