Topic 2 - Agreement.docx

Topic Two Agreement: offer and acceptance The law contract defines the circumstances when a promise or promises are enforceable. However, not all promises are enforced by court. For a promise or promises to be initially enforceable as a contract, certain elements must be present: 1. The agreement, constituted by a corresponding offer and acceptance, supported by 2. Consideration, being the mutual exchange of something which the law recognizes as having a value and, 3. An intention to create legal relations. These are cumulative requirements, which means that each must be present for a contract to exist. However, the identification of a contract by reference to these elements is sometimes a somewhat artificial process. Sometimes, courts will find that some agreements simply look like contracts, and they then reason backwards and find the elements necessary to form a contract. The process of an agreement begins with an offer. An offer may be addressed to a single person or to many people. For a contract to be formed, this offer must be unconditionally, accepted. The law imposes various requirements as to the communication of the offer and the acceptance once there has been a valid communication of the acceptance the law requires: 1. Consideration 2. An intention to create legal relations. If these elements are not present, a court will not find that a contract exists between the parties. In the absence of a contract, neither party will be bound to the tentative promises or agreements they have made. It is of crucial importance to determine whether or not a contract has been formed. An important Distinction is that between a “unilateral and a bilateral contract”. A Unilateral contract is an exchange of a promise for an act. A typical unilateral contract would be the offer of a reward for the return of lost property. It is a frequent, but not necessary, feature of a unilateral contract that the offer, such as that of a reward, is made to a large group of people. As a unilateral contract, by definition, involves a promise by one party only it follows that it generates an obligation for one party only. The offer of a reward for the return of lost property does not oblige anyone to look for that property. The only obligation it creates is a contingent one upon the offeror to pay the stipulated reward to any person who chooses to perform the stipulated act. For example, someone returns lost property. In several respects the rules of offer and acceptance are modified in the case of unilateral contracts. Mini Lecture One – What is an Offer? What constitutes a contractual offer? Here are the requirements for the formation of a contract. There are three main requirements. 1. It's called the “Agreement”, and by agreement we mean a corresponding offer and acceptance. So agreement breaks down into an offer and an acceptance. 2. The second major requirement is an unusual one because it’s called “Consideration”. This is the idea that one party gives the other something in exchange for something they receive. In other words, contracts are about two-way traffic. They are about one party giving something in consideration of something they receive. Consideration refers to this idea of reciprocity of two-way traffic of each party giving the other something. The requirement of consideration looked at differently, is what defines what we would call a contract - Which we have analogously called a two-way road, and a gift which is a one-way road in that one party is giving something to the other but expecting nothing in return. 3. The third major requirement of a contract is called an “Intention to create legal relation”s. Not all promises gives rise to a contract, only some do. Some promises, perhaps those made on social occasions, may not disclose an intention to create legal relations. Sometimes it is said that contracts have to be sufficiently certain and sometimes that requirement of certainty is expressed as an extra requirement. Sometimes references made to form, because some but only some types of contract have to be in our particular form. A contract for the disposition of an interest in land has to be in writing. The definition of an offer which has come from Treitel Law of Contract and it states that “an offer is an expression of willingness to contract on specified term”. This requirement of definiteness is incorporated into the definition, but it is also something made with the intention that it is to become binding as soon as it is accepted. So it displays this willingness to be bound. If I make you an offer and you simply reply yes, “I Accept” that would constitute an agreement. We often distinguish an offer from something called an “Invitation to treat”. What we mean by an invitation to treat is something which is preparatory, something which might precede an offer. It is a statement which does not show an intention to be bound on acceptance. There are two categories of invitation to treat: The first type of Invitation to Treat by reference to a case called Gibson v Manchester City Council. In this case, a council was contemplating selling homes it owned to tenants. So it was the sale of council houses. The council send a letter to tenants, saying the council may be prepared to sell your house to you for a price of, and they also said if you wish to proceed with this, please make a formal application. The question arose whether that letter constituted an offer because if it did it had been accepted by the tenant. The house of Lords held that the letter from the council did not constitute a contractual offer. It constituted only an invitation to treat, something preparatory or something which proceeded an offer. There were two things in that communication that convinced the house of Lords that it could only amount to an invitation to treat. The first was they said it had an equivocality, a lack of commitment. The way it was put was, it was said that the word “May”, “the council may be prepared to sell your house to you”, was fatal to the possibility of it being an offer because the council weren't saying