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The Law of Contract

Elements of a Contract
Offer and Acceptance

Lecturer: Shirley-Ann Eaton

 Concept of a Contract
A contract is an agreement which legally binds
the parties.
There must be:
1. An agreement which is made as a result of an offer
and acceptance;
2. An element of value known as consideration
(although a gratuitous promise is binding if made
by deed) in the agreement
3. An intention to create legal relations by the parties

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 Elements of a Contract
Offer and Acceptance
Consideration
Terms of Contract
Vitiating Factors
Discharge of Contract
Remedies for Breach of Contract
Agency
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 Offer and Acceptance
In order to determine whether it is
reasonable to infer the existence of an
agreement, Court examines all the
circumstances to see if one party (the
offeror) may be assumed to have made a
firm offer and if the other (the offeree)
may be taken to have accepted that offer.

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 Offer

An offer is a definite
promise to be bound
provided that certain
specified terms are
accepted.
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 Offer
An offer must be:
1. definite in substance
2. communicated in writing, orally, or by
conduct (but there are exceptions)
3. made to a person or a group of persons

or the public at large

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 Offer
Offer must be definite-cannot be vague e.g. where
offeror promised to pay a further sum for a horse
if it was lucky: Gunthing v Lynn
But vague offer can be made certain by implying
terms or by reference to previous dealings within a
trade as in Hillas v Arcos where a contract for the
sale of timber of fair specifications between
persons in the timber trade was upheld

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 Offer
Offer must be communicated in writing, oral, or
inferred from conduct, but some contracts:
must be by Deed e.g. conveyance or transfer of a
legal estate in land
must be in writing e.g. bills of exchange such as
cheques and promissory notes
must be evidenced in writing e.g. a contract of
guarantee must be evidenced in writing although
the contract itself may be oral

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 Offer
A plaintiff must prove the presence of a
definite offer made to a particular person or
to the public at large as illustrated in the
case of Carlill v Carbolic Smoke Ball Co
where an offer was held to be made to the
public at large

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 Offer
The defendants who were the proprietors of a
medical preparation called The Carbolic Smoke
Ball, published advertisement in which they offered
to pay 100 to any person who caught influenza
after having used one of their smoke balls in a
specified manner for a specified period. They added
that they had deposited 100 with their bankers to
show their sincerity. The plaintiff on the faith of
the advertisement, bought and used the ball as
prescribed, but caught influenza. She sued for 100.

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 Offer
The defendants argued that the transaction
was a bet within the meaning of the Gaming
Act, that it was an illegal policy of
insurance, that the advertisement was a
mere puff never intended to create a
binding obligation, that there was no offer
to any particular person, and even if there
were, the plaintiff had failed to notify her
acceptance
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 Offer
The Court of Appeal held that it was an
offer made to all the world which ripened
into a contract with anybody who came
forward and performed the condition.
Although the offer was made to the world,
the contract was made with that limited
portion of the public who came forward and
performed the condition on the faith of the
advertisement
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 Offer
Offer distinguished from invitation to
treat
Whereas an offer is a definite promise to be bound
provided that certain specified terms are accepted,
an invitation to treat is an indication that the
inviter is willing to enter into negotiations but is
not prepared to be bound immediately. It is an
invitation to another person to make an offer

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 Offer
Accordingly, the Courts have held that there
is no intention to be bound in the case of:
The display of goods for sale-display is invitation to treat-
customer taking of goods is offer and taking of payment by
store is acceptance: Fisher v Bell
Auctioneers request for bids-request for bid is invitation to
treat-bid is the offer fall of auctioneers hammer is
acceptance-until hammer falls bidder may retract bid
Invitations for tenders-does not amount to offer to employ
person quoting lowest price unless tender solicited from specific
group of persons and sets out prescribed clear procedure

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 Offer
Display of Goods for Sale
Fisher v Bell the Restriction of Offensive
Weapons Act 1959 made it an offence to offer for
sale certain weapons including flick knives. A
shopkeeper who displayed these knives in his
window was found not guilty of the offence, since
although he had displayed the goods, accepted
buyers offers, and sold the goods he had not
offered them for sale, because goods on display
are not an offer to sell, they are an invitation to
treat
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 Offer
Distinction between offer and invitation to
treat illustrated in the case of Gibson v
Manchester City Council.
In November 1970 the council sent to its tenants
details of a scheme for the sale of council houses
giving terms as to prices and mortgages. G
immediately replied, paid 3 administration fee and
forwarded his application.

