Contract Law Chapters 1-4 PDF

CONTRACT SQE prep 1 INTRODUCTION TO THE NOTES FORMATION OF CONTRACTS 1.1 WHAT IS A CONTRACT? Contract law is a branch of the civil law which regulates be- haviour as between individuals, in contrast to the criminal law which regulates...

CONTRACT SQE prep 1 INTRODUCTION TO THE NOTES FORMATION OF CONTRACTS 1.1 WHAT IS A CONTRACT? Contract law is a branch of the civil law which regulates be- haviour as between individuals, in contrast to the criminal law which regulates the behaviour of society. Therefore remedies in contract law are largely compensatory rather than puni- tive, as found in criminal law. There is no formal definition of a contract in English law, but it can be described as a legally t be binding agreement which imposes duties on the parties, 7 bd no breach of which gives the innocent party a remedy. The 34 al l basic principles of contract law are that the parties must be 72 f in sh 5that d agreement and have intended to be legally bound, and 2 0 7 u rses an this agreement must be supported by consideration, 4- that l co law 5each is, something of value must have been given by 1 -aelements o al ht party to support their agreement. All three of these are required for a valid contract to be formed.3 6 e s t t yrig 4 e p 0 2- i n ter y co 3 d db Exam Tip b -9 n 6 0 RI , a cte Contract formation is3a major 1 R B topic ti te.exam. For tle inrothe 5 , thatpthere any contract question, a be A sure hts arofe the : 1 1 BAlligthree se really is an oabove enforceable contract. r e 02 l r h ur p elements i must be present. f i e nt © 2 Fact s al patterns hictrynytosometimes p greatly em- phasise d some t I h wn of r a elements w to fool you into thinking that ra contract i g o has lbeen o formed, but on closer examina- se you Ution p yr might R I find , al that l d f another element (for example, Co ARB rialsisormissing. consideration) so Remember to check carefully for B t all threee elements. d ma are sh 1.2 TYPES OF CONTRACTS 1.2.1 Simple Contracts A simple contract can be made in any form: written, oral, or through the conduct of the parties. 1.2.2 Contracts that Require Writing Certain contracts are required to be in writing. Examples of these are: Guarantees where A (the guarantor) promises that B will perform their obligations, for example, to pay a debt; 277 CONTRACT SQE prep A contract for the sale or other disposition of an interest NOTES in land; and Consumer credit agreements. Note that contracts made in electronic form (typically con- sumer contracts) will be treated as if they were in writing and will be considered properly executed. 1.2.3 Contracts by Deed A deed is a document which makes clear on its face that it is intended to be a deed. It must be executed by the parties to it in the presence of a witness and ddelivered. t be ‘Delivered’ in this context means that the parties 4 7b to the deed lmust l no have shown their intention to be bound f 7 23 by it. Typically, s ha this is done by including words such 7as 0 5 “Delivered r s e asanaddeed on [date].” Certain contracts must-2 be made ouin a deed s to be enforceable, including: 54 1 ll c law -a o a ht a. Promises 3 6 e Where s t yrig Is Received in Return t Nothing Promises 2 e re coisp received or promised in return -4 wheretnothing 0 can3 be bindinginif they byaare made in a deed. A classic example - is 9a promise n dto make d gift. b e 1 60 BRI le, a tect 53 AR b. t ro. of Land tiConveyance a A , s re p ose of land (which is a transfer of land) must also conveyance r : 1 1 B ightbeamade i f ie 02 l r h urpby deed. nt © 2 s al hic1.2.4 y p e n Contracts by Deed—Longer Claim Period r Id ht wn of w r a e rig o ll fo An important difference between a simple contract and a Us opy BRI ls, a old contract by deed is the time limit in which a claim for breach C AR ria or s of contract can be made. A claim under a contract which is B ate ed not made by deed must be brought within six years from the m ar date of the breach, but a claim under a contract by deed can sh be brought up to 12 years from the date of the breach. This is a reason why some contracts are made by deed even when there is no other reason to do so. 278  CONTRACT SQE prep 2 AGREEMENT—OFFER AND ACCEPTANCE Formation of Contract Elements of Contract d t be 4 7b l l no Offer (promise, undertaking, f 7 23 or commitment s ha with definite and certain 0 r s e and 75 terms communicated to offeree) - 2 u s Agreement AND 54 l l co law 1 a ht -a o 3 e Acceptance 6 t before s rig t ytermination by revocation, 4 rejection, or e p operation of law 0 2- i n ter y co 3 d db b -9 n e 1 60 BRI le, a tect a 53 AR s, tit pBargained-for ro e. exchange of something of legal value 1 B t s ie r: 21 righ are OR r po f 0 l Consideration h u e nti © 2 s al hic ny p Substitute for consideration, such as d t I h wn of r a w promissory estoppel r e r i g o l l fo Us opy BRI ls, a old C AR ria or s B ate eIntent d Presumption of intent in commercial arrangements m ar (but not in domestic/social situations) sh The first requirement for a contract is that there must be a ‘meeting of minds’ between the parties—an agreement. In NOTES almost every case, this arises when one party accepts the other’s offer. Whether an agreement is present will be de- termined by an objective standard; that is, did the words or conduct of the parties manifest a present intention to enter into a contract? 