Full Detailed Notes
-Offer and Acceptance
-Intention to Create Legal Relations
-Consideration
-Mistake
-Misrepresentation
-Duress
-Exemption Clauses
-Exam Tips and Structures throughout
OFFER AND ACCEPTANCE
Main aim of contract law is to provide certainty!
– The elements of an enforceable contract
1. Offer
2. Acceptance
3. Intention to create legal relations
4. Consideration
All contracts are agreements but not all agreements are contracts: Taylor & Taylor
For a valid contract, there must also be “agreement”, i.e. a “meeting of the minds” (consensus ad idem).
The parties must agree to the same thing.
– Determining whether there is a “meeting of the minds”
Before we look at offer and acceptance proper, how do the courts determine whether the parties have
reached agreement, or have consensus ad idem?
As Taylor & Taylor puts it (pp.18-19) “the cases show that there is often confusion between what a party
meant and what he actually said”.
SELLER: I contract to sell you oats. (Privately thinking: “I mean to sell NEW oats”: They are cheaper!)
BUYER: I contract to buy oats from you. (Privately thinking: “You mean I am getting expensive OLD oats”.
My horses won’t eat new oats.)
Smith v Hughes (1871) LR 6 QB 597 (QB)
– The law applies an objective test for agreement
A. Objective test: Would the reasonable man conclude from the external circumstances that the two parties
have reached an agreement?
B. A “subjective” test (the opposite of objective) looks at what is actually in the minds of the parties – and then
assesses whether they match.
A. The courts approved the objective test in the following case: Smith v Hughes (1871) LR 6 QB 597 (QB) –
a farmer showed a sample of oats to the agent of a racehorse trainer who agreed to buy a much
altogether amount of these oats. The racehorse trainer thought he wasy buying old oats (racehorses are
obviously a discerning breed and prefer their oats mature and he refused to pay the price when he
received new oats. The farmer denied that any reference had been made to the quality of the oats Would
the court find that the parties were consensus ad idem? (Remember that the result would be a valid
contract and the buyer would be required to pay otherwise breach of contract!) The Court of Appeal
thought that an objective test should apply to the question. How would a reasonable person put in the
position of the buyer have understood what oats the seller was offering to sell?
Blackburn J: “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.”
The Hannah Blumenthal [1983] 1 AC 854 (HL): a term in a contract for the sale of a ship provided that all
disputes should be settled by an arbitrator. The seller claimed that the buyer had agreed to abandon this
contract and the HOL considered what was necessary to create such an agreement to abandon the original
contract, including the method of dispute resolution. None of the law lords condoned a purely subjective
approach and Lord Brightman thought it was necessary for “the buyers to so conduct themselves as toe
entitle the sellers to assume… that the contract was to be abandoned”. This means that the courts stand in
the seller’s shoes and asked what a reasonable person would have concluded from the events i.e. took on
an objective test for agreement where a reasonable man would look at the buyer’s conduct through the
seller’s eyes.
Difficulty with this approach is deciding how many of the party’s actual characteristics the reasonable man
should adopt when he steps into their shoes – if the reasonable man doesn’t take on any characteristic
then the view will be that of a detached reasonable man, a fly-on-the-wall perspective – if he takes on too
many of the parties characteristics and thought = no objective at all = subjective where there is a danger
that the reasonable man will become the actual party
Centrovincial Estates plc v Merchant Investors Assurance Co. Ltd. [1983] Com LR 158 – objective test.
Contract for a lease, which provided that the rent should be set at “the then current market rental value of
the demised premises”.
The courts looked at the: THE PARTIES’ CORRESPONDENCE: 22 June 1982: Claimants wrote to the
defendants inviting them to consent that the current rental value was £65,000. The defendants replied by
letter and agreed that this was the current value. However, when they received the letter, the claimants
phoned the defendants and said that their letter contained an error and that the figure that they had
intended to propose was £126,000. The defendants insisted they had a binding agreement for the lower
price.
The claimants were held bound to sell the lease at £65,000.
The reasonable objective observer would have assumed the price was correct, and there was no evidence
that the defendants knew or could reasonably have known of the mistake (exception – can’t enforce a
contract)
, “It is a well-established principle of the English law of contract that an offer falls to be interpreted not
subjectively by reference to what has actually passed through the mind of the offeror, but objectively, by
reference to the interpretation which a reasonable man in the shoes of the offeree would place on the
offer.”
This objective approach will not apply where buyer is taking blatant advantage of the seller’s mistake in
order to “snap up” a bargain (see below).
