Contract reading session1

Chen-Wishart chapters 2-3

 Smith v Hughes established that the intentions of the contract are
“objective” i.e. the terms are to be interpreted as what a “reasonable man” would
understand them to mean, even if this isn’t what one party actually did intend. This
reduces the “voluntariness” of the contract (since one may misunderstand what the
contract will do) but is necessary for (1) accessibility (it would be impossible to prove
what is actually in someone’s mind); (2) avoidance of fraud (so that people cannot
escape/change terms of the contract by pretending that their intentions were X when
in fact they were Y); (3) Certainty and protection of “reasonable expectation” (so that
each party can be clear as to what will be enforced and their reasonable expectations
based on the contract won’t be frustrated).

 Formal objectivity is a literalist interpretation of the agreement. It says that

the only types of conduct that can create a contract (in descending order of probative
value) are signed fina writing; unsigned final writing; other writing or speech; non-
verbal conduct e.g. a nod; silence or omissions.

 Contextual objectivity (growing in influence) is interpretation within the

“social matrix/context” i.e. taking into account everything that would have affected
what was to be reasonably understood from the agreement.

 In Hartog v Colin and Shields it was established that where the buyer
knows that the seller has made a mistake as to price, there is no contract: the buyer is
prevented from “snatching a bargain” that he must have known was not intended for
him. Same interpretation put on Smith v Hughes. Mistakes as to terms known to the
other party can void the contract (without the need for the mistaken term to be
“fundamental”), whereas mistakes as to fact cannot (unless it is shared and is
fundamental). This is NOT to be conceptualised as subjectivity over objectivity since
the buyer can only “know” what the “correct” term of the contract is if there is an
objectively correct “term” (albeit contradicted by a mistake in the contract). This
should really be thought of as “contextual” objectivity (looking at negotiation process
and custom) over “formal” objectivity (looking at purely what is written down).

 To vitiate a contract, CA in Chwee Kin Keong established that “actual

knowledge” of the mistake was needed to vitiate the contract, but said that actual
knowledge was established in cases where “P must have known” or by
“circumstantial evidence” (in this case of mistakenly under-pricing goods on internet
site, the contract was invalidated on the grounds that P must have known there to be a
mistake) and where P adopted “wilful blindness”.

 If X carelessly/intentionally misleads Y as to the object being sold and it

was reasonable for the buyer to misunderstand what was being sold, the contract can
be vitiated: Scriven Brothers & Co v Hindley and Co
 The objective approach has a bias towards just interpretation: it prevents
misleading offers from being enforceable; it has been used in “contra proferentem”
(against literal text interpretation) reasoning in the cases of ambiguous, onerous terms
and refusing to enforce a misunderstood term where one party has contributed to the
other’s misunderstanding

 If latent ambiguity exists on an important term then there is no contract.

Where there is no written contract/confusion over a contract, and neither side
convinces the court that “on the balance of probabilities” their version of the contract
is correct, then the contract is void.

 The mirror image/ “offer and acceptance” approach is to say that a

contract exists where one party intentionally makes an offer, the other party accepts
that offer and that the contract has force from the point when the acceptance is made.
This is used by the courts to determine whether there is a contract, what is the content
and when does it exist.

 An offer is a manifestation (by conduct, speech or writing) of a

willingness to be bound by the terms proposed to the offeree from the point when the
terms are accepted by the offeree. Once it is accepted, the offeror loses his ability to
withdraw. People may deny validity of a contract on grounds that (1) the offer was
mistakenly made, (2) it wasn’t an offer (see carbolic smoke ball case) or (3) the offer
was no longer valid at the time of acceptance. The test of the “honest and reasonable
man in the observer’s position” protects honest and reasonable expectations but not
dishonest or unreasonable ones, so that the contract is invalid where one party has
contributed to the other’s mistake/employed latent ambiguity.

 There has to be a commitment to be bound or there is no offer: In Harvey

v Facey P asked D what was the lowest price at which he would sell a pen and D
replied with a price but later refused to sell the pen. Court found no contract because
D had made no commitment/intention to be bound by P’s terms, even if it did supply
information relevant to a possible future sale. This requirement of a commitment to
be bound is important to allow freedom from contract i.e. room for manoeuvre.

 Also the courts distinguish between invitation to treat (desire to embark on

negotiations) and an actual offer. An offer only occurs where the offeror confers a
power on the offeree to bind the offeror. In Storer v Manchester CC, where the
council had said that once P signed the agreement posted to him to buy his council
house, the council would also sign an agreement. P fulfilled his side but the council
changed its mind and decided not to sell the house. CA held that there was a contract
since the council intended to be bound once P had sent them a signed agreement and
couldn’t renege on this. In Gibson v Manchester CC the council sent G a letter stating
a price at which it “may be prepared to sell the house” and following negotiations, put
the house on a list of properties which could be purchased. HL said that the letter was
 an invitation to treat and though its conduct signalled an intention to accept the offer
eventually, it had not conferred a power on G to bind it.

 Advertisements or displays of goods are NOT offers, according to the

court, but invitations to treat (even where the word “offer” is used, it is not being used
in a legal sense: Spencer v Harding). This is on the grounds that (1) it would prevent
the customer from changing his mind after putting the object in the basket (CW: NO,
the acceptance would come at the presentation of the object at the till- why is this any
more logical a point than putting it in the basket?); (2) It would make traders who
advertise an out-of-stock product liable (CW: NO, the offer would be subject to
availability- common sense- a offer to sell an object that one doesn’t have is invalid);
(3) it would restrict vendors’ ability to refuse to serve a customer (CW: traders
shouldn’t be allowed to refuse to serve someone – what about barring from a pub a
renowkned trouble maker?). The Boots Cash Chemists rule that
advertisement/display isn’t an offer causes problems: (1) it prevents the criminal
conviction of people who advertise the sale of illegal objects e.g. guns, since they
aren’t actually “offering” them- see Fisher v Bell; (2) it prevents the suing of traders
who charge a higher price than they advertise.

 There are exceptions to the Boots rule: In Chapleton v Barry UDC deck
chairs were advertised at a certain price for hire and a man hired one, and was given a
ticket with conditions of hire written on the back. The court held that the
advertisement was an offer and therefore the conditions on the ticket were irrelevant
since the contract had already come into force when he was given the ticket (which
was really a receipt). In Carbolic Smoke Ball the court held that the advertisement
was an offer to the whole world i.e. it was seriously intended as an offer. Regarding
automatic dispensing machines, there is no opportunity to further negotiate or treat
and therefore the displays in them are offers, NOT invitations to treat- see Thornton v
Shoe Lane Parking

 In auctions, the advertisement of an auction and putting up a good for sale

is merely invitation to treat. The offers are those of the bidders and acceptance
indicated by the fall of the hammer. Hence there is no obligation to accept the offers
if they fail to reach a reserve price.

