Contract EXAM Revision PDF

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KEY CONCEPTS AND CASES:PROFESSOR ATIYAH:‘REASONING FORWARDS:’ Means that the courts reason from the le- gal concepts of offer and acceptance towards the solution to the dis- pute. This is the TRADITIONAL APPROACH adopted by the courts; the find the existence of offer and an acceptance, and only then...

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KEY CONCEPTS AND CASES: PROFESSOR ATIYAH: ‘REASONING 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 adopted by the courts; the find the existence of offer and an acceptance, and only then do they reason towards their conclusion. ‘REASONING BACKWARDS:’ This is to say they could reason from the appropriate solution back to the legal concepts of offer and acceptance. On such a model, the court can decide which solution it wishes to adopt and then fit the negotiations within the offer and acceptance framework in order to justify the decision which they have already reached.

OFFER OFFER: Is a statement of willingness to enter into an agreement, 2 legal requirements: must compromise key terms, made with the intention that the offeror will be bound, once offer is accepted. i) Storer v Manchester City Council: Held: The court held that a binding contract had been concluded. The Council's intention was to become contractually bound when Storer had signed the Agreement and returned it, particularly as there was definite language used in the correspondence and there was a clear offer and acceptance. i) Gibson v Manchester City Council: Ruling: ”May be willing to sell" did not constitute an offer from the council, and so no binding contract had yet been formed. The processes of negotiations must be distinguished from the actual establishment of a contract. Held: It was simply an expression of the council’s willingness to enter into negotiations. INVITATION TO TREAT: Willingness to receive offer (negotiations) precedes offer. If a statement or an expression cannot meet the two legal requirements: (i) the offeror’s intention to be bound on the terms in the proposal and (ii) the unambiguous key terms of the contract , it is normally an invitation to treat. i) Harvey v Facey: Held: The court held that there was no contract.The defendant’s response was neither an offer nor an acceptance. The rePage 1 of 92

sponse was more akin to a request for information (negotiation), with the defendant merely providing clarification in response to the plaintiff’s request. DISPLAY OF GOODS: The general rule which the courts have, in fact, adopted is that the display of goods in a shop window is an invitation to treat. i) Fisher v Bell: Held: On appeal the conviction was quashed as goods on display in shops are not 'offers' in the technical sense but an invitation to treat (even with a price tag attached). There had been no offer and therefore he could not be guilty of the offence. ii) Pharmaceutical Society v Boots Chemicals: Held: The Court of Appeal held that the shelf display was the same as an advertisement for a bilateral contract and was therefore merely an invitation to treat. The offer was made by the customer when the articles were placed in the basket and presented at the cash desk. The shop accepted the offer at the cash desk when the cashier stated the price and accepted payment. The pharmacist supervised the transaction at the cash desk and therefore no offence had been committed. The customer makes the offer to buy when presenting the goods at the cash desk. **A less rigid APPROACH: CONTRASTS PHARMACEUTICAL CASE** iii) Lefkowitz v Great Minneapolis Surplus Store: Held: An advertisement may be considered an offer when it promises something in exchange for clear, definite action, and leaves nothing open for negotiation. Otherwise, an advertisement is an invitation for an offer. ** ENGLISH CASE: AUTHORITY THAT DISPLAY OF GOODS COULD BE TREATED AS AN OFFER** iv) Chapelton v Barry UDC: Held: The courts held it is possible to treat the display as an offer, as explained in the conclusion in Chapelton v Barry, a display of deckchairs constituted an offer. Before a ticket including an exemption clause was issued, it’s stated that the contract to hire the deck chair could already have been concluded ADVERTISEMENTS: The general rule is that a newspaper advertisement is an invitation to treat rather than an offer. i) Partridge v Crittenden: Held: The advertisement was an invitation to treat and not an offer, and so the appellant was acquitted. Lord CJ Parker: “ That there was a business sense in treating such advertisements as ITT because if they were treated as offer the advertiser Page 2 of 92

