, Contract Law:
Unit 1: Agreement and Contractual Intention
A contract is formed when there is an agreement, contractual intention and
consideration. In order for parties to reach an agreement, one party must make an offer which
is then accepted by the other party
- Lord Justice Goff in Allied Marine Transport Ltd. v Vale do Rio Doce Navegaçao SA; The
Leonidas D. [1985] 1 W.L.R. 925: ‘If the offeror so acts that his conduct, objectively
considered, constitutes an offer, and the offeree, believing that the conduct of the offeror
represents his actual intention, accepts the offer, then a contract will come into
existence’.
Intention to Create Legal Relations:
● The assessment of a parties’ intention is objective (Smith v Hughes)
● For the courts to treat an agreement as binding, the parties themselves must have
intended it to be legally enforceable
● Contract do not have to be formal (e.g. for the contract to be in writing) → oral
agreements are enforceable
Domestic and Social Agreements
For domestic and social agreements (i.e between family members), the presumption is that
there is no intention to create legal relations
Case Law Example:
○ Balfour v Balfour [1919]: a husband working overseas agreed to send maintenance
payments to his wife. The relationship later soured and the husband stopped making the
payments
, - Court held that this was a purely social and domestic agreement and therefore it
was presumed that the parties did not intend to be legally bound
Rebuttal of the Presumption
In order to rebut this presumption, the court will take into account:
a. The consideration involved → either the benefit conferred to the other party or the detriment
suffered by the claimant
- The greater the value of the consideration, the likelier the parties intended legal relations
b. The parties to the agreement are not on good times (e.g. if a couple is separated) → bargaining at
arm's length
c. If it is a formal agreement in writing
Case Law Example:
○ Merritt v Merritt [1970]: separated marriage. Husband signed a written agreement stating
that he would pay his wife £40 a month & in consideration of her repaying the mortgage
on their joint-owned home, he would transfer it to her as sole ownership
- Example of a presumption being rebutted as the agreement was intended to be
legally binding
Commercial Agreements
There is a strong presumption that the parties intended the agreement to be legally binding
(Edwards v Skyways [1964])
An easy way to rebut this presumption, is to explicitly state it in the contract:
○ Rose and Frank Co v Crompton Bros [1925]: an agreement between two parties included
an ‘Honourable Pledge Clause’ which stated that it was not entered into as a ‘formal or
legal agreement’
, Offers:
Defining an Offer
Definition:
Professor Treitel: ‘an offer is an expression of willingness to contract on certain terms, made
with the intention that it shall become binding as soon as it is accepted by the person to whom
it is addressed’
- Confirmed in Allied Marine Transport v Vale do Rio Doce Navegacao SA (Leonidas)
An Invitation to Treat?
An invitation to treat is a statement inviting negotiation (e.g. ‘I am thinking of selling my car, would you
buy it for £7000) → there is NO intention to be bound
● Goods on display in a supermarket are regarded as an invitation to treat. If they were to be held
as an offer, then the customer would be regarded as accepting the offer as soon as they took the
goods off the shelf
Case Law Example:
○ Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953]: The offer to buy and
the acceptance takes place at the payment point → it is only at that point that a binding
contract is concluded
● Advertisements are usually regarded as invitations to treat
Case Law Example:
○ Partridge v Crittenden [1968]: defendant was charged with ‘offering for sale’ a live wild
bird, contrary to the Protection of Birds Act 1954, after publishing the sale in an
advertisement
, - Court held the defendant not guilty as the advertisement was only an invitation to
treat
● BUT: an advertisement of a reward (e.g. cash reward in exchange for information) is considered
an offer → there is an intention to be bound as soon as the information is given
Case Law Example:
○ Carlill v Carbolic Smoke Ball Co [1893]: A manufacturer released an advertisement for a
Carbolic Smoke Ball stating that a reward of £100 would be paid to anyone who contracted
the flu after using the ball 3 times a day for 2 weeks. Carlill sued after getting the flu
despite using the appliance
- Court found the advertisement had been sincere, that it did not matter that it was
addressed to the world (comparable to an offer of reward) and that the wording of
the advertisement waived the need to communicate acceptance
Unilateral Contracts
Unilateral Contract = a promise in return for an act
- This commitment is one-sided → if you do something I promise to ….
● The promisor is only bound to perform if the person to whom the promise is made performs the
specified act (typically an offer for reward)
● The general view is that unilateral contracts carry no obligations until the specified act is
completed → acceptance only occurs when performance is complete
● BUT: some judicial authorities suggest that partial performance of a unilateral contract is sufficient
to prevent revocation by the offeror
Case Law Example:
○ Harvard Law Review (McGovney, 27 Harvard Law Review 644: in addition to the express
offer, with unilateral contracts there is also an implied promise not to revoke if the
specified act is started within a reasonable time
, - Here, the acceptance and consideration for the implied promise is the
commencement of the act
○ Errington v Errington and Woods [1952]: A father bought a house and allowed his son and
daughter in law to live in it, promising that if they paid the mortgage instalments he
would transfer the house to them. When the father died, his widow sought possession of
the house
- Example of a unilateral contract as the couple did not promise to repay the
mortgage, they simply did so
- Court held that the father’s promise was irrevocable, as long as the couple
continued to pay the instalments
Bilateral Contracts
Bilateral Contract = where one party makes a promise, in return for a promise from the other party
- E.g. ‘I promise to sell you my car for £7000 if you agree to buy it for £7000
Auctions: Tenders:
The auctioneer asking for bids is an If a company is outsourcing functions (from
invitation to treat. The bids are the offers. outside contractors), often will invite a number
● The auctioneer offers a unilateral of contractors to submit written tenders for
contract with the bidder to promise to the job
accept the highest bid ● General rule is that invitations to
● According to the Sale of Goods Act, a tender are invitations to treat (Spencer
sale by auction is complete on the fall v Harding). The tenders are then the
of the auctioneer’s hammer → offers
acceptance ○ Blackpool and Fylde Aero Club v
● If the auctioneer accepts a bid, a Blackpool Borough Council [1990]:
contract (bilateral) of sale is formed exception to the rule. The council had
impliedly offered to consider all
, between the bidder and the owner of tenders which were submitted on time
the goods and in the correct form → the Club had
accepted this offer by submitting a
Reserve Price: tender
● The lowest price that the auctioneer - An invitation to tender can
would accept for the lot (can be imply a unilateral contract to
‘without reserve’) → auctioneer must consider all timely bids
accept the highest price → example of a
unilateral contract as there is a
promise to accept the highest bid
○ Barry v Davies t/a Heathcote Ball & Co)
[2000] → Barry was informed that the
auction would be without reserve.
