Contract Law- Offer & Acceptance

Offer & Acceptance:

legislation, authorities, definitions

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What are Contracts?

(http://www.accountingweb.co.uk/sites/default/files/siftmedia-accountingweb/styles/large/public/images/contract-law.jpg)

Definition:

  • Contracts are legally binding and enforceable agreements that are voluntarily entered.
  • They are decided objectively by the courts i.e. 'what would a bystander think if they looked into the contract'.....
  • There are three forms of rules in contracts: consideration, intention and form)
  • Sale of Goods Act (SGA 1979) concerns the transfer of legal ownership from one to another i.e. seller to buyer
  • The law will not enforce gratituous gifts!
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In Contracts there must be.....

(http://www.duhaime.org/Portals/duhaime/images/consensusadidem.jpg)3 Requirements:

1) There must be reliance on a promise in order to form an agreement

2) There must be a reciprocation promise in order to form an agreement

3) 'Meeting of the minds' or 'consensus ad idem' to form an agreement

Meeting of the minds case: Smith V Hughes (Oats case that states if an outsider saw the two men agreeing to buy and sell oats it would be seen as binding and that the minds HAD met)

 

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Contract and Tort OVERLAP

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CONTRACT LAW = BREACH OF CONTRACT 

TORT LAW = BREACH OF DUTY OF CARE

CONTRACT LAW = COMPENSATE FOR LOSS OF PROFIT & ANY RELIANCE LOSSES

TORT LAW DAMAGES = RESTORE CLAIMANT TO POSITION BEFORE BREACH TOOK PLACE

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CONTRACT LAW AND TORT LAW OVERLAP 2

TEST OF REMOTENESS IN RELATION TO DAMAGES:

CONTRACT LAW = STRICTER AND LOOKS AT REASONABLE COMPENSATION

TORT LAW = LESS STRICT AND LOOKS AT REASONABLE FORSEEABILITY

LIMITATIONS:

CONTRACT LAW = 6 YEARS LIMITATION RUNNING WHEN BREACH OCCURED

TORT LAW= 6 YEARS LIMITATION RUNNING WHEN DAMAGES OCCURED

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The agreement....

The existence of an agreement is determined objectively by the impression given by the parties' words and actions

EXCEPT when the promisee ought to have reasonably known the the offer was not intended by the promisor i.e. a TV on sale for £4.99 rather than £499(http://www.freexboxconsole.co.uk/images/free-tv.jpg)

PROMISOR = MAKES THE OFFER

PROMISEE = WHO THE OFFER IS BEING MADE TO

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Definitions to remember....

CONTRACT DEFINITIONS

OFFER = expression of willingness to contract without further negotiation that is communicated and reaches the recipent

INVITATION TO TREAT = advertisements and an invitation to negotiate further

ACCEPTANCE = FINAL & unequivocal expression and must mirror the terms of the offer as well as be communicated and reach the recipent. Be specific.

(EXCEPT when posted and the postal rule applies meaning acceptance occurs and is communicated when posted in the letter box)

TERMINATION OF OFFER = rejection, counter offer, lapse of time or death, more commonly withdrawal before acceptance must occur and be communicated

(NOTE: unable to revoke an offer if performance has commenced;

see Errington v Errington- father promising house)

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INTERPRETING CONTRACTS/OFFER & ACCEPTANCE CASE

GIBSON V MANCHESTER CITY COUNCIL

LORD DENNING

Case facts outline: Council led by conservative who were running a scheme so that people could buy their houses. Wrote to Mr Gibson explaining that they 'may be prepared to sell' the house but he must complete the enclosed application form to make a formal offer. Labour soon took over and refused to sell house to him. Gibson sued for breach stating contract had come into existence.

Decision: The House of Lords stated that this was not an offer capable of acceptance which was clear from the language 'may be prepared to sell' nor was it a firm offer. The letter was open to further negotiation with no intention to be legally bound.

Quote by Lord Denning: look at the correspondence as a whole and at the conduct of the parties and see there from whether the parties have come to an agreement on everything that was material."

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BILATERAL AND UNILATERAL

(http://3.bp.blogspot.com/_zxsHyBHp8Zg/TKxJZiC_nkI/AAAAAAAAABw/2aMRjgFQQ9k/s1600/BilateralContracts-1.jpg)

BILATERAL = MOST SALES OF GOODS AND EXCHANGE OF PROMISES

(I.E. I will sell you this car for £3000 and in return I promise to give you £3000

 

UNILATERAL = VOLUNATARY PERFORMANCE OF AN ACT I.E. CARLIL V CARBOLIC SMOKE or BOWERMAN V ABTA

(I.E. I will give you £100 if you catch flu when using this medicine and therefore performance)

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Tenders... Offer or Invitation to treat?

