ELEMENTS OF THE LAW OF CONTRACT
THE AGREEMENT
THE OFFER
The traditional approach to finding the agreement is to classify the negotiations into offer and acceptance. In a large number of contracts this is simple to do, but
it is not always that easy and the way in which the courts are sometimes forced to classify agreements in this way has been questioned. [See for example Lord
Wilberforce’s comments in New Zealand Shipping v. Satterthwaite (the Eurymedon)].[1975] AC 154. [1974 1 All ER 1015, [1974] 2 WLR 865.
Nevertheless, it seems that, at least for theoretical purposes, this must be the approach – and first we must find an offer capable of acceptance. The House of Lords
has recently reiterated that the test is an objective one – i.e. what the parties appear outwardly to have agreed:
Lord Brightman [the Leonidas 1985] : “If one party (O) so acts that his conduct, objectively considered, constitutes an offer, and the other party (A) believing that
the conduct of O represents his actual intention, accepts O’s offer, then a contract will come into existence, and on those facts it will make no difference if O did
not in fact intend to make an offer, or if he misunderstood A’s acceptance, so that O’s state of mind is in such circumstances irrelevant.”
It is only where the offeree knows the offeror’s intention is different from his apparent intention that this rule will be displaced.
All this means that the test to be applied is -How things appeared to the reasonable offeree.
Note: in White v. White [2001] UKHL/9 [2001] 2All ER 43 the House of Lords made an important point in respect of English Law, and how the interpretation of contracts
has been affected by membership of the EU.
In Marleasing SA v. La Commercial Internacional de Alimentacion SA C-106/89 [1990] ECR 1-4135, a principle based upon Council Directive (EEC) 84/5, requires that the
domestic legislation of Member States must be interpreted in a way which gives effect to the purpose of the directive. In White it was held that this does not extend
to the interpretation of contracts, where to do so would impose upon one or other of the parties an obligation that the contract does not otherwise impose. This is to
say that the domestic rules of interpretation of contracts remain unchanged – and this is so even where one of the parties is an emanation of the state.
An OFFER can be defined as: “A proposition put by one person (or persons) to another person (or persons) coupled with an intimation that he is willing to be bound by
that proposition”.
1. AN OFFER CAN BE MADE ORALLY; IN WRITING; OR EVEN BY CONDUCT.
An offer may take the form of:
a) An offer of a promise in return for an act.
b) An offer of an act in return for a promise.
c) An offer of a promise for a promise.
The necessary element of “willingness to be bound” can be gathered not only from words used but also by conduct and surrounding circumstances.
Note: That in a) and b), it is only once the act is performed, (executed consideration), that there is an obligation on the other party to pay or fulfil the terms of
their own promise. In this sense the contract is ‘Unilateral’. The more usual kind of contractual agreement is c), where there is only a contract (subject to other
requirements), once both parties have made their promises – i.e. a ‘Bilateral’ contract. Although neither party has performed anything under the contract yet, they are
still bound to fulfil their promises.
2. AN OFFER MUST BE DISTINGUISHED FROM AN INVITATION TO TREAT.
a)Auctions
(i) The auctioneer’s request for bids is merely an invitation to others to make the offer. The bid is the offer, the acceptance is the fall of the auctioneers hammer:
Payne v. Cave (1789).3 Term Rep 148
This rule has now been given statutory force in S.57 Sale of Goods Act 1979.
(ii) An advertisement that an auction will be held on a certain day is not an offer capable of acceptance: Harris v. Nickerson (1873) LR 8 QB 286. So that a man who
spent time and money attending an advertised auction, only to find that the furniture he wished to buy had been withdrawn from the sale – was held not entitled to
claim those expenses as damages for breach of contract.
(iii) There is less certainty with an auction sale that is stated to be “without reserve”. In Warlow v. Harrison (1859) 1 E & E 309, obiter, it was held that such a
statement was a “promise to sell to the highest bidder” and that this was an offer capable of acceptance.
It seems therefore that:
Where an auction is advertised as being “without reserve” – there is no liability if the sale is never held, but once the auctioneer starts to accept bids, there is
now a separate binding promise to sell to the highest bidder.
In Barry v. Heathcote Ball & Co (Commercial Auctions) Ltd. [2000] 1 WLR 1962 the Court of Appeal applied Warlow v. Harrison in holding that an auctioneer who puts up
goods for sale ‘without reserve’ enters into a collateral contract to sell the goods to the highest bidder.
b) Tenders
Where A invites a number of persons to quote a price for the supply of goods or services, etc. – this is merely an invitation for offers – and unless he expressly
promises to do so, he need not accept any tender. The situation is the same where A invites B to give him an estimate – A is not making an offer. e.g. see Spencer v.
Harding (1870) LR 5 CP 561.
See also *Harvela Investments Ltd v. Royal Trust co. of Canada (CI) Ltd [1986] AC 207, [1985] 2 All ER 966, [1985] 3 WLR 276, where the telex stated that the “highest
offer” would be accepted.
This was held to be an offer of a unilateral contract to accept the highest bid, which would be followed by a bilateral contract with the highest bidder. In such a
situation, where the invitations to bid are to a closed number of possible tenders, the “referential bid” of the plaintiffs was inconsistent with the offer.
Similarly, in *Blackpool & Fylde Aero Club v. Blackpool B.C. [1990] 3 All ER 25, [1990] 1 WLR 1195. Held: Where an invitation to tender is sent to a limited number of
known persons, there is an implied promise to give proper consideration to any tender received in accordance with that invitation.
Here invitations to tender for a concession contained instructions as to the method of submission of such tenders, and imposed a deadline for receipt of those tenders.
A tender that was submitted according to those conditions could not be rejected out of hand. Proper consideration had to be given to its contents.
c) Advertisements; circulars; catalogues.
