Lecture 2 - Offers@0 - Offer and Acceptance PDF

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Offer and Acceptance...

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GDL CONTRACT LECTURE 2 Contents and references

The objective view of intention and agreement Smith v Hughes (1871) LR 6 QB 597 Rose v Pim [1953] 2QB 450 Hartog v Colin & Shields [1939] All ER 566 Chwee Kin Kong v Digilandmall.com Pte [2004] SGHC 71 Centrovincial Estates v Merchant Investors Assurance Company Ltd [1983] Com LR 158 Offer distinguished from invitation to treat (a) Generally Partridge v Crittenden [1968] 1 WLR 1204 Fisher v Bell [1961] 1 QB 394 Grainger & Sons v Gough (Surveyor of Taxes) [1896] AC 85 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 Thornton v Shoe Lane Parking [1971] 2 QB 163 Chapelton v Barry Urban District Council [1940] 1 KB 532 (b) In unilateral contracts Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 (c) In contracts involving land Harvey v Facey [1893] AC 552 Clifton v Palumbo [1944] 2 All ER 497 Gibson v Manchester City Council [1978] 1 WLR 520 (d) In auction sales Payne v Cave (1789) 3 Durn & E 148 Warlow v Harrison (1859) 1 E & B 309 Harris v Nickersen (1873) LR 8 QB 286 Barry v Davies [2000] 1 WLR 1962 (e) In sales by tender Spencer v Harding (1870) LR 5 CP 561 Blackpool and Fylde Aeroclub Ltd v Blackpool Borough Council [1990] 1 WLR 1195 Harvela Investments Ltd v Royal Trust of Canada Ltd [1986] AC 207

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INTRODUCTION Perhaps the most fundamental statement which could be made of the law of contract is this; a contract is an agreement, and the courts normally require agreement to arise from the making of an offer by one party and its acceptance by the other. By this means the parties to a contract can be shown to be “ad idem”, or “of the same mind”. In other words, they are in agreement. To identify the circumstances in which agreement is present, one begins by looking for an offer. This lecture addresses the means by which the courts identify an offer as such. The topic is a fundamental one, because once an offer has been made, both parties will be bound by its terms if the offeree accepts it.

THE OBJECTIVE VIEW OF INTENTION AND AGREEMENT What is an offer? Before this question can be addressed, there is a preliminary issue which must be explored. What perspective is adopted by the courts when they analyse the parties’ dealings in order to identify offer and acceptance? Is the status of the parties’ communications with each other analysed objectively, by reference to their ostensible meaning, or is it deduced from the parties’ subjective intentions? The applicable rule is the first of those two approaches. The parties’ “intentions” are objectively gauged. A closer look If that is so, and it is actually the appearance rather than the fact of agreement which is required, then the notion of being “of the same mind” is mildly problematic. The parties may be deemed to be in agreement even though actually they are not. The following proposition goes some way towards resolving this tension. Being “ad idem” is a broad ideal in contract analysis; for example, it is perfectly proper to point out that the parties are not “ad idem” when there is open disagreement between them. However, ostensible agreement may prevail over actual but latent misunderstanding. The ideal of true agreement cannot generally be used to invalidate an ostensible agreement. The reason is that each party must be entitled to rely on what reasonably appears to be other’s intentions. Private, unexpressed intentions or reservations cannot undermine reasonable grounds for reliance. If it were otherwise, contract law would fail in its duty to promote certainty and predictability within the commercial sphere.