 Auctions are regarded as 2 contracts: (1) contract as to the rules between

highest bidder and auctioneer i.e. that the auctioneer will accept the highest bid,
subject to the conditions of the auction; and (2) the main contract of sale between the
owner and the highest bidder. CW: this is good decision since it prevents the
abandoning of pre-determined rules on which bidders rely. HOWEVER it contradicts
the idea that advertisement of an auction is merely invitation to treat, since the
advertised conditions of the auction are being enforced.

 An acceptance is an unequivocal expression of consent to the proposal

contained in the offer and immediately binds both parties
 A valid acceptance has to correspond to the offer (otherwise it becomes a
counter-offer, killing off the original offer which can no longer be accepted).

 There can be a problem of “battle of forms” where each party hands over
their own (incompatible) terms and conditions when the object is passed and both
intend to be bound: There is a contract but the question is on whose terms? It’s
resoved by asking “who fired the last shot” i.e. the one who presented his terms last
without provoking objection is the one whose terms are binding e.g. Brogden v
Mertropolitan Railway: A wanted to order coal and sent B his terms. B amended them
and sent them back. A ordered coal. Court held that A’ conduct was a tacit acceptance
of B’s terms.

 A valid acceptance has to be made in response to the offer: an identical

cross offer doesn’t equal an acceptance. If the mode of acceptance is stipulated in the
offer, then this mode alone will suffice if the offer explicitly states this: oter wise the
courts tend to view such stipulations as “permissive” rather than “mandatory”.
Acceptance has to be communicated to the offeror to take effect for instantaneous,
two-way communication e.g. face-to-face or via telephone. For postal replies, the
contract has effect from the moment when the acceptance is posted, even if the post is
delayed.

 In one-way instantaneous acceptances e.g. emails, the contract has effect

from the point in time when a reasonable offerror would access the message, taking
account of all circumstances

 To claim a reward, one has to know of the reward’s existence (e.g. police
information rewards: R v Clarke

 Silence cannot equal acceptance: Felthouse v Bingley.

 Criticisms of the offer and acceptance approach: (1) it causes contorted

judicial reasoning: In Butler the court had to find a contract since both parties
intended to be bound in an agreement and had relied on their being a contract. In fact
there was no contract in reality under the “mirror-image” approach since the
accompanying letter was clearly a counter-offer; (2) it doesn’t fit the reality of
commerce: often there is no insistence of an acceptance from the offeree, since the
offeror doesn’t want to antagonise the other party and risk losing the deal. To use
lawyers for each deal would be too costly and slow to allow business to proceed. Also
situations such as boarding a bus don’t really fit the model; (3) it produces unjust
solutions: it is a matter of luck which party “fires the last shot”; (4) insufficiency-
other conditions such as completeness and certainty and intent to create legal relations
and enforceability are also required. Lord Denning proposed an alternative method
whereby the courts find a reasonable compromise on the disputed terms. He says
there would be a commitment question (looking at all correspondence etc to see if
there is agreement “on all the material points”) and a content question (whereby if the
parties’ terms can be reconciled to give a harmonious result then this will be done,
 while if they cannot then the terms have to be scrapped and replaced by “reasonable
implication”). This would also prevent “immaterial inconsistencies” from breaking
the contract and would be fairer and more practical. However there would be legal
uncertainty due to courts’ definition of “material” (could be listed/codified) and what
a “reasonable compromise” is though to be. In reality courts find the fair verdict and
reason “backwards” to twist the law to suit it.

 Bilateral contracts exchange a promise for a promise (e.g. I will pay you
£100 to run the marathon) and are concluded by communication of the acceptance.
Unilateral offer (I will pay you £100 if you run the marathon) are only accepted by
the act itself e.g. in scenario 2, the contract is not formed until the marathon has been
run. Hence Carbolic Smoke ball was a unilateral contract since in order to be paid one
had to follow the instructions and still catch influenza.

 In a unilateral contract, the offer cannot be revoked once the offeree has
begun his performance of the act- see Daulia. Bilateral offers can be revoked any time
before acceptance. NB there is a distinction between a request for further information
and counter-offer. A rejection is only effective once communicated to the offeror. If I
post a rejection letter and then post an acceptance letter (having changed my mind)
before the rejection letter arrives (even if it arrives before the acceptance letter, then
the contract is effective. An offer can lapse if a specified time period has passed or a
necessary condition of the contract has expired. Also the offer ceases after a
“reasonable period of time” which is determined on the circumstances of the case.
Death of the offeree voids the offer.

 Conditional agreements e.g. “subject to solicitor’s advice” i.e. those that

require further documents to be drawn up are not themselves binding. However if
there is a document that is “subject to a contract being agreed upon”, the courts might
nevertheless make it enforceable as a contract itself where (1) the expression was
meaningless as there was nothing left to be negotiated; (2) there is a clear intention to
be bound

 Vagueness and incompleteness can void a contract since a valid contract

must be capable of determination “with a reasonable degree of certainty”- see
Scamell. Judges have gone v far to cure uncertainty in order to uphold contracts. This
is because: there is inherently imprecision in business practice; it is difficult (and
necessary!) to build in flexibility to an agreement; to protect a party where he has
relied on there being a contract; to avoid “uncertainty” becoming a way to escape a
bad bargain. They cure uncertainty by looking at previos dealings, employing a
standard of reasonableness, severing vague or redundant words from the contract.

 Agreements to negotiate in good faith with only the other party are
unenforceable (lock-in agreements). However agreements not to negotiate with 3 rd
parties for a specified length of time (lock-outs) are enforceable. The former is
unenforceable because: good faith is inherently contrary to the adversarial nature of
negotiation; how can a court decide when a proper reason for ending the negotiations
 has occurred (i.e. that the party has broken off negotiations for a “good faith reason”
i.e. what does “good faith” mean?; Damages for breach would be impossible to
quantify because no court could tell if the negotiations would have been successful.

 The “intention to create legal relations” is required for a contract. There

are two strong (but rebuttable) presumptions that (1) parties do intend such relations
in commercial activities and (2) do not intend legal relations in social/domestic
agreements. This is because: (1) fear of floodgates claims of social/familial contracts;
(2) promoting market transactions by using state coercion to give effect to a
commercial agreement; (3) freedom from contract in social situations.

1. Offer and Acceptance

i) Offer and Invitation to Treat

Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256: D advertised his product saying that
if one used it and still caught “the current epidemic of” influenza, he would give you
£100 and to show his sincerity in the matter £1000 had been put in a bank account for this
purpose. P caught influenza and sued D for the £100. CA held that the advertisement
WAS an offer and D had to pay. D tried to argue that the offer was too vague to be valid,
in that it had no addressee and was not seriously intended as nobody would make an offer
of this kind to the whole world. Finally it couldn’t be taken seriously because the offer
had no time limit, which would make no sense from D’s perspective.