2.1 OFFER An offer creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror. For a com- 279 CONTRACT SQE prep munication to be an offer, it must create a reasonable expec- NOTES tation in the offeree that the offeror is willing to enter into a contract on the basis of all material terms contained in the offer. 2.1.1 Promise, Undertaking, or Commitment For a communication to be an offer it must contain an expres- sion of a promise, undertaking, or commitment to enter into a contract, rather than a mere invitation to begin preliminary negotiations (an ‘invitation to treat’ (see 2.1.4.b., below)). In other words, there must be an intent to enter into a contract. Not all statements made in the course of negotiations will d t be amount to an offer. 7b no 2 34 hall s EXAMPLE 75f7 s e nd - 20 our s a Alfie says to Benjamin,4 “I willl csell lyou w This is very clearly a 15 an offer.al t a my car for £5,000.” 6 e- t to righ -4 3 r es opy 0 2 e nt by c 9 3 i 0 b-COMPARE I a nd ted 16 BR Alfietle , ecBenjamin, “I am thinking of selling my car. I says tto 3 i 1 , pritoissworth t a5 BAR tsreckon e. around £5,000. Would you be interested ie r: 21 righ inaitreat rthat po price?” This falls short of an actual offer: Alfie has f 0 l u hnot psaid that he actually intends to sell his car, and the price enti © 2 s al hic nisyonly a potential asking price. r Id ht wn of w r a e rig o ll fo Us opy BRI ls, a old C AR ria or s 2.1.2 Definite and Certain Terms B ate ed An offer must be definite and certain in its essential terms, m ar that is, the terms must not be too vague, uncertain, or incom- sh plete. The basic enquiry is whether enough of the essential terms have been provided so that a contract including them would be capable of being enforced. The subject matter of the deal must be certain, because a court can enforce a promise only if it can tell with reasonable accuracy what the promise is. So, using the example above, if Alfie says to Benjamin, “I will sell you my car for £5,000”, there is a clear intent and certainty as to which car Alfie is referring to and the price. However, if Alfie says to Benjamin, “I might sell you a car for around £5,000”, there is no certainty that Alfie does in fact want to sell, which car he is referring to, or the price. (See 6.6, below, for more on certainty of contractual terms.) 280  CONTRACT SQE prep 2.1.3 Communication to the Offeree NOTES To have the power to accept, the offeree must have knowl- edge of the offer. Therefore, the proposal must be communi- cated to them. An offer can be made to a specified individual or group, or to the world at large. 2.1.4 Other Communications Which Do Not Amount to an Offer a. Responses to Requests for Information A statement made in response to a request for information will not be sufficient to constitute an offer. d t be 47b l l no f 7 23 s ha EXAMPLE 0 75 r se and 2 ou ws An interested party sends an email to a homeowner 5 4- stating, c “Will you sell me your house? Email lowest cash a 1 price”. The a l t la l homeowner sends an email in response stating, 6 e - to righ “Lowest t cash price for my house is £290,000”.43 es opy The homeowner’s r response would not constitute an0obligation 2- none t y cproperty the owner to sell for the price stated 3 i b is merely b -9 as thenemail d dreply e responding to the requested 1 60 Binformation RI tle, a teand ct is not an offer. 3 i o 1 a5 BAR ts, t e pr se. b. Invitationsrto ie 2 1 righ ar rpo : Treat n f treat An invitationtito 20 cana ch y pu as the first step in the ll behidescribed negotiations e tfor©a contract, w butanit falls short of actually being IdAn an offer. h ns to invitation f er s r e yto party rigmake I w l for is often an invitation to the oth- o o analoffer.treat U op BR ls, old C AR ria or s B ate ed EXAMPLE m ar sh In the example above, where Alfie asks Benjamin wheth- er Benjamin would be interested in buying Alfie’s car for £5,000, Alfie’s question is an invitation to treat. Benjamin may make an offer in response to Alfie’s enquiry, and that offer could lead to further negotiations or acceptance. u Advertisements Most advertisements are treated as invitations to treat rather than as offers. If an advertisement addressed to the general public were considered an offer, the num- ber of acceptances might quickly exceed the number of items for sale. Suppose, for example, that a seller who 281 CONTRACT SQE prep had only five computers advertised computers for sale in NOTES the newspaper. If the advertisement constituted an offer, the seller would be in breach of contract with each per- son who came forward and accepted the offer beyond the five computers available. The advertisement is there- fore an invitation to treat, and an offer to buy is made by anyone who contacts the seller in response to the advert. The seller is then free to accept that offer (or not). u Shop Sales Goods displayed in shop windows or on shop shelves are invitations to treat rather than offers d to sell. The offer t btoe buy is made by the customer when 4 7b the goodsllare notaken to the till point. The offer is2accepted 3 whenhthe a shopkeep- er rings up the sale. 5f7 d s 207 u rses an u Price Lists - co law 1 54 l l Price lists -are e a generally to i ght in the same way as ad- a treated vertisements. One offer,4 6 3the party e st pythe isprice reason issuing r that, if the price list were an list would be obliged to 2- the goods te r co sell 0 in by listed to anyone who accepted the offer 93by placing d - 0b RI might , eand order. annotcthave But the party issuing the price list enough stock. 