we will sell the house to you. They were only saying, “we may be prepared to sell the house to you”. The second thing which convinced the house of Lords that this couldn't be an offer was the fact that there was a reference to a further formal stage. “If you wish to buy the house, please fill in this application”. Now they are the factors which the court will look to when it has to analyze a communication to see if it constitutes an offer as opposed to an invitation to treat. But the courts have also evolved rules of thumb. Which are rules that they will look at in commonly recurring factual circumstances to see if something constitutes an offer. In the case of Partridge v Crittenden there was an advertisement to sell certain birds. These birds were actually an endangered species, so the placing of an advertisement offering them for sale if it was, an offer would constitute a criminal offense. So this is a criminal case, but where the contractual issue had to be resolved because the criminal offence of offering for sale a species which cannot be offered for sale, would only be committed if the advertisement was an offer. It was held in this case that it was not an offer, it was only an invitation to treat. Now we can contrast that with a different kind of advertisement case: In the case of Carlill and Carbolic Smokeball Company - the defendants, who were the manufacturer of the carbolic smoke ball, issued an advertisement in which they offered to pay 100 pounds to any person who caught influenza after having use one of their smoke balls in the specified manner, and they deposited 1000 pounds in the bank to show their good faith. The claimant caught influenza after using the smoke ball in the specified manner. She sued for the 100 pounds. It was held that the advertisement was not an invitation to treat, but was an offer to the whole world, and that a contract was made with those persons who performed a condition on the faith of the advertisement. The claimant was therefore entitled to recover 100 pounds. This case is an example of a unilateral contract in which a promise is being made in exchange for an act which means that an advertisement proposing a unilateral contract can constitute an offer. An advertisement proposing a ‘bilateral contract’ – that is an exchange of promise for promise and is more likely to be considered only an ‘invitation to treat’, which is what the Partridge v Crittenden case was. An offer is determined objectively not subjectively, “Whatever a persons Real intention may be, if he so conducts himself that a reasonable man would believe he was ascending to the terms proposed by the other party, and that other party acted upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms” For a simpler example, let's suppose that I am sitting on the hood of a beautiful red Ferrari and I say to you, would you like to buy my car for 100,000 pounds and you say yes. I get up off the hood, I run around the corner and I drive back to you in a beat up old mini and I say here's the car you agreed to buy for 100,000 pounds. You'd say I didn't, I intended to buy the Ferrari. What we'd have to do is to work out what offer I should be regarded objectively as making, what is a reasonable interpretation of my words and deeds? A reasonable interpretation of my words and deeds when I am sitting on the hood of a car and indicating, perhaps by the high price, that it's this car that I'm intending to sell. A reasonable interpretation of my words in deeds, an objective interpretation of my words in deeds is that it is that car I was offering to sell My secret, uncommunicated intention to offer for sale the beat up old mini around the corner that you can't see would not be a reasonable interpretation of my words and deeds, so an offer is determined objectively. The offer which a person in law is said to make is that which a reasonable interpretation of her or his words or deeds would support. That is sometimes described as the “objective theory of intention” and that is what was being expressed in that quotation from Smith v Hughes. Look at the following two cases, they both involve this distinction between an offer and an invitation to treat. The first case is Pharmaceutical Society v Boots and the second case is Fisher v Bell. 2.1 The Offer It is important to remember that it is not the subjective intentions of the parties that determine the legal effect of their words or actions, but the reasonable inference that they would support. This is called “Objective” theory of agreement associated with the case of Smith v Hughes and more recently summarized in the Supreme Court by Lord Clarke in the case of (RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh & Co KG). Whether there is a binding contract between the parties and, if so, upon what terms depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they had agreed upon all the terms which they regarded as essential. This approach was applied in the case of Centrovincial Estates v Merchant Investors Assurance Co where the claimants have bought commercial premises let to the defendants for a rent of 68,320 pounds subject to review. When the claimants mistakenly proposed a new rent of 65,000 pounds instead of the intended 126,000 pounds they intended to propose. The defendants predictably ‘accepted’ the mistaken offer. The claimants argued that no reasonable tenant would have expected the rent to be reduced; the defendants responded that this was a reasonable expectation in light of their communicated dissatisfaction with the previous letting. The court of appeal accepted the defendants arguments that it was at least arguable that an offer to let premises for 65,000 pounds meant exactly that. Subsequent cases have made explicit that in a so called B2B contract (between two businesses) the interpretation of an offer upon which the offeree is entitled to rely is that of a hypothetical and reasonable businessman in the position of the offeree (Dhanani v Crasnianski) It should be noted, however, that there is one circumstance when the courts will depart from the usual objective