Contract Ch2 PDF
Contract Ch2 PDF
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.1
The offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.2
2.3
2.4
2.5
2.6
Method of acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.7
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Introduction
The law of contract is mainly about the enforcement of promises. Not all promises are
enforced by courts. To enforce a set of promises, or an agreement, courts look for the
presence of certain elements. When these elements are present a court will find that the
agreement is a contract. This is a somewhat artificial process. To a certain extent, courts will
find that some agreements simply look like contracts and they then reason backward
and find the elements necessary to form a contract.
As a student you need to be aware of the elements required to constitute an enforceable
contract.
To say that we have a contract means that the parties have voluntarily assumed liabilities
with regard to each other. The process of agreement begins with an offer. For a contract
to be formed, this offer must be unconditionally accepted. The law imposes various
requirements as to the communication of the offer and the acceptance. Once there
has been a valid communication of the acceptance, the law requires that certain other
elements (covered in Chapters 3 and 4 of this guide) are present.
If these elements are not present, a court will not find that a contract exists between the
parties. In the absence of a contract, neither party will be bound to the tentative promises
or agreements they have made. It is thus of critical importance to determine whether or
not a contract has been formed.
Learning outcomes
By the end of this chapter and the relevant reading, you should be able to:
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indicate what the exceptions are to the necessity of communicating the acceptance
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explain what occurs when the offeror stipulates a certain method of acceptance
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Activity 2.1
Your local grocery shop places a leaflet through your letterbox. On the leaflet is printed
Tomorrow only, oranges are at a special low, low price of 9p/kilo.
Has the grocery shop made you an offer? If you visit the shop, must they sell you oranges at
this price?
b An advertisement is an invitation to treat.
See Partridge v Crittenden (1968) the advertisement of a bilateral contract. The form of
the contract will give rise to different results Carlill v Carbolic Smoke Ball Company (1893)
decided that an advertisement was a unilateral offer.
Activity 2.2
How were the facts of Carlill v Carbolic Smoke Ball different from the usual situation
involving an advertisement?
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c A request for tenders is an invitation to treat and the tender is the offer. See Harvela
Investments Ltd v Royal Trust Co of Canada Ltd (1985).
Note, however, that the invitation to treat may contain an implied undertaking to consider
all conforming tenders, as in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council
(1990).
d An auctioneers request for bids is an invitation to treat.
The bid is an offer; when the auctioneer brings his hammer down he has accepted the offer.
In the case of auctions without a reserve price, the auctioneer enters into a collateral (or
separate) contract. The nature of the collateral contract is that the auctioneer will accept
the highest bid. See Warlow v Harrison (1859) and Barry v Davies (2000).
Self-assessment questions
1 How does an invitation to treat differ from an offer?
2 Does a railway or airline timetable constitute an offer?
3 How do courts treat the display of goods in a shop window differently from a display in
an automated machine?
Summary
A contract begins with an offer. The offer is an expression of willingness to contract on
certain terms. It allows the other party to accept the offer and provides the basis of the
agreement. An offer exists whenever the objective inference from the offerors words
or conduct is that she intends to commit herself legally to the terms she proposes. This
commitment occurs without the necessity for further negotiations. Many communications
will lack this necessary intention and thus will not be offers. They may be statements of
intention, supplies of information or invitations to treat. Although the distinction between
an offer and other steps in the negotiating process is easy to state in theory, in practice,
difficult cases arise.
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Anson, pp.2738.
Unger, J. (1953) Self-service shops and the law of contract, 16 MLR 369.
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Activity 2.3
Was the decision in R v Clarke influenced by the consensus theory of contract? Should it
have been?
Activity 2.4
How might the decision have been different if Clarke had been a poor but honest widow?
Anson, pp.4950.
Activity 2.5
A wrote to B offering 300 bags of cement at 10 per bag. B wrote in reply that she was very
interested but needed to know whether it was Premium Quality cement.