Smith v Hughes (1871) Overview

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The defendant, a trainer of racehorses, agreed to buy a quantity of oats, thinking them to be “old” oats. He had seen a sample of the oats. In fact they were new, not old. For that reason he refused to pay for them, and was sued by the plaintiff. At trial, the judge directed the jury to give a verdict in the defendant’s favour if they found that the oats had been described as “old”, or alternatively if they found if the plaintiff seller had been aware that the defendant believed he was contracting to buy old oats. They found for the defendant, but were not asked to state on which basis. The Court of Appeal ordered a retrial on the ground that the trial judge’s direction had been unclear. The value of the case lies in the judges’ discussion of the direction given to the jury at trial, and the fine distinction that in their view it failed to convey. Detail The first part of the direction to the jury was unexceptionable. If, as the defendant contended, the plaintiff seller had referred to the oats as “old”, then that would have been materially misleading. The second part of the direction had been unclear (although technically acceptable) because it failed to make an adequate distinction between two possible situations. If the plaintiff had merely been aware that the defendant was buying the oats believing them to be old, and had taken no steps to disabuse him of that belief, then the contract was valid. However, if the plaintiff had known that the defendant thought he had the benefit of a contractual promise that the oats were old, then there would have been no true agreement between the parties, and therefore no contract. The jury could not reliably be assumed to have grasped that fine distinction. Discussion The decision in Smith v Hughes turns upon quite a narrow point of construction, but the judgments lay down broad propositions about the way in which contracting parties’ states of mind impact upon the validity of their dealings. One party may be mistaken about the subject matter of the contract, even to the extent that he would not have entered into the contract had he known the truth, but the contract remains valid. The principle is stated by Blackburn J to be this: “If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms”. Furthermore, the one party may be aware that the other is making a mistake, but be under no obligation to correct him; still the contract is valid. It is quite different if one has taken active steps to promote or sustain the mistaken belief; the objective appearance of agreement yields to the subjective knowledge of the true state of affairs. The reason is that deception is now present; naturally no court will collude with it. It seems that the same result follows where the mistake relates to the terms of the contract and the other knows of the mistake, even though he has done nothing to induce it. Cases

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of this sort, all involving mistakes as to price, are given below. First, though, be aware of another case in which the doctrine of Smith v Hughes cuts through the confusion. Rose v Pim (1953) Overview This is another case in which objective appearance prevailed over a subjective concern. The plaintiffs were asked by their Egyptian house to acquire “Moroccan horsebeans described here as feveroles”. They asked the defendants’ representative what “feveroles” were, and were told that they were simply horsebeans. A chain of related supply contracts was then agreed in which the commodity to be supplied was described as “horsebeans”. The eventual buyer found that they were not “feveroles”, and sought damages. The plaintiffs in the present action were applying for rectification of their contract with the defendants on the basis that it mistakenly referred to “horsebeans” and should have specified “feveroles”. They failed. The agreement was simply one for the supply of horsebeans. Detail The judgment of Denning LJ includes emphatic support for the objective approach to the construction of contracts: “The parties no doubt intended that the goods should satisfy the inquiry of the Egyptian buyers, namely, “horsebeans described in Egypt as feveroles”. They assumed that they would do so, but they made no contract to that effect. Their agreement, as outwardly expressed, both orally and in writing, was for “horsebeans”. That is all the defendants ever committed themselves to supply; and all that they should be bound to”.

Hartog v Colin & Shields (1939) Overview The sellers offered Argentine hare skins at a given price per pound. This was a mistake; they had in mind the price per piece, and had therefore quoted at roughly one third of the going rate. The buyer ordered 30,000 hare skins, and sued the sellers when they refused to deliver. The court held that the buyer must have been aware of the sellers’ mistake, and therefore must have been aware that the sellers’ offer did not represent their true intention. Thus there was no agreement between the parties upon which an action could be maintained. The case is significant because it seems to propose that the subjective knowledge of an error defeats the objective appearance of agreement. Discussion

