Q. Eric, Fabrice and Gilles collect rare coins.

They all attend a specialist coin auction held by ABC

auctions. Eric is the highest bidder for a very rare bronze coin but the auctioneer refuses to sell it to
him as his bid fails to meet the reserve price set by its owner.

Fabrice has seen a Roman coin listed in the auction catalogue. On the day of the auction he arrives at
the auction room only to discover that the coin has been withdrawn from sale.

Gilles bids more than he can afford on a scarce silver coin. He calls out to the auctioneer that he
wishes to withdraw from his bid but the auctioneer does not hear Gilles and the coin is sold to him as
the highest bidder.

Consider whether binding contracts were formed between ABC auctions and the three collectors and
identify any remedies that may be available to them.

For a contract to exist there must be a definite offer along with an unconditional acceptance. An offer is
a communication that indicates the terms on which an offeror is prepared to make a contract and gives
a clear indication that the offeror is to be bound by those terms if accepted by the offeree.

An offer may be made to a specified person or the public at large. The latter can be seen in the case of
Carlill v Carbolic Smoke Ball & Co. in which the defendants (D) were manufacturers of smoke balls
claiming to prevent flu. They published advertisements stating that they would pay 100 pounds to
anyone who caught the flu while using these balls. Mrs. Carlill used these smoke balls yet still caught the
flu. She then tried to claim 100 pounds, which the company refused to pay, arguing that their
advertisement could not give rise to a contract as it was impossible to make a contract with the whole
world. The court rejected this argument and held that the offer did create a contract with the world at
large and thus D was entitled to pay Mrs. Carlill 100 pounds.

Some transactions may include a preliminary stage in which one party invites the other to make an offer.
This stage is referred to as an invitation to treat. An example of this would be the Gibson v Manchester
City Council case, in which there were negotiations between Mr. Gibson and the city council regarding
the sale of a house. However, after a change in the council’s political control, it decided to stop selling
houses to council tenants like C. C brought legal action, but the House of Lords (HOL) ruled that the
council had not made an offer; rather only an invitation to treat. Hence negotiations to enter into a
contract can amount to an invitation to treat but not an offer.

An offer needs an unconditional acceptance to be binding. Eric’s bid cannot be binding since it did not
accept the previous terms of the offer (the reserve price). A similar case would be Financings LTD v
Stimson. On 16th March, D decided to buy a car at a second hand dealer for 350 pounds, and signed an
agreement between him and the car dealer. On the 18 th D paid the first installment. On the 24 th, the car
was stolen and when it was finally found it was in terrible condition. The Court of Appeal (COA) ruled
that the offer had been broken as the contract was subject to the condition that the car be in the same
condition as it was when it has just been signed.
An offer to enter into a unilateral contract cannot be revoked once the offeree has commenced
performance. This rule is reinforced with the case of Errington v Errington in which a father bought a
house for his son and daughter in law, holding that the house would be theirs if they paid off the
mortgage, but they never made a promise to do so, making this offer unilateral. When the father died,
the COA said that the offer had not lapsed and would only be withdrawn if the son and daughter in law
ceased to make payments. There may be a binding contract between Fabrice and ABC auction if the
auction for the Roman coin was an offer, as Fabrice went to the auction in anticipation of buying the
Roman coin which can count as performance. But an auction can be viewed as an invitation to treat, as
in accordance with the precedence set by the aforementioned case of Gibson, it only amounts to a
negotiation to enter into a contract.

Lastly, by bidding on the silver coin, Gilles clearly made an offer to buy. Acceptance of an offer is
unconditional agreement to all terms of the offer. An offer can be revoked any time before its’
acceptance according to the precedent set by the old case of Payne v Cave. It is not enough, however,
for the offeror to simply change their mind about an offer; the offeree must be notified of the
withdrawal of an offer. This principle is established in Byrne & Co. v Leon Van Tienhoven. On the 1 st of
October, D posted a letter to New York offering to sell 1000 boxes of tin plates. On the 11 th, C accepted
immediately through telegram. However, on the 8 th, D had written to revoke the offer, but it was held
that a binding contract had already been formed as revocation requires communication, but acceptance
takes effect as soon as it is posted. Similarly, since Gilles was not able to communicate his withdrawal,
his revocation was not effective.

To conclude, no binding contract was formed between Eric and ABC Auctions because there was no
unconditional acceptance. Likewise, Fabrice and ABC did not form any binding contract because there
was never an offer, simply just an invitation to treat, which is not binding. On the contrary, Gilles did
form a binding contract with ABC, as although he attempted to revoke his offer, it was not
communicated and thus unsuccessful. On the other hand, the acceptance of his offer (his being the
highest bid) was communicated effectively, making his acceptance functional. Therefore a binding
contract was formed.