Bowen LJ: we have to ask “how would an ordinary person, reading this document,
construe it?” His answer is to take it at face value. He says that the offer was limited
either to the duration of the “epidemic” or to the period of
usage of the product. The advertisement was not a mere “puff” or “proclamation”
because it was intended to be perceived by the public as an offer to be relied on (i.e. more
people would buy the product having seen the advert). This shows that an intent to create
legal relations is needed. Because of the specific nature of the advertisement, it is to be
treated as an offer (to all the world) and NOT mere invitation to treat, as most adverts are.
It is the law that an offeror can, explicitly or impliedly, dispense with the requirement to
be notified of acceptance (even though such notification is usually required) e.g. cases of
rewards for finding lost pets. In this case, the advert impliedly dispensed with
notification. There WAS consideration because D got a sale in return for the offer.Is this
true- what if P would have bought the ball regardless of the offer?

PSGB v Boots [1952] 2 QB 795: Under a statute pharmacists were required to supervise
the sale of drugs and Boots’ self service system was accused of breaching this. Boots’
pharmacists were close by to the self-service check-out desk and were authorised to
intervene and prevent sales of drugs if need be. Whether or not there was a breach of the
statutory duty came down to whether the contract (and hence an unsupervised sale) was
already formed before reaching the checkout or not. If prices were offers then putting
them in the basket would be acceptance and there would be a breach. If prices were
merely invitations to treat then it was the customers who made the offer at the checkout,
which could be refused by the supervising pharmacist. The CA ruled that advertisements
and offers were merely invitations to treat and hence Boots were acquitted of breach of
duty.

Somervell LJ: To say that the advertisement/price tag is an offer would make the taking
of the object an acceptance, which would make the self service mechanism in breach of
the statute- he would be reluctant to refuse to allow this more efficient type of checkout.
Romer LJ: to say that the price tag is an offer would mean that once a person has picked
up the object they could never put it back on the shelf or be in breach of the contract:
wrong: the courts could simply treat this as an act of contemplation whereas presenting it
at the checkout would be the “acceptance- see CW’s objections: the rule prevents
advertising of illegal weapons/substances (Fisher v Bell) from being criminalised since
an advert isn’t an offer, and it allows proprietors to demand different prices to those on
the price tags. Also fails to distinguish from the Carlil case- i.e. a guidance of when
advertising CAN be an offer is needed

Partridge v Crittenden [1968] 1 WLR 1204: D advertised the sale of wild birds which
when “offering for sale” such animals was contrary to the Protection of Birds Act. QBD
acquitted him on the grounds that advertising was merely an “invitation to treat” and not
an offer to sell.

Lord Parker CJ: Unless the advertisement is from a manufacturer, it makes business sense
to treat advertisements as invitations to treat, not offers: He says that if an advertisement
is an offer then traders may be forced to supply an infinite quantity of the substance
regardless of whether they have the necessary stock e.g. a menu in a restaurant would
make the owner contractually liable if a customer ordered more food than the restaurant
had. CW: no, the courts would simply need to interpret the offer as being one “subject to
availability

Gibson v Manchester C.C. [1979] 1 WLR 294: P wanted to buy his council house and
sent off the application form. The council sent him a form stating the price at which the
council “may be prepared” to sell the house and a letter which explicitly stated that it was
not to be regarded as an offer/binding. The letter invited P to “make a formal application”
Following negotiations over the price/repairs to the house, the council put the house onto
a list of properties that could be sold, but, following elections, decided not to make the
sale. HL held that no contract existed: The letter was explicitly not an offer and the
naming of a price was one that “may” be accepted i.e. not an offer. These were really
invitations to treat, while moving the property onto the “sell” list was merely a signal of
interest. Furthermore the request that he make a “formal application”, NOT “accept the
offer” shows that there was no valid offer.

In CA Denning MR rejected the “acceptance and offer” approach and argued for an
approach that looked at overall conduct, correspondence etc to see if there was an
agreement to make the material terms binding (see above in CW). This was overruled by
HL.

Lord Diplock: There are some types of contract which don’t easily fit into the
conventional mirror-image approach, but this case does (it is easy to look at the
documents and see whether there has been an offer and acceptance).

Harvela Investments v Royal Trust Co. of Canada [1986] AC 207: A was selling shares
and invited B and C to “tender” (i.e. bid) bids for the shares which wouldn’t be disclosed
to the other party. B offered one amount and C offered a lesser amount OR a sum on top
of whatever B was offering. A accepted C’s bid. HL held that the invitation to the process
must have been for fixed bids (lest both parties offer excesses on the other’s bids, which
would lead to neither side winning; or only one side gets to bid (as here) or the company
end up worse off, since without the option to make a referential bid, one would have to
make a higher bid to increase chances of winning) and therefore C’s offer was not valid
and couldn’t be accepted. That A’s acceptance letter did not create a second new contract
per se but was simply a mistaken acceptance of an invalid offer and had no effect. There
is a unilateral contract between the seller and all bidders that the seller accepts the highest
offer, as well as, in most cases, the final contract of sale with the highest bidder (a “dual-
contract” approach)

Lord Diplock: an invitation to enter the tendering process is a unilateral contract (if you
submit the highest bid, I will sell to you at that price). Lord Bridge points out that the
terms of this unilateral contract (secret bids) were broken because it was impossible to
determine what C’s bid was, without referring to the B’s bid, and therefore to accept C’s
bid is to undermine the point of the “secrecy” element: that the bids should be made
independent of each other.

Blackpool & Fylde Aero Club Ltd v Blackpool BC [1990] 3 ALL ER 25: D invited
tenders to run an airline route by a certain time, but said that they might accept no offers.
P submitted their tender on time but, due to a mistake by D’s employee, it was not
received or considered. CA said that (1) invitations to tender are usually no more than
assertions that one will receive bids and (2) terms are not lightly implied into contracts.
However in this situation, the conduct of D suggested an undertaking to consider all bids
handed in on time (i.e. a unilateral contract to consider a bid IF tendered on time) and
they had breached this contract.

Bingham LJ: because the tendering parties are so weak compared to the party receiving
the tenders (creating a tender has no certainty of winning and involves preparatory costs),
it is at least, under unilateral contract, entitled to have its tender opened and considered.
He says that the invitation to tender was an offer to enter this unilateral contract.

In creating an exception to the general rule that an invitation to tender is NOT an offer of
any sort, which the CA accepts and sustains, they consider (1) the small number of
parties to whom the invitation was addressed (though Bingham’s argument about
weakness of bargaining position is stronger if there are more parties); (2) the tender
process was “clear, orderly and familiar” (again, this could apply to ANY tendering
process); and (3) all parties assumed that on-time tenders would be considered (again
this could apply to almost ANY tendering process). Thus the basis on which the courts
found an exception to the general rule is unclear.