6 5 31 RB title rote. a A s, e p se r : 1 1 B ight EXAMPLE a r rpo ie 2 r n tif 20 all hichAysupplier pu of vehicle parts publishes a list of prices for parts r Ide ht ©wns of w r anfor BMWs. The price list is an invitation to treat, not an offer. e rig o ll fo If a mechanic places an order for BMW air filters based on Us opy BRI ls, a old the price list, the mechanic’s order is an offer. The supplier C AR ria or s can choose to accept or reject the order. They might want to B ate ed reject it if they were going to find it difficult to obtain enough m ar air filters to fulfil the order. s h u Tenders An invitation to tender is an invitation to interested par- ties to submit bids setting out the terms on which they are prepared to carry out a piece of work. An invitation to tender is not an offer, as the requesting party would be in breach of contract in respect of every submitted tender they did not decide to go with. Rather, the submissions are offers. The requesting party will then consider those offers and pick one to accept. 282  CONTRACT SQE prep EXAMPLE NOTES A retailer needs a new computer system to manage its stock and its sales. It invites IT suppliers to submit bids in which they will describe the goods and services that they are offering and the terms on which they are prepared to supply them. The retailer’s invitation to tender is an invitation to treat, not an offer. The bids submitted by the suppliers are offers. The retailer can decide which offer to accept. u Auctions d t be An auction catalogue is not an offer; it is merely an invi- 47b l l no tation to treat. It is therefore open to the owner of goods23 ha listed in the catalogue and to the auctioneer to withdraw f 7 s lots from a sale prior to the auction. Similarly, an2auction- 07 5 r se and u eer’s request for bids is also an invitation to 5treat. 4- The l co laws persons taking part in the auction make -offers a1 by placing o al ht bids. These offers can be revoked at 6any time until 3 e s t t the y rig hammer falls (see below regarding 2- revocation 4 te op reofcoffers). When the hammer falls, the auctioneer 3 0 has accepted in by the highest offer/bid (as longbas any reserve - 9 d price d has been met). 6 0 RI , an cte 5 31 RB title rote. a A s, p e u Price Quotations r : 1 1 B ight are rpos A quotationt i fie for 2 2 price 0the ll r hicofhgoodspu is more problematic. Whether n a y an de hta©price Iinvitation to squotation ntreat f w aconstitutes is ar n question of an offer or merely fact based on the r rig of eintention w o ll d fodeduced through prior corre- otheaparties, s y U op BR ls, ol I Cspondence. AR teria call It is sunlikely that you will have to make such or in an exam question. aBjudgment d ma are h Exam sTip If there has been a series of communications between the parties, pay attention to the legal significance of each statement. Keep checking until you find an offer and an acceptance (or there are no more communications). For example, say an exam question provides that a seller ad- vertises its goods on the Internet along with a price list. A buyer sees the advert and emails the seller asking about the availability of the seller’s goods. The seller replies that it has plenty of stock. The buyer places an order. The seller then sends the buyer an order confirmation. The 283 CONTRACT SQE prep question might ask at what point the contract is formed. NOTES On these facts, the earliest event that could be an offer is the buyer’s order, so the earliest point at which the con- tract can be formed is when the seller confirms the order, thereby accepting it. c. Exception: Unilateral Contracts Unilateral contracts are special cases in which the analysis is different—in these cases an advertisement does constitute an offer. A unilateral contract arises when the person making the offer (the offeror) promises to do something if the person be receiving the offer (the offeree) does dsomething in t return and the offeree actually does what 4 no 7bthe offeror hasll asked. These contracts are called ‘unilateral’ f 7 23 becauses a one party honly assumes an obligation (for 0 75example, r nd of payment) sea promise a when the offer is made. 2 The other ou party s can choose to accept and become 5 4-bound tol c the w contract a only by perfor- 1 aoffers a l tl mance. These e - are often to rig h (although not always) made to the whole3 6 world, t frequently s py in an advertisement—say, an - 4 advertisement r e promising o 02 c a payment or other reward in return nte by Such for3particular i d itdis clear theadvertisements actions. are treated as b -9 because offers n e offeror intends to be bound. 0 I a t 3 16 BR itle, otec 1 , t pr se. a5 BAR tsEXAMPLES ie r: 21 righ are rpo u tif 20 all hich1) yA pcompany places an advertisement stating that using its en © s face n cream will prevent spots. The advertisement offers to r Id ht wn of w r apay £1,000 to anyone who uses the cream as directed and e rig o ll fo still suffers from spots. The advertisement says that the com- Us opy BRI ls, a old C AR ria or s pany has deposited £10,000 in a bank account to show its B ate ed intent to honour its terms. A customer purchases the cream m ar and uses it as directed, but they still suffer from spots. When sh the customer tries to claim the £1,000, the company refuses to pay. A court is likely to find that the advertisement is an offer which can be accepted by anyone who acts on its terms; satisfying the conditions of the advertisement will be suffi- cient to constitute valid acceptance (see below). 