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 Offer
The City Treasurer replied saying:The corporation
may be prepared to sell the house to you at the
purchase price 2,725 less 20 per cent, 2,180
(freehold). The letter gave details about a mortgage
and went on This letter should not be regarded as a
firm offer of a mortgage. If you would like to make a
formal application to buy your council house, please
complete the enclosed application form and return it
to me as soon as possible

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 Offer
G filled in and returned the form but left the
purchase price blank, saying in a covering letter
that repairs needed to be done and asking the
corporation to lower the price or repair the premises.
The corporation replied that they had taken into
account the state of the property in fixing the price
and they could not undertake to do the repairs.

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 Offer
On March 18, G replied: In view of your remarks
I would be obliged if you will carry on with the
purchase as per my application already in your
possession. In May, Labour took control of the
council from the Conservatives and instructed
their officers not to sell council houses unless they
were legally bound to do so. The council declined
to sell to G and 350 tenants in a similar situation.

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 Offer
The House of Lords held that the City Treasurers
letter of February was at most an invitation to
treat and therefore Gs application was an
offer and not an acceptance.
Lord Diplock in delivering the judgment
noted that the Treasurers reply saying: The
corporation may be prepared to sell the house to
you
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 Offer
If you would like to make a formal
application to buy the house, please complete
the enclosed application form and return it to
me as soon as possible. seems to me,.. To make
it quite impossible to construe this letter as a
contractual offer capable of being converted into
a legally enforceable open contract for the sale of
land by Mr. Gibsons written acceptance of it.
The words may be prepared to sell are fatal to this;
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 Offer
So is the invitation, not, it is to be noted to
accept the offer, but to make formal
application to buy on the enclosed application
form. It is a letter setting out the financial
terms on which it may be the council would
be prepared to consider a sale and purchase in
due course.
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 Termination of Offer
Offer may be terminated by:
Revocation i.e. withdrawal of the offer
Refusal or Counter Offer
Lapse of time
Failure of a condition subject to which the
offer was made
Death
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 Termination of Offer
Revocation Withdrawal of Offer
A promise to keep an offer open for a fixed
period does not prevent its revocation within
that period but if person buys a promise to
keep offer open for fixed period (i.e. buys an
option to purchase)offer cannot be revoked
without breach of option contract

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 Termination of Offer
Revocation Withdrawal of Offer
Revocation must be communicated to the offeree
and communication by third party is valid
Offer to sell item is withdrawn by implication if
item is sold to another person
Offer consisting of promise to pay money for the
performance of an act cannot be revoked once
performance has commenced

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 Termination of Offer
Revocation Withdrawal of Offer
In Dickenson v Dodd, D offered to sell a house to
P for 800 and the offer was to be left open until 9
am Friday. On Thursday, D sold the house to Mr.
Alan and a Mr. Berry told P of the sale. P
nevertheless wrote a letter of acceptance which he
handed to D before 9 am Friday. The court held
that there was no contract as the offer had been
withdrawn before acceptance, communication by a
third party being valid
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 Termination of Offer
Refusal or Counter Offer
A refusal or counter offer terminates an offer as in case
of Hyde v Wench where D offered his farm to P for
1,000. P wrote saying he would give 950 which D
refused. P then said he would pay 1,000 but D had by
then decided that he did not wish to sell to P. Ps suit
for breach of contract failed as his offer of 950 was a
counter offer which terminated Ds offer of 1,000.
When P purported to accept at 1,000 there was no
offer in existence and therefore no contract was
formed.
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 Termination of Offer
Refusal and Counter Offer
Counter offer must be distinguished from a request
as to whether or not other terms would be
acceptable as request does not, by itself, terminate
an offer. In Stevenson v McLean, D offered to sell
iron to P for cash but P wrote and asked for a
months credit. It was held that the inquiry was
not a counter offer but a request for information
and thus did not terminate Ds offer.
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 Termination of Offer
Lapse of Time
An offer will terminate at the end of the period
stated in the offer, or if no period is fixed, it will
terminate after a reasonable time
In June 1864 D offered to take shares in Ps hotel
and P did not reply to this offer. In November he
allotted shares to D, which D refused to take. It
was held that the refusal was justified since Ps
delay has caused Ds offer to lapse:Ramsgate
Victoria Hotel v Montefiore
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 Termination of Offer
Failure of a condition subject to which offer made
In Financings Limited v Stimson, D who wished to
purchase a car signed a hire purchase form on March 16
which was the offer. The form stated that the agreement
would only be binding when the finance company signed
the form. On March 24 the car was stolen from the dealers
premises and recovered badly damaged. On March 25 the
finance company signed the form. It was held that D was
not bound to take the car as there was an implied condition
in Ds offer that the car would be in substantially the same
condition when the offer was accepted as when it was made