TENDERS:

- Normally only Invitation to treats and merely a negotiating device

(except when promise to enter into a contract upon highest tender)

SEE BLACKPOOL & AERO CLUB V BLACKPOOL COUNCIL  (case that council invited people to tender to sell and run pleasure flights from Blackpool airport. Promised would consider ALL tenders. Tenders submitted after 12pm on a date would not be accepted. Claimant put offer in box at 11 am however box wasn't emptied and deadline passed. Not all tenders were considered. Implied promise to consider. Council hadn't considered all and damages could be awarded for wasted time as only had to 'consider'. 

or case:

HARVELLA V ROYAL TRUST (Lord Diplock) (case that concerned tenders and 1 bid made at a fixed price and the other a referential bid at a fixed price + $101,000 in excess of any other. HoL's determined because the referential bid stated a price in excess, it was valid. Would not be valid if 'any price higher than anyone else'. Express term to accept highest bid.

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Other types of Offer & Acceptance 2

AUCTIONS: (http://pennyauctionfreebids.net/wp-content/uploads/penny-auctions.jpg)

- Normally invitation to treats only

- Fall of the hammer is when acceptance occurs (SGA) or Harris v Nicholson (confirms if auction doesn't go ahead, invitation to treat only and no liability)

(except when advertised as 'without reserve' i.e. promise to sell to the highest bidder and therefore UNILATERAL

When this is breached..... see Barry V Davis where by a man bid on machines worth £14000 and no reserve was placed yet when only reached £200, withdrew the machines from auction. This was a breach yet only damages can be awarded not the goods so damages paid of £27,600.

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Formation and Unilateral Contracts:

Carlill v Carbolic Smoke Ball - LJ Bowen         (http://a-day-in-the-life.powys.org.uk/images/H_CSMOKEBALL.gif)

Case facts outline: The case concerned a flu remedy called the "carbolic smoke ball". The manufacturer advertised that buyers who found it did not work would be awarded £100.  £1000 deposited to show sincerity.

Decision: The company was found to have been bound by its advertisement, which it construed as creating a contract. The Court of Appeal held the essential elements of a contract were all present, including offer and acceptance, consideration and an intention to create legal relations.

Quote by LJ Bowen: 'it is an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contract with anyone who comes forward and performs'

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Intention to create legal relations

BOWERMAN V ABTA -

LJ HOBHOUSE

Case facts outline: The operator became insolvent but the skiing holiday was arranged with another operator who received the Abta refund. However Abta's reimbursement did not include the holiday insurance premium paid by each party on the tour. The plaintiffs claimed from Abta a refund of the sum attributable to the insurance.

Decision: The notice intended legal relations and was legally binding as a contract capable of acceptance by booking a holiday.

Quote by LJ Hobhouse: 'clearly intended to have an effect on the reader and to lead him to believe he was getting something of value'

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INVITATION TO TREAT....

DEFINITION: Falls short of being an offer capable of binding acceptance; instead it is an invitation for the other party to make an offer, which the former party is free to accept or reject.

or

mere 'PUFF'

SEE:

- Advertisements, brochures, price lists)

or

- Patridge v Crittenden (illegal birds for sale)

- Grainger & Sons v Gough (wine list)

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POSTAL RULE ACCEPTANCE

- ACCEPTANCE OCCURS WHEN PUT IN THE POST BOX!!!!!!!!!!!

- NO FURTHER COMMUNICATION NEEDED

- NON INSTANEOUS METHOD

EXCEPTIONS: ABSURD METHOD FOR SOMEONE TO USE OR LETTER INCORRECTLY ADDRESSED

SEE CASE:

ENTORES LTD V MILES FAR EAST CORP - LJ DENNING - DUTCH COMPANY, JURISDICTION AND WHERE ACCEPTANCE OCCURED

or Adams v Linsdell (offers to sell wool and sent offer in post which was lost and arrived 7 days later. Claimant sent acceptance immediately but Linsdell had sold wool to someone else already- acceptance HAD occured when put in box and was binding contract)

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Other acceptance methods

- Must be a consensus ad idem (meeting of the minds)

- Ordinary business hours apply

- 'The Receipt Rule' meaning the sender should know if the message has been received or not

SEE CASE:

BRINKIBON V STAHAG STAHL

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REVOCATION....