Fisher v Bell [1961] 1 QB 394: D advertised an illegal flick-knife in his shop window but
couldn’t be sued for an “offer to sell” an offensive weapon contrary to a statute, because
it was merely an invitation to treat. Lord Parker conceded that this seemed absurd but
said that it was a problem for parliament to correct.

ii) Acceptance
(a) Communication of Acceptance

Felthouse v Bindley (1862) 11 CBNS 869: After some negotiations, P wrote a letter to X
saying that he would pay a certain amount for X’s horse and that if he heard no more
from X on the matter he would consider the horse to be his. X wrote to his auctioneer,
telling him of the sale, but the auctioneer, D, accidentally sold the horse. P sued D for
contravening his property rights. CA held that the X’s silence was NOT an acceptance
since P had no right to impose a duty on X to accept the sale or to communicate further.
X had to communicate his acceptance to P in order to be valid and therefore there was no
contract, since he had not done so. McKendrick: some say the decision is bad because X
wanted the sale to go through and communicated this to D. However even if an exception
were created where the owner is happy for his silence to be taken as acceptance, there
would still be problems of withdrawing acceptance since it isn’t clear when the
acceptance has occurred + how long should the potential buyer wait before he can gain
ownership + what if the owner’s rejection of the offer is delayed a long time and the
potential buyer reasonably assumes that the silence was acceptance of the terms when in
fact it was not: impractical

Household Fire Insurance v Grant [1879] 4 Ex D 216: D offered to buy some of P’s
shares and, in acceptance of this, P posted D a certificate of the shares, which D never
actually received. Because he never received it, he claimed there was no contract and thus
he wasn’t bound by the company’s terms or conditions. The CA found that where D
allows P’s acceptance to be posted, the contract has force from the moment when the
acceptance is posted, even if it is delayed or never reaches D. This was because it was not
P’s fault if the post office made a mistake and precedent supports this. He reconciles this
with the requirement of contract law that there must be a meeting of the minds through
mutual communication by saying that the Post Office is the agent of both parties. Thus
once the acceptance is with the post office, the contract has effect. It is not inconvenient
since an offeror can always put a clause in his offer that says that he will only
acknowledge acceptance once it has been physically communicated to him. Though this
is fair to the offeree, it is harsh on the offeror- it is no more his fault that the post office
should be inefficient than anyone else’s.
Byrne v Van Tienhoven [1880] 5 CPD 344 : D offered to sell plates to P at a fixed price
by post. Before P received the letter, D posted a revocation of the offer. P then received
the “offer” letter and immediately accepted by telegram. P then received the revocation
letter. D claimed that the offer had been validly revoked, whereas P claimed breach of
contract when D failed to deliver. The court said that an offer may be withdrawn any time
BEFORE acceptance, but the revocation must have been COMMUNICATED (NOT
merely sent) to the offeree before acceptance. Thus, in this case acceptance occurred
before the revocation was communicated and therefore the contract was valid.

Lindley J: the reason why an offer can be rejected before acceptance is that there is no
consent/meeting of the minds which is necessary for a contract. However, a view not
notified cannot have effect in dealings between men. There is no authority that in
“revocation” cases (unlike in Grant- type cases) the post office is to be treated as an agent
of both parties. He says that any other conclusion would produce “extreme injustice and
inconvenience” for a person accepting an offer, since he would have to wait a long period
of time so as to be sure that no (possibly delayed) letters of revocation have been sent.
Why is this not also true of Grant- in that situation an offeree would have to wait for a
long-period of time to ensure that he was not bound by contract AND, in the case of mail
that was lost, make efforts to check with the offeree that no acceptance had been sent. Not
clear why the post office should be a mutual agent when acceptances are being sent, but
not when revocations are being sent…McKendrick points out that at no point were the
parties actually in agreement and attributes the inconsistency between postal rules on
acceptance and revocation to judicial attitudes towards the postal system!

Henthorn v Fraser [1892] 2 Ch 27: P was physically handed a letter detailing D’s offer to
sell him land. D then posted a letter revoking the offer. After the revocation letter was
posted, but BEFORE it arrived at his house, P posted an acceptance letter. CA held that a
revocation letter only has effect once it is communicated, whereas an acceptance letter
has effect once it is posted. Therefore the contract was valid because revocation was too
late. The rule that acceptance letters are effective from being posted applies where it
MUST have been “within the contemplation of the parties that, according to the ordinary
usages of mankind, the post might be used as a means of communicating the acceptance
of it”-Lord Herschell (he bases this on precedent, NOT policy reasons). In this case
acceptance by post was in contemplation since the parties lived in different towns.

Entores v Miles Far East Corp. [1955] 2 QB 327: P, in the UK, made an offer to D in
Holland by telex and D accepted by telex message. P claimed that the contract was to be
governed by UK jurisdiction and D claimed it was in Dutch jurisdiction. CA said that it
was to be in UK jurisdiction because in cases of instantaneous communication (UNLIKE
postal communication) the contract only has effect once it is received. This is because of
the general rule that a contract has effect once acceptance is communicated, whereas
postal acceptance is an exception for policy reasons. Telex is analogous to phone
conversation: if someone phoned acceptance but there was a glitch in the phone and one
couldn’t hear the acceptance then there would be no contract- why should it be different
for telex? In cases of instantaneous communication, a communication breakdown only
voids the acceptance of the offer where it is the offeree who should have detected and
rectified the problem: Lord Denning’s examples: If a noisy aircraft drowns out the
spoken acceptance in a conversation where both are present, the offeree’s acceptance is
void and must be repeated. If a phone goes dead before acceptance is completed, the
acceptance is void and must be repeated. If the offeror’s fax runs out of ink and can’t
print the offeree’s acceptance, the acceptance is valid and there is contract. He also said
that where neither party is at fault and the acceptance is not received by the offeror, there
is no contract i.e. the simultaneity rule favours the offeror.

Holwell Securities v Hughes [1974] 1 All ER 161: P had a contract with D whereby he
had the option to purchase land, “exercisable by notice in writing” to D. P’s solicitors
sent a letter to D requesting to buy land but this was never received. D didn’t sell them
the land. CA dismissed P’s claim for specific action on the grounds that the clause
required that notice be given, and that in this case notice had NOT been given (even
though this was through no fault of P). It was held that the postal acceptance rule can be
set aside where (1) there was no contemplation by the parties that the postal service
would be used to convey the letter, or (2) where the contract prevented the rule having
force and possibly (3) where the rule would produce “manifest inconvenience and
uncertainty” (NB only Lawton LJ says this- the other 2 judges don’t comment).

Russel LJ: Generally there is a prima facie duty to communicate acceptance for it to be
valid, upon which there is engrafted a doctrine that “if the parties contemplated that the
postal service might be used for…forwarding the acceptance of the offer” then
committing the acceptance to the postal service “in the usual manner” creates a contract,
even if the letter isn’t delivered. However this rule doesn’t apply where the wording of
the contract demands successful communication. The wording here implies a need for
actual communication.

Lawton LJ: Aside from where a contract’s wording denies it, the postal acceptance rule
should also not apply in cases of manifest absurdity e.g. it would be wrong for a
stockbroker who never received instructions to sell shares being sued for breach of
contract by his client for failing to do so. It should not apply where, having regard to all
the circumstances, the contracting parties cannot have intended that there should be
binding agreement until acceptance was, in fact, communicated.

