Contract Law – Course Summary
TOPIC 1: OFFER AND ACCEPTANCE
Formation of Contracts:
Working on the basis that there are no issues with capacity, there are three key elements to the
formation of a contract:
o Agreement (offer+acceptance):
Offer: ‘offeror’: person who makes the proposal; ‘offeree’: person it’s made to.
Two requirements: (1) willingness to be bound; (2) certainty of terms.
Acceptance: unqualified assent to the terms of the offer.
Law normally requires the acceptance to be communicated to the offeror.
Hussey v Horne-Payne: where you have to find your contract, you must take into
consideration the whole of the correspondence which has passed.
o Intention to create legal relations:
Commercial agreements: presumption of ITCLR (rebuttable)
Domestic agreements: presumption of no ITCLR (rebuttable)
o Consideration: in order to be able to hold the other party to the deal, you need to have agreed
to provide “something in return” – contract as an exchange of promises.
Adequacy: parties free to strike deals they want
Sufficiency: whether what is provided in return is the sort of thing the law regards as
being the appropriate subject matter of a bargain at all.
Termination of offer: three main ways:
o Revocation: the offeror takes the offer off the table; *must be communicated
o Rejection: the offeree sweeps it off the table;
o Lapse: it disappears from the table by itself.
Defendants are liable for losses which arise naturally from the breach or are in the reasonable
contemplation of the parties at the time the contract is made.
Offer:
Professor Treitel has defined an offer as ‘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’ (Treitel, The Law of Contract, 13th edn, p 8).
Smith v Hughes: Courts adopt an objective approach to deciding whether there was an agreement
between the parties: they look at what was said and done between the parties, from the point of view
of a reasonable person.
Allied Marine Transport v Vale do Rio Doce Navegacao SA (The Leonidas): 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. **subjective element of test: intention.
Pharmaceutical Society of Great Britain v Boots Cash Chemists: goods on display in
supermarkets/shops are generally regarded as invitations to treat. Offer takes place when goods are
brought to payment point and acceptance when cashier takes payment.
o Patridge v Crittended: advertisements are generally regarded as invitations to treat.
Williams v Carwardine: advertisement of a reward treated as an offer, as there is intention to be
bound when info is given.
Bilateral contracts arise where one party makes a promise in return for a promise from the other party.
Unilateral contract is effectively a promise in return for an act. The commitment is one-sided.
o The promisor is bound to perform if, and only if, the person (or persons) to whom the promise
is made performs the specified act.
o Errington v Errington: as well as the express offer of a unilateral contract there would be an
implied promise not to revoke the offer once the act has started.
o A typical type of unilateral contract is an offer of reward – Williams v Carwardine.
o Carlill v Carbolic Smoke Ball Co: authority for the proposition that an advertisement can
constitute an offer to ‘the world’ (that is anyone who learns of it), and that it may, by the way
in which it is stated, waive the need for communication of acceptance prior to a claim under
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, it. The offer in Carlill was an offer of a particular kind, known in English law as an offer of a
‘unilateral’ (as opposed to a ‘bilateral’) contract.
Auctions:
o According to s 57(2) of the Sale of Goods Act 1979, a sale by auction is complete on the fall
of the auctioneer’s hammer, in which case that is the acceptance.
o The bids are offers which can be withdrawn at any time before acceptance.
o If the auctioneer accepts a bid, a contract of sale is formed between the bidder and the owner
of the goods. The auctioneer acts as the agent of the owner in order to form the contract.
o Barry v Davies: If an auction is advertised as being ‘without reserve’, the auctioneer is
effectively promising to sell to the highest bidder (because there is no reserve price). Such a
promise amounts to an offer of a unilateral contract (ie a promise inviting an act). - * Mr
Barry could not have sued the owner of the machines as he had no contract with the owner.
Tenders: When businesses decide to outsource a function they will invite a number of contractors to
submit written tenders for the job. Generally, such requests for tenders will be invitations to treat and
the tenders will be the offers, which may, or may not, be accepted by the business which has invited
them.
o Spencer v Harding: As a general rule, there’s no obligation on the developer to even consider
the tender, or to award the contract to the cheapest tender, or, for that matter, to do anything
else which might make all the effort worthwhile.
o Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council: The council had impliedly
offered to consider all tenders which were submitted on time in the correct form, and the Club
had accepted this offer by submitting such a tender. CA found implied promise that a tender,
returned on time, would at least be considered.