2) A wealthy philanthropist offers to pay £10 million to whoever can build an electrically powered aircraft and fly it around the world. No one is obliged to build such an aircraft, but if someone does actually build one and fly it around the world, then the philanthropist will be obliged to pay them the £10 million. 284  CONTRACT SQE prep 2.2 TERMINATION OF OFFER NOTES An offer cannot be accepted after it has been terminated. An offer may be terminated by an act of either party or by operation of law. 2.2.1 Termination by Offeror—Revocation An offeror may terminate an offer by revocation. A revocation is the retraction of an offer by the offeror. An offeror may re- voke by directly communicating the revocation to the offeree at any time before acceptance (for example, “I revoke my offer of 25th May”). An offer may also be revoked indirectly if d t be the offeree receives: (1) correct information, (2) from a reliable 7b l no source, (3) of acts of the offeror which would indicate to a 2 34 al reasonable person that the offeror no longer wishes to make 7 sh 5f d the offer (for example, after the offeror offers to sell his 20 7car u rses an to the offeree, the offeree is told by a reliable third -party thatco w 54 a the offeror has just sold his car to someone else). a 1 all t l 6 e- t to righ a. Effective When Revocation Received 3 -4be receivedr py esbyothe For a revocation to be effective it must 2 e c offeree. However, the revocation 0 93does not d int to have bybe made directly by the offeror—it can - n d bbe done by a reliable e third party as in our example above. 1 60 BRI le, a tect a 53 AR s, tit pro e. b. Limitationsr:on 1 B ht Power 1 Offeror’s g a re rptoosRevoke e Offers can beifirevoked02 at i n t 2even until acceptance, a lifl rwill there h by the u ichhasy offeror at any time up pbeen a promise not to revoke I dfore ahcertain t © ns w an f period, except in the following circum- e r rig ow ll o for stances: Us opy BRI ls, a old R ria Contract u CCollateral r s A B ate ed o A collateral m ar contract is a distinct contract in which the offereesh gives consideration for a promise by the offeror, for example, not to revoke an outstanding offer. (We shall encounter other types of collateral contract later.) EXAMPLE Amelia offers to sell her farm to Betty for £1 million and promises to keep the offer open for 90 days if Betty pays her £1,000 to keep the offer open. Betty agrees and pays the £1,000. If 30 days later Amelia then revokes her offer to sell the farm, this would be a breach of the separate collat- eral contract. 285 CONTRACT SQE prep u Beginning Performance Under an Offer for a NOTES Unilateral Contract An offer in a unilateral contract becomes irrevocable once performance has begun. It would be unfair if the offeror could withdraw their offer once the offeree has started doing what the offeror has asked them to do. Note that there is still no contract until the offeree has completed performance, so the offeree may withdraw at any time until then. EXAMPLE d t be 4 7b l l no A father buys a house for his son and daughter-in-law, 23 telling them that if they payf7the mortgage instalments, s ha it 75 will be theirs once the0mortgage is s e paid nd This is an offer off. r sa to enter into a unilateral 4 -2 contract c ou because w only the father has promised to 1 5do anything. l l The l a son and daughter-in-law -a anything, o a ht have not promised e gbut they can accept the offer by doing 3 6 the father what s t t has y ri asked. If they start paying the -4 it would r e op 0 2 instalments, n e t y c be unfair if the father could revoke his 3 offer. 9 i b 0 b- I a nd ted 3 16 BR itle, otec 1 a5 BAR tus, tDistinguish—Beginning e p r e. s Performance Under : h r o i f ier 021 l rig h a an u Offer rp for a Bilateral Contract Can Be an Acceptance nt © 2 s al hic ny p e I ht wn of w r a A bilateral contract arises from an offer that can be d r e rig o ll fo accepted by a promise or by performance. In contrast, Us opy BRI ls, a old an offer for a unilateral contract can be accepted only by C AR ria or s performance, as we’ve seen. Provided that the offeror B ate ed has not stipulated a method of acceptance, once the of- m ar feree begins performance, the offer has been accepted sh and thus revocation of the offer becomes impossible for that reason. Note that beginning performance under a bilateral contract has the same effect as beginning performance under a unilateral contract—once performance begins, it is too late to terminate the offer. The rationale is dif- ferent though—beginning performance under an offer for a bilateral contract does not simply make the offer irrevocable; rather beginning performance of a bilateral contract constitutes an acceptance, and a contract has been formed. 286  CONTRACT SQE prep EXAMPLE NOTES A supplier emails a manufacturer offering to purchase 1,000 hammers at £7 per hammer. The offer is construed as an offer to form a bilateral contract because it does not limit the method of acceptance to performance. Therefore, the manufacturer may accept by sending a return email agree- ing to the deal or by shipping the 1,000 hammers. If the manufacturer chooses to accept by shipment, once it begins performance (such as boxing up the hammers for shipment), the contract is formed. d t be 47b l l no 2.2.2 Termination by Offeree f 7 23 s ha An offeree may terminate an offer by rejection—either 7 0 5 ex- r s e and pressly or impliedly, such as through a counteroffer.