B. Situations where the courts will take account of the subjective intention of the parties:
i. One contracting party is aware (or ought to have been aware) that the other party has made a mistake.
In this instance the courts will look at what is in the minds of the parties in order to determine whether
they did actually agree to the same thing. There will often be no agreement found.
Hartog v Colin and Shields [1939] 3 All ER 566 - Seller offered hare skins at a price “per pound” (weight)
– printing error. Seller actually meant “price per hare skin”. This resulted in an advertised price a lot
lower than that intended by the seller. The court held that the buyer knew the normal market price and
should have been aware of the seller’s mistake. Court held no contract.
How is Centrovincial Estates plc v Merchant Investors Assurance Co. Ltd. [1983] Com LR 158 (above)
different?
ii. One of the contracting parties causes the other to make a mistake: Scriven Brothers & Co v Hindley &
Co [1913] 3 KB 564. The defendant’s was sold tow at an auction when he thought he was bidding for
hemp (tow are the shorter less valuable fibres derived from hemp) The key to this case is the reason
why the bidder made his mistake (as opposed to Hartog where the key was the buyers knowledge of the
mistake). The bidder made the wrong bid because the owner of the good had marked both the tow and
hemp with the same shipping mark (in order to defraud his bank – to do with insurance and misleading
the insurer over the value of good carried) and he because confused as to which lots were hemp and
which were tow. After the bidder realised his mistake, he refused to pay and the owner of the tow sued
for the price. Objectively there appeared to be an agreement for the sale of tow because it was
reasonable to assume that the bidder knew what he was bidding for i.e. when the bidder made his bid it
appeared as though the was bidding for the goods being auctioned (tow). Fact that the bidder meant to
bid for hemp was usually be irrelevant but Lawrence J refused to enforce the objective agreement
because the owner had negligently caused the bidder’s mistake.
What do we mean by “offer” in law?
Lawyers are wordsmiths! When we are analysing the facts of a legal problem, we look at the
communications between the parties to determine their legal effect. What words are used? You will see
from the legal definitions; the words must convey a very precise meaning to be an “offer”. But what
“intentions” are we looking for? “MEETING OF THE MINDS” (consensus ad idem). Has to be
COMMERCIALLY WORKABLE
Definitions:
“An offer is a clear expression of an unequivocal willingness to be bound upon the offeree’s
acceptance.” N.Andrews, Contract Law (CUP, 2011), p.39.
A legal “offer” should be distinguished from merely providing information, e.g. about the thing to be sold:
Harvey v Facey [1893] AC 552 PC (consider and then dismiss it?) one of the parties approached the
other and said how much would want if you wanted to sell your farm to me. Replied back – I would take
£1000 = statement was taken advantage by the other party where he stated that he accepted it. Court
said this wasn’t an offer but was answering to a request of information = not an offer.
An offer must be distinguished from an “invitation to treat” (preliminary negotiations)
EXAM TIP: Make sure you fully understand and are prepared to explain whether something is an offer or an
invitation to treat, and the legal implications of this.
An invitation to treat is only an expression of willingness to receive offers, i.e. willingness to negotiate. It
cannot be “accepted”. It is not an offer in itself.
An invitation to treat may lead to the other party to make an offer which is capable of being accepted by
the person who issued the invitation to treat.
(So examine the facts of a question and analyse the various communications very carefully in order to explain
their legal effect).
So how do the courts identify whether a communication is an offer or an invitation to treat? Remember that
an “offer” must reveal an intention to be bound contractually by it, once accepted.
Therefore, the statement must be sufficiently specific in its terms, e.g. price, and it must be commercially
workable as an offer capable of acceptance, e.g. not a statement made to the public at large with an
unlimited number of potential “acceptances” and therefore contracts!
a) Advertisements
These are generally presumed to be invitations to treat and not offers. Otherwise the seller would have a
contract with everyone who accepts.
Partridge v Crittenden [1968] 1 WLR 1204: Advert in a magazine for sale of birds: Held to be an invitation
to treat. Otherwise, there could have been large numbers of people “accepting”: i.e. commercially
unworkable.
EXAM TIP: BUT there is no fixed rule but it depends on the facts and circumstances of each case and the
interpretation of the advert.