approach and take account of the actual subjective knowledge of the offeree. Under this approach, sometimes known as the ‘snapping up’ doctrine, an offeree is not allowed to accept an offer which he knows is mistaken as to its terms see the case Hartog v Collins and Shields. This last factor is important and is what limits the scope of this disapplication of the usual objective approach. It is not enough to come within this exception that the offeree was aware that the offerer had made a mistake; the exception will only apply where the offeree is aware that the offeror’s mistaken as to the terms he intended to offer. The doctrine will apply where, as in Hartog, the offeree is aware of the offeror’s mistake as to the terms he is offering, but not according to the recent case of Longley v PPB Entertainments, the offer did not know that the offeror was mistaken. Consequently, the fact that the offeree should have known that the offeror was mistaken, is not alone sufficient to come within the doctrine of snapping up. However, in circumstances where the offer should have known, the offer was mistaken, such as the case of Scriven Bros v Hindley where the mistake was induced by the offeror’s own carelessness (in Scriven contrary to accepted trade custom, the auctioneer offeror marked two distinct commodities with the same shipping mark) the court may Infer from the fact that the offeree should have known about the offeror’s mistake that the offeree was aware of the mistake, thus bringing it within the “snapping up” principle. 2.1.2 Offer and Invitation to Treat An offer is an expression of willingness to contract on certain terms. It must be made with the intention that it will become binding upon acceptance. There must be no further negotiations or discussions required. The nature of an offer is illustrated and encapsulated by two cases involving the same defendant, Manchester City Council. The council decided to sell houses that it owned to sitting tenants. In two cases, the claimants entered into agreements with the council. The council then resolved not to sell housing unless it was contractually bound to do so. In these two cases, the question arose as to whether or not the council had entered into a contract. In one case, Storer v Manchester City Council, the court of appeal found that there was a binding contract. The council had sent Storer a communication that they intended would be binding upon his acceptance. All Storer had to do to bind himself to the later sale was to sign the document and return it. In contrast however, in the case of Gibson v Manchester City Council, the council sent Gibson a document which asked him to make a formal invitation to buy and stated that the Council ‘may be prepared to sell’ the house to him. Gibson signed the the document and returned it. The house of Lords held that a contract had not been concluded because the Council had not made an offer capable of being accepted. A key distinction between the two cases is that Storer’s case there was an agreement as to price, but in Gibson's case there was not. In Gibson's case, important terms still needed to be determined. It is very important to realize from the outset that not all communications will be offers. They will lack the requisite intention to be bound upon acceptance. A statement of intention In this instance, one party states that he intends to do something. This differs from an offer in that he is not stating that he will do something. The case of Harris v Nickerson illustrates this point. The auctioneer’s advertisement was a statement that he intended to sell certain items; It was not an offer that he would sell the items. 2.1.3 A Supply of Information In this instance, one party provides information to another party. He supplies the information to enlighten the other party. The statement is not intended to be acted upon. See the case of Harvey v Facey, where one party telegraphed, in response to the query of the other, what the lowest price was that he would accept for his property if he were to sell it, this alone did not imply in an assurance that he would sell at this price. 2.1.4 Invitation to Treat An invitation to treat is an indication of willingness to do business. It is an invitation to make an offer or to commence negotiations. Courts have considered whether or not a communication was an offer or an invitation to treat in a wide variety of circumstances, the following instances are cases where the courts have found that the communication was not an offer, but an invitation to treat. A display of goods is generally an invitation to treat. This is shown in the case of Pharmaceutical Society v Boots note the rational behind treating the display as an invitation to treat rather than as an offer and Fisher v Bell. In contrast where the display is made by a machine, the display will probably be an offer as is in the case of Thorton v Shoe Lane Parking Study task 1 Your local grocery shop places a leaflet through your letterbox. On the leaflet is printed ‘Tomorrow only, oranges are at a special low, low price of 9p/kilo’. Has the grocery shop made you an offer? If you visit the shop, must they sell you oranges at this price? Show feedback The grocery shop has not made you an offer. They have made an invitation to treat. See Grainger & Son v Gough (1896) and Partridge v Crittenden (1968). The reason that they have only made an invitation to treat and not an offer is because if the statement in the leaflet is construed as an offer, then the shop would be bound to sell to everyone who presented themselves at the shop. Clearly, this is impractical and, indeed, may be impossible. Consequently, if you visit the shop, they do not need to sell you oranges at this price. The offer can be made by action or by statement. See Trentham Ltd v Archital Luxfer (1993). An advertisement is an invitation to treat where a bilateral contract is anticipated. See the case of Partridge v Crittenden Where the advertisement of a bilateral contract. Where as in Carlill v Carbolic Smoke Ball company was a unilateral contract is contemplated. The