Law of Contract

Agreement
Session 2
© NU 2019
Objectives
 Explain the importance of ‘Offer’ and ‘Acceptance’ in any
contractual obligation

 Distinguish clearly between an offer and invitation to treat

 Explain the facts about acceptance

 Explain how an offer may be terminated

 Define an inchoate contract

An agreement

 The first requisite of any contract is an agreement (consisting of an offer

and acceptance). Therefore, offer + acceptance = agreement.

 For a contract to be created parties must reach an agreement. The idea of

agreement is therefore central to an understanding of the law of contract.

 Whether or not there is an agreement between the parties is a question,

which can be answered by looking at the way parties have conducted
themselves and examine what they have said and done.
Smith v. Hughes (1871) L R 6 QB 597
 Facts
 The complainant, Mr Smith, was a farmer and the defendant, Mr Hughes, was a racehorse
trainer. Mr Smith brought Mr Hughes a sample of his oats and as a consequence of what he
had seen, Mr Hughes ordered 40-50 quarters of oats from Mr Smith, at a price of 34 shillings
per quarter. To begin with, 16 quarters of oats were sent to Mr Hughes. When they arrived, he
said that the oats were not what he had thought they were. As he was a racehorse trainer and
he needed old oats, as this was what the horses had for their diet. The oats that were sent to
Mr Hughes were green oats, the same type as the initial sample. Mr Hughes refused to pay Mr
Smith for the delivery and remaining order.
 Issues
 Mr Smith argued that Mr Hughes had breached the contract as he had not paid for the
delivery and future oats to be delivered. The issue in this case was whether the contract could
be avoided by Mr Hughes, as Mr Smith had not delivered the type of oats he had expected.
Smith v. Hughes (1871) L R 6 QB 597
 Held
 It was held that there was a contract between Mr Smith and Mr Hughes and that
it would not be avoided. There had been no discussion between the parties
regarding the delivery of old oats. An objective test revealed that a reasonable
person would expect the sale of good quality oats in a similar contract, since
there was no express discussion of old oats. The sample gave him the chance
to inspect the oats and this was an example of caveat emptor (buyer beware).

 “If, whatever a man’s real intention may be, he so conducts himself that a
reasonable man would believe that he was assenting to the terms proposed by
the other party, and that other party upon that belief enters into the contract
with him, the man thus conducting himself would be equally bound as if he had
intended to agree to the other party’s terms”…per Blackburn J.
Storer v. Manchester City Council [1974] 3 ALL ER
824
 “In contracts you do not look into the actual intent in a man’s mind. You look at
what he said and did. A contract is formed when there is, to all outward
appearances, a contract”…per Lord Denning.

 Facts
 The defendant City Council refused to proceed with the sale of a council property to

the claimant under an arrangement which had been agreed with its predecessor. All
of the terms of the contract had been agreed but for the date on which the lease was
to end and the mortgage payments were to begin, which had been left blank on the
form returned to the defendant by the claimant. The claimant alleged that the
contract was completely concluded and sought specific performance of the
agreement.
Storer v. Manchester City Council [1974] 3 ALL ER
824
 Issue
 The question was whether the contract had been concluded, despite the fact

that the date on which the claimant became a purchaser rather than a tenant
was still to be determined.
 Held
 The Court of Appeal held that the contract was complete despite the absence

of this term. In distinguishing between an offer and an invitation to treat, it is

necessary to look. not to the subjective intentions or beliefs of the parties,
but rather on what their words and conduct might reasonably and objectively
be understood to mean. In this case the defendant had made clear by their
conduct and language that they intended to be bound upon the acceptance
of the offer despite the fact that some terms remained to be agreed.
An Agreement
 In determining whether the parties have reached agreement
the law looks for an offer by one party and an acceptance of
the terms of that offer by the other.

 The person making an offer is known as the offeror, and the

person to whom the offer is addressed is called the offeree.
WHAT IS OFFER?
 An offer is a promise or proposal by one party (the offeror) to
enter into a contract, on a particular set of terms, with the
intention of being bound as soon as the other party to whom the
proposal or promise is made (the offeree) signifies his
acceptance.

