Formation
Formation of Contract
The question requires a discussion of the law with regard to offer an acceptance. For a contract to be valid it must be:
- a result of a binding agreement between parties
- made with the intention to be legally bound; and
- consideration (sufficient) by both parties must be provided.
Ben needs to be advised that in order for the courts to find that a contract has arisen there must be an offer and an acceptance. This is as- sessed objectively by paying attention to what is said and done by the parties.
1. Offer & Invitation to Treat – Has there been an offer?
The first question to ask is whether an offer has been made, or merely an invitation to treat. An offer is “an expression or 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 ad- dressed” (Trietel). It is different from what is known as an invitation to treat, where one party merely invites offers from another party and which he is then free to accept or reject (Carlill v Carbolic Smoke Ball Company).
In distinguishing an offer from an invitation to treat, the courts will infer an intention to be bound where the (i) terminology used in the proposal is certain (Scammell v Ouston); its (ii) language is definite and consistent with an intention to be legally bound (Storer v Man- chester CC); and (iii) where there is a limit to the number of potential recipients (unless it is the intention of the person to be bound to everyone who accepts).
Generally speaking goods on display and advertisements in newspapers or periodicals that the advertiser has goods for sale are not offers (Fisher v Bell). Neither are catalogues or price lists (Grainger & Son v Gough). The display of these items is merely an invitation to treat; for the customer to offer to buy the goods and which the shopkeeper can accept or reject. The reason for this conclusion is that other- wise the advertiser, catalogue publisher and shopkeeper would be obliged to sell to every person who had accepted such an offer, even where supplies had run out (Partridge v Crittenden) – or alternatively, if the display were an offer, once the shopper selected an article they would have no right to change their mind (Pharmaceutical Society of GB v Boots Cash Chemists). However, in Carlill v Carbolic Smoke Ball Company it was provided that an advertisement did constitute an offer where the defendant clearly intended to be legally bound and was not merely inviting the appellant to make an offer.
An announcement inviting tenders is not normally an offer; unless accompanied by words indicating that the highest or the lowest bidder will be accepted (Harvela Investments Ltd v Royal Trust of Canada). Where there is no offer to contract with the highest or lowest bid- der, but the invitation to tender prescribes a clear, orderly and familiar procedure, it may be an offer to consider all conforming tenders (Blackpool & Fylde Aero Club).
2. Acceptance – Has there been acceptance?
If the contract is bilateral, for acceptance to be valid it must-
- coincide exactly with the terms of the offer; and
- be communicated to the offerer
The requirement that the acceptance coincide exactly with the terms of the offer is summed up in the general rule known as the “mirror image” rule: that the acceptance must be absolute and leave no doubt as to the fact of acceptance, and must correspond exactly with the terms of the offer (Rees v Warwick).
Any acceptance which attempts to vary the terms contained in the offer will be considered as a rejection of the original offer and inter- preted as a counter-offer which is open to acceptance or rejection by the original offeror (Hyde v Wrench). However, merely requesting information or inquiring whether the offerer will modify his terms will not be treated as a rejection of the original offer and the original offer will therefore still be open to acceptance (Stevenson, Jacques & Co v McLean).
3. Has acceptance been communicated?
Acceptance will not be complete unless there is actual communication of the acceptance to the offeror either by the offeree or a third party (Entores Ltd v Miles Far East). An offer can be accepted either in writing, through oral communication or by the conduct of the parties (Brogden v Metropolitan Railway Co – D didn’t express acceptance of amended terms, but still supplied coal), but silence will not suf- fice (Felthouse v Bindley). Where acceptance is sent by post the acceptance is complete once it is posted, even if the letter is never re- ceived (Household Fire and Carriage Accident Insurance Co v Grant) – though the operation of the postal rule applies only when it is reasonably to use the post as a means of communicating acceptance (Henthorn v Fraser); and it may be excluded if the offerer makes actual communication to himself of the acceptance a requirement (e.g. no later than date X) (Holwell Securities v Hughes).
Where the offeror prescribes a particular method of communication, the offeree will not be bound to this mode so long as the mode used was an equally effective acceptance method (Manchester Diocesan Council for Education v Commercial and General Investments) – unless the offeror explicitly states otherwise (Yates Building Co v RJ Pulleyn & Sons).
4. Termination of Offer – Is acceptance effective?
An offer may be terminated by
- revocation
An offer can be withdrawn at any time prior to acceptance (Payne v Cave), but becomes irrevocable after acceptance (Great Northern Railway Co v Witham). For a revocation to be effective, it must be communicated to the offeree (Bryne & Co v Leon Van Tienhoven – the postal rule does not apply) and where the offer was made to the whole world (i.e. an advert in a newspaper) it can be withdrawn by taking reasonable steps (i.e. placing a withdrawal advert in the same newspaper) (Shuey v US). The postal rule does not apply because the revocation must be communicated, but a letter is effective on arrival, even if the offeree refrains from opening the letter (Tenax SS Co Ltd v The Brimmes). The revocation need not be communicated by the offeror – a third party will suffice provided that third party can be reasonably relied upon (Dickson v Dodds).
- by rejection
An offer will held to have been terminated once it has been rejected by the offeree (Hyde v Wrench).
- through lapse of time
If an offer is subject to an express time limit, it cannot be accepted after the expiry of that time – though the offeror could waive this condi- tion and treat the late acceptance as valid if he so wished. If there is no such time limit, then the offer remains open for a reasonable time (Ramsgate Victoria Hotel Co v Montefiore).
- on the occurrence of a condition
An offer may expressly indicate or imply that its continuance is conditional upon the existence of circumstances: for example, if before acceptance to purchase a brand new car, the car is stolen and returned in a damaged condition – the offer will lapse (Financings Ltd v Stimson).
- death
Where the contract is concerned with “personal services”, the death of the offeror or offeree will terminate the contract. If the contract is of a non-personal nature, then it is possible that the executors of the deceased may be able to conclude the contract (Harris v Fawcett).
5. Unilateral Contracts – Are there any rules that mean you should depart from the usual rules of Offer & Acceptance?
A unilateral contract is an arrangement whereby only one party assumes an obligation. It is a promise for an act, and not a promise for a promise, e.g. A offers to pay a sum of money, if B will do, or refrain from doing something without B actually promising to do so (classic example is Carlill v Carbolic Smoke Ball).
Acceptance of a unilateral contract does not need to be communicated to the offer and acceptance is made by the other party’s perform- ance of the act. A unilateral contract cannot be revoked once performance of the act has begun (i.e. once it has been accepted), but it will cease to be binding where the act is left incomplete (Errington v Errington and Woods).