Termination of Offer:
Revocation: General rule: offer can generally be revoked at any time before acceptance. Once an
offer has been accepted, however, it is irrevocable.
The case of Routledge v Grant decided that an offeror can withdraw the offer at any time before
acceptance. And this applies to offers stated to remain open for a given period of time, and even to
offers described as irrevocable within that specified time.
o Promise to keep offer open for a certain period of time :
Routledge v Grant: such promises are not binding if they are gratuitous promises.
Exception – Mountford v Scott: in paying £1, C had given consideration for the
offeror’s promise to leave the offer open for 6 months.
o Revocation must be communicated to the offeree:
Byrne & Co v Van Tienhoven & Co: notice of withdrawal of the offer must be
communicated to the offeree to be effective.
Carlill v CSB: the best the company could do to revoke the offer in these
circumstances would be to publish a sufficiently prominent notice of withdrawal in
the relevant newspapers – confirmed in Shuey v United States.
o Notice of revocation sent to business during normal office hours: the notice will be effective
on receipt where it is reasonable to expect a member of staff to be available to read a notice of
revocation – The Brimnes.
o Revocation may be communicated by a reliable 3rd party – Dickinson v Dodds: revocation can
be communicated by a reliable third party. Note the third party need not have been authorised
by the offeror to communicate notice of revocation, but must be objectively perceived as
being reliable.
o Revocation of unilateral offers:
Professor Treitel (Law of Contract, 13 th edn, p. 38): The general view is that with
unilateral contracts no obligations arise until the specified act is completed; in other
words, acceptance only occurs when performance is complete.
Harvard Law Review: there are two offers in this situation. In addition to the express
offer, there is an implied promise not to revoke if the specified act is started within
a reasonable time. The acceptance and consideration for the implied promise is the
commencement of the act.
Rejection by the offeree: express or implied
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, o Hyde v Wrench: where the response to an offer suggests something different it will not be an
acceptance, but a ‘counter offer’ and as such an implied rejection of the original offer.
o Stevenson Jacques and Co v McLean: a simple request for information does not affect the
offer.
Lapse of time: If the offer contains an express condition that it will lapse after a specified time, any
acceptance received outside that time limit cannot create a contract.
o In all other cases, an offer will lapse after a reasonable time.
Acceptance:
An acceptance must be a complete and unqualified acceptance of all of the terms of the offer.
The offeree must know of the offer in order to accept (R v Clarke – Australian case).
‘Unqualified’: the acceptance must correspond exactly with the terms of the offer.
Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd: battle of the forms – usually
the last shot wins.
o No guarantee the last shot wins: TRW Ltd v Panasonic Industry Europe GmbH and another
company: the court sided with Panasonic by relying upon Panasonic’s Ts & Cs that prohibited
any contrary terms applying, unless specifically confirmed in writing.
Certainty and Completeness:
o Some agreements are too vague to be contracts: Scammell v Ouston —> “on HP terms” – C
was void for uncertainty: there are many HP terms.
o Sometimes, however, an apparently vague phrase may be given specific content by the courts,
if, looking at all the circumstances (eg trade custom and previous dealings), they are satisfied
that the phrase does in fact mean something to the parties – Hillas v Arcos.
o “Usual conditions of acceptance apply” – Nicolene v Simmonds —> phrase found to be
meaningless, there were no usual conditions of acceptance.
Communication of acceptance: The general rule is that acceptance must be communicated (Entores
Ltd v Miles Far East Corp), and communicated either by the offeree or its duly authorised agent
(Powell v Lee).
o Offeror waives the need for communication in unilateral contracts.
o Felthouse v Bindley: silence does not amount to acceptance.
o Re Selectmove Ltd: CA saw no reason in principle why offerees should not bind themselves
by silence (eg by saying something like ‘If you don’t hear from me, assume I accept your
offer’).
