Business- Contract Law Revision Booklet- English Contract Law PDF

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Contract Law Revision BookletCycle 1 – Introduction to English Contract Law, Offer and AcceptanceIntroduction to English Contract LawOffer and AcceptanceAgreement Smith v Hughes (Blackburn J): The standard in deciding whether or not a contract has been concluded is, whatever a man’s real intention ...

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Contract Law Revision Booklet Cycle 1 – Introduction to English Contract Law, Offer and Acceptance Introduction to English Contract Law Offer and Acceptance Agreement 

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Smith v Hughes (Blackburn J): The standard in deciding whether or not a contract has been concluded is, whatever a man’s real intention may be, the way he conducts ‘himself that a reasonable man would believe that he was assenting to the proposed terms’. Flexible Systems v Molkeren Alois (Lord Clarke): Reiterated in this case. The cases established the test for existence and that the scope of agreement is objective as a subjective test would try to ascertain the actual intentions. An objective test is commercially better because it would cause uncertainty if someone could escape liability by claiming that they had no real intention. Centrovincial Estates v Merchant Investors Assurance: application of the objective test. o C let premises to D per anum at £60,000 and were contractually committed until a certain date. Before this date, C wrote to D and proposed a rent for £65,000, to which D agreed. C made a mistake and actually meant a much larger number. D refused to pay and C insisted the contract had not been concluded. C failed to demonstrate the lack of existence to the agreement for £65,000. o Held that offeror cannot withdraw from an ambiguous offer after it has been accepted in the manner just because a mistake has been made which the offeree could not know or reasonably foresee. The Hannah Blumenthal: o Agreement between two parties to settle dispute by arbitration and then there was a delay by six years where nothing happened in relation to the arbitration. One party sought order that arbitration need not happen because of the delay. One of the grounds was that silence/ inactivity agreed to abandon the arbitration. o Lord Brandon held that there were two ways in which a party could agree to abandon a contract to arbitrate:  Agreeing to do so  Where a party created a situation in which he was estopped from asserting the situation o On the latter point, it was held that the seller had accepted the buyer’s offer to abandon the arbitration was to show that they had acted reliance on the fact that the contract had been abandoned. The function of reliance was to provide evidence of the fact that there was acceptance of an abandoned contract. o Hannah Blumenthal does not cast doubt on Centrovincial because in the latter case, D’s acceptance was evidenced by the fact they wrote and accepted the claimant’s offer. Subjective intentions of the parties are not irrelevant. In many cases, the subjective intentions will coincide with the interpretation put upon their intentions by the objective test, and so their subjective intentions are protected. Centrovincial: there are two circumstances in which the objective test will be modified by a test which appears to place greater emphasis on the subjective intentions: Where the offeree knows the offeror is making a mistake as to the terms of the offer. This does not constitute acceptance – no contract. Where the facts on which the offeror based his decision to enter the agreement are mistaken, the contract remains (Statoil v Louis Dreyfus Energy Services):

Hartog v Colin and Shields:

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o o

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D entered into a contract to sell 3,000 hare skins to C. The mistake was that they offered to sell them for 10d per pound instead of 10d per piece. When they discovered their mistake, D refused to deliver. C brought action against the non-delivery. It was held that C could not have reasonably thought D’s offer matched their true intention. C were therefore prevented from snatching a bargain which they knew was not intended by D. Still objective. Objective test on the basis that the reasonable person in their position would have known that the offer did not reflect the other party’s true intention.

Where the offeree is at fault in failing to note that the offeror has made a mistake.

Scriven Bros v Hindley: o

o o

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An auctioneer acting for C put up for sale hemp and tow. The auction catalogue was misleading; the second lot was of a lower value when it appeared the two were the same. D bid for the second lot, thinking it was of the same value. The auctioneer did not realise D was mistaken and thought they had overvalued the price of tow. When D realised the mistake, they refused to pay. It was held no contract had been concluded because the auctioneer intended to sell tow and D intended to buy hemp and D’s mistake had been induced by C’s carelessness. Still objective. Objective test on the basis that a reasonable person in the position of D would have been misled.

Spencer gives a proposed third subjective scenario, where two parties who have little English enter an agreement to sell a ‘bull’. Although the contract is concluded using the word ‘bull’, they both mean ‘cow’. The objective test would not work here. Therefore, the subjective intentions of the parties must prevail. However, subjective understandings of the parties will generally not prevail over an objectively ascertained intention (Mathieson Gee v Quigley, Lord Normand).

The general rule is that the intention of the parties is to be assessed objectively. Howarth argues that there are in fact three different interpretations of the objective test: 1.

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Detached objectivity: this test asks what interpretation a detached observer would make from watching the behaviour of the two parties from their words and actions. Little judicial support for this test. Promisee objectivity: test interprets words as they were reasonably understood by the promisee. This has the greatest support in case law (Smith v Hughes –party conducts himself that a reasonable man would believe he was assenting to terms proposed). Promisor objectivity: this test puts the standard of the reasonable person in the shoes of the person making the offer. Vorster criticised Howarth’s approach because there is little distinction between promisor and promisee. In a bilateral contract, each party is both a promisor and a promisee eg. Scriven Bros v Hindley. This could be counter-argued by stating that the main essence is to look at it from claimant/ defendant perspectives. Case law generally uses ‘defendant’ objectivity eg. Scriven Bros v Hindley.