 A genuine offer is different from what is known as an ‘invitation

to treat, ie where a party is merely inviting offers, which he is
then free to accept or reject. Examples of invitations to treat are:
auctions, display of goods, advertisements, mere statements of
price and tenders.
To Whom is an Offer made?
 An offer may be made either to an individual person, or to a
particular group of persons, or it may be made to the general
public, as in the case of a reward offered for the provision of
information.

 In situations where it was found that the offer was made to

the general public was in the case of Carlill v Carbolic Smoke
Ball Co Ltd [1893] 1 QB 256.

 An offer may be written, spoken or implied by conduct.

CHARACTERISTICS OF A VALID OFFER
 An offer to be legally effective must satisfy the following general
requirements:

◦ the offer must be firmly made;

◦ the offer must be communicated to the person to whom it is made;

◦ the terms of the offer must be definite, clear and certain. Where the
terms of the offer are obscure, uncertain or meaningless the
contract will fail.
CHARACTERISTICS OF A VALID OFFER CONT.
◦ Thus, in Loftus v. Roberts (1902) 18 TLR 532, an
agreement provided for the appointment of an actress by
another person at a “West End salary to be mutually
agreed between us.” Subsequently the parties were unable
to arrive at a salary which satisfied them both. The Court
held that the contract must fail.

◦ The offeror (promissor) becomes bound only if the offeree

(promisee) accepts the terms of the offer as expressed by
him.
OFFER AND INVITATION TO TREAT
 However, care must be taken in distinguishing between an
offer and an invitation to treat.

 Invitation to treat (or "bargain" in the US) is a contract law

term. It comes from the Latin phrase invitatio ad offerendum
and means: "inviting an offer".

 An invitation to treat is simply an expression of willingness to

enter into negotiations which, it is hoped will lead to the
conclusion of the contract at a later date.
OFFER AND INVITATION TO TREAT
 Gibson v. Manchester City Council [1978] 1 WLR 520, (CA),
and [1979] 1 WLR 294 The House of Lords held that the letter
written by the treasurer, which stated that the council may be
prepared to sell, was not an offer as it did not finally commit
the council to selling the house.

 It was simply an expression of their willingness to enter into

negotiations for the sale of the house and was capable of
being accepted.
Offer and Invitation to Treat
 In the famous case of Carlill v. Carbolic Smoke Ball Co. [1893]
1 QB 256: D, who were the manufacturers of the Carbolic
Smoke Ball placed an advertisement in the newspaper offering
a reward of £100 to any person who contracted influenza
after having used one of their smoke balls in accordance to
the prescribed manner. The advertisement added that £1000
has been deposited at a bank ‘showing our sincerity in this
matter.

 What was the holding?

HOLDING IN THE CARLILL V. CARBOLIC SMOKE
BALL CO. [1893] 1 QB 256 CASE

 It was held that the advertisement was not an invitation to

treat but was an offer to the whole world and that a contract
was made with those persons who performed the condition
‘on the faith of the advertisement’. The plaintiff was therefore
entitled to recover £100.
PRACTICAL EXAMPLES – Invitation to Treat

 (i) Auctions: In an auction, the auctioneer’s call for bids is an invitation to

treat, a request for offers. The bids made by persons at the auction are offers,
which the auctioneer can accept or reject as he chooses. Similarly, the bidder
may retract his bid before it is accepted. See: Payne v Cave (1789) 3 Term Rep
148, Harris v. Nickerson (1873) LR 8 QB 286; British Car Auctions Ltd v.
Wright [1972] 1 WLR 1519.