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 Termination of Offer
Death
Termination of offer is dependent on who dies
If offeree dies, the offer lapses
If offeror dies, the offer lapses if offeree
knows of the death at the time of his
purported acceptance, or if contract requires
personal performance by the offeror e.g
playing in an orchestra
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 Acceptance

An acceptance is a final
and unqualified assent
to all the terms of the
offer
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 Acceptance
There must be proof of an offer to enter into
legal relations upon definite terms which
must be followed by the production of
evidence from which the courts may infer
an intention by the offeree to accept the
offer.The rules to be applied by the courts
may be placed under two heads: (a) the fact
of acceptance, and (b) the communication
of acceptance
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 Acceptance
Acceptance may be in writing, or oral, or may be
inferred from conduct e.g dispatching goods in
response to an offer to buy.
But inferring assent from conduct and fixing the
precise moment the assent may be said to emerge
is difficult, particularly when negotiations between
the parties may have covered a long period of time
or are contained in protracted correspondence.

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 Acceptance
In Brodgen v Metropolitan Rly Co. B had for
years supplied the defendant co. with coal. The
parties decided to regularise their relations and the
cos agent sent a draft form of agreement to B.
B inserted the name of an arbitrator in a space
which had been left blank for this purpose, signed
it and returned it, marked approved

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 Acceptance
The cos agent put it in his desk and nothing
further was done to complete its execution.
Both parties acted thereafter on the strength
of its terms, supplying and paying for the
coal in accordance with its clauses, until a
dispute arose between them and B denied
any binding contract

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 Acceptance
The House of Lords held that a contract came
into existence either when the company ordered
its first load of coal from B upon the terms in
the agreement or at least when B supplied it.
It could not be argued that the return of the draft
was an acceptance since B by inserting the name
of an arbitrator had added a new term which the
co. had no opportunity of approving or rejecting.

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 Acceptance
But assuming that the delivery of the document by B
to the co. with the addition of the arbitrators name,
was a final and definite offer to supply coal on the
terms contained in it, when was that offer accepted?
No further communication passed between the parties,
and it was impossible to infer assent from the mere
fact that the document remained without remark in the
agents desk. On the other hand, the subsequent
conduct of the parties was explicable only on the
assumption that they mutually approved the terms
of the draft.
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 Acceptance
Similarly in complex commercial contracts
resulting from lengthy negotiations, it can
be difficult to say when an offer has been
made and accepted as any draft agreement
may go through several changes. In the
event of a dispute the court will need to
look at all the correspondence and take oral
evidence to decide, on an objective basis,
what was agreed by the parties.
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 Acceptance
In Trentham v Architel Luxfer, P, the main
contractors on a building contract, entered into
negotiations with D, who were subcontractors, to
supply and install doors and windows. After D had
completed the work and been paid, P tried to claim a
contribution from D towards a penalty they had
incurred under the main contract. D argued that no
contract existed because although there had been
various telephone calls and letters there was no
matching offer and acceptance, nor any agreement as
to whose standard terms would govern the contract.
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 Acceptance
The Court of Appeal held that there was a contract
and that the approach to the issue of formation
should be objective ( that is, it does not take into
account subjective expectations and unexpressed
reservations of the parties) and a precise match of
offer and acceptance is not necessarily required
where a contract is alleged to have come into
existence, during and as a result of, performance.