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There was strong evidence in this case that the price of Argentine hare skins was normally quoted per piece, so the court had no difficulty concluding that the buyer must have been aware of the mistake. Behaviour like that of the buyer here is often described as the “snapping up” of an offer. It occurs where one party purports to accept an offer which he knows it was not the other’s true intention to make. Here, it seems to work to say that the parties were not “ad idem”. However some care is needed in order to reconcile this principle with some of what was said in Smith v Hughes. There, it would have been acceptable for the seller of new oats to enforce a bargain with a buyer who obviously thought the oats were old. Is that known mistake really different from the known mistake in Hartog? It seems that it is. The allowable mistake in Smith v Hughes can be regarded as one of mere motive; the buyer is making a wrong, unintended, unwise deal, maybe even to the certain knowledge of the seller, but he is under no mistake as to the terms of the deal itself. The invalidating mistake in Hartog concerns one of the most fundamental terms of the deal – the price. A closer look Nevertheless, it is easy to lose sight of this distinction. The reason is that the court’s express analysis in Hartog focuses quite strongly on the state of mind of the would-be buyer of hare skins; he must have known that the other was making a mistake. It is tempting to conclude that it is the presence of this knowledge (with its connotations of impropriety) that drives the decision. In a more recent case, Chwee Kin Kong v Digilandmall.com Pte [2004] SGHC 71, there is express emphasis on the state of mind of the would-be snappers up. When a price for laser printers was mistakenly given as 66 rather than 3,854 Singaporean dollars, buyers were said to have moved “at the dead of night” and with “indecent haste” to place huge orders before the mistake could be corrected. Unsurprisingly, they were not successful in their attempt to sue for loss of profits when the printers were not delivered. But on a proper analysis, the reason they fail is not that they attempt to take unconscionable advantage of the mistaken seller. Nor is it that the seller’s mistake is clear. They fail because the mistake relates to a term of the contract so that the parties are never in agreement. If the mistake had been equally serious and equally obvious, but related only to something beyond the terms of the contract, the result ought in theory to be different. Why does this distinction seem to get overlooked? The answer is that it is always going to be easier to talk about one party’s bad behaviour than about the fine and abstract difference between two types of mistake. This is often so in law; the surface discourse may not wholly connect with the real principles in play. Further permutations of mistake affecting the formation of the contract will be examined later (during term 2) when the various types of contractual mistake are in issue. The cases on “mutual mistake”, where the parties are at cross-purposes, and “common mistake”, where they share a single delusion, take the discussion forward. However, you may already be wondering why so much should seem to turn on the distinction between a mistake about the content of a contract, and a mistake about its context. Treitel

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comments that “this distinction seems to be generally accepted, but the reason for it is not easy to see” (para 8-044). There is another well-known case on the attempted snapping-up of an offer – Centrovincial Estates plc v Merchant Investors Assurance Company Ltd. A lot of prominence is given to it by McKendrick, even though it does not go far beyond the two cases set out above. However, a procedural aspect of the case makes it rather hard to understand. For some help with the difficulty, read on. Centrovincial Estates v Merchant Investors Assurance Company Ltd (1983) Overview During negotiations over an existing lease, the landlords’ solicitors wrote to the lessees proposing that the “current market rental value” of the property should be contractually agreed to be £65,000. After the lessees had agreed, the landlords stated that they had made a mistake, and had meant to propose the sum of £126,000. The lessees objected that £65,000 was the contractually agreed figure. The landlords brought an action against them, seeking a declaration that there was no agreement. As part of this action, they sought summary judgment. The Court of Appeal held that summary judgment could not be obtained on these facts. Therefore, at this interlocutory stage, the lessees won. Explanation Since the first figure proposed by the landlords was so much lower than the figure they had meant to propose, this looks like a typical snapping-up case. It is therefore difficult at first glance to understand why it goes against the landlords. The key to it is this. An application for summary judgment (ie. a quick victory) can be made where it is possible to show at a preliminary hearing that the other side can have no arguable defence to one’s claim, and therefore should not be allowed to proceed to a full trial. Here, the landlords conceded that the case would need to proceed to full trial for it to be established on the evidence whether the lessees did or did not know that a mistake was being made. That concession was fatal to their application for summary judgment. Therefore the lessees successfully defended this claim even though it may have been likely that they would lose when the matter was more closely investigated at trial. A closer look Is there in fact any difference between the perspectives of Smith v Hughes and Rose v Pim on the one hand, and Hartog v Colin & Shields and Centrovincial Estates plc v Merchant Investors on the other? At a first glance, one would think so. The first two cases seem to support an objective analysis, to which appearance rather than subjective intention matters. The second two cases seem to establish a limit to that perspective; there can be no reliance on objective appearance when it is subjectively known to be false.