(http://www.thekansascitylawyer.com/image-files/revoke-power-of-attorney.jpg)

- INEFFECTIVE UNTIL COMMUNICATED

- PROMISOR CAN REVOKE ANYTIME BEFORE ACCEPTANCE HAS OCCURED

SEE CASE:

DICKINSON V DODDS

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Case about communication and methods of acceptance

BRINKIBON V STAHAG STAHL -

LORD WILBERFORCE

Case facts outline: Brinkibon was a London company that purchased steel from Stahag, a seller based in Austria. Brinkibon sent their acceptance to a Stahag offer by Telex to Vienna. Brinkibon later wanted to issue a writ against Stahag and applied to serve an out of jurisdiction party. They would only be able to do so if the contract had been formed in England.

Decision: The Judges decided that the contract was formed in Vienna. They accepted the principle in Entores v Miles Far East Co where in the case of instantaneous communication, which included telex, the formation generally occurs in the place where the acceptance is received.

Quote by Lord Wilberforce:  No universal rule can cover all such cases; they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgement where the risks should lie.

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Where was contract made? ACCEPTANCE

ENTORES V MILES

LJ DENNING

Case facts outline: Entores was a London-based trading company that sent an offer by telex for the purchase of copper cathodes from a company based in Amsterdam. The Dutch company sent an acceptance by telex. The contract was not fulfilled and so Entores attempted to sue for damages. Miles Far East Corp, was based in the US and under English law Entores could only bring the action in the US (serve notice of writ outside the jurisdiction) if it could prove that the contract was formed in London rather than Amsterdam

Decision: Since the contract was therefore only formed when and where the telex was received, the place of formation was London.

Quote by LJ Denning:  The postal rule could not apply to instantaneous communications, such as telephone or telex: if a phoneline "went dead" just before the offeree said "yes", it would be absurd to assume that the contract was formed and the parties would not have to call each other back. The same applied to telex.

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REVOCATION OF OFFER CASE...

 ERRINGTON V ERRINGTON                (http://freeimagesarchive.com/data/media/23/10_house.jpg)

LJ DENNING

Case facts outline: Mr Errington promised his son and daughter in law they could stay in occupation as long as they paid the mortgage and that when all the instalments were paid it would be theirs. The house will be your property when the mortgage is paid.’ He died and the son left to move in with his mother. The mother sought possession from the daughter in law.

Decision: Dismissed claim for possession. The father’s promise was a unilateral contract - a promise of the house in return for their act of paying the instalments...

Quote by LJ Denning:  held there was no tenancy at will, and the father could not have revoked the promise once the couple had begun performing the act. It would only cease to bind him if they left it incomplete and unperformed.

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ACCEPTANCE BY CONDUCT CASE......

BROGDEN V METROPOLITIAN RAILWAY CO(http://upload.wikimedia.org/wikipedia/commons/2/26/Coal_train_passing_Whitley_Bridge_railway_station.jpg)

Case facts outline: Brogden had supplied coal for many years as and when required. The parties decided to enter more formal agreements. Metropolitan's agents drew up some terms of agreement and sent them to Brogden. Brogden wrote in some parts which had been left blank and inserted an arbitrator who would decide upon differences which might arise. He wrote "approved" at the end and sent back the agreement documents. Metropolitan's agent filed the documents and did nothing more. For a while, both acted according to the agreement document's terms. But then some more serious disagreements arose, and Brogden argued that there had been no formal contract actually established.

Decision: Acceptance had occurred by conduct and was binding

 

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Invitation to treat or Contract?

 PARTRIDGE V CRITTENDEN                (http://www.proprofs.com/flashcards/upload/q9881047.jpg)

LORD PARKER

Case facts outline: Sale of illegal birds. The advertisement stated the price but no info about delivery or quantities therefore obvious requirement of supply outstripping demand.

Decision: Decided that was an invitation to treat and not a contract

Quote by Lord Parker:  there is business sense in their being construed as invitations to treat and not offers for sale

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Invitation to treat or Contract?

Grainger & Sons v Gough

LORD HERSHELL(http://www.byowineclub.com/LargeRedWineGlass_op_800x1204.jpg)

Case facts outline: Wine merchant catalogue with price list. Not addressed to limited group of customers nor made it clear that unlimited stocks available.  

Decision: Invitation to treat as supply vs demand and price list amounts to invitation to treat only

Quote by Lord Hershell:  The transmission of such a price-list does not amount to an offer to supply an unlimited quantity of the wine described at the price named, so that as soon as an order is given there is a binding contract to supply that quantity. If it were so, the merchant might find himself involved in any number of contractual obligations to supply wine of a particular description which he would be quite unable to carry out, his stock of wine of that description being necessarily limited.”