Professor Treitel: It is unclear why the postal acceptance rule exists at all and therefore
Lawton LJ’s attempt to limit it is good: The argument that the postal service is a “mutual
agent” is bad because the postal service is at most an agent to transmit the letter, NOT to
receive it on behalf of the offeror. Another proposed reason is to create a definite point at
which the contract is formed since, if the offeror were not bound until successful
communication, the offeree could not fairly be bound until notification of the received
acceptance, and the offeror until they got a notification of their successful notification, ad
infinitem: this is not valid since the contract could simply be said to be formed upon
successful communication (though this would create uncertainty for the offeree). A final
argument is “ease of proof” since it is easier to prove that a letter has been posted than
that it has been received, but this depends on the efficiency of keeping records of each
party. The truth is that the postal acceptance rule is an arbitrary decision to favour the
offeree over the offeror where post is lost, since either way one of them will labour under
a false impression that a contract is/isn’t in place. Therefore it is better that the offeror
be at risk since he has the opportunity to exclude the use of post as a mode of acceptance
AND it is better that the offeror’s power to withdraw his offer at will is limited i.e. it
protects the offeree against an inconsistent offeror.

McKendrick says, against Treitel, that even the justification of limiting the power to
withdraw an offer is a bad one since we could have a law that simply says an offer cannot
be withdrawn once acceptance has been posted, but that communication of the
acceptance is necessary.

The Brinkibon case [1982] 1 All ER 293: D, in Austria, made a counter-offer to P, in the
UK, which was accepted by telex message. HL held that the contract was within Austrian
jurisdiction since, with instantaneous communications, the contract was formed where
and when the acceptance was communicated.

Lord Wilberforce: telex is instantaneous communication and there is a general rule that
contracts formed by instantaneous communication have effect where and when the offer
is accepted, and “where it appears to be within the mutual intention of the parties that
contractual exchanges should take place in this way”. This is the case here. However the
rule is NOT universal: e.g. cases where the recipient is not the principal offeror but a
messenger/ agent with limited authority; when the message doesn’t reach the principal
immediately, such as a telex message outside office hours; where the machine is operated
through 3rd parties; where there is a default at the recipient’s end. In these cases, the point
at which acceptance takes effect is determined with reference to the parties’ intentions,
sound business practice, where the risks ought to lie etc. i.e. a case-by-case basis.

CW: this draws a distinction between what CW terms “two-way” instantaneous

communication i.e. where the “conditions of simultaneity are met”- i.e. where both
parties are present and the general rules apply; and “one-way” instantaneous
communications where the general rule might not apply if the recipient at the other end is
not present to receive the acceptance. She says the courts are moving towards an
approach of “when a reasonable offeror would access the message, taking account of all
circumstances”. In Texas SS Co Ltd v The Brimnes (1975) the court held that a
revocation of an offer, sent by telex, would be effective as soon as it was received on the
telex machine if sent during normal office hours to the place of business, whether or not
it remained unread.

(b) Acceptance by Conduct

Brogden v Metropolitan Railway (1877) 2 App Cas 666: P had been supplied by D with
coal for a while and they decided to draw up a contract: P’s agent drew up a draft
agreement and delivered it to D. D filled in parts left blank e.g. who was to arbitrate etc
and returned the document to P who filed it and did nothing more. D delivered coal and p
paid for it within the terms of the document and when disputes arose, both parties’
correspondence mentioned a “contract”. D later claimed that he wasn’t bound by the
document since it was not a contract. HL held that the D’s amended agreement document
was a counter offer and the conduct of P and reliance on he terms was an acceptance.
Lord Hatherly says that contract came into force when the new invoice was paid at the
new price set out in the document. Lord Blackburn asserts that when “both parties have
acted upon that draft and treated it as binding, they will be bound by it.” The acceptance
has to be communicated or shown through conduct: it cannot be merely “in your own
mind”

(c) Acceptance in a prescribed way

Manchester Diocesan Council for Education v Comm. & Gen. Investments [1970] 1
WLR 241: M invited tenders (offers), stating that the successful bidder would be
informed of acceptance by a letter to their home address. C’s offer (which included a
requirement that acceptance be in accordance with the terms that M proposed) was
accepted by a letter sent to C’s surveyor rather than home address and therefore he
claimed that therefore the contract was void. The court held that the contract was valid
because (1) where an offeree stipulates a particular mode of acceptance but does not say
that only acceptance by that mode will be accepted, acceptance may be communicated in
any other mode not less advantageous to the offeror. However Buckley J also says that if,
in his offer, C had stated explicitly that only a letter to his house would be acceptable,
then the contract would be invalid. However, in absence of this, a communication in a
slightly altered mode, with no disadvantage to C, would be acceptable.

This is sensible: otherwise immaterial technicalities could allow escape from agreements.

(d) Acceptance in ignorance of offer

Gibbons v Proctor (1891) 4 LT 594: P, a superintendent, offered a reward for information
leading to the capture of X. G, a policeman, offered the info to a 3rd party to relay it to P
before he knew of the reward. G knew of the reward by the time the information was
relayed to P. The court held that he was entitled to the reward. This suggests that
acceptance of an offer can occur, even if one is unaware of the offer. The general rule is
that knowledge of an offer is required before it can be accepted but an exception was
made in this case because the offer was of a unilateral contract i.e. it doesn’t matter that

R v Clarke (1927) 40 CLR 227: (NB AUSTRALIAN CASE) The police had charged C
with murder and offered a reward to anyone who could supply information on the case.
C, out of a desire to absolve himself and having forgotten about the offer of a reward,
supplied information that showed that someone else had committed the murders. The
court held that since there was no intention to claim the reward at the time of the act. –
contradicts English doctrine established in Gibbons. The court said that C had never acted
in reaction to or in reliance upon the reward offered and therefore he was not accepting
the offer. Isaacs ACJ says that if A offers a reward to anyone who swims to the harbour
from 100yds away in the sea and B, after being thrown overboard, swims the distance to
save himself, there is surely no contract. A would not feel any moral obligation to B since
B is not acting to fulfil the contract.

(e) Acceptance in unilateral contracts

Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256: see above

Errington v Errington [1952] 1 KB 290: P was the representative of X who had told Ds
that if they paid off the mortgage on his house then they could have the house. They
began to pay off the mortgage. P tried to revoke the offer, once X had died. The CA held
that a unilateral contract could not be revoked once the offerees had commenced
performance, provided their performance was not left “incomplete and underperformed”-
Per Lord Denning

Daulia v Four Millbank Nominees Ltd [1978] Ch 231: In this case potential purchasers
alleged that they were told that if they could produce a bank draft for a certain amount of
money by 10 am the following day, they could buy a property. When the plaintiffs tried
to hand over the draft before the deadline the defendants changed their minds and duly
refused to accept the draft or complete the deal. CA said that there was not enough
evidence to substantiate the claim that there was an “oral contract”- technicalities.
However Lord Goff said “On the true view of a unilateral contract there must be an
implied obligation on the part of the offeror not to prevent the condition becoming
satisfied, which obligation must arise as soon as the offeree starts to perform, after which
it is too late for the offeror to revoke his offer”.