-2 4 c ou ws 5 l t la l a. Express Rejection a1 a An express rejection is a statement by the 6 - eofferee that t totheyrigh do not intend to accept the offer. Such 3 -4a rejection r s ter- ewill o py 2 e c minate the offer; the offeree cannot 9 int offer 30 acceptd the by isineffec- the - future if the offeree changes btheir mind. n A rejection d tive when received by the6offeror. 0 RI , a cte 5 3 RB title rote. 1 a A s, p se EXAMPLE r: 1 1 B ght are rpo t i fie 202 ll ri ich pu A farmereoffers n © to sell ahis farm to y an interested party for £1 million.I dThehtofferee n f wh toanpay srefuses this amount, saying that e r rig ow ll o for the farm is worth s py RI , a ld only £950,000. A week later, the offeree Uhas CoaAchange alofsmillion. heart s and tries to accept the offer to buy o the farm RBforri£1 o r There is no contract because the B atewas initial offer e d rejected. m ar sh b. Counteroffer as Rejection A counteroffer is an offer made by the offeree to the offeror which relates to the same subject matter as the original offer but differs in its terms (for example, “I’ll take the house at that price, but only if you paint it first”). A counteroffer is both a rejection of the original offer and a new offer. It terminates the original offer and reverses the roles of the parties: the of- feree making the counteroffer becomes the offeror of a new offer, which the other party may accept or reject. 287 CONTRACT SQE prep NOTES EXAMPLE A farmer offers to sell his farm to an interested party for £1 million. The offeree replies, “No, but I’ll buy it for £950,000 instead”. This is a counteroffer. As in the previous exam- ple, it is still a rejection of the farmer’s original offer, and, as before, if the offeree tries to accept the original offer a week later, no contract will be formed. However, the differ- ence now is that the offeree has made a counteroffer to the farmer, which the farmer can accept. If the farmer accepts this counteroffer, there will be a contract to sell the farmefor £950,000. d tb 47b l l no f 7 23 s ha u Distinguish—Mere 7Enquiry 0 5 r se and Distinguish between 2 ou ws (which constitutes a 5 4- a counteroffer c rejection) and a l t la l 1 a mere enquiry/request a for further infor- mation. An e - enquiry twill o noti ghterminate the offer when it is 3 consistent 6 with the s t ideayrthat the offeree is still keeping 4 -original r e op the 0 2 e proposal t y nreasonablec under consideration. The test is 3 whether ai b person would believe that the orig- b -9 n d d e 1 60 BRI inall e ,offer a chad te t been rejected. 3 t 1 , ti pro se. a5 BAR tsEXAMPLE ie r: 21 righ are rpo n tif 20 all hichAyfarmer pu offers to sell his farm to an interested party for £1 r Ide ht ©wns of w r anmillion. The offeree replies by asking whether the farmer e rig o ll fo would reduce the price by £50,000. This is a mere enquiry. Us opy BRI ls, a old A reasonable person hearing the conversation would not C AR ria or s believe that the original offer had been rejected. B ate ed m ar sh c. Rejection of Collateral Contract Because an agreement to keep the original offer open is of- ten a collateral contract, a rejection of, or counteroffer to, the collateral contract does not terminate the original offer. The offeree is still free to accept the original offer. EXAMPLE Amelia offers to sell her farm to Betty for £1 million and says she will keep the offer open for 90 days if Betty pays her £1,000 to keep the offer open. Betty replies that she will not pay £1,000 to keep the offer open, but she will pay £500. 288  CONTRACT SQE prep Betty has rejected Amelia’s offer to enter into a collateral contract, but Amelia’s offer to sell the farm for £1 million is NOTES still open for acceptance. d. Lapse of Time An offer may be terminated by the offeree’s failure to accept within the time specified in the offer or, if no deadline was specified, within a reasonable period. What constitutes a reasonable period will be determined by the courts, taking into account the subject matter of the contract. For example, an offer to sell a consignment of fresh fish will lapse due to t be the perishable nature of the goods much more quickly than 7bd no an offer to sell a consignment of wool. Similarly, an offer for 34 al l 72 something that fluctuates in value, such as shares, will befca- 5 d sh pable of being accepted only within a reasonable time 207after urses an the offer was made. 4- o w 1 5 all c t la -a h 2.2.3 Termination by Operation3of 6eLaw st to yrig An offer may also be terminated by 2operation -4 of te rlaw cop e through 0 in by any of the following events: - 93 n d d 6 0b RI , a cte Death of the offeror 1 5 3 or the R Bofferee; ti tle rote. a BA ts, e p se Destructionrof : 1the1proposed i r rpo subject matter; gh h acontract’s ie 2 if 20 all ic pu r n t Supervening I s f whor any de ht © illegality; n r rig ow ll o for seFailure U opy Bof RIany l s, condition a ld contained in the offer. o C AR ria or s B ate ed EXAMPLE m ar sh to buy Benjamin’s car. There is an implied condi- Alfie offers tion that the car will be in the same condition on acceptance as it was at the point that Alfie made the offer. If Benjamin then wrecks the car, Alfie’s offer to purchase the car is termi- nated. 