The following morning, soon after A read Bs letter, B heard a rumour that the price of
cement was about to rise. She immediately sent a fax to A stating, Accept your price of
10 for Premium Quality. Assuming that the cement actually is Premium Quality, is there a
contract? (If so, does the price include delivery?) Explain your reasoning.
Activity 2.6
What is the position under the last shot rule if, after the exchange of forms, the seller fails
to deliver the goods?
Anson, pp.3841.
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Activity 2.7
You offer to buy a kilo of oranges from your local shop for 9p. Nothing further is said, nor do
you receive any written correspondence. The next day, however, a kilo of oranges arrives at
your house from the local shop. Is there a valid acceptance of the contract? Has there been
a communication of the acceptance?
See Brogden v Metropolitan Railway Company (1871).
In the case of a unilateral contract, Carlill v Carbolic Smoke Ball Company (1893) establishes
that the performance is the acceptance and there is no need to communicate the attempt
to perform. Communication of the acceptance is waived because it would be unreasonable
of the offeror to rely on the absence of a communication which would have been
superfluous or which no reasonable person would expect to be made.
Self-assessment questions
1 What was the detriment to the offeree in Felthouse v Bindley?
2 Could an offeror use this case to avoid liability?
Anson, pp.4143.
McKendrick, Chapter 3: Offer and acceptance 3.12 Exceptions to the rule requiring
communication, pp.3740.
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Activity 2.8
What rules do you think courts should adopt for communication by fax or email?
Self-assessment questions
1 What reasons have been given by the courts for the postal acceptance rule?
2 A posts a letter offering to clean Bs house. B posts a letter accepting As offer. Later in the
day, Bs house burns down and B now no longer needs a house cleaner. B immediately
posts a letter to A rejecting As offer. Both of Bs letters arrive at the same time. Is there a
contract or not? See Countess of Dunmore v Alexander (1830).
3 In what circumstances will the postal acceptance rules not operate?
4 When, if ever, can an offeror waive the need for communication?
Summary
For a contract to be formed, the acceptance of an offer must be communicated. There
are exceptions to this general rule. The most significant of these exceptions is the postal
acceptance rule. The postal acceptance rule is, however, something of an anachronism in
the modern world and is unlikely to be extended in future cases.
indicate what the exceptions are to the necessity of communicating the acceptance.
Anson, pp.4347.
Self-assessment questions
1 Where a method of acceptance has been prescribed by the offeror:
a May the offeree choose to use another (equally effective) method of communicating
his acceptance?
b What does equally effective mean?
c Whose interest should prevail?
2 Can an offer made by fax be accepted by letter?
Summary
If an offeror intends that a certain method of acceptance is to be used, he must stipulate
this method and that only an acceptance using this method is to be used. If he only
stipulates a method, an offeree can use another method provided that the other method is
no less advantageous than the method stipulated.
explain what occurs when the offeror stipulates a certain method of acceptance.
Anson, pp.5051.
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Activity 2.9
Your neighbour offers to sell you her car for 10,000. She tells you to think about it and let
me know by Monday. On Saturday, she puts a note under your door to say forget it I want
to keep my car. Can she do this? Explain.
By what process must the offeror of a unilateral contract revoke his offer? The problem of
an appropriate process exists when the offer is made to the world. In this situation, what
must the offeror do to alert the world? English law provides no answer to this question,
but see Shuey v USA (1875).
If the offeree rejects an offer, it is at an end. See Hyde v Wrench (1840).
Different problems arise when it is the offeree who changes his or her mind. For example,
if after posting a letter of acceptance, the offeree informs the offeror by telephone, before
the letter arrives, that they reject the offer, should the act of posting an acceptance prevail
over the information actually conveyed to the offeror? In the absence of English cases
the books refer to a number of cases from other jurisdictions see Dunmore v Alexander
(1830) (Scotland) and Wenkheim v Arndt (1873) (New Zealand) but when citing them, it is
important to emphasise that they are not binding and indeed have very little persuasive
authority. The question must therefore be answered primarily as a matter of principle.