might find himself contractually obliged to sell more goods than he in fact owned. **HOWEVER, CERTAIN CASES WHERE AN ADVERTISEMENT MAY BE INTERPRETED AS AN OFFER RATHER THAN AN ITT.** v) Carlill v Carbolic Smoke Ball: Held: The Court of Appeal did not agree with the defendant. They held that the Claimant was entitled to the reward as there was clearly contractual intent.This was evidenced by the deposit of £1,000. The Court stated that the advert was a unilateral contract. There was an offer capable of acceptance. Claimant accepted the offer by performing the conditions stated in the offer. There was no requirement that claimant communicates an intention to accept as performance was the acceptance. vi) Bowerman v ABTA: Held: The Court of Appeal held that the ABTA notice displayed in the travel agent’s office created a contract between ABTA and the client. The advert ‘ABTA arranges reimbursement’ constituted a unilateral offer to contract in this context. The notice would be seen to create legal relations, and satisfied the criterion in Carlill. The promises covered ABTA tour operators against any failure of ABTA travel agents who had taken money from the public and not passed it on to the tour operator. AUCTION SALES: 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, in turn, is accepted when the auctioneer strikes the table with his hammer i) British Car Auctions v Wright: The prosecution failed. At the auction, there was no offer to sell, only an invitation to bid. vii) Harris v Nickerson: The court held, dismissing the claimant’s case, that the advertisement was merely a declaration to inform potential purchasers that the sale was taking place. It was not an offer to contract with anyone who might act upon it by attending the auction, nor was it a warranty that all the articles advertised would be put or sale. As such, it did not legally bind the defendant to auction the items in question on any particular day AUCTION SALE WITHOUT RESERVE PRICE: The auctioneer makes an offer that the sale will be without reserve and that that offer is accepted by the highest bidder at the auction. This is called a COLLATERAL CONTRACT (A collateral contract defined as a contract where the parties to one contract enter into or promise to enter into another contract. It is a promise which is not a term of contract. However, if without the main contract, it properly would not be existed. In another word, a collateral contact is independent and separate from but related to or in addition to the main contract) Seller of the Page 3 of 92

item enters into contract with auctioneer. Auctioneer enters into contract with the purchaser of that item at the auction. i) Barry v Davis: Held: The Court held that the holding of an auction for sale without reserve is an offer by the auctioneer to sell to the highest bidder, so the defendant was contractually obliged to sell to the claimant. The reasoning behind this was that the auctioneer acted as agent of the owner in the formation of the contract with the highest bidder, and this gave rise to a collateral contract with the auctioneer himself. **EXAMPLE OF THE COURTS REASONING BACKWARDS IN THAT THEY DECIDE THAT IN SUCH A CASE THE BIDDER OUGHT TO HAVE A REMEDY, AND THEY THEN ACCOMMODATE THAT CONCLUSION WITHIN THE OFFER AND ACCEPTANCE FRAMEWORK, EVEN THOUGH THE FIT IS SOMEWHAT UNEASY.** TENDERS: Where a person invites tenders for a particular project, the general rule is that the invitation to tender is simply an invitation to treat. The offer is made by the person who submits the tender, and the acceptance is made when the person inviting the tenders accepts one of them. i) Spencer v Harding: Held: The advertisement failed to specify the highest tender would be accepted, therefore there was no obligation to sell to the person submitting the highest tender. The advert amounted to an invitation to treat. The tender was an offer, and the defendant could choose whether to accept the offer or not. **HOWEVER, AN INVITATION TO TENDER COULD BE HELD AS AN OFFER OF A UNILATERAL CONTRACT.** viii) Harvela Investments v Royal Trust of Canada: Held: The defendants were bound to accept the claimants bid. It was held that the invitation to tender was an offer of a unilateral contract to sell the shares to the highest bidder. ix) Blackpool and Fylde v Blackpool BC: Held: The invitation to tender also constituted a unilateral offer to ‘consider’ any conforming tender which was submitted, and that offer was accepted by an party who submitted such a tender. ** A PARTY ISSUING AN INVITATION TO TENDER WHO DOES NOT WANT TO BE SUBJECT TO AN OBLIGATION TO CONSIDER BIDS MADE OR TO ACT FAIRLY AND IN GOOD FAITH WOULD BE WELL ADVISED TO SAY SO EXPRESSLY IN THE INVITATION TO TENDER**

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ACCEPTANCE: ACCEPTANCE: Is an unconditional consent to the terms proposed by the offeror. There is no rule that acceptance must be made by words; it can be made by conduct. MIRROR IMAGE RULE: States that an offer must be accepted exactly without modifications. An attempt to accept the offer on different terms instead creates a COUNTER OFFER– which constitutes a rejection of the original offer. COUNTER OFFERS: are offers that introduce new terms or attempts to vary the terms proposed in the original offer. A counter offer destroys the original offer and the roles of offeror and offeree become reversed and the original party can either, accept, or reject the new terms or make a counter offer i) Hyde v Wrench: Held: It was stated that when a counter offer is made, this supersedes and destroys the original offer. This original offer is no longer available or on the table. In this case, when Mr Hyde offered £950, he cancelled the £1,000 offer and could not back track and accept BATTLE OF FORMS: Commercial parties often exchange a number of offers & counter offers during negotiations. Each stating they’re contracting on their terms. On whose terms have the parties agreed. i) Butler Machine v Ex-Cell-O: The court allowed the buyer’s appeal. The court found that the buyer’s (Ex-Cell-O) order was not an acceptance of the initial offer from the seller (Butler) but a counter-offer which the sellers had accepted by returning the signature section of the buyer’s letter. On this basis, the court found that the contract was completed without the price variation clause and therefore the seller could not increase the cost of the tool. **ENGLISH LAW THIS IS CALLED THE DOCTRINE OF THE LAST SHOT, WHICH EXPRESSES THAT THOSE WHO GIVE THE LAST TERMS RESULT IN CONTRACTING ON THEIR TERMS.** COMMUNICATION OF THE ACCEPTANCE: The general rule is that an acceptance must be communicated to the offeror. The acceptance is generally only validly communicated when it is actually brought to