289 CONTRACT SQE prep Termination of Offer Limitations on When Methods Power to Effective Terminate Express revocation or d t be implied 4 7b Collateral l l no Revocation by Effective when revocation (for f 7 23 s ha contract, example, offeree d beginning Offeror received 75 discovers offeror 0 r se anperformance of - 2 sold subject o u s unilateral contract 4 w a 15matter to a ll c t la 6 e- to righ someone else) t -4 3 r es opy 0 2 e y c rejection, ntExpress 3 i b Generally cannot Rejection by Effective b -9 when nd edcounteroffer, or reject if already Offeree 0 RI , a ct 6received lapse of 1 e e 3 RB titl rot. reasonable time accepted 5 a A s, p e r : 1 1 B ight are rpos t i fie 202Effective ll r hichwhen puthe n a y Death or insanity I de ht © ns death f w oraninsanity r of either party, Termination r w o e yrig I o all of either fo party, the s destruction of by U Operation p R , l d destruction of the subject matter, or o RB rialsor s subject CoofALaw matter, or the supervening supervening B ate ed illegality occurs illegality m ar sh NOTES 2.3 THE ACCEPTANCE An acceptance is a manifestation of unqualified assent to the terms of an offer. The acceptance must be unqualified because any attempt to vary the terms of the offer would constitute a counteroffer, which ends the original offer and therefore makes it incapable of acceptance. 290  CONTRACT SQE prep Exam Tip NOTES Remember to check carefully in the exam whether a reply which does not accept an offer is in fact a counter- offer and not merely an enquiry or a request for further information, neither of which would result in revocation of the original offer. 2.3.1 Who May Accept Only the person to whom an offer is addressed has the t be power of acceptance. A member of a class to which an offer 7bd no has been directed will also have the power of acceptance. 34 al l For example, an offer may be addressed to all the readersf72 sh 5 d of a particular newspaper. In such a case, any reader of7the newspaper may accept the offer. 20 urses an - o 1 54 ll c t la w a. Generally May Not Be Assigned -a a Generally, an offeree’s power of acceptance 6 e cannot tbetoas-righ signed. However, bear in mind the rules 3 -4 of agency, r o py eswhereby 2 e c t yprincipal’s an agent may accept the terms of30 an offer on intheirb behalf, even though the resulting - 9 contract n d will d be between 0 b I a te the offeror and the principal 6 , c (see Chapter 5, below, on Privity R of Contract). 5 31 RB title rote. : 1a BA hts, re p ose 2.3.2 Offeree i r e Must 21 l Know r ig h of a Offer rp i f 0 p u The offeree e ntmust © 2know s al of hthe ic offer ny in order to validly accept it. This I d is true t whether n f w the offera er yror contract s igha Iunilateral f or isThus, ow all o contract. for a normal ‘bilateral’ if Allister sends U op an Beatrice B Roffer,l s ld , andoBeatrice sends Allister an offer com- s R ria oofr Allister’s offer but containing exactly the C Aunaware pletely B te d ma arase Allister’s offer (that is, a cross offer situation), same terms no contractsh is formed, even though the crossing offers con- tained the same terms. Exam Tip Keep in mind that, like all offerees, the offeree in a uni- lateral contract must know of the offer to accept it. If the ‘offeree’ acts without knowledge, and later learns of the offer, their acts are not an acceptance. 291 CONTRACT SQE prep NOTES EXAMPLE Becky places an advertisement in a local newspaper of- fering to pay £50 to the person who finds and returns her watch. If Alex finds Becky’s watch and returns it to Becky without knowing that Becky had offered a reward for its safe return, Alex has no contractual right to the reward. 2.3.3 Method of Acceptance Unless a method is stipulated by the offeror, an offer will be construed as inviting acceptance in any d reasonable mannert be and by any medium reasonable under 47b the circumstances. l l no As mentioned above, an offer2to 3 enter into a bilateral ha con- tract can be accepted either f 7by a promise to d s perform or by 7 5 s e n the beginning of performance (compare aoffers for unilateral 20 ur s by contracts, which may4- be accepted co onlyw full performance). a 15 all t la h - a. Methodeof Acceptance to rigStipulated by Offeror 3 If a particular 6 method s t of y acceptance is required by the offeror 4 e op and 0the er y not 2- offereentdoes c use that method, then there has 93 no valid been d iacceptance. b However, an exception to this rule b - n e d 0 applies I when a , tec the t method of acceptance is different, but no 1 6 Bless R tadvantageous l e to the offeror. 3 i o 1 a5 BAR ts, t e pr se. r: 21 righ EXAMPLEa r rpo ie n tif 20 all hich y pu r Ide ht ©wns of w r anAn offer specifies acceptance by second class post. The e rig o ll fo offeree uses first class post instead and the acceptance is Us opy BRI ls, a old received within the same timescale. It is likely that a contract C AR ria or s will have been formed. B ate ed m ar sh b. Silence as Acceptance Generally, an offeree cannot be forced to speak or have si- lence treated as acceptance. The law requires positive steps to be taken by the offeree before they can be bound by a contract. Silence is not a positive step, as the reason for the offeree’s silence is ambiguous. There are exceptions to this general rule but they are rare. EXAMPLE An uncle offers to buy a horse from his nephew saying, “If I hear no more I shall consider he is mine”. There is no contract. 