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Invitation to treat or contract?

FISHER V BELL:                       (http://pastorwalters.files.wordpress.com/2011/02/knife.jpg)

- FLICK KNIFE WITH PRICE MARKER IN SHOP WINDOW. NOT AN OFFER AND THE MAY RETRACT AT ANY TIME. ACCEPTANCE DOES NOT OCCUR WHEN REMOVING FROM SHELF SO THEREFORE INVITATION TO TREAT PHARMACEUTICAL SOCIETY OF GB V BOOTS :         (http://www.towntalk.co.uk/subdomains/lib/image.php/9208_144989_boots_logo.jpg?width=800&height=800&image=http://www.elephantandcastle.towntalk.co.uk/images_folder/businessimg/9208_144989_boots_logo.jpg&domain=.co.uk)

- DISPLAY OF GOODS ON SHELVES IN SELF SERVICE STORE DID NOT AMOUNT TO AN OFFER. INVITATION TO TREAT ONLY AND ACCEPTANCE MADE AT CASH DESK.

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Invitation to treat or Offer?

STORER V MANCHESTER CITY COUNCIL

Lord Denning                      (http://www.linkmortgages.net/resources/Mortgage+app+form.jpg)

Case facts outline: Similar facts to Gibson v Manchester however agreements and mortgage signed

Decision: Court held was binding as the language used was conclusive and intended to create legal relations which constitutes an offer capable of acceptance.

Quote by Lord Denning:  'you don't look in to the actual intent in a man's mind but you look at what he said and did at the time. A man cannot get out of a contract by saying 'I did not intend to contract' if by his words he has done so.

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When does acceptance occur?

THORNTON V SHOE LANE PARKING LTD(http://www.settle-carlisle.co.uk/userfiles/Image/machine.jpg)

Lord Denning

Case facts outline:drove to the entrance of the multi storey car park on Shoe Lane. He took a ticket from the machine and parked his car. It said "this ticket is issued subject to the conditions of issue as displayed on the premises". And on the car park pillars near the paying office there was a list, one excluding liability for ''injury to the Customer… howsoever that loss, misdelivery, damage or injury shall be caused".Three hours later he had an accident before getting into his car.

Decision: The offer was accepted when Mr Thornton drove up to the entrance and, by the movement of his car, turned the light from red to green, and the ticket was thrust at him. The contract was then concluded, and it could not be altered by any words printed on the ticket itself. In particular, it could not be altered so as to exempt the company from liability for personal injury due to their negligence.

Quote by Lord Denning:  'automatic machines constitute standing offers on the basis that as soon as the machine was activated, there was no possibility of negotiation.  

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Other forms relating to acceptance...

COUNTER OFFER = Alteration of terms contained in original offer. Doesn't constitute acceptance of original offer as this offer is now 'dead in the water'. (note this is different to request for more information as in Stevenson Jacques v McClean where is stood that requesting for more info 'would you accept x over two months?' in regards to IRON was not a counter claim and original offer stood possible of acceptance.

 PRESCRIBED METHOD OF ACCEPTANCE = An offer may state the mode of acceptance and can constitute invalidity of acceptance if not adhered to.

SILENCE: Doesn't constitute acceptance however performance by conduct without communicating the acceptance may be binding (see case: Felthouse v Bindley)

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COUNTER OFFER CASE

Hyde v Wrench

Lord Langdale

Case facts outline: Offered to sell house for £1000. Then counter offered £950 which was rejected. Then counter offered again with £1000 but refused. Sued for breach of contract.

Decision: NOT BINDING.

Quote by Lord Langdale: If unconditionally accepted £1000 then there would be a binding contract however by making own offer of £950, VOID and not binding.

 

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Websites... Offer or invitation to treat?

(http://www.mummybird.com/wp-content/uploads/2012/04/wpid-1277993300_argos-logo.png)- ELECTRONIC EQUIV OF DISPLAYS AND ADVERTISEMENTS AND THEREFORE AN INVITATION TO TREAT

-OFFER WILL COME FROM CUSTOMERS AT CHECK OUT STAGE

-SUPPLY AND DEMAND ISSUE TOO

-ELECTRONIC COMMERCE (EC DIRECTIVE) CONFIRMS INVITATION TO TREAT

-CONFIRMATION MAY NOT DEEM THE OFFER ACCEPTED (problems with Argos advertising accidental prices and sending confirmation deemed not acceptance)

- Language must be clear and concise and no obvious mistakes

- E-Commerce Regulations enacted to increase consumer confidence

- Consumer Protection (Distance Sellings) Regs for over the phone or distance contracts

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LIMITATIONS TO POSTAL RULE

- Where unreasonable to use post as means of communicating acceptance

- Using post would be absurd

- Incorrectly address or stamped

- Where has been stipulated that acceptance will occur when in reciept of acceptance

BUT

  • Byrne v van Tienhoven (case concerning sending letters of offer and acceptance via post from NY to UK however delays in sending and revocation letter sent but acceptance had already been received. Lindley J held that the withdrawal of the offer was not effective until it was communicated.)
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BATTLE OF THE FORMS.......