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the attention of the offeror. i) Entores v Miles Far East: Held: To amount to an effective acceptance the acceptance needed to be communicated to the offeree. Therefore the contract was made in England. It was stated that the postal rule did not apply for instantaneous communications. Since Telex was a form of instant messaging, the normal postal rule of acceptance would not apply and instead, acceptance would be when the message by Telex was received. Thus, the contract was created in London. This general principle on acceptance was held to apply to all forms of instantaneous communication methods. Acceptance via these forms of communication had to be clear before any contract is created. **LJ DENNING: ‘IF AN ORAL ACCEPTANCE IS DROWNED OUT BY AN OVERFLYING AIRCRAFT, SUCH THAT THE OFFEROR CANNOT HEAR THE ACCEPTANCE, THEN THERE IS NO CONTRACT UNLESS THE ACCEPTOR REPEATS HIS ACCEPTANCE ONCE THE AIRCRAFT HAS PASSED OVER. SIMILARLY, WHERE TWO PEOPLE MAKE A CONTRACT BY TELEPHONE AND THE LINE GOES ‘DEAD’ SO THAT THE ACCEPTANCE IS INCOMPLETE, THEN THE ACCEPTOR MUST TELEPHONE THE OFFEROR TO MAKE SURE THAT HE HAS HEARD THE ACCEPTANCE. ***WHERE, HOWEVER, THE ACCEPTANCE IS MADE CLEARLY AND AUDIBLY, BUT THE OFFEROR DOES NOT HEAR WHAT IS SAID, A CONTRACT IS NEVERTHELESS CONCLUDED UNLESS THE OFFEOR MAKES CLEAR TO THE ACCEPTOR THAT HE HAS NOT HEARD WHAT WAS SAID. x) Brinkibon Ltd v Stahag Stahl: Held: The appeal was dismissed and the courts held that the contract was formed in Austria and the breach of contract would have to go through Austrian courts. As the communication of acceptance was received by Telex in Vienna, this was when the contract was created. The court reaffirmed Entores v Miles Far East Co, which stated that the postal rule did not apply to instantaneous forms of communication, which would include Telex. However, the court also stated that there was no universal rule and each case would have to be resolved by looking at the intention of the parties and sound business practice. AWARENESS OF THE OFFER: An offer is effective when it is communicated to the offeree. The rule which has been adopted in ENGLISH LAW is that a person who, in ignorance of the offer, performs the act or acts requested by the offeror is not entitled to sue as on a contract. i) Williams v Carwardine: Held: Once it is shown that the offer has been communicated to the other party, a person who knows of the ofPage 6 of 92

fer may do the act required for acceptance with some motive other than that of accepting the offer. **AUSTRALIAN CASE: ii) R v Clarke: Held: The offer must have been present to his mind when he did the act which constituted the acceptance. The party claiming the reward had forgotten about the offer of a reward at the time he gave the information, it was held that he was not entitled to the reward. ***THE FOLLOWING CASES REINFORCE THE POINT THAT CONTRACT LAW ADOPTS AN OBJECTIVE RATHER THAN A SUBJECTIVE APPROACH TO AN AGREEMENT AND THEREFORE THE FACT THAT THE PARTIES ARE SUBJECTIVELY AGREED IS NOT CONCLUSIVE EVIDENCE THAT A CONTRACT EXISTS*** ***ENGLISH CASE, CONTRARY PROPOSITION*** iii) Gibbons v Proctor: A police officer asked a colleague to forward some useful information to the Superintendent but he was not aware of the offer at the time when he spoke with his colleague. Before the information reached the Superintendent, the police officer became aware of the offer. It was held that the officer was entitled to claim the reward. Held: The party (policeman) claiming reward possessed full knowledge of the offer by the time the offer was accepted; in cases such as this, acceptance is only effective when the prescribed action had been completed, i.e. when information reaches the offeror. HE WAS ENTITLED TO REWARD. **CROSS-OFFERS WHICH ARE IDENTICAL DO NOT CREATE A CONTRACT UNLESS OR UNTIL THEY ARE ACCEPTED iv) Tinn v Hoffman: Held: It was held in this case that there was no contract between Mr Tinn and Mr Hoffman for the iron. The cross offers were made simultaneously and without knowledge of one another; this was not a contract that would bind the parties for the iron. There is a difference between a cross offer and a counter offer. In order to form a valid contract, there must be communication that consists of an offer and acceptance. PRESCRIBED METHOD OF ACCEPTANCE: Where the offeror prescribes a specific method of acceptance, the general rule is that the offeror is NOT BOUND unless the terms of his offer are complied with. However, the offeror who wishes to state that he will be bound only if the offer is accepted in a particular way must use clear words to achieve this purpose. Where the offeror has not used sufficiently clear words, court will hold the offeror bound by an acceptance