292  CONTRACT SQE prep 2.3.4 Acceptance of Offer for Unilateral Contract NOTES Remember that an offer for a unilateral contract is one in which the offeror requests performance rather than a prom- ise. Here, the offeror promises to perform on completion by the offeree of a requested act. Once the act is completed, a contract is formed. a. Offeree Has No Obligation to Complete Performance It is generally accepted that an offer to form a unilateral contract is not accepted until performance is completed. However, the offeree is not obliged to complete performance t be merely because performance has begun, as only complete 7bd no 34 al l performance constitutes an acceptance of a unilateral offer.72 sh 75f se and 2 0 r EXAMPLE 4- c ou ws 5 l a Anish offers a reward of £200 to anyone who - a1can findohis al ht l missing laptop. Sally has some idea of 3where 6e it might ig t t beyrand s starts looking for it, unsuccessfully.2She -4 is underte op reno cobliga- tion to continue looking for it, because 0 in by is formed no contract - 93 n d d until she finds it. 0b RI , a cte 6 5 31 RB title rote. b. Notice : 1a BA hts, re p ose r e 021is lnot Generally, the iofferee r a utorpgive the offeror notice igrequired i f t 2thearequested that he hasnbegun h p l hic yperformance, but is required to notifyd e the t © offeror I h wn of r a s within w a n reasonable time after perfor- mance r e r has i g been o completed. l l f o Us opy BRI ls, a old 2.3.5 C AR ia or s by Conduct Acceptance r B atecanedaccept an offer by conduct. In such a case, An offeree m amust the offeror r be aware of the offeree’s conduct so as to s h satisfy the requirement of communication. For example, in a sale of goods context, it is common for acceptance to take place by the seller delivering the goods or by the buyer ac- cepting delivery of the goods. EXAMPLES 1) A supplier offers to sell a retailer 50 packs of card games for £10 each. The retailer rejects the offer by making a coun- teroffer to purchase the packs at £9 each. If the supplier then proceeds to deliver the packs without rejecting the retailer’s counteroffer, then the seller’s conduct in delivering the packs will amount to acceptance of the retailer’s terms. 293 CONTRACT SQE prep 2) A retailer places an order for 50 card game packs for NOTES £10 each. That card game has been discontinued by its manufacturer, but the seller has a newer version of the card game by the same manufacturer in stock. The seller makes a counteroffer by sending the retailer an email saying that it will ship the new packs instead. It then sends the retailer 50 of the new packs. The retailer accepts delivery of the cards thereby accepting the seller’s counteroffer. 2.3.6 Acceptance Must Be Communicated Generally, acceptance of an offer to enter into a bilateralbe contract must be communicated to thebd offeror. not 3 47 l alto 2.3.7 Requirement for7Communication f 2 s h Be Waived 5 d 2 07 u rses an The offeror can waive - the requirement co Theyw that acceptance of 54 an offer must be1communicated. l l l a may do this expressly. a a ht For example,ea- buyer may o t rioffer g to buy 100 tonnes of wool and tell 4 36seller that the s tthey e op y can deliver the wool if they are happy 2 - e r c 0 with thenprice. t yA court may also find that the offeror has - 93 waivedndthei requirement d b for communication even though 0 bthey I never a te actually said so. This means that, in a contract to 1 6 BbuyR goods, l e , tec t the seller can often accept the order by simply a 53 AR preparing , ti prothee.goods for dispatch and sending s re os them to the r : 1 1 B ightbuyer. That p is why there was a contract in our first card game i f ie 02 l r h a ur example—the p contract was formed when the seller accepted e nt © 2 s al hicthe n y buyer’s offer by delivering the packs, even though the r Id ht wn of w r abuyer did not yet know that the seller had done so. The buy- e r i g o l l fo Us opy BRI ls, a old er would be deemed to have impliedly waived the require- C AR ria or s ment that acceptance be communicated. B ate ed m ar 2.3.8 When Effective—The Postal Rule sh Acceptance by post creates a contract at the moment of posting, even if the letter gets lost in the post, unless: (1) the letter is not properly addressed and stamped; (2) it was not reasonable for the acceptance to be communicated by post; or (3) the offer stipulates, expressly or by implication, that acceptance is not effective until received, that is, the parties have effectively contracted out of the postal rule. Note: The postal rule applies only to acceptance. It does not apply to other events in the contract, such as rejection or revocation. 294  CONTRACT SQE prep Effect of Postal Rule on Rejection or Revocation Offeree Sends Acceptance, Then Rejection receives receives Offeror sends offer acceptance rejection Contract Postal Rule applies; Timeline acceptance Offeree sends sends d effective t when posted be acceptance rejection 4 7b l l no f 7 23 s ha Offeree Sends Rejection,0Then 75 Acceptancer se and 2 oureceives s receives5 4- l c l a w Offeror sends offer -a 1 rejection o al htacceptance Contract Postal Rule 6 e t t yri g 3 s applies; Timeline 2- 4 te re cop rejection only 0 i n y effective on Offeree - 93 sends rejection sends n d d b receipt 6 0b RI , aacceptancec te 5 31 RB title rote. a A ts, e p se r : 1 1 B igOfferor h ar Sendsr po Offer, Then Revocation ie f 0 l 2 r h u enti © 2 s al hic ny p Case 1 I d ht n f w r a r rig ow ll o fo eOfferor sends s U opy BRI ls, a old sends offer revocation Contract s Postal Rule C AR ria or applies; B ate ed Timeline revocation m ar effective only sh Offeree sends acceptance receives revocation on receipt Case 2 sends Offeror sends offer revocation No Contract Receipt of revocation Timeline terminates power of receives sends Offeree revocation acceptance acceptance 295 CONTRACT SQE prep NOTES EXAMPLES 1) Julia writes a letter to Renato offering to sell him her dog for £200. On Wednesday, Renato posts his acceptance of Julia’s offer. His letter is properly addressed and stamped. Renato accepted Julia’s offer when his letter was posted because it is reasonable to expect the offeree to respond to a posted offer with a posted response. 