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On closer consideration, however, the two perspectives can be shown to be one and the same. It is the second – the subjective long-stop – which needs to be examined more closely. Technically, the factor which disentitles the would-be buyers in Hartog and Digilandmall from accepting what they are mistakenly offered may not be their realisation of the mistake. Instead it may be that a reasonable person in their position would realise that a mistake had been made. The long-stop is not subjective; it is actually an extension of the basic rule itself. The status of the parties’ communications is determined objectively, and that perspective may reveal an offer in law even though there was no subjective intention to make one, or negate the existence of an offer which was subjectively but mistakenly intended. Appearance governs. OFFER DISTINGUISHED FROM INVITATION TO TREAT (a) The distinction generally What is the nature of an offer? To put it in preliminary and informal terms, we are looking for a proposal which indicates the maker’s willingness to be legally bound by acceptance, and one which is sufficiently clear and complete to be capable of acceptance. An offer may be made in elaborately formal terms, or (at the opposite extreme) it may be brief, basic, and made without any preliminaries. However, very often the parties will move towards agreement, discussing the possibility of doing business together before any offer is made. These preliminary discussions are known as “invitations to treat”, and may well take the form of enquiries, obviously evincing no intention to be bound. Although it is essential to be able to distinguish between invitations to treat and offers, it is not always straightforward. A considerable body of case-law exists to chart the distinction. Before we examine the cases on the distinction, there is an important preliminary point to be made. “Offer”, as a common English word, carries with it certain connotations. Be careful about carrying all those connotations over into the sphere of contractual analysis. For example, in the context of a sale of goods, one might naturally think that it is the seller of the goods who is offering them for sale. Legally speaking, the seller may be the offeror, but not necessarily so. A legal analysis may conclude that the buyer is the offeror. It is best to approach the cases with an open mind on this point; the offeror may be the active, initiating party within the negotiation, or not. Similarly, do not be dictated to by the parties’ own use of the word “offer” (or “acceptance”). Legal analysis will take account of the parties’ view of what they are doing, but will not be fettered by it. The applicable analysis is objective, nor subjective. Partridge v Crittenden (1968) Overview The defendant had placed an advertisement in the periodical “Cage and Aviary Birds”, reading “Bramblefinch cocks, Bramblefinch hens 25 s each”. He was prosecuted by the

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RSPCA under the Protection of Birds Act 1954 which made it an offence unlawfully to offer for sale a wild live bird. The magistrates convicted him of the offence. The High Court quashed the conviction. The advertisement was merely an invitation to treat, not an offer to sell. Discussion The High Court’s reasoning is that the Act’s reference to “offering for sale” must be understood within the context of contract law, and there is settled case-law to show that an advertisement of goods for sale does not normally amount to an offer in the legal sense. To this, one might object that Parliament’s intention in passing the relevant section of the Act was almost certainly to punish people who tried to sell wild birds. The defendant in this case was just such a person, but because in the eye of contract law it is the would-be purchaser here who makes an offer to buy, the seller goes unpunished. Fisher v Bell (1961) Overview This was a similar case, heard a few years before Partridge v Crittenden. A shopkeeper displayed a flick knife in the window of his shop with a ticket behind it which read “Ejector knife- 4s”. He was charged under section 1 (1) of the Restriction of Offensive Weapons Act 1959, which made it an offence to offer such a knife for sale. It was held that he had not offered the knife for sale. The knife and the label merely constituted an invitation to treat. Discussion If Partridge v Crittenden was a difficult case to swallow, Fisher v Bell beggars belief. What was section 1 (1) of the Act passed by Parliament for, if not to suppress the selling of offensive weapons? By whatever reasoning could judges so thoroughly stultify its intention? An explanation is given in the judgment of Lord Parker CJ: “…any statute must of course be looked at in the light of the general law of the country. Parliament in its wisdom in passing an Act must be taken to know the general law. It is perfectly clear that according to the ordinary law of contract the display of an article with a price on it in a shop window i...