Contract I – Lecture II

Recap: An agreement between two or more people that is intended to be legally binding in court. The agreement requires an offer and acceptance. An invitation to treat is not legally binding.

Tenders

An invitation to tender is an invitation to treat and not an offer. When the company responds with their tender, that tender itself is an offer and the contact is concluded when the company decides which tender it will accept.

An example: [(Carbella) Company A – Royal trust, Parties A and B – the defendants] Company makes a seal tender offer to sell shares; however, they bind themselves to accept the highest offer. Royal Trust offers $2.1m, or $101,000 above the next highest bid, whatever that may be. The company accept Party Bs offer, because they say that that is highest at $2.276m. Party A argue that their offer was higher because they said that they would offer $101,000 more than any other bid. Party B argue that the referential offer isn’t valid; therefore as their actual bid was lower they are not actually entitled to buy the shares.

Comments on example: Because there is the extra commitment (being bound by the higher offer) this turns the invitation to tender (usually treated as an invitation to treat) into an offer. H of L declared that this was a unilateral offer made by the company.

Example 2: [Blackpool council v ] The defending council own an airport. They generate income by charging airlines to use the airport. The claimant is a person who previously owned a concession to use the airport. The tender process as run by the council: The tenders have to be put in a sealed clean envelope and be received by 17th March at 12pm. The claimant responds and put their envelope in the council’s letterbox at 11am. However, the council

don’t clear the letterbox until 1pm so the council refused to consider the claimant’s bid. C of A dismissed the council’s claim that the letter was late. By adding in the time requirement the council make an additional promise to consider all applications that come in by the time limit – their failure to do this means that they are in breach of contract. This case does not convert the invitation to tender into an offer (as in the first example); instead it creates a collateral contract around the side of the contract. There is the normal tender process going on, the offers from the bidders are not bound to be accepted by the council, however, because the time restraint has been put in place this operates as a collateral contract and binds the council to consider any bids that are put in within the time restraint.

Communication of an offer

When it has been established that there is an offer, this must be communicated to the other party.

General Rules:

The acceptance must correspond with the terms of the offer

- The acceptance must mirror the terms of the offer (mirror image role). So if there is an attempt to alter the terms of the offer in the response does this constitute an acceptance or is it something else?

Example: Defendant offers to sell his farm for £1000. The claimant responds and says that he will buy it for £950; he then changes his mind and three days later he says that he will buy the farm for £1000. The defendant then refuses to go ahead with the sale. Is there a valid acceptance of the offer? The court said that there was not an acceptance, but a counter offer (£950), which kills off the initial offer (£1000 from the defendant) and starts the process on new terms. Therefore, this did not constitute a valid acceptance.

Example: [Stevenson v McLean] Contract to sell some iron – claimant sends a telegram enquiring about delivery terms. In addition, claimant sends a letter saying that they are happy with the price. Is the question about the delivery terms a counter offer? The court decided that in this case the enquiry was not a counter offer but merely a request for information. This is because the original offer only contained information about price and did

not mention delivery. Because this is a request for information the court decided that the original offer was still live and open to be accepted.

‘Battle of the forms’ - [Butler Machine tool co. Ltd v Ex-Cell-O Corp.]

Seller offers to sell machine tools to our buyer and our seller’s terms of business include a price variation clause.

27th May: Buyers send an order to the seller on the buyer’s terms of business – these have no price variation clause. The buyer’s order does contain a tear off acknowledgement slip at the bottom of the form – this states that the seller’s will accept the buyer’s order on the buyer’s terms and conditions.

5th June: Sellers send the completed acknowledgement slip back to the buyers. In addition to the acknowledgement slip they send a letter stating that they accept the order but on their own terms and conditions (which include the price variation clause)

The sellers then billed the machine at an increased price (relying on the price variation clause). The buyer refuses to pay and the case comes to court. Whose terms was the contract made upon? Therefore, does the price variation clause apply and does the buyer have to pay the increased price?

Buyer’s order on the 27th is a counter-offer because it does not mirror the terms of the original offer. This then kills off the seller’s original offer. The buyer’s counter offer is then accepted by the seller on 5th June by the completion of the acknowledgement slip. Bridge and Loughton state that the letter that accompanied the form is not an attempt to re-establish business, but a reestablishment of the deal. Therefore we are dealing on the buyer’s terms with no price variation clause and the buyer has to pay the original price, not the increased one.