(f) “Battle of the forms”

Butler Machines v Ex-Cello Corp [1979] 1 WLR 401: B offered to sell a machine to E,
sending him a standard order form of B, B*, to sign. E ordered a machine on its own
standard order form, E*, with a slip for the supplier to sign, acknowledging the terms of
E*. B signed and returned the form E* with a cover letter explicitly stating that they were
agreeing to supply a machine on their own original terms. CA held that the terms of E*
applied since B had signed it and that the cover letter was really just a means of
identifying the order. See in CW the Lord Denning alternative to the “mirror image”
approach proposed in his judgment.

Lord Denning: The conduct and correspondence has to be viewed altogether etc (see
above) and on this view he says that the sellers had accepted E*’s terms. Denning
contradicts his own, sensible approach: looking at all the correspondence, the letter
accompanying the signed E* showed that there was NO agreement to the terms and
instead he sticks to a v. formalistic reliance on the signature on E*, which the cover letter
rendered meaningless.

Lawton LJ: If B’s letter was a counter offer that would mean that E’s conduct implied
acceptance of it, which is impossible given that E had made clear from correspondence
that they would only deal on their terms. Wrong: the letter was a counter offer since it
insisted on the original terms and therefore there was either no meeting of the minds and
no contract OR E’s conduct must be taken to mean acceptance of B’s terms. The letter
said that delivery would be “in accordance with our revised quotation of May 23”- i.e.
their terms, not just the identification of the order.

iii) Termination of Offer

a) By rejection

Hyde v Wrench (1840) 3 Beav 334: The owner of an estate offered to sell for £1000. The
buyer made a counter-offer of £950. The seller did not accept this offer. The buyer then
offered the original £1000, but the seller did not accept. The court ruled that there was no
contract in any of this; neither party had made an offer that the other accepted. Lord
Langdale: it is not within the buyer’s competence to revive an offer that his previous
rejection had extinguished.

Stevenson v McLean [1880] 5 QBD 346: D offered to sell P iron for a certain sum. P
asked D if he “would accept [the sum D proposed] for payment over two months or, if
not, what was the longest limit you would give?” D then sold the iron to a 3rd party. P,
having heard nothing from D and later wrote to him deciding to take up the original offer.
The court held that D’s correspondence was a request for further information and NOT a
counter offer, so that this case was distinct from Hyde v Wrench. The offer was still valid
and therefore P was entitled to take it up. The distinction between query and conter-offer
might be hard to sustain: supposing P had written a letter saying “would you accept
payment over 2 months?” This could be seen as either. In this case the phrase “if not”
would suggest that P is not necessarily asking D to change his position, whereas in the
example I give it could be construed that way- hard to determine…The court said that the
question should have been answered (doesn’t say whether legally or morally) and that D
still had to communicate a revocation to be free from the original offer.

b) By revocation

Dickinson v Dodds [1876] 2 CH D 463: D sent a note to P offering to sell him property
with a note saying that the offer was to be “held over” until 9.00am on a specified date.
Before this date, D sold the property to a different party and P learnt of this. P tried to
accept the offer before the specified date but this was denied by D since he had already
sold the property to another. CA held that D was entitled to sell the property to another
person.
James LJ: the offer to sell was a mere offer and cannot be said to have been binding since
P gave no consideration to make this binding. Until acceptance, he was free to withdraw
the offer: this withdrawal need not be explicit, provided the other man understands that
the seller is “no longer minded to sell” the thing to him. This was the case here. There has
to be a meeting of the minds at the moment of acceptance, which didn’t happen here.

Mellish LJ: an offer can be withdrawn any time before acceptance as this is practical for
business: it allows people to sell and not to be restricted, which would be the case if
offers were binding.

The principle established here that an offer is not binding on the offeror is practical for
business since people aren’t restricted from pursuing better/quicker deals and is an
incentive to the offeree not to delay. To make an offer binding would be to impose an
obligation on the offeror without him getting anything in return (hence the consideration
argument of James LJ).

Byrne v Van Tienhoven [1880] 5 CPD 344 : see above. NB in this case at no point is
there a “meeting of the minds” which is said to be required in Dickinson v Dodds.

iv) Bargain, but Difficulty in Offer and Acceptance Analysis

Clarke v Dunraven, Tha Satanita [1897] AC 59: D and P entered their yachts for a club
race and signed an agreement to be bond by the club rules. One of these was that if a
yacht caused damage by breaking any other rule, it would pay for “all the damage”. D’s
boat broke a club rule and caused damage to P’s boat. HL said that the parties had entered
a contractual obligation not to disobey the club rules, making D liable to P for damage
from breach of contract and fully liable, whereas in a non-contractual obligation the
amount to be paid would have been limited. It is not clear how there was a contract
between D and P (unlike between D and the club) and Lord Herschel merely says that
this was evident from their partaking in the race.

Gibson v Manchester C.C. [1979] 1 WLR 294 (Lord Denning only): Lord Denning (NB
his views are dismissed later on by HL in this case): it is impossible to reduce all types of
contract down to plain offer and acceptance (as would make the reasoning so detailed and
complex in this case- see HL verdict on it). He says: “You should look at the
correspondence as a whole and at the conduct of the parties and see therefrom whether
the parties have come to an agreement on everything that was material. If by their
correspondence and their conduct you can see an agreement on all material terms —
which was intended thenceforward to be binding — then there is a binding contract in
law even though all the formalities have not been gone through”. This is a less formalistic
approach and is better suited to cope with variety of ways that contract can be formed.

Butler Machines v Ex-Cello Corp [1979] 1 WLR 401 (Lord Denning only): He says that
mirror image approach is outdated and a better way of testing if a contract exists “look at
all the documents passing between the parties — and glean from them, or from the
conduct of the parties, whether they have reached agreement on all material points”. NB
in this case he says that this will lead us to view the last set of terms proposed, to which
there is no objection, as the contract. Here, he fails to apply his own test since there was
objection on material terms to E*, namely price variation, even though the letter did not
say so explicitly. However, were this test to actually be applied, it would prevent voiding
of contracts on “immaterial terms”. In terms of “content” he says “The terms and
conditions of both parties are to be construed together. If they can be reconciled so as to
give a harmonious result, all well and good. If differences are irreconcilable — so that
they are mutually contradictory — then the conflicting terms may have to be scrapped
and replaced by a reasonable implication”. This would crete a fair conclusion but would
damage legal certainty.

2. Certainty

Sale of Goods Act 1979 s 8: If a contract doesn’t specify a price/how a price is to be

determined, then the buyer must pay a “reasonable price”, to be determined by the
circumstances of the particular case.