Auctioneer refused to accept his bid
and withdrew the goods from sale
(despite Barry’s bid being the highest).
Barry sued the auctioneer for breach of
contract
Acceptance:
Acceptance = the complete and unqualified acceptance of all of the terms of the offer,
without qualification or addition
● The offeree must know of the offer in order to accept it
○ Australian case of R v Clarke (1927): ‘There cannot be assent without knowledge
of the offer; and ignorance of the offer is the same thing whether it is due to
never hearing of it or forgetting it after hearing.’
Communication of Acceptance
, ● The general rule is that acceptance must be communicated (either by the offeree or its
authorised agent) → Entores Ltd v Miles Far East Corp [1955]
● An offeror can waive the need for communication of acceptance in certain situations
- E.g. in a unilateral contract, the performance of the act can amount to acceptance
○ Carlill v Carbolic Smoke Ball Co [1893]: using the smoke ball in the prescribed
manner was the act of acceptance → company had waived the need for
communication
Silence?
An offeror cannot take an offeree’s silence as acceptance
● Exists to protect an unwilling offeree
Case Law Example:
○ Felthouse v Bindley (1862): an uncle offered to buy his nephew's horse. Provided an offer
for £30.15s and stated that if he did not hear from him, he would consider the horse his.
- The nephew did not respond so the court held that there was no contract between
the uncle and nephew
The Postal Rule
Subject to certain limitations, a letter of acceptance, which is posted, is complete when posted
and the contract will be formed at that point
Case Law Examples:
○ Adams v Lindsell (1818): Adams sent a letter to Lindsell accepting the terms of a contract.
After the letter was posted, but before it had arrived, Lindsell sold the good to a third
party
- Court found that Lindsell had entered a binding contract with Adams as soon as
Adams’ letter had been sent
, ○ In Household Fire and Carriage Accident Insurance Co (Ltd) v Grant (1879): a letter of
acceptance was posted, but never arrived
- The court found that the postal rule applied and that acceptance was valid on
posting
Limitations:
1. Only applies to acceptances (e.g. would not apply to revocations)
2. Only applies where it is reasonable for the acceptance to be sent by post
3. The letter must be properly stamped, addressed and posted
4. The rule can be excluded by the offeror (either expressly or by implication)
Case Law Example:
○ Holwell Securities Ltd v Hughes [1974]: The defendant granted the claimant an
option to buy a house, expressed as being ‘exercisable by notice in writing to [the
defendant]’
- The claimant wrote to the defendant accepting but the letter never arrived
- The offeror stated ‘notice in writing to [the defendant] → the court held that
by using the word notice, the offeror had impliedly excluded the postal rule
Electronic Communication:
● A telexed acceptance is effective when it would be reasonable to expect the
recipient to have read it, even if it is not read until a later time
Continuing Negotiations
● Most people will make it clear that they don’t intend to be held to anything unless and
until they enter into a formal legal agreement
● Occasionally, when people don’t seek legal counsel, parties see themselves as gradually
building up their contract
, ● If issues arise, the parties may disagree about whether they reached a deal at all and if
they did, when it was struck or what its terms were
Case Law Example:
○ Hussey v Horne-Payne (1878): the parties in correspondence had agreed the terms of a
deal for the sale of a property. Two letters, when looked at in isolation, seemingly
demonstrated a contract. BUT no mention of payment by instalments
- Was apparent that at the time when the letters were written, both parties saw the
issue of payments by instalments as part of the deal still to be negotiated
- The Lord Chancellor, Earl Cairns found that a contract must be found by taking
into consideration the whole of the correspondence
Battle of Forms:
A battle of the forms is where 2 businesses who are in negotiation purport to contract on their
own standard terms (Ts & Cs), which are likely to be different
● Often the job of the court to then find the least unsatisfactory solution
● The ‘last shot’ will often win ‘the battle’, although there are some exceptions:
Case Law Examples:
○ TRW Ltd v Panasonic Industry Europe GmbH and another company [2021] → Contract
between English based (TRW Ltd) and German Panasonic. Both companies supplied their
own T&Cs during negotiation, each stipulating that their national courts would have
jurisdiction. TRW included their T&C’s in the purchase order, making it the ‘last shot’
- BUT TRW had previously signed Panasonic’s ‘customer file’ acknowledging that
German law would apply to the contract
- Court sided with Panasonic → signing the customer file overruled the last shot
○ Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979]. Claimant offered
to sell machinery for a price of £75,000. The form said that the claimant’s terms were to