However, Denning states that we should look at the transaction as a whole and look for the point where the parties are agreeing, because it’s at that stage that the contract is formed. Denning called this process the ‘battle of the forms’. Each party is desperate to contract on their own terms. He states that we need to find the point at which the parties stop arguing about terms and agree. He states that the original document is not the vital

document. He states that the important point is the point at which the sellers send back the acknowledgement slip, because this is the only point where there is an agreement. Denning comes to the same conclusion as the other judges, but uses a completely different method.1

The acceptance must be given in response to the offer

- Can you accept an offer that you don’t know about? No

Example: [Williams v Carwardine]

Claimant knows there is a reward for supply of certain information, but the reason that she decides to give the information is to ease her conscience. Can she still claim the reward? The court decided that she is entitled to the reward as she was aware of the offer and her motivation is irrelevant.

The acceptance must be made by the appropriate method

- Either the offer itself will state how it wishes to be accepted (i.e. if you do not reply in writing this is not a valid acceptance) or:

- Any words/conduct which objectively shows that the offer has been accepted will be fine.

The acceptance must be communicated to the offeror

Acceptance by conduct:

Example: [Brogden v Metropolitan Railway Co.]

Brogden alters a draft coal supply agreement sent to him by Metro railway and returns it marked approved. The company’s agent gets this form and puts it into a draw. The parties then appear to have ordered and supplied coal on the terms of this draft agreement. A dispute arises and Brogden argues that he didn’t accept the original draft offer. The court decided that there was a contract and that it was concluded by the conduct of the parties. It was not concluded when the form went in the draw, but through the trading conduct that followed this. 1 Denning likes to ignore the technical processes of the law and become more expansive, almost making his own law.

However, is every instance of conduct amount to an acceptance?

Example 2: [Day Morris Associates v Voyce] – research in own time.

The court decides here that conduct will only be an acceptance if the oferee did react with the intention of accepting the offer.

Acceptance by silence:

Can you accept an offer by silence? No

Example: [Felthouse v Bindley]

Felthouse offered to buy his nephew’s horse, by saying that ‘if i do not hear anything from you I will consider the horse mine’. The nephew does not respond to the uncle, but tells the auctioneer (Bindley) to remove it from the auction. Bindley accidentally sells the horse anyway. Is there a contract between the son and the uncle? The court said in this case that there is no binding contract between the uncle and the nephew, because you cannot accept an offer by silence. However, there is a degree of acceptance by conduct here by both parties. Many people believe that this case should have been decided on the notion of acceptance by conduct and that the verdict given by the court was wrong. Is this a conduct case or an acceptance by silence case? If it is a conduct case, how can we reconcile the conduct shown here with the conduct shown in Brogden v Metro? Would this case be decided in a different way now we’ve got Day Morris Associates v Voyce.

Acceptance by post:

Only talking about letters going through the royal mail.

Example: [Adams v Lindsell] 1818

Contract for the sale of wool: acceptance made via post. However, acceptance letter never arrives. Has a valid acceptance been made? According to the court, the offer has been accepted and it is valid at the point at which the letter goes into the postbox. The judges decided thus (in 1818), because otherwise people would not be able to use the post to form contracts. Lecturer Smith believes this is a load of nonsense given the current state of the Royal Mail.

Example 2: [Henthorn v Frazer] (exception 1)

Court’s decision: The postal rule only applies when it is reasonable to use the post and it’s only reasonable to use post when the offer specifically states that that a response by post is desired.

Note: ‘In writing’ might be construed as denoting that a postal reply is reasonable.

Example 3: [Household fire and Carriage accident insurance v Grant] (exception 2)

If the offer states that ‘the response must be received’ then this creates an exception

Example 4: [Holwell Securities v Hughes] (exception 3)

If it is stated that a response ‘must be received in writing’ this would be enough to circumvent the rule.

Acceptance by instantaneous communication:

Example 1: [Entores v Miles Far Eastern Corporation]

English company communicates by Telex (old instant communication method) to a Dutch company. An acceptance is sent at the same time as a counter offer. At which point is the acceptance made?

Denning states that in this case it is like somebody shouting across the river to someone on the other side. The person on the other side does not hear the acceptance because an aeroplane passes overhead. It would be obvious for the acceptor to have to repeat what they’ve said for the contract to be concluded. So in the context of the case Denning said: ‘In the case of instant communication, the acceptance will be made immediately when there is a response to the offer, but if it is obvious to the oferee that an attempt to communicate has been made they are under obligation to clarify that by law. If they don’t the offeror can assume that everything has gone through fine and potentially a contract can be concluded at that point. The onus should be on the oferee to clarify and double-check the communication.

Problems with modern communication e.g. e-mail: Is e-mail more similar to the postal rule or should we refer to the Telex case? If an email is like a letter then it is valid as soon as one clicks the send button (barring exceptions), however if it is similar to Telex then it is not valid until received. Have a look at the case law and consider this issue.