Def: when a party inserts new terms into contracts. Who get's the forms in first?

- Judges sometimes decide this by looking at who got their terms in last with no objections will previal! 'LAST SHOT'

 

see case: BRS v Crutchley (delivered under BRS conditions)

 

or case: RTS Flexible Systems Ltd (muller case that wanted to enter agreement on their terms only but as letter of intent expired there was no binding contract)

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Communication of Acceptance case...

Felthouse v Bindley(http://neighbourhoodpolicing.devon-cornwall.police.uk/BCU-1663/Sector-1772/NB-1773/PublishingImages/horse-La-Comb-Shemal[1].jpg)

Case facts outline: Felthouse wanted to buy the horse Sizing Europe off his nephew, John Felthouse. After a letter from the nephew about a previous discussion in buying the horse, the uncle replied saying, "If I hear no more about him, I consider the horse mine at £30 and 15s."The nephew did not reply. He told the man running the auctions, William Bindley, to not sell the horse but Bindley did. But for the Uncle to show the horse was his property, he had to show there was a valid contract. Bindley argued there was not, since the nephew had never communicated his acceptance of the uncle's offer

Decision: The court ruled that Felthouse did not have ownership of the horse as there was no acceptance of the contract. Acceptance must be communicated clearly and cannot be imposed due to silence of one of the parties

 

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What else renders an offer void?

- LAPSE OF TIME (i.e. offer of a cupcake to buy. Will perish and there offer not open forever!)

 

- CONDITIONAL OFFER

 

- DEATH

 

- REJECTION OR COUNTER OFFER

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Acceptance in a UNILATERAL contract

- Performance of the requested act is sufficient for acceptance

- Must have knowledge of the offer in order to accept (R V CLARKE where Clarke a convicted criminal had forgotten about the reward on offer to provide info about murdered people and therefore 'ignorance of the offer' and not acceptance when came to claim it.)

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Issues with acceptance in a unilateral contract?

- When does acceptance occur? Can it be withdrawn?

 

As in Errington v Errington (fathers house and mortgage payments), actual acceptance doesn't occur until performance completed however as long as 'on your way' 'performing it' and fulfill full requested performance, have to be given chance to complete for acceptance!

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Termination of offer case...

Dickinson v Dodds

LJ James & LJ Mellish

Case facts outline: Mr Dodds delivered Mr Dickinson an offer to sell some houses for £800, an offer open until 9am on Friday 12 June. On Thursday afternoon, another man called Mr Berry told Mr Dickinson that the houses had already been sold to someone called Mr Allan. Mr Dickinson found Mr Dodds in the railway carriage at 7am on Friday morning, leaving Darlington Railway Station, and gave his acceptance there. But Mr Dodds said it was too late.

Decision: Offer was terminated and no contract!

Quote by LJ Mellish & LJ James: just as when a man who has made an offer dies before it is accepted it is impossible that it can then be accepted, so when once the person to whom the offer was made knows that the property has been sold to some one else, it is too late for him to accept the offer, and on that ground I am clearly of the opinion that there was no binding contract for the sale of this property….

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PRESCRIBED METHOD OF ACCEPTANCE...

Offeror must stipulate and make clear that the method prescribed is mandatory or any reasonable method will be sufficient for acceptance. 

Business hours communication:

-reasonably expected to monitor fax machine and expect communication when message hits fax machine or alike.

Out of Business hours communication:

-In Mondian v Astarte the judge stated that receipt should be deemed to occur at start of next working day if outside hours however in the case 'The Brimnes, a message received between 5.30 and 6 was deemed within hours 

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THE RECEIPT RULE

- ACTUAL COMMUNICATION 


- SENDER WILL KNOW IF MESSAGE SENT AND KNOW WHETHER TO RESEND


- GOOD GLOBAL ACCEPTANCE OF THIS METHOD BUT DOES HAVE LIMITATIONS SUCH AS THE JURISDICTION WOULD BE WITH THE OFFEREE RATHER THAN OFFEROR 

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