, Lefkowitz v Great Minneapolis Surplus Store Inc. (1957) 251 Minn. 188, 86 N.W.2d 689 (Supreme Court of
Minnesota) (opposite of Patridge v Crittendon). Advert: “3 fur coats for $1 each: first come – first served”
(limited number of people = commercially workable). This was an offer. The terms were certain and
potential acceptances (i.e. contracts) were limited to the first three customers.
b) Displays – generally held to be invitations to treat
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd. [1952] 2 QB 795, 802
(Lord Goddard CJ): Items were displayed on the shelves of the shop = invitation to treat, offer when the
customer presented the item at the till which offer is accepted by the till staff.
Fisher v Bell [1961] 1 QB 394: Display of knife in shop window was no offer. At the time it was a criminal
offence to “offer” flick knives for sale. Shopkeeper displayed knife in shop window. Held to be an invitation
to treat not an “offer”.
c) Note also the following situations (which we will not cover in lectures).
i. Transactions by machines: Vending machines, self-service petrol stations etc. These amount to an
offer. Thornton v Shoe Lane Parking Ltd. [1971] 2 QB 163, in order to get into the defendant’s multi-
story car, park a driver ah to drive up a ramp, pay his money and take a ticket from a machine. Lord
Denning MR said that the contract was concluded at this point and any notice of terms on the ticket
came too late. The reason behind this strict approach to timing is that, unlike the situation where one is
dealing with another person rather than a machine, the driver “may protest to the machine, even swear
at it, but it will remain unmoved. He is committed beyond recall”
ii. Auctions: It is an offer if made without a reserve price:
Warlow v Harrison (1859) 1 E&E 309; a horse was offered at auction without reserve.t the claimant bid
£60 and this was followed by a bid of £61 from the owner, to which the auctioneer knocked down (i.e.
accepted). Once the claimant realised that the owner had outbid him he tended his money to the
auctioneer and demanded the horse on the grounds that he was the highest bona fide bidder (owners
cannot make bids in auctions without reserve – otherwise they could easily push the price up to a
satisfactory level). The court of Exchequer Chamber rejected the claimant’s pleas that the auctioneer
was the claimant’s agent (as well as the seller’s)’ in order to complete the contract of sale.
But they held obiter dicta that the claimant could succeed if he changed his plea to allege a breach of
contract by the auctioneer. This means that they thought that the claimant had a good case on the
facts but had pleaded his can incorrectly.
Martin B said that in an auction without reserve the auctioneer himself promises that the item was
knocked down to the owner who was a bona fide bidder. The contract between the auctioneer the
bidder had been approach
Barry v Heathcote Ball & Co (Commercial Auctions) Ltd. [2001] 1 All ER 944. Otherwise it is an
invitation to treat. 2 engine analysers valued at £14,000 each were offered in sale for an auction
without reserve, the highest bidder wo had bid only£200 for each item sued for BOC after the
auctioneer withdrew the goods from the auction.
The CPC found that there was a contract between the auctioneer and the highest bidder for the
auctioneer to sell without reserve to the highest bidder, this was breached where the goods were
withdrawn.
Note that in these cases that because the auctioneer who had broken is contract and he’s not the
owner of the goods, the remedy will normally be a damages claim against the auctioneer rather than
an action against the seller in relation to the specific goods under the contract for sale.
In Harris v Nickerson (1873) LR 8 QB 286, an advert for the auction itself was an invitation to treat.
iii. Tenders: An invitation to tender for a contract, e.g. a construction contract, is normally not an offer:
Spencer v Harding (1870) LR 5 CP 561, but it may be if it says that the highest/lowest bid will be
accepted.
Harvela Investments Ltd. v Royal Trust Co of Canada (CI) Ltd. [1986] AC 207, HL. Inviting tenders may
create an obligation to consider all tenders
The seller for a number of shares invited the claimant the second defendant to make confidential
bids for the shares by 3pmthe following day. The seller offered to sell to the highest bidder who
complied with the set conditions, this displacing the usual presumption that a seller usually invites
the buyer to make an offer. The issue in HOL centred on the construction of the “highest bidder. The
claimant had bid £2,175,000 (fixed bid) and the second defendant £2,100,000/£101,000 in excess of
any other bid (referential bid).
HOL held that the offer to accept the highest d was limited to fixed ids because the intention of the
seller was to devise a process which would ensure a sale of the share, giving each party an equal
chance to purchase them and ensuring that each bid contained the maximum each part was willing
to pay. If referential bids were permitted than a sale might ever happen if both parties made
referential bids. Moreover, a party which made a fixed bid would never be able to win and the bids
would not indicate the absolute maximum each party would be prepared to pay the sellers therefore
breached their obligations owed to the claimant when they accepted the second defendants
referential bid over the claimants fixed bid
Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195.