Acceptance by post:
o An exception to the rule in Entores is the postal rule. – Adams v Lindsell: a letter of
acceptance which is posted is complete on posting and the contract will be formed at that
point.
o Limitations to the postal rule: (1) it only applies to acceptances; (2) it only applies where it
was reasonable for the acceptance to be sent by post; (3) letter must be properly stamped,
addressed and posted; (4) rule can be excluded by the offeror (expressly or impliedly) –
Howell Securities Ltd v Hughes.
o The postal rule will not apply if the offeror stipulates that he needs to be notified of
acceptance – Holwell Securities (‘notice in writing’)
o Retraction of postal acceptance : A strict application of the postal rule would mean that
retraction of acceptance is clearly impossible.
o The postal rule can still apply even if the acceptance is lost in the post - Household Fire
Insurance v Grant (1879).
Acceptance by electronic communication:
o Entores v Miles Far East Corp: acceptance took place where it was received.
o By analogy to The Brimnes: a telexed acceptance will be effective when it would be
reasonable to expect the recipient to have read it, even if it is not read until a later time.
Intention to create legal relations:
Domestic and social agreements: presumption that there is no ITCLR – Balfour v Balfour.
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, o Presumption is rebuttable – Merritt v Merritt. Factors relevant to rebut presumption: (a)
consideration; (b) parties are not in good terms; (c) formal agreement in writing.
Commercial agreements: strong presumption parties intended the agreement to be legally binding –
Edwards v Skywards.
o Presumption was rebutted in Rose and Frank Co v Compton Bros.
Capacity:
Capacity is the legal power to make a contract.
Occasionally, a contract will not bind a party because the party lacked the necessary capacity or power
to make a contract.
o Main categories of people whose capacity is limited by law: minors and people with a mental
incapacity.
Minors: not bound by contracts they have entered into. Exceptions:
o contracts “for necessaries”, defined under the Sales of Goods Act 1979 as goods ‘suitable to
the condition in life of the minor and to his actual requirements at the time of sale and
delivery.
o Contracts of service which are on the whole beneficial to the minor (ie apprenticeship) –
Proform Sports Management Ltd v Proactive Sports Management.
Mental incapacity: covers persons suffering from mental impairment and those who are drunk when
the contract is made.
o Contracts made with someone in either state will be valid unless, at the time the contract was
made, the person was incapable of understanding the nature of the transaction and the other
party knew that to be the case.
o In such cases, the contract will be voidable.
Corporations: A corporation is treated by the law as having a separate legal identity from the person,
or persons, who constitute it. - An unincorporated association, such as a club, is not a competent
contracting party.
A registered company can be bound by a contract outside its stated range of activities
provided the other party acted in good faith.
TOPIC 2: CONSIDERATION: PRIVITY, AGENCY AND CAPACITY
Consideration:
Currie v Misa: A valuable consideration, in the sense of the law, may consist either in some right,
interest, profit or benefit accruing to the party or some forbearance, detriment, loss or responsibility,
given, suffered or undertaken by the other.
Adequacy and Sufficiency:
Chappell & Co Ltd v Nestlé:
‘Consideration need not be adequate’ means that the consideration does not have to
adequately reflect the value of the promise in return for which it is given.
‘Consideration must be sufficient’ means that the consideration must have some
value.
White v Bluett: a father promised not to enforce a debt against his son, on condition that the
son stopped moaning about the distribution of his father’s property. The court decided that the
son had not provided consideration for the father’s promise.
Hamer v Sidway: William had promised his nephew that if he would stop drinking alcohol,
smoking, swearing and gambling until he was 21 years of age, William would pay him
$5,000. —> Held: The nephew had a legal right to do all the things he abstained from doing.
He had abandoned that right in consideration of the promise of $5,000 and the court was not
prepared to speculate on the effort which had been required to give up the various activities.
Past Consideration:
General rule: Past consideration is not good consideration – Roscorla v Thomas.
Exception: occasionally past consideration will be good consideration. 3 conditions:
1) the act must have been done at the promisor’s request (Lampleigh v Brathwait); and
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