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 Acceptance
The Court further held that where a
contract comes into existence, during and
as a result of performance it will often be
possible to hold that the contract impliedly
and retrospectively covers pre-contractual
performance.

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 Acceptance
This case is important as:
i. it weakens the dominance of the offer and
acceptance approach to contract formation and
revives view that court should look at the
correspondence as a whole and the conduct of the
parties;
ii. it recognises that where work is done before any
formal agreement is reached, that work will
generally be regarded as covered by the agreement,
that is, it will have a retrospective effect

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 Acceptance
Acceptance must be unqualified and must
correspond to the terms of the offer. Accordingly:
i. a conditional assent whereby offer is accepted subject to
contract is insufficient e.g. a person may be satisfied with
the general details of a proposed transaction, but feels that
expert guidance is required before committing herself to a
binding obligation and thus makes acceptance conditional
(subject to contract) upon the advice of a third party, such
as an attorney-at-law. The result is that neither party is
subject to an obligation. This approach is common in the
purchase of land.

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 Acceptance
ii. A counter-offer is therefore insufficient and
causes the original offer to lapse as in Hyde v
Wench above (where D offered to sell P his farm for
1,000 and P wrote saying he would give 950. D
refused and P then said he would pay 1,000 after all. D
by now had decided that he did not wish to sell to P. P
sued for breach of contract. The court held Ps offer of
950 was a counter-offer which terminated Ds offer of
1,000 and thus when P purported to accept at 1,000
there was no offer in existence and therefore no contract
was formed)

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 Acceptance
The Communication of Acceptance General Rules
Acceptance is not effective until communicated to
and received by the offeror.
For example, if acceptance is not received because
of interference on a telephone line, or because the
offerees words are too indistinct to be heard by
the offeror, there is no contract

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 Acceptance
Acceptance must be communicated by the offeree or by
someone with his authority
For example in Powell v Lee, P applied for the post of
headmaster, was interviewed and selected by resolution of
the managers who did not make any arrangements for
notifying him. One of the managers, without authority
informed P that he had been appointed but the managers
subsequently re-opened the matter and appointed another
candidate. P failed in his action for breach of contract as
the acceptance had not been properly communicated to
him

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 Acceptance
The method of communication may
expressly or impliedly be prescribed by the
offeror, but there will be valid acceptance if
the offeree adopts an equally expeditious
method unless the offeror has made it clear
that no method other than that prescribed
will be adequate.

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 Acceptance
In Entores Ltd v Miles Far East Corp. the
plaintiffs who were a London company telexed an
offer to the defendants, who were an American
corporation with agents in Amsterdam, to buy
goods from them. The defendants accepted the
offer by telefax. The plaintiffs then alleged that
the defendants had broken the contract and wished
to serve a writ on them. This they could do
although the defendants were an American
corporation with no branch in England, provided
that the contract was made in England
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 Acceptance
The defendants contended that they had accepted the offer
in Holland and that the contract had been made in that
country. The Court of Appeal held that the parties were
in the same position as if they negotiated in each others
presence or over the telephone, that there was no
binding acceptance until it had been received by the
plaintiffs, that this took place in London and that a writ
could therefore be issued. So far as telex messages are
concerned, though the despatch and receipt of a message is
not instantaneous, the parties are to all intents and purposes
in each others presence just as if they were in telephonic
communication.
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 Acceptance
A condition that silence shall constitute acceptance cannot
be imposed by the offeror without the consent of the
offeree.
For example, in Felthouse v Bindley, the plaintiff, Paul
Felthouse wrote to his nephew on February 2 offering to
buy his horse at 30.15, and adding, If I hear no more
about him, I consider the horse mine at that price The
nephew made no reply to this letter, but intimated to the
defendant, an auctioneer who was going to sell his stock,
that the horse was to be kept out of the sale. The auctioneer
inadvertently sold the horse to a third party at an auction on
February 25.
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 Acceptance
The plaintiff, Felthouse sued D in conversion ( a tort alleging
wrongful disposal of the plaintiffs property by the
defendant.) Ds defence was that the horse did not belong to
the plaintiff as there was no valid contract between Felthouse
and his nephew, because the condition that silence
constituted acceptance was ineffective. The Court upheld
the defence stating that there was no acceptance of the
plaintiffs offer before February 25, and the plaintiff had,
therefore at that date, no title to maintain conversion.
The uncle had no right to impose upon the nephew a sale
of his horse for 30.15 unless he chose to comply with the
condition of writing to repudiate the offer.