The council invited tenders to be placed in its letterbox before a set deadline. The claimants placed
their tender in the box before the deadline but it was not collected by the council. The general
presumption applied so that the council made only an invitation to treat and the flight club made an
, offer which was no accepted. However, the council was held to have made an offer to consider all
tenders, which were posted before the deadline. The claimants accepted this offer by positing their
tender before the deadline. The council breached this collateral agreement because it didn’t even
consider the club’s tender.
Identical cross-offers
No contract where two identical cross-offers are made simultaneously: Tinn v Hoffman & Co (1873) 29 LT
271.
EXAMPLE - A: Sends email to B: “I offer to sell you my car for £1000.” B (in ignorance): Sends email to A:
“I offer to buy your car for £1000”.
Responses to an Offer:
1. Rejection``
An offer is “dead” if rejected. The offer can no longer be accepted (unless the acceptance reaches the
offeror before the rejection arrives)
EXAMPLE: A-B: “I offer to sell you my car for £1000.” B-A: “No thank you”. The offer is now DEAD and
cannot be accepted.
Grant v Bragg [2009] EWCA Civ 1228.
2. Counter-offer
Taylor, p.29: “The offeree changes the terms of the offer and bounces it back for the offeror to accept.”
The legal effect of a counter-offer is to reject the original offer: to kill it. The offeree cannot then later
accept the original offer.
Hyde v Wrench (1840) 3 Beav 334; 49 ER 132 = W offered to sell his farm to H for £1000. H responded to
this offer by offering to pay £950. The question was whether this counter-offer rejected the original offer.
HELD: A counter-offer kills the original offer and it cannot later be accepted.
3. A request for information – (different to rejection and counter offer)- no legal effect
A counter-offer should be distinguished from a mere request for information, which does not kill the
original offer. The offeree can still accept it.
EXAMPLE: A-B: “I offer to sell you my car for £1000”. B-A: “Does that include the Satnav?”
Acceptance: The acceptance of an offer creates an agreement.
– Definition of acceptance: IS IT AN ACCEPTANCE?
“An expression, by words or conduct, of assent to the terms of the offer.” Acceptance must be a “mirror
image” of the offer: Acceptance must be an absolute, unconditional and unequivocal agreement to the
terms of the offer.
EXAMPLE: Mirror image - A-B: “I offer to sell you my car for £1000”. B-A: “Fine: You’ll have my cheque
for this amount in the morning”.
– Acceptance and the Battle of the Forms: Whose terms and conditions prevail?
Businesses like to contract on their own terms. They agree on the price and goods, but each says the
agreement is subject to their own terms and conditions.
Butler Machine Tool Co. Ltd. v Ex-Cell-O Corporation (England) Ltd. [1979] 1 WLR 401, Court of Appeal
Seller: offered to sell a machine tool, on their standard terms and conditions (which included a price
variation clause – something that allows a manufacturer to increase the price if the cost of material before
the delivery - £2000 difference). Buyer: accepted, but on their standard terms and conditions (which did
not contain a price variation clause). Seller: returned a tear-off slip on the buyer’s form stating: We accept
the buyer’s order on the Terms and Conditions stated thereon. HELD: The seller made an offer; the
buyers: a counter-offer. The seller’s accepted this by returning the tear-off slip.
Issues of precedent: The majority came to this conclusion applying ordinary Hyde v Wrench principles
(above), i.e. the contract was not formed until the sellers had accepted the buyers counter-offer (of the
machine tool on their terms). Lord Denning attempted a “modernisation” of the offer and acceptance
rules, i.e. a contract had come into existence but it was up to the court to decide on all the circumstances
what the terms were. This would lead to commercial uncertainty.
But all came to the same conclusion on the facts (majority) – agreeing with Hyde v Wrench principle.
– Communication of the acceptance
1. An acceptance is “generally” incomplete until it is communicated to the offeror. Carlill v Carbolic Smoke
Ball Company [1893] 1 QB 256, per Lindley LJ
2. “[A]s a general proposition, when an offer is made, it is necessary in order to make a binding contract, not
only that it should be accepted, but that acceptance should be notified.”
Note that this says “general proposition”: This case established that the offeror may waive the notification
requirement. This can be implied from circumstances.
The rules for communication of acceptance
3. The courts have developed rules to determine whether an acceptance has been communicated. This
depends on the mode of communication used:
Instantaneous;
Non-instantaneous.
Instantaneous communication: Acceptance occurs at the point it is received by the offeror.
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