Has an agreement been reached? 

Butler v Ex-Cell-O Corp: o Butler offered to sell a machine tool to buyers made on Butler’s standard terms of business, which included a price variation clause. An acknowledgement slip was signed. After constructing the machine, but before delivery, the sellers sought to invoke the variation

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clause, raising the price of the machine. The buyers refused to pay this increase in price, claiming they were not contractually bound to do so. The sellers sued for the additional sum in damages. The CoA held that they were not entitled to recover the sum because the contract had been on the buyer’s terms but were divided in their reasons. Bridge and Lawton: Mirror image rule – the court must find evidence of an unequivocal offer mirrored by an unequivocal acceptance. A counter-offer kills off the initial offer and amounts to a new offer. The buyers could not be construed to this offer as it was not mirrored and so was a counter-offer. This is the traditional approach:  Provides a degree of certainty because advisors will know the court’s principles.  Avoids separation between the terms and formation of the contract because the offer and acceptance must mirror each other before the contract is concluded.  Provides a standard to be applied to every type of contract.  Criticised for being excessively rigid as it produces an all-or-nothing outcome. The court cannot find an acceptable compromise for the two parties. This is unfortunate in ‘battle of the forms’ cases, where both parties believe their terms are the ones which govern the relationship.  Encourages use of standard terms, in the hope that they will have the last shot and it places the party in receipt of last communication in the difficult position.  The Eurymedon, Lord Wilberforce: “English Law, having committed itself to a rather technical and schematic doctrine, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration.” Lord Denning (minority): proposed an alternative to the traditional mirror image approach (supported in judgement in Gibson v Manchester CC). It is a two stage approach: first decide whether a contract has been concluded, and then it must be decided what the terms of the contract are. The latter stage gives the court some discretion in filling in the gaps. 

His approach seeks to construct a more flexible framework and can accommodate inconsistent terms.

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Gibson v Manchester CC: Confirmed that the traditional approach will remain by Lord Diplock, however, he said there are exceptional cases which do not fit easily into the normal analysis of a contract being constituted by offer and acceptance.

Introducing Points to Offer and Acceptance 

The court adopts a mirror image rule of contractual formation; they must find a clear and unequivocal offer which is matched by a clear and unequivocal acceptance.

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An important point is the way in which the courts use the requirements of offer and acceptance in deciding cases. Professor Atiyah argued that the courts could either ‘reason forwards’ or ‘reason backwards’. o

Forwards means that the courts reason from the legal concepts of offer and acceptance towards the solution to the dispute. This is the traditional approach which has been adopted by the courts – they first find the existence of a contract and then reason towards their conclusion.

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Backwards means they reason from the appropriate solution to the legal concepts of offer and acceptance. The court decides what solution it wishes to adopt and then fits the negotiations within the offer and acceptance framework in order to justify their decision.

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There is a difficulty in accommodating many everyday transactions within the offer and acceptance framework. This leads us to issues about the utility of the law of offer and acceptance.

Offer and Invitation to Treat 

An offer is a statement of willingness to enter a contract on stated terms, provided the terms are accepted by the party the offer is addressed to. An offer can be made orally or in writing.

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It must be distinguished whether it is an offer or an invitation to treat. An invitation to treat is an expression of willingness to enter negotiations.

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The distinction between the two is one of intention – did the maker intend to be bound by an acceptance of his terms without further negotiation, or part of a continuing negotiation process. Looks simple in theory but can be difficult in practise.

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Gibson v Manchester CC:

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Council produced a brochure explaining that a tenant of council housing could purchase his council house. Mr Gibson completed a form and sent it to the council with a request for a purchase price for the house. The treasurer wrote back saying they ‘may’ be prepared to sell the house to him and gave him a further form to complete. The council took his house off of the list of houses they were responsible. At this point, the Labour party gained control of the council after local elections and discontinued the selling of council houses, unless a contract had already been concluded. The council refused to sell Gibson the house because no contract was concluded.

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The HoL held no contract had been concluded. As the letter written by the treasurer said ‘may’, so it was not an offer as it did not commit to selling. It was an expression of willingness to enter into negotiations, further evidenced by the fact that Gibson was invited to make a formal application.

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A problem with cases such as this is that it is not easy to ascertain when the preliminary negotiations end and a definite offer is made. The court must carefully examine the correspondence which passed between the parties and the language used.

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The case shows the differing opinions by judges through interpretation.

Storer v Manchester CC: o

The court held that a contract had been concluded where the negotiations had reached a stage beyond Gibson but had not resulted in an exchange of contracts.

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You must look at the intention of the maker of the statement.