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 Acceptance
Acceptance is not effective if communicated in
ignorance of the offer, however if a person knows
of the offer, the fact that he has a motive for
acceptance, other than that contemplated by the
offeror, does not prevent the formation of a
contract
There is no contract if two offers identical in terms
cross in the post. Although there is consenting
minds there is no acceptance e.g. A offers to sell
his car to B for $500 and B offers to buy As car
for $500
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 Acceptance
Sealed Competitive Bids
Where it is intended to make a contract by
means of sealed bids, a submission by one
bidder of a bid dependant on its definition
on the bid of others is invalid. This rule is
illustrated in the case of Harvela
Investments v Royal Trust Company of
Canada
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 Acceptance
Royal Trust ( a seller of shares) by a telex dated 15
September agreed to accept the highest bid made
by Harvela or Ousterbridge. Harvela bid Can.
$2,175,000. Ousterbridges bid stated that they
offered Can.$2,100,000 or $101,000 in excess of
any other offer which was received whichever
was higher. On 29 September Royal Trust telexed
Ousterbridge stating that in the circumstances they
were bound to accept their offer. Harvela objected
and commenced an action.
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 Acceptance
The House of Lords had two issues to
decide:
i. Was the status of the telex of the 15
September such that a contract had been
formed between Royal Trust and Harvela?
ii. Was there a second contract (as claimed
by Ousterbridge) as a result of the telex of
the 29 September?
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 Acceptance
The House of Lord held that the telex of 15
September was not an invitation to treat but a
unilateral offer conditional upon the happening of a
specified event. Such an event could only be done by
one of the promisees, not both. Since the intention,
was to create a fixed bidding sale, the Court rejected
Ousterbridges referential bid and held that a
binding contract existed between Royal Trust and
Harvela. Any other decision would recognise a
means by which sealed competitive bidding could
be wholly frustrated
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 Acceptance
With reference to the second contract, the
Court held that no such contract had
been formed because there was no
intention on the part of the parties. Royal
Trusts only intention, manifested in the
telex of the 28 September was to perform
the legal obligation that it mistakenly
thought it had incurred.
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 Acceptance
Communication of acceptance - Exception
Unilateral contracts
contracts where offer consists of promise to
pay money in return for the performance of
an act. Performance of the act is sufficient
acceptance but consideration is not
complete until performance has finished

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 Acceptance
Communication of acceptance - Exception
Postal Rules
Where the parties contemplate acceptance by post,
acceptance is complete when the letter is posted,
even if the letter is lost in the post
But if the letter is lost or delayed in the post
because the offeree addressed it incorrectly, the
post rule will not apply

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 Acceptance
Communication of acceptance - Exception
The post rule applies to telegrams (but
where communication is instantaneous e.g
telephone, fax, or telex, the general rule
applies)
Posted means put in the control of the
post office in the usual manner and not e.g.
handing it to the postman
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 Acceptance
The parties may decide to exclude the operation of
the post rule by contrary agreement e.g. in
international sales, where the possibility of delayed
communication is much greater.
The post rule will also be excluded if it is clearly
inconsistent with the nature of the transaction
and/or the words used by the parties
In Holwell Securities v Hughes, D granted P an
option to purchase land to be exercised by notice
in writing.
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 Acceptance
A letter exercising the option was lost in the
post. It was held that the words notice in
writing meant that the notice must actually
be received by the vendor

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