Treitel suggests that the issue is whether the offeror would be unjustly prejudiced by
allowing the offeree to rely on the subsequent revocation (p.27).
Self-assessment questions
1 Why can the offeror break his or her promise to keep the offer open for a stated time?
2 In a unilateral contract which is accepted by performance, when has the offeree started
to perform the act (so as to prevent revocation by the offeror)? Does the offeror need to
know of the performance?
3 How can the offeror inform all potential claimants that the offer of a reward has been
cancelled?
4 Will there be a contract if the offeree posts a letter rejecting the offer but then informs
the offeror by telephone, before the letter arrives, that he accepts the offer?
5 What is the purpose of implying that the offer is subject to a condition?
Summary
Until an offer is accepted, there is no legal commitment upon either party. Up until
acceptance, either party may change their mind. An offeror may revoke an offer or an
offeree may reject an offer.
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Anson, pp.5261.
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Examination advice
The detailed rules of offer and acceptance provide a ready source of problems and difficulties on which an Examiner can draw. Here are some examples.
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A possible counter argument to this is that Alice asked Bill to let her know by Saturday
and this let me know means that there must be actual knowledge of his acceptance that
it must really be communicated. This necessity for actual communication means that Bills
acceptance is not good until Monday when Alice actually opens the letter. To apply this
counter argument, one needs to consider the criteria set out in Holwell Securities v Hughes.
One might also note that since that decision, courts are reluctant to extend the ambit of
the postal acceptance rule.
d Bill changes his mind. Here there is no authority as to the effect of his change of mind.
In addition, given the two possible positions in point (c) above, two possible outcomes
exist. If the postal acceptance rules apply, then a contract has been formed and Bills later
change of mind cannot upset this arrangement. However, this seems a somewhat absurd
result since Alice learns almost simultaneously of the acceptance and the rejection. Bill has
attempted to reject the offer by a quicker form of communication than the post. In these
circumstances, you could apply the reasoning of Dunmore v Alexander and state that no
contract has been formed between the parties. In addition, given the reservations of the
court in Holwell Securities v Hughes, it seems improbable that a court would rely upon the
postal acceptance rule, an unpopular exception to the necessity for communication, to
produce an absurd result. The second possible outcome here is that the postal acceptance
rules never applied and no contract could be formed until Alice opened the letter. Since
she received the rejection at almost the same time, she is no worse off (see reasoning
above) by not having a contract. You might also wish to consider the application of the
rules for instantaneous communications in Entores v Miles Far East Corp and Brinkibon v
Stahag Stahl. Should the communication made by telephone be deemed to have been the
first received? If so, there is no contract.
e This is really the answer to the question. For the reasons stated above, the rejection should
be determinative. Accordingly, no contract arises in this situation and Bill is not obliged to
buy the shares in Utopia Ltd.
Question 2 Note at the outset that in two-part questions such as this you must answer
both parts (unless clearly instructed that candidates are to answer either a or b).
Again, your approach should be to break down the question into its constituent parts:
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The effect of Davinas letter is it an acceptance? Does the postal acceptance rule apply? Is
Davinas letter a statement of intention?
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Is Davinas letter an offer? Can she waive the necessity for the communication of the
acceptance?
By considering these issues, you can determine whether a contract has been formed or not.
With respect to part (a), if a contract has been formed, then Cyril is in breach of this contract
when he sells the stamp to Eric. You need to consider whether Cyril has made an offer
has he exhibited a willingness to commit on certain terms within Storer v Manchester City
Council (1974)? Or is his communication an invitation to treat or a step in the negotiation of
a contract? If his letter is an offer, it seems reasonable that he expects an acceptance by post
and the postal acceptance rules will apply: Household Fire Insurance v Grant (1879).
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Need to
Need to
revise first study again
If you ticked need to revise first, which sections of the chapter are you going to revise?
Must
revise
Revision
done
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Notes