Example: [Entores v Miles Far Eastern Corporation] The contract is not valid until the acceptance has been received by the oferor. If the oferor doesn’t receive the information, the oferee must keep trying. The exception occurs when it is obvious to the oferor that there is a problem – in this case the onus shifts to the oferor to resolve the issue. This is now precedent.

Acceptance of a unilateral contract: A unilateral offer is an offer to the world at large that only requires an act on the part of the oferee (e.g. carbolic smoke ball). When does acceptance occur in this contract?

Example: [Errington v Errington 1952] Father buys a house and takes out mortgage. Sons and daughter in law move into the house. Father says that is they pay the mortgage they can consider the house as belonging to them. The couple move in and start paying the mortgage. The father then dies. The personal representatives of his estate want the house back because they believe it to be his. What is the status of the arrangement between the father and the son? Court judgment: They can have the house because the father’s offer to the son is a unilateral offer and can’t be revoked. Acceptance occurs when the oferee begin to fulfil the act (i.e. in this case paying off the mortgage).

Example 2: [Luxor v Cooper 1941] There is an agreement: If the claimant introduces a purchaser to the defendant’s cinemas then the claimant will get a commission. The claimant succeeds in introducing a purchaser, but the sale does not go ahead – the claimant is suing. Going by the previous case one would assume that acceptance occurred once the claimant had introduced the purchaser. In this case the claimant can’t get a commission, because the sale did not go ahead. Reasoning: A purchaser is somebody who buys something, therefore if somebody is introduced, but does not purchase the cinema they are not a purchaser and the claimant has not introduced a purchaser.

Example 3: [Daulia v Four Milkbank Nominees ltd. 1978] (facts irrelevant) Result of judgment: A unilateral contract is an ‘if’ contract. One can only accept a unilateral offer if one fully complies with the conditions. Even though one may not have completed the conditions of the acceptance, the offer cannot be withdrawn once the oferee has started to fulfil the performance (terms).

Termination of Offer

There are three methods of termination: Rejection, Revocation and Lapse of Time.

Rejection: Rejection occurs where the oferee refuses to accept the terms of the offer

Example: [Hyde v Wrench] Oferee refuses to accept terms of original offer. This is rejection. Simple.

Revocation:

Example: [Payne v Cave 1789] (facts irrelevant) Judgment: In a bilateral contract it’s possible to revoke an offer any time up to acceptance.

Do I need to hold the offer open if I’ve agreed to do so?

Example: [Routledge v Grant 1828] The offeror said that they wanted an answer within 6 weeks of a certain date. The offeror withdrew their offer before this time had elapsed. The oferee tried to accept the offer after it had been withdrawn, but still within the 6 week period. The court decided that the offeror was able to withdraw their offer at any time before acceptance.

The above case is precedent unless there is a contract running alongside the original offer that binds the offeror to keep it open for a certain period of time (collateral contract)

What happens if I terminate offer by letter?

Example: [Byrne v Van Tienhoven 1880] (facts irrelevant) Judgment: For revocation to be effected it needs to be communicated. This means that the

letter has to arrive, because it is the offeror that dictates the terms of the offer and it is up to them to choose the method of acceptance. If the offeror doesn’t choose the postal method of acceptance then he/she shouldn’t be bound by its terms. Therefore the postal rule (that the statement is assumed to have been received as soon as it is in the letterbox) only applies to acceptance, not revocation.

At what point is the revocation deemed to have been communicated?

Example: [The Brimnes 1975] Revocation was sent overnight. Court ruled that the revocation would be effective as soon as office hours begin.

Thinking point: Does this rule apply in a contract between individuals? If not, how would this work?

Do you have to hear from the offeror themselves that the offer has been withdrawn?

Example: [Dickinson v Dodds 1876] In this case the oferee heard from a 3rd party that the offer has been withdrawn. The oferee tries to accept the offer anyway. Judgment: Hearing the revocation from a 3rd party was sufficient to constitute a revocation therefore contract void. As long as the revocation is communicated that is fine.

Lapse of time:

Example: [Ramsgate Victoria Hotel v Montefiore 1866] |The judgment in this case assumes that an offer will lapse after a reasonable period of time has passed (whatever reasonable may mean).

General points/formalities on contract so far: A contract does not have to be in writing generally, although there are certain contracts that do (e.g. the sale of land). Some contracts have to be carried out through deed (e.g. wills). One must have capacity to enter into a contract – children under the age of 16 cannot enter into a contract.