Contract I Lecture II
Recap: An agreement between two or more people that is i s 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 a n 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 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 wa s higher because they said that they would offer $101,000 more than any other bid. Party B argue that the referential offer isnt valid; therefore as their actual bid was lower they are not actually entitled to buy the shares. Comments on example: Because there is the t he extra commitment (being bound by the higher offer) this turns the t he 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. air port. The tender process as run by the council: The tenders have to be put in a sealed clean envelope and be received by 17
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March at 12pm. The claimant responds res ponds and
put their envelope in the councils letterbox at 11am. However, the council
dont clear the letterbox until 1pm so the council refused to consider the claimants bid. C of A dismissed dismis sed the councils 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 s ide of the contract. There is the normal tender process going on, the offers from fr om the bidders are not bound to be accepted by the council, however, because the time restraint has been put put in place this operates as a collateral contract an d 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 i s 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 f or £1000. The defendant then refuses to go ahead with the sale. Is there a valid acceptance a cceptance 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, Theref ore, 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 f or information. This is because the original offer only contained information about price and did
not mention delivery. delivery. Because this is a request for information the court decided that the original offer was still live and open to be accepted. acce pted. 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 sellers terms te rms of business include a price variation clause. th
27 May: Buyers send an order to the seller on o n the buyers terms of business these have no price variation clause. The buyers order does contain a tear off acknowledgement slip at the bottom of the form this states that the sellers will accept the buyers order on the buyers terms and conditions. th
5 June: Sellers send the completed acknowledgement slip back to the buyers. In addition to the acknowledgement slip they send a letter stating sta ting 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? th
Buyers order on the 27 is a counter-offer because it does not mirror the terms of the original offer. This then kills off the sellers original offer. The buyers counter offer is then t hen accepted by the seller on 5
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June by the
completion of the acknowledgement slip. Bridge and Loughton Lou ghton 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 buyers 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 point where the parties are agre eing, because its 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 im portant point is the point at which the t he sellers send back the acknowledgement slip, because this is i s the only point where there is an agreement. Denning comes to the same conclusion as the other judges, but uses a completely different method.
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The acceptance must be given in response to the offer -
Can you accept an offer that you dont 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 informati on is to ease her conscience. Can she still claim the reward? The court decided that she is entitled to the reward rewar d as she was aware of the offer and her motivation is irrelevant. The acceptance must be made by the appropriate meth od -
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:
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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 Metro railway and returns it marked approved. The companys 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 greement. A dispute arises and Brogden argues that t hat he didnt accept the original draft offer. The court decided that there was a contract and that it was wa s concluded by the conduct of the parties. It was wa s not
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Denning likes to ignore the technical processes of the t he law and become more
expansive, almost making his own law.
concluded when the form went in the draw, but b ut through the trading conduct that followed this. 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 t hat conduct will only be an acceptance if the oferee did react with the intention of accepting the offer. of fer. Acceptance by silence: Can you accept an offer by silence? No Example: [Felthouse v Bindley] Felthouse offered to buy his nephews 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 I s there a contract between the son and the uncle? The court said in this case that t hat there is no binding contract between the uncle and the nephew, because you cannot accept an offer by silence. However, Howe ver, 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 re concile the conduct shown here with the conduct shown in Brogden Br ogden v Metro? Would this case be decided in a different way now weve 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? Acc ording to the court, the offer has been accepted acce pted 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 th is is a load of nonsense given the current state of the Royal Mail. Example 2: [Henthorn v Frazer] (exception 1) Courts decision: The postal rule only applies when it is reasonable to use the t he post and its 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 a s 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 state d that a response must be received recei ved in writing this would be enough to circumvent the rule. Acceptance by instantaneous communication: Example 1: [Entores v Miles Far Eastern Corporation] C orporation] English company communicates by Telex (old instant communication method) to a Dutch company. An acceptance is sent at the t he 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 t he river to someone on the other side. The person on the other side does not hear t he acceptance because an aeroplane passes overhead. It would be obvious for the acceptor to have to repeat what theyve said for the contract to be concluded. So in the context of the case Denning said: In the case ca se 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 dont the offeror can assume that tha t everything has gone through fine and
potentially a contract can be concluded 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 t he 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 a nd consider this issue. Example: [Entores v Miles Far Eastern Corporation] Corporati on] The contract is not valid until the acceptance has been received by the oferor. If the oferor doesnt 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 ofer or 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] 1952] Father buys a ho use and takes out mortgage. Sons and daughter in law move into the house. Father says that tha t 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 T he personal representatives of his estate want the house back because they believe it to be his. What is the status sta tus of the arrangement between bet ween the father and the son? Court judgment: They can have the house because the fathers offer to the son is a unilateral offer and cant 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 defendants 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 cant 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 in troduced a purchaser. Example 3: [Daulia v Four Milkbank Nominees ltd. 1978] (facts (fa cts irrelevant) Result of judgment: A unilateral contract is an if contract. One can only accept a unilateral offer if one fully complies 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). Terminati on
of Offer
There are three methods of termination: Rejection, Reject ion, 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 Cave 1789] (facts irrelevant) Judgment: In a bilateral contract its possible pos sible to revoke an offer any time up to acceptance. Do I need to hold the offer open if Ive agreed t o do so?
Example: [Routledge v Grant 1828] The offeror said that they t hey wanted an answer within 6 weeks of a certain date. The T he 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 acce ptance. The above case is precedent unless there is a contract running r unning alongside the original offer that binds the offeror to t o keep it open for a certain period of time (collateral contract)
What
happens if I terminate offer by lett er?
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 method of acceptance. If the offeror doesnt choose the postal method of acceptance then t hen he/she shouldnt 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 applies to acce ptance, not revocation. At what point is th e revocation deemed to have been commun icat ed?
Example: [The Brimnes 1975] Revocation was sent overnight. Court ruled that t hat the revocation would be effective as soon as office off ice hours begin. Thinking point: Does this rule apply in a contract between individuals? If not, how would this work? Do you have to hea r from the offeror th emselves that the offer has been withdrawn?
Example: [Dickinson v Dodds 1876] In this case the t he oferee heard from a 3
rd
party that the offer has been withdrawn. The oferee tries to accept the offer anyway. Judgment: Hearing the revocation from a 3
rd
party was sufficient to
constitute a revocation therefore theref ore contract void. As long as the revocation is communicated that is fine. Lapse of time: Example: [Ramsgate Victoria Hotel v Montefiore 1866] 1 866] |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 be carried out through deed (e.g. wills). One must have capacity to enter into a contract children under under the age a ge of 16 cannot enter into a contract.