These will generally be regarded as merely invitations to treat:
Partridge v. Crittenden. [1968] 2 All ER 421, [1968] 1 WLR 1204. A charge of unlawfully offering wild live birds for sale failed as the court held the advertisement to
be merely an invitation to treat.
BUT, not every advertisement is an invitation to treat – in special circumstances it will be an offer to the whole world:
*Carlill v. Carbolic Smoke Ball Co. [1891-4] All ER 127 . The defendants advertised their medical preparation and stated that they would pay £100 to anyone who
contracted influenza after using the smoke ball in the prescribed manner. As evidence of their sincerity they also stated that they had deposited £1000 for this
purpose with their bankers. When Mrs. Carlill made a claim, the defendants tried to say that the advertisement was not an offer capable of acceptance, merely an
invitation to treat, as a contract cannot be made with an indeterminate number of persons. They did not succeed. The court held that it was an offer to the whole world
– a unilateral contract made with that limited portion of the public who bought the preparation and used it in conformity with directions. The “intimation of a
willingness to be bound” was found in the deposit of the sum of money with the bank.
NOTE: A unilateral contract arises where the obligation is only on one side. There must be two parties for the contract to arise, but only one party binds himself by
promise – the other party is not bound, and may or may not enter the contract as he chooses. If he does perform the required act, then that (generally) constitutes
both the acceptance (by conduct) and the consideration, (executed) to support the other’s promise. A more recent illustration:- Bowerman v. ABTA [1996] CLC 451
d) Goods on sale in shop windows; or priced goods on shelves inside the store.
*Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) ltd 1952 (Boots Case).[1953] 1 All ER 482, [ 1953] 2 WLR 427.
This case established that goods on display in shops are merely invitations to treat and not offers capable of acceptance. The case revolved around the question
whether certain poisons on display on the shelves were sold once the customer took them off the shelf (when a registered pharmacist was not supervising the sale) or
only once they were presented at the cash desk (where there was a registered pharmacist).
The matter was treated as settled in
Fisher v. Bell [1961]1 QB 394, [1960] 3 All ER 731,[1960] 3 WLR 919. where the offence of offering a flick knife for sale was not committed by displaying one with a
price ticket on it in a shop window.
But BEWARE – in particular circumstances, a window display could be an offer if the words used and the circumstances were definite enough. In Warwickshire CC v.
Johnson [1993] 1 All ER 299 it was held that a notice ‘We will beat any TV HiFi and Video price by £20 on the spot’, was a continuing offer.
Esso Petroleum v. Commissioners of Custom & Excise [1976] 1 All ER 117, [1976] 1 WLR 1..
Here there was an advertisement that a free ‘coin’ would be given with every four gallons of petrol purchased. In the House of Lords, two judges thought there was a
contract for the coin, but not a contract of sale, two more thought there was no contract for the coin, as there was no intention to be legally bound, and one judge
thought the offer consisted of four gallons of petrol and a coin!
e) Negotiations for the sale of land
It seems that the courts recognise that negotiations here may be prolonged and only where there is very clear evidence of an intention to be bound will they hold that
a contract has been concluded:
i.e. where there is merely a supply of information *Harvey v. Facey [ 1893] AC 552. The telegraph stating the lowest price for the property was NOT an offer capable of
acceptance.
Here, where the owner property responded to a request for the lowest prices for his property by telegraphing ‘Lowest cash price, Bumper Hall, Penn, £900,’ the court
held that this was not an offer to sell, it merely gave information as to the lowest price he might accept, had he been thinking of selling.
Two cases are also illustrative of the courts’ approach. They concerned the changes of policy of Local Authorities regarding the sale of council houses to tenants:
Storer v. Manchester City Council [1974] 3 All ER 824, [1974] 1 WLR 1403. In this case the Town Clerk, by his words, was held to be dispensing with the need for a
formal contract, so that a contract was concluded.
Gibson v. Manchester City Council [1979] 1 All ER 972, [1979] 1 WLR 294.. Where the words “The Corporation may be prepared to sell” and “if you wish to make formal
application to buy” were held to be fatal to the construction of the letter as a firm offer.
f). Transactions by machine
These are becoming more commonplace, and different rules sometimes have to apply – for example, a petrol pump in an automatic filling petrol station has to become an
offer to sell petrol at the stated price because of the ‘finality’ of putting the petrol into the customer’s tank – it cannot be returned.
See: Re Charge Card Services [1989] Ch 417. Where it was held that an open offer to sell at pump prices was accepted by a motorist putting petrol in the tank. We will
look at other examples of contracts entered into through the medium of machinery when we study Terms.
3. AN OFFER MUST BE COMMUNICATED.
The other party must have an opportunity either to accept the offer or reject it:
Taylor v. Laird (1856) 1 H & N 266.
The captain of a ship, who give up the captaincy half way through a voyage, and then worked as a crew member for the journey home, could not claim for his wages as a
crew member as the most that his actions constituted was an uncommunicated offer to work in that capacity. The owner of the ship had had no opportunity to either
accept or reject that offer.
4. ONLY THE OFFEREE CAN ACCEPT THE OFFER.
Boulton v. Jones (1857) 2 H & N 564. Held: There was no contract as the offer had been made to someone other than the plaintiff. A buyer, who had an agreed ‘set off’
arrangement with the erstwhile owner of a business, was not bound to pay for hose-pipe received and consumed. The buyer had made the offer to the previous owner of the
business, not to the new owner who supplied the hose-pipe.
The next lecture concerns
ACCEPTANCE:
The FACT of acceptance.
The COMMUNICATION of acceptance – particularly –
• where communication is through the post,
• where communication is dispensed with by the offeror,
• where the mode of communication is prescribed by the offeror,
• silence and communication of acceptance.
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