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Summary Contract Formation - Offer and Agreement
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Topic 1 of Contract Law. Covers foundational topics of contract law.
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Offer and Acceptance:Ingredients for a Contract in English Law:
Agreement: terms of the contract are agreed to in principle
Contractual Intention: the intention to create a legally binding relationship
Consideration: something given or done in return for a promise
Formality: the contract must be in writing and is needed in a minority of cases.
An offer and acceptance is needed for a contract, suggesting there is an agreement between
the parties. This requirement suggests the intentions of the parties determines whether a
contract is formed/the contents of it. This is almost intuitive, with Burrows (1983) and Birks
(1983) commentators on this.
‘An offer is an expression of willingness to contract on certain terms, can be made to anyone
from an individual to the world at large, and may be made expressly or by conduct’ (Treitel).
When ascertaining whether a contract has been formed, it is easier to look at the appeared
intentions of the parties were to each other, rather than actual intentions – the principle of
‘objective intention’. Thus, a party may be bound by a contract even if it is the last thing they
intend (RTS Flexible Systems Ltd v Molkerei Alois Muller BmbH & Co KG (2010)), ‘whether
there is a binding contract… depends not upon their subjective state of mind, but upon a
consideration of what was communicated between them by words or conduct’.
Remedies may be given to one party when the other breaches a contract term, despite
neither party agreeing to such remedies. Self-made, through the active will of relevant
parties involved, there is also a framework to bring legally binding obligations into existence,
so security is provided in everyday life. If broken, a party is liable and can be sued.
Sovereignty of parties means subject to contract: there will not be a legally binding contract
until/unless one final document has been agreed and reduced to writing and signed.
The principle of Objective Intention:
Objective intention is referred to as being when ‘words are to be interpreted as they were
reasonably understood by the man to whom they were spoken, not as they were
understood by the man who spoke them,’ Spencer (1973).
Moran v University of Salford (1993)
The University sent a letter to Mr. Moran offering him a place on the physiotherapy course, which
was accepted. However, the university claimed the offer was a clerical error, but the Court of Appeal
ruled there was at the very least a strong claim a contract had been formed, as the apparent intent
of the University from Mr. Moran’s point-of-view was one of offering him a place for physiotherapy.
Raffles v Wichelhaus (1864)
The parties agree to the sale of 125 bales of cotton, to be delivered from Bombay on the Peerless
ship. Two ships had the same name at Bombay, one party thought the agreement referred to the
October ship, whereas the other thought it was the December ship. The claimant brought an action
for the price, and it was held that the ambiguity of the agreement gave a defence. It was not
possible to work out the apparent intent of the defendant, so the objective principle did not apply,
and the court had to look instead at the actual intent of the parties. If actual intentions were
different, there would be no contract.
,Scriven v Hindley (1913)
Claimant selling bales of hemp and tow at auction. The defendant had bid for the tow, when he had
intended to bid for the hemp, but the claimant did not make clear which bales were hemp and which
were tow. The court held there was no contract for the sale of the tow, as the defendant’s intention
to buy the hemp did not coincide with the claimant’s intention to sell the defendant the tow, so
there was no contract.
Maple Leaf Macro Volatility Master Fund v Rouvroy (2009)
The claimants and defendants sign a termsheet for the claimant providing funding on specified
terms to the defendants. The claimants claimed a contract had come into existence on signature,
but the defendants denied this, claiming they did not believe signing the termsheet gave rise to a
contract, as they believed it was merely the first step in negotiating a more detailed written
agreement. The court held that whilst the defendants did not actually intend to enter into the
contract on signature, this was irrelevant, as it would have appeared to the reasonable observer that
a contract was being concluded.
The law of contract regards the external manifestation as opposed to what the person is thinking –
actual rather than intended intentions.
What is an agreement?
‘Agreement’ needs to be externally discernible (for a court), with the meeting of minds/coincidence
of views (ad idem) insufficient for contract law as agreement. An agreement is a prolonged
negotiation until it becomes an agreed text, often signed (complex, high-value commercial contract).
During negotiations there are no obligations, but at conclusion becomes legally binding, and a party
cannot unilaterally withdraw from the contract.
For example, Gibson v Manchester City Council [1978] 1 WLR 520, reversed [1979] 1 WLR
294 saw that if the negotiation phase had passed to the commitment phase with a binding
contract, the property would be sold. The Court of Appeal ruled there had been a contract
for the sale and purchase of the house. The House of Lords reversed the decision, ruling on
the side of Manchester City Council.
Distinction between unilateral and bilateral contracts:
● Bilateral contract: there is an exchange of promises, with reciprocal obligations, and only
this contract type grants both parties rights (sometimes called a synallagmatic contract)
(e.g., contract of sale of goods).
● Unilateral contract (‘if’ contract): there is a promise in return for performance of an act,
with an obligation on one side only. The person performing the act cannot be sued if they
change their mind and fail to perform the act. There cannot be a breach of contract when
there is no obligation.
To determine whether a contract is bilateral or unilateral, whether both parties are promising to do
something or not is what needs to be looked at. However, many large commercial transactions could
be analysed as unilateral contracts. In the dissenting opinion, Arden LJ suggested in Wells v Devani
(2016) that estate agency contracts are best described as unilateral as the estate agent is not bound
, to find a purchaser, but if they do, they’d be entitled to a commission. The Supreme Court preferred
Arden LJ’s dissenting opinion, tacitly accepting the unilateral analysis.
Is there an Offer?
An offer has two main features: it indicates that the offeror intends to be legally bound providing
that the party to whom the statement is addressed takes certain steps, and it contains a promise to
do something, as well as what the offeree must do in return.
Carlill v Carbolic Smoke Ball Co (1893)
The defendants issued an advertisement stating:
‘£100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts
the increasing epidemic influenza, colds, or any disease caused by taking cold after having
used the ball three times daily for two weeks according to the printed directions supplied
with each ball. £1,000 is deposited with the Alliance Bank Regent’s Street, showing our
sincerity in the matter’.
The advertisement also added that one ball would last a family several months, and it would only
cost 10 shillings. Mrs Carlill, the plaintiff, bought a smoke ball and used it as described three times a
day for six weeks, caught influenza regardless, and sued for £100.
The company argued that there was a contract with the claimant also meant that Company had
contracted with everybody in the world. The Court of Appeal’s Bowen LJ dismissed this, saying ‘it is
not a contract made with all the world’. The court held a reasonable member of the public reading
the advert would believe the Company to be bound by the advert terms. An offer demonstrates the
intention of the offeror to be legally bound by the terms of the offer, with an invitation to treat
instead requiring further negotiations before any contract is formed.
However, the distinction is not always clear, for example, goods displayed in a shop window could be
argued to have the shop making an offer to customers, or just inviting the customers to treat (make
an offer themselves).
Invitations to treat:
This is a preliminary communication made to elicit an offer which can be considered. Where
agreement by offer and acceptance, the question may arise whether a communication is an
invitation to treat or offer. Putting goods up for sale by other means:
Grainger v Gough:
House of Lords held a catalogue was an invitation to treat and not an offer, because it could
have meant every order catalogued was a binding contract, so to prevent the chaos was to
understand a catalogue as an invitation to treat, with orders as offers. However, a limit on
stock availability will always be present in the circumstances, so
Partridge v Crittenden:
Advert provided was an invitation to treat, with the judgement very similar to Grainger v
Gough.
Carlill v Carbolic Smoke Ball Co:
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