 (ii) Display of Goods: The display of goods with a price ticket attached in a
shop window or on a supermarket shelf is not an offer to sell but an invitation
for customers to make an offer to buy. See: Fisher v Bell [1960] 3 All ER 73
Pharmaceutical Society of GB v. Boots Cash Chemists (Southern) Ltd [1953] 1
Q.B. 401;
PRACTICAL EXAMPLES – Invitation to Treat

 (iii) Advertisements: Advertisements of goods for sale are

normally interpreted as as invitation to treat. See: Partridge v.
Crittenden [1968] 1 WLR 1204

 However, advertisement may be construed as offers if they are

unilateral, ie, open to all the world to accept (eg, offers for
rewards) See: Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB
256.
PRACTICAL EXAMPLES – Invitation to Treat
 (iv) Mere statements of price: A statement of the minimum
price at which a party may be willing to sell will not amount to
an offer. See: Harvey v Facey [1893] AC 552; Gibson v
Manchester County Council [1979] 1 All ER 972.

 (v) Tenders: Where goods are advertised for sale by tender,

the statement is not an offer, but an invitation to treat, that is,
it is a request by the owner of the goods for offers to
purchase them. See: Harvela Investments Ltd v Royal Trust Co
of Canada.
Communication of an offer
 An offer must be communicated to the person to whom it is made,
for otherwise the offeree has no opportunity of accepting or
rejecting the offer.

 Therefore the party to whom the offer is directed to must be made

aware of it.

 Only the person or persons to whom the offer is made can accept it.

 A general offer may be accepted by anyone and when a certain

person accepts it, it results in a contract.
Definition of Acceptance
 An acceptance is a final and unqualified expression of assent
to the terms proposed by the offeror, either in writing, by
words or by conduct.

 To make a binding contract the acceptance must exactly

match the offer. The offeree must accept all the terms of the
offer.

 This is what used to be called “consensus ad idem” or

“meeting of the minds”.
Rule of Acceptance
 (1) Acceptance must be absolute and unconditional or unqualified.

 A qualified or a conditional acceptance is no acceptance at all, and in fact

it is only a counter-offer.

 COUNTER OFFERS

 If in his reply to an offer, the offeree introduces a new term or varies the
terms of the offer, then that reply cannot amount to an acceptance.
Instead, the reply is treated as a ‘counter offer’, which the original offeror
is free to accept or reject. A counter-offer also amounts to a rejection of
the original offer which cannot then be subsequently accepted.
Rule of Acceptance
 A counter-offer puts an end to the original offer and it cannot be
revived by subsequent acceptance. Hyde v. Wrench (1840) 3 Beav
334.

 A counter-offer should be distinguished from a mere request for

information: See Stevenson v McLean (1880) 5 QBD 346. If A makes
an offer on his standard document and B accepts on a document
containing his conflicting standard terms, a contract will be made
on B’s terms if A acts upon B’s communication, eg by delivering
goods. This situation is known as the ‘battle of the forms’. See:
Butler Machine Tool v Excell O-Corp [1979] 1 All ER 965
Rule of Acceptance
 (2) The general rule is that an acceptance must be Communicated to the
Offeror. Until and unless the acceptance is so communicated, no contract
comes into existence. See: Entores v Miles Far East Corp [1955] 2 All ER 493.

 The acceptance must be communicated by the offeree or someone authorized

by the offeree. If someone accepts on behalf of the offeree, without
authorization, this will not be a valid acceptance. See: Powell v Lee (1908) 99
LT 284

 The offeror cannot impose a contract on the offeree against his wishes by
deeming that his silence should amount to an acceptance. See: Felthouse v
Bindley (1862) 11 CBNS 869. Until the acceptance is communicated it does not
create any legal relations.
Brogden v. Metropolitan Railway Co. (1877) 2 App
Cas 666:
 A draft agreement relating to the supply a coal was sent to the
manager of a Railway Company for his acceptance. The
manager wrote the word “approved” and put the draft in the
drawer of his table intending to send it to the Company’s
solicitor for a formal contract to be drawn up. By some
oversight the document remained in the drawer.

 It was held that there was no contract.

Rule of Acceptance
 (3) Acceptance must be in the Prescribed Manner.

 Where the offeror prescribes a particular mode of acceptance

the acceptor or offeree should follow that mode.

 Where no mode of acceptance is prescribed by the proposer

or offeror, then acceptance must be according to some usual
and reasonable mode.
Rule of Acceptance
 (4) Acceptance must be in Response to Offer
 There can be no acceptance without offer.
 Acceptance should follow the offer and not precede it.