2) If Julia had written to Renato on Tuesday withdrawing her offer, and Renato had not received her letter withdrawing her offer before he posted his acceptance, a binding con- be d tract will have been formed when Renato posted his t accep- tance (because a revocation is3not b 47 effective untill l no received). a 5 f72 d sh a. Instantaneous Methods 07 se an of rCommunication 2 u s The postal rule does 54-not apply l c oto instantaneous l a w methods of communicationasuch 1 as email. a l Atcontract accepted by one e - will therefore to i gh of those methods6 r be formed at the time the 43 offeror -receives the est py acceptance, for example, by opening the relevant 0 2 email.nter y co 93 d i b - 6 0b2.3.9 R I ,The n ted of the Forms’ a c‘Battle 31 RBDifficulties i e tle rotarise t in commercial situations if both parties wish 1 5 a BA ttos, concludep s e. contract the on their own standard form terms, r : 1 igh which a re arer p o likely to differ. The question that has come be- i e fi 202 ll r icforeh pu t n © s a h ny the courts is therefore who wins the so-called ‘battle of d e w e r I righ own ll of for aforms’ t both if the correspondence between the parties refers to sets of terms. The approach generally taken is to find Us opy BRI ls, a old that a contract has been formed after the last set of terms C AR ria or s has been sent and not objected to and performance of the B ate ed contract has begun. “The battle is won by the person who m ar fires the last shot”. In other words, the last party to make an sh offer on their own terms is likely to win the battle, because the other party will then have accepted that offer by their conduct in performing the contract. a. ‘Prevail’ Clauses It is common for an offeror to include a term in their draft con- tract stating that their terms will prevail over any terms which the offeree seeks to introduce. These ‘prevail clauses’ are an attempt to win the battle of the forms. The difficulty with prevail clauses is that if the offeree makes a counteroffer to enter into the contract on their own terms, by making the counteroffer the offeree is rejecting the whole of the original offer, including the prevail clause. Thus prevail clauses are rarely effective. 296  CONTRACT SQE prep 3 INTENTION TO CREATE LEGAL NOTES RELATIONS AND CAPACITY For a contract to be binding, the parties need to have in- tended to be legally bound by it. This intent must have been mutually communicated either expressly or impliedly. 3.1 REBUTTABLE PRESUMPTIONS BASED ON RELATIONSHIP OF THE PARTIES d t be 3.1.1 Domestic Situations no 47b l l There is a presumption in domestic arrangements (for exam-23 ha ple, agreements between a married couple or among family f 7 s members) that the parties do not intend to be legally 0 75 bound r se and 2 u by their agreements. This presumption can be rebutted 5 4- byl co laws objective evidence to the contrary. However,aif1either party - o al ht has actual knowledge that the other does6not intendt to e t berig legally bound, the agreement will not-be 3 4 legally bindings y e opeven 2 e r c if objectively there was evidence to nt byto be 0 support iintent bound. - 93 d d 6 0b RI , an cte EXAMPLE 5 31 RB title rote. : 1a BA hts, re p ose A married couple i r e 0forming a urp to share respon- 21 l rigan hagreement sibilities for i f c y pnot normally be legally 2 foraal pethiwould e nt caring © boundIdby that r h t agreement. w s n of w However, r an if the couple made this agreement i g while o in lthe process o of agreeing the terms of se pseparation, Utheir yr RI , that al might l d f be sufficient objective evidence B alsintended o Cothe that Rparties i r s to be legally bound. BA ater ed o m ar COMPARE sh If one of the parties said to the other that they didn’t want the arrangement for the pet to form part of their legal agree- ment, then the arrangement would not be binding. 3.1.2 Social Situations There is a similar presumption in the case of social arrange- ments. The courts will presume there was no intention to be legally bound unless there is evidence to the contrary to rebut this presumption. The courts have tended to find that the presumption is rebutted in cases where friends or family 297 CONTRACT SQE prep members club together to enter a race or a competition, NOTES even though otherwise the relationship would be classed as social. EXAMPLE If family members and a lodger club together to enter a newspaper competition (including sharing the entry fee and postage), and agree to share the winnings, in the event that they actually win the competition, the law would require a proportion of the winnings to be paid to the lodger. The usual presumption will be rebutted because d beis the situation t akin to an informal syndicate. 47b o ll n f 7 23 s ha 0 75 r se and 2 ou ws Exam Tip 54- c 1 a l t la