There is a group of cases, such as advertisements and window-displays, where the courts are less concerned with the intention of the parties and more concerned to establish clear rules of law to govern the particular transaction. o

Treitel: it may be possible to displace these rules by evidence of contrary intention, but in the absence of such evidence, the rules of law will determine the distinction between offer and invitation to treat, and will apply without reference to intention of the maker of the statement.

Display of goods for sale

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There are three potential approaches which could be adopted to the display of goods for sale: o

When the customer picked up the goods: undesirable as purchaser could not change his mind.

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When the customer takes the goods to the cash desk: argued that a shop is a place for bargaining and not compulsory sales and this takes away freedom to bargain (Winfield). However, this is not the reality of shops today – not a place of bargaining.

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Display of goods as an invitation to treat and the offer is when the customer presents the goods.

Fisher v Bell: o

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The general rule is that the display of goods in a shop window is an invitation to treat rather than an offer.

Pharmaceutical Society of GB v Boots: o

D had a self-service shop and were charged with a breach of the Pharmacy and Poisons Act, which required that a sale of drugs take place under the supervision of a registered pharmacist. There was no pharmacist present close to the shelves, but one supervised the cash desk so could prevent drugs being bought. It was held that the sale took place at the cash desk and not when the drugs were taken from the shelves.

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The display of goods was an invitation to treat.

Lefkowitz v Great Minneapolis Surplus Stores (American case): o

This case shows how a rigid application of the rule in Boots could lead to injustice in certain cases.

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D placed two ads in a newspaper stating ‘first come, first served’ for fur coats. D refused to sell the goods to the first two people who came to buy goods. D argued that the ad was intended for women. The SC held that the ad was an offer, not an invitation to treat, and D could not confine the ad to women because there was no restriction expressed in the offer.

Chapleton v Barry: o

Sometimes display of goods can be an offer.

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It was held that the display of deck chairs on a beach was an offer which was accepted by a customer taking a chair from a stack.

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This may be an example of Atiyah’s reasoning backward – where the court feels C should have remedy and so justifies its conclusion by treating it as an offer and not an invitation to treat.

Advertisements 

Partridge v Crittenden:

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A advertised cocks and hens for sale at a stated price. He was charged with the offence of offering for sale wild live birds contrary to the Protection of Birds Act. It was held that the advert was an invitation to treat and so was aquitted.

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Lord Parker LJ stated there was a ‘business sense’ about in treating such advertisements as invitations to treat because if they were offers, the seller may be obliged to sell more than he owned.

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Newspaper advertisements are an invitation to treat rather than an offer.

Carlill v Carbolic Smoke Ball: o

There are some cases where an advertisement may be interpreted as an offer rather than an invitation to treat.

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D were manufacturers of a smoke ball, issued as an ad which offered to pay £100 to anyone who got flu after using it in the specified manner. They deposited £1000 in the bank in good faith. C caught flu. It was held that the ad was an offer not invitation to treat because an offer to the world and a contract was made to those ‘on the faith of the advertisement’. C was entitled to £100.

Auction Sales 

British Car Auctions v Wright: o

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Harris v Nickerson: o

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Obiter, Martin B: For cases ‘without reserve’, auctioneer makes an offer that the highest bidder accepts this offer. The auctioneer is the agent of the vendor.

Barry v Davies: o

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The advertisement of an auction sale is generally only an invitation to treat.

Warlow v Harrison: o

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The general rule is that an auctioneer, by inviting bids to be made, makes an invitation to treat. The offer is made by the bidder, which is accepted when the auctioneer strikes his hammer.

Affirmed this obiter. A collateral contract between auctioneer and highest bidder is formed by the offer to sell to the highest bidder which was accepted when the bid was made.

While the essential nature of the contractual relationship between auctioneer and highest bidder has been established, there are still a number of issues. o

At what point in time is the offer made by the auctioneer – when the ad of the action without reserve is issued or when the goods are actually put up for sale? This point has not been resolved by authority.

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On what basis can the highest bidder be identified if the auctioneer never brings down his hammer? The courts are likely to take a pragmatic approach and conclude that the highest bidder is the person who made the last bid before the lot was withdrawn from sale.

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It has been argued that the Barry approach should be taken where there is a reserve price and once it has been reached, the auctioneer cannot withdraw the lot from the sale without incurring a collateral contract for the highest bidder.

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Barry and Warlow are examples of the court reasoning backwards in that they decide such a bidder should have a remedy, and accommodate a conclusion within the offer and acceptance framework, even if the fit is somewhat uneasy.

Tenders 

The general rule is that the invitation to tender is simply an invitation to treat. However, in appropriate cases the court might find that a tender is an offer:

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Harvela Investments v Royal Trust of Canada: o

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Decision to sell their shares by sealed competitive tender and invited two parties to submit a sealed offer. The second party proposed a referential bid or $101,000 in excess of whatever the other party’s offer is. The HoL held that the second bid was invalid because the object of the vendors’ invitation was to ascertain the highest amount and this purpose was frustrated by a referential bid.

Blackpool and Fylde Aero Club v Blackpool BC: o

Shows the flexibility of the courts when applying rules of offer and acceptance.
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