 (5) Acceptance may be Express or Implied

 An acceptance, which is expressed by words, written or

spoken, is called express acceptance.

 An acceptance, which is expressed by conduct, is called

implied acceptance.
Rule of Acceptance
 (6) Acceptance must be by the Offeree
 An offer can be accepted only by the person(s) to whom it is

made.

 If it is communicated by any unauthorised person, it will not

create a legal relationship.

 See Powel v. Lee (1908) 99 L.T. 284.

Rule of Acceptance
 (7) Acceptance must be given before the offer Lapses or is
Revoked

 To be legally effective acceptance must be given within the

specified time limit, if any, and no time is stipulated,
acceptance must be given within a reasonable time.

 The term reasonable time depends upon the facts and

circumstances of each case.
Rules of Acceptance cont.
 In Ramsgate Victoria Hotel Co. v. Montefiore (1866), the
defendant applied for shares in the plaintiff company in June.
The allotment (acceptance) of shares was made in November.
Defendant refused to take shares. His refusal to accept the
shares led to the dispute.

 It was held that he was not bound to accept the shares as the
allotment of shares was not within a reasonable time.
Conditional Acceptance
 If the offeree puts a condition in the acceptance, then it will
not be binding.

 In Jones v. Daniel [1894] 2 Ch.332: The offeree purported to

“accept” the offer but sent a document to be signed which
contained terms not included in the offer. This conditional
acceptance was held to be a counter offer. If there is a
conditional acceptance, or merely “conditional” agreement,
then there is no contract.
Acceptance in case of Tenders
 (a) Where A advertises for offers to supply a specified quantity
of goods, to be supplied during a specified time, and B offers
to supply, acceptance of B's tender creates a contract, under
which B is bound to supply the goods and the buyer A is
bound to accept them and pay for them.

 (b) Where A advertises for offers to supply goods up to a

stated maximum, during a certain period, the goods to be
supplied as and when demanded, acceptance by A of a tender
received from B does not create a contract.
Acceptance in case of tenders cont.
 Instead, A's acceptance converts B's tender into a standing
offer to supply the goods up to the stated maximum at the
stated price as and when requested to do so by A.
 The standing offer is accepted each time A places an order, so

that there are a series of separate contracts for the supply of

goods per Great Northern Railway Co v. Witham (1873) LR 9
CP 16.
Communication of Acceptance
 The general rule is that an acceptance must be communicated
to the offeror if it is to lead to a binding agreement.

 Until and unless the acceptance is so communicated, no

contract comes into existence.

 The operation of this rule was stated by Lord Denning in

Entores v Miles Far East Corporation [1955] 2 All ER 493.

 See also Brinkibon Ltd v. Stahag Stah [1983] 2 AC 34.

Communication of Acceptance
 The general rule also applies to so called “instantaneous”
communications.

 This ranges from the human voice when parties are face to
face or on the telephone, to telex, fax machines, the internet
and e-mails.
The Postal Rule Exception
 This general rule traces its origin from the case of Adams v.
Lindsell (1818) 1 B & Ald 681.

 The defendant wrote to the plaintiff offering to sell wool and

requested a reply “in the course of post”. The defendant
misdirected the letter and this caused it to be delayed for a
couple of days.
The Postal Rule Exception cont.
 On receiving the letter, the plaintiff replied immediately, by
posting a letter of acceptance. After the plaintiff’s acceptance
was posted, but before it arrived, the defendant sold the wool
to a third party, in the belief that the plaintiff was not
interested.

 The Court held that a contract was concluded between the

defendant and the plaintiff when the letter of acceptance was
posted by the plaintiff.
Prescribed Method of Acceptance
 No stipulation is made

 Stipulation is made but not clear

 Can silence amount to an effective acceptance of the offer?

 Ignorance or no knowledge of the offer

Termination of an Offer
 (1) By Acceptance
 (2) Revocation or withdraw of an offer
 (3) Rejection of an offer
 (4) Lapse of time
 (5) Failure of a Condition attached to the offer
 (6) Death