Hillas v Arcos (1932) 147 LT 503, [1932] 43 Lloyd's Rep 359: P was in a contract to buy
wood from D, one clause of which stated that P had an option “of entering into a
contract” with D to order “100,000 standards of fair specification” if he wanted to
exercise the option. When P sued D for selling all the stock that would have been used
when P tried to use the option, D argued that the clause was too vague a description of
the goods for them to be identified AND that a further agreement would be needed (i.e.
the clause was unenforceable). HL rejected D’s defence and said that the clause was itself
binding.

Lord Tomlin: On the vagueness, he says that the parties to the contract are well aware
what the clause refers to, especially since under the rest of the contract “standards” were
being sold without problem. It is fair to infer that they were talking about soft-wood
goods. We can infer the meaning that the parties “undoubtedly attributed to the words”.
On the point about a further agreement being necessary, the phrase “option of entering
into a contract” with D, this means more than a broad agreement to enter another
agreement (true, else why bother putting this into the original contract if it has no effect).
It really means that there is no contractual liability until and unless P exercises the option.
This is a good judgment: where the meaning would be obvious to those involved, a
contract should not be voided on the grounds that it might appear unclear to a lay
person. Lord Tomlin goes v. far to prevent contracts from being voided: “it is necessary
to exclude as impossible all reasonable meanings which would give certainty to the
words’ before enforcement would be denied.” This is necessary given imprecision likely
in business agreements.

Scammell and Nephew Ltd. v. Ouston [1941] AC 251: Ps wished to hire a van and agreed
with D to acquire one on a “hire-purchase basis”. Their agreement stated that “the
balance of purchase price can be had on hire-purchase terms over a period of two years”.
D later refused to proceed with agreeing precise terms and Ps sued them for non-
performance. HL held that this term was too vague to constitute a valid contract.

Viscount Maugham: “In order to constitute a valid contract the parties must so express
themselves that their meaning can be determined with a reasonable degree of certainty.”
His concern is evidentiary: if the agreement is unclear then how can the courts find that
there was agreement as to the terms? I.e. legal certainty- a countervailing consideration
to the need for business flexibility as stated in Hillas. He distinguishes this from Hillas
since in that case it was clear that both parties knew what was being referred to and that
they both intended to create legally binding agreements. Another point would be that
there it was easy to impute the meaning, unlike here. In the circumstances of this case it
was unclear how the hire-purchase (hire with the option to purchase) would work,
especially given the confusion around P’s selling his vehicle to D as part of the
arrangement.

Foley v. Classique Coaches Ltd. [1934] 2 KB 1: F sold C part of his land in a contract on
the provision that C would buy petrol from F “at a price to be agreed by the parties in
writing from time to time”, while an arbitration clause was inserted. F bought the land
and for 3 years bought petrol from C. F then denied the contractual requirement to buy
petrol from C, since the clause was too vague. The court enforced the agreement as one to
buy petrol at “a reasonable price”.

Greer LJ: “One cannot add to a contract an implied term inconsistent with or which
contradicts the express terms of the contract, but in a suitable case one can imply a term”-
his argument seems to be that one can imply a term to make a contract workable where
one does so within the spirit or terms of the agreement, as here. The arbitration clause
was to determine what the reasonable price was.

Maugham LJ: The agreement that F would buy petrol from C was key to inducing C to
sell the land and both parties intended to be bound by it (else why would C have
complied with it for the past 3 years?). There is more evidence he cites to support the
seriousness of the clause that F would buy from C. Assuming the parties were aware that
there might be future disputes over the price (safe assumption, unless they are totally
stupid) and assuming the agreement that C would buy from F (safe assumption) then a
“reasonable price” seems to be the only answer

Good: in this case the outcome that the parties hoped to achieve (a mutually agreed or
“reasonable” price) is given effect,

May & Butcher Ltd v R [1934] 2 KB 17: R made a written agreement with M to sell
surplus tentage, explicitly leaving the price and date of payment to be agreed upon from
time to time. The HL held that this was too vague to constitute a contract.

Lord Buckmaster: An agreement “in which some critical part of the contract matter is left
undetermined is no contract at all”. The arbitration caluse was there to resolve disputes
arising from the agreement, but in this case there was no agreement at all.
Lord Warrington: to apply a “reasonable price” doctrine or to invoke the “arbitration
clause” would not be to clear up a dispute arising from the contract but to create a
contract where one did not exist.

The only way of distinguishing this case from Foley would be to say that Foley was a
case where the overall contract, which was undoubtedly in force, meant that the event
HAD to happen, regardless of whether a price could be agreed, whereas this more
common case involved a contract where the stated action couldn’t be undertaken
UNLESS a price was agreed. However this seems tenuous. In reality it is a conflicting
attitude to that of Foley and it is better to take the Foley attitude since it compensates for
the imprecision inherent in business, and the arbitration clause and mechanism
(agreement in future, subject to arbitration) for determining price, imperfect though it
may be, was seriously intended.

British Steel Corp v Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504: C
asked B to commence making metal nodes for them, pending a contract on C’s standard
terms which would be sent later. B performed the work but delivered it late which caused
damage to C exceeding the value of the contract that it asserted existed. No terms were
ever agreed on by the parties. C refused to pay for the nodes which had been delivered to
it. The court held that (1) there was no contract because the price, and other essential
aspects, hadn’t been agreed, since Goff J established that in “the vast majority of business
transactions…the price will indeed be an essential term”. (2) That B should be paid
following an “unjust enrichment” claim: where one party begins work under the
impression that a contract will be agreed upon and this materialises, all the work done
will be treated as though having been done under that contract. Where, as here, no
contract is agreed upon, then the party who requested the work is to pay a “reasonable
sum…in restitution”. This is to prevent a party in B’s situation being left out of pocket
for work done. Goff J also stated that if possible considering its content, a letter of intent
(i.e. we would be interested in you producing X for us) could be used to establish a
unilateral or ordinary contract if it included enough of the essential terms and was agreed
to by the other party.

Problems: this fails to compensate a party such as C who, as a result of the

manufacturer’s late work, lose out, as here. Restitution should be awarded to compensate
for noth parties’ losses caused by the other party where there is no contract. In the event,
C did sue for the losses caused by B, but under “breach of contract, which was
impossible there being no contract.

Walford v Miles [1992] 1 All ER 453: W agreed that if M could prove his financial
resources to pay for M’s business, then he would (1) not negotiate or accept offers from
other parties, and (2) deal exclusively with M with a view to concluding the deal as soon
as possible. They failed to reach a deal and W sold to a 3rd part, and M sued W. The HL
held that the agreement was unenforceable as impractical and inherently contrary to the
negotiating process (which required the threats of being able to go elsewhere). It also
held that agreements no to negotiate with other parties cold be enforceable IF they were
time-limited (it wasn’t in this case), while agreements to exclusively deal with one party
were unworkable (what if they simply never came to agreement- would W be bound to
never sell his business? On the three arguments

(1) Lord Ackner: A lock in or timeless lockout (which IS a lock in) is “inherently
repugnant to the adversarial position of the negotiating parties” who are entitled to act
self-interestedly. This is because there is no ability to threaten to or actually go
elsewhere. CW says wrong because not all negotiations are adversarial: some are
consensual/problem solving in nature+ a party might only have incentive to put
together a proposal if he can guarantee acceptance at the end. This is WRONG: it is
anti-competitive, and will actually incentivise the purchasing party to offer v low
sums since the seller has no option except acceptance.