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which is made in form which is no less advantageous to him than the form which he prescribed. i) Manchester Diocesan v Commercial Investments: The court held that communication to the address in the tender was not the sole permitted means of communication of acceptance and that therefore a valid contract had been concluded. The defendant had not been disadvantaged in any way by notification being given to its surveyor and, in any case, the stipulation had been inserted by the claimant not the defendant, and so it was open to the claimant to waive strict compliance with the term, provided that the defendant was not adversely affected. ACCEPTANCE BY CONDUCT: Acceptance by conduct contract law means that a party can be found by the court to be in agreement with a contract based on his or her actions, even if the contract has not been signed i) (Brogden v Metropolitian Railway: Held: The House of Lords held that there was a valid contract between suppliers, Brogden and the Metropolitan Railway. The draft contract that was amended constituted a counter offer, which was accepted by the conduct of the parties. The prices agreed in the draft contract were paid and coal was delivered. Although there had been no communication of acceptance, performing the contract without any objections was enough. ACCEPTANCE BY SILENCE: The general rule is that acceptance of an offer will not be implied from mere silence on the part of the offeree and that an offeror cannot impose a contractual obligation upon the offeree by stating that, unless the latter expressly rejects the offer, he will be held to have accepted it. i) Felthouse v Bindley: It was held that there was no contract for the horse between the complainant and his nephew. There had not been an acceptance of the offer; silence did not amount to acceptance and an obligation cannot be imposed by another. Any acceptance of an offer must be communicated clearly. Although the nephew had intended to sell the horse to the complainant and showed this interest, there was no contract of sale. Thus, the nephew’s failure to respond to the complainant did not amount to an acceptance of his offer. EXCEPTION TO THE RULE REQUIRING COMMUNICATION OF ACCEPTANCE: The rule that acceptance must be communicated to the offeror is not absolute. For ex; the terms of the offer may demonstrate

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that the offeror does not insist that the acceptance be communicated to him. **UNILATERAL OFFER** i) Carlill v Carbolic Smoke Ball: Held: There was an offer capable of acceptance. Claimant accepted the offer by performing the conditions stated in the offer. There was no requirement that claimant communicates an intention to accept as performance was the acceptance. POSTAL RULE: The general rule which English law has adopted in Adams v Lindsell, which is now understood to stand for the proposition that ACCEPTANCE TAKES PLACE WHEN THE LETTER OF ACCEPTANCE IS POSTED BY THE OFFEREE. i) Adam v Lindsell: Held: There was a valid contract which came in to existence the moment the letter of acceptance was placed in the post box. This case established the postal rule. This applies where post is the agreed form of communication between the parties and the letter of acceptance is correctly addressed and carries the right postage stamp. The acceptance then becomes effective when the letter is posted. ii) Henthorn v Fraser: Held: The court held that the offer was valid and an order for specific performance made for £750 to purchase the property. The postal rule in Adam v Lindsell would apply, which stated that it would be reasonable for acceptance of an offer to take place by post. However, this rule would not apply to the revocation of an offer. Post was a way of communicating offer acceptance, but the acceptance itself is completed as soon as it is posted. This was reasonable to expect since both parties lived in different towns. iii) Fire Insurance v Grant: POSTAL RULE DOESN’T APPLY WHEN: Where the reason for the loss of the letter is that is has been incorrectly addressed by the offeree, acceptance does not take place on posting because, while the offeror may take the risk of delay or loss in the post, he does not take the further risk of carelessness by the offeree. iv) LJ Korbetis v Transgrain Shipping: The court held that ...