(2) Lord Ackner: In a “good faith” arrangement such as this, it will be impossible for
a court to tell whether the reason for leaving the exclusive BF arrangements was a
good one because the definition of a “good reason” is subjective. Wrong. As CW says,
the courts have no problem in defining a “reasonableness” standard elsewhere.

(3) Lord Ackner: the damage for breach of this type of agreement would be
impossible to quantify. True, there is no way of determining whether or not such an
arrangement would have been successful, and therefore the court is being asked to
put a value on the unknown likelihood that a deal of an unknown value would have
been reached. Impossible to do with any accuracy.

3. Intention to Create Legal Relations

Trade Union and Labour Relations (Consolidation) Act 1992 s 179: A collective
agreement is conclusively presumed not to be an enforceable contract unless it is in
writing AND contains a provision that states that the parties intend for it to be a legally
enforceable contract.

Balfour v Balfour [1919] 2 KB 571: P arranged with D (her husband) that he would give
her £30 per month and in return she wouldn’t ask for anything more. When he failed this,
she sued him for breach of contract. CA held that this was an ordinary social arrangement
and NOT a contract.

Warrington LJ: there either had to be an express statement that the agreement was to have
legal consequences OR for this to be implied from the circumstances in which the
contract was made. Here there was no bargaining etc and nothing to suggest an intention
to create legal relations through the contract.

Duke LJ: In addition to the points above, there was no consideration: a promise no to ask
for even more money is not something of value to D. Also to give legal effect to such
domestic agreements would open the floodgates to unlimited litigation between family
members- socially undesirable.

Atkin LJ: not only would allowing Ps claim lead to many wives suing husbands, but also
husbands could sue wives where, for example, he had given her money to raise the
children and could sue her for non-performance! Reiterates floodgates fear. He also says
that consideration is where there is either “some right, interest, profit or benefit accruing
to one party, or some forbearance, detriment, loss or responsibility given, suffered or
undertaken by another”. In this case there is neither. Finally, there is no intention to
create legal relations.

Jones v Padavatton (1969) 1 WLR 328: D told her daughter P that if P would return from
the USA to study in the UK, D would provide her with £42 per month. Their arrangement
varied and under a variation P was permitted to live in the mother’s house rather than
collect the full £200 per month. After an argument, the D wanted P to leave the house and
P claimed she was entitled to stay under their contract. CA held that there was no contract
since there was a presumption that family arrangements were not intended to create legal
relations and that there wasn’t enough evidence here to overturn the presumption and
prove that there was an intention to create legal relations. Accordingly the daughter had
to leave.

Danckwerts LJ (supported by Fenton Atkinson LJ): There is a presumption against family

arrangements being binding and cases like this of family arrangements, relying on good
faith promises are not intended to be binding contracts. There was no contract due to lack
of intent to make one. Fenton-Atkinson LJ adds that the agreement was too vague (no
specification as to whether the mother would be paying the daughter $200 in US dollars
or West Indian dollars and the evidence of the daughter in court suggested no contract
e.g. she said “a normal mother doesn’t sue a daughter in court”.

Salmon LJ: The presumption is one of fact, not law, based on the experience that
generally family members don’t create contracts between them for family arrangements.
Viewed objectively (the facts as they appear to the reasonable observer) there WAS
intended to be legal relations given the facts of this case, e.g. the expense and giving up
of P’s career that was involved and the mother’s attorney wrote to P to confirm the
arrangements. The consideration on the part of the daughter was giving up her job and
studying in the UK. HOWEVER the arrangement to the house was too vague to be a
contract and the mother was entitled to make her leave the house and keep giving her the
money (£42 per month) instead of residence.

Majority view is correct: the evidence of the daughter in court suggests that she was
relying on familial affection to enforce the arrangement, not legal obligation. While Lord
Salmon is right to point out the consideration on both sides, there was no evidence that
there was an intention to be bound.

Esso Petroleum v Customs & Excise [1976] 1 WLR 1: Esso created promotional
footaball coins given free to customers who bought a certain quantity of petrol. The
customs people said that the coins were taxable as a good “produced in quantity for
general sale”. HL said that the customs people were wrong because the contract was for
the motorists was to buy a certain amount of petrol from ESSO, NOT to pay money for
the coins (which the act on which the customs people relied required). Therefore the
coins weren’t produced “for sale”.

Viscount Dilhorne: His approach was to look at the coin as a free gift and NOT as an
object to be supplied by legal obligation i.e. there was no intention to enter a contract
regarding the coins. To say that there was a contract would be to make every free gift,
designed to promote sales, a good to be supplied by contractual obligation, which blurs
the distinction between a gift and a contractually sold object. Also the coins couldn’t be
“purchased” themselves.

Lord Simon: There WAS an intention to create a legal obligation to give away the coins,
or the court would be allowing the “mere puff” reasoning of the defendant in Carlil v
Carbolic Smoke Ball Ltd, which would be misleading to consumers. His approach is to
say there is a “collateral contract” i.e. a contract, part of the consideration for which is the
making of some other contract. In this case, the motorist who sees the advertisement and
drives in is accepting the offer of a coin with his petrol (contradicts the doctrine that
advertising is not an offer) and is also himself offering to buy the necessary amount of
petrol. Here, the coins were not transferred for a money consideration (the price, which is
necessary to classify the goods as being on “sale”) but for the consideration of entering
into another contract (the contract of buying the petrol). The problem is that this treats
the advertisement as an offer to gain coins in consideration for petrol and this
contradicts the doctrine that advertisements are not offers. This highlights a problem
with the doctrine, not his analysis, which appears the most realistic.

Lord Russel: there was no legal obligation since if a garage offered “free water” but the
machine was out of order that day, the garage owner could not be sued. Actually, if the
free water was only allowed once a person had purchased petrol, and they did so on that
condition, there is no reason why they should not be.

Kleinwort Benson Ltd v Malaysia Mining Corp [1989] 1 All ER 78: D’s subsidiary
company had business dealings with P who undertook to give the subsidiary company a
cash facility after receiving two comfort letters from D stating that their policy was that
the subsidiary would always be able to meet its liabilities. When the company went bust,
Ds refused to pay sums outstanding cash facility payments, stating that the comfort letter
was not intended to create any legal obligations. CA accepted this, saying that a statement
of current policy is a statement of present fact and NOT a promise of future conduct and
therefore the letter had no effect.