advertisement may be an offer. Study task 2 How were the facts of Carlill v Carbolic Smoke Ball Company different from the usual situation involving an advertisement? A request for tenders is an invitation to treat and the tender is the offer. See Harvela Investments Ltd v Royal Trust Co of Canada Ltd Ch 103. Note, however, that the invitation to treat may contain an implied undertaking to consider all conforming tenders, as in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council 3 All ER 25. An auctioneer’s request for bids is an invitation to treat. The bid is an offer; when the auctioneer brings his hammer down he has accepted the offer. In the case of auctions without a reserve price, the auctioneer enters into a collateral (or separate) contract. The nature of the collateral contract is that the auctioneer will accept the highest bid. See Warlow v Harrison 1 E&E 309 and Barry v Davies 1 WLR 1962. Figure 2.2 The advertisement for Carbolic Smoke Balls Show feedback In Carlill’s case the advertiser was advertising the offer of a unilateral contract and not a bilateral contract. Only one party would be bound from the outset. Study task 3 A store mistakenly advertised Sony televisions for sale on its website for £2.99 each rather than the £299 they intended. Has the store entered a contract to supply the televisions at the mistaken price with customers who purported to ‘buy’ the TVs online? Show feedback This scenario is based upon a mistake made by the retailer Argos some years ago. Many trainee lawyers in London law firms placed orders before the mistake was corrected! On general contractual principles Argos would have entered a contract to supply goods at the mistaken price if the website constituted a contractual offer which was ‘accepted’ when the order was placed online. It will not surprise you to know that internet sellers now go to considerable lengths to expressly provide that the virtual advertisement does not constitute an offer. The current Argos conditions provide: 2.3 Acceptance of your order and the completion of the contract between you and us will take place on dispatch to you of the products ordered … Argos Terms & Conditions Even if the website advertisement had constituted a contractual offer, under the so called doctrine of ‘snapping up’ (Hartog v Collins and Shields (1939)) the customers will not be able to accept an offer that they know is mistaken as to its terms. This principle was applied in the context of an internet site by the Singapore Court of Appeal in Chwee Kin Keong v Digilandmall.com Pte Ltd (2005)). Request for tenders is an “invitation to treat” and the “tender” is the “offer”. See the case of Harvela Investments Ltd v Royal Trust Co of Canada Note, however, that the invitation to treat may contain an implied undertaking to consider all conforming tenders, as shown in the case of Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council An auctioneers request for bids is an invitation to treat. The bid is an offer; When the auctioneer brings his hammer down, he has accepted the offer. In the case of auctions without a reserve price, the auctioneer enters into a collateral or separate contract. The nature of the collateral contract is that the auctioneer will accept the highest bid, see the case of Warlow v Harrison as well as the case of Barry v Davies. In summary a contract begins with an offer. The offer is an expression of willingness to contract on certain terms. It allows the other party to accept the offer and provides the basis of the agreement. An offer exists whenever the objective inference from the offer words or conduct is that she intends to commit herself legally to the terms she proposes. This commitment occurs without the necessity for further negotiations. The first step and finding a contract is to establish that there is an offer and who is making it. Many communications will lack this necessary, intention, and that will not be offers. They may be statements of intention, supplies of information or invitations to treat. Although the distinction between an offer and other steps in the negotiating process is easy, the state and theory, and practice, difficult cases arise. 2.2 Communication of the Offer To be effective, an offer must be communicated; there can be no acceptance of the offer without knowledge of the offer. The reason for this requirement is that if we say that a contract is an agreed bargain, there can be no agreement without knowledge. There can be no meeting of the minds if my mind is unaware of the other. Stated another way, unacceptance, cannot mirror an offer if the acceptance is made in ignorance of the offer. The authorities, however, are divided on the need to communicate the offer. This is shown in the case of Gibbons v Proctor. It seems as if a policeman was allowed to recover a reward when he sent information in ignorance of the offer of reward. The better view is thought to be expressed in the Australian case of R v Clark. It said there cannot be sent without knowledge of the offer; And ignorance of the offer is the same thing whether it is due to never hearing of it or forgetting it after hearing. The case of Tinn v Hoffman deals with the problem of cross offers, for example, identical offers that are sent simultaneously from A to B and from B to A. No contract results until they are accepted. Study task 4 How might the decision have been different in R v Clarke if Clarke had been a poor but honest widow? Show feedback If Clarke had been a widow, the case would be different for two reasons. First, Clarke would appear to be a more ‘deserving’ claimant and the court might have a harder time dismissing her claim. Such a consideration would not of itself be a sufficient reason to find in her favour. However, her claim might, as a result of her position, have been viewed sympathetically and the law applied and interpreted in this light. Second, the case, on the facts of it, appears to be much more similar to Williams v Carwardine. However, what is necessary for a contract to be formed, on the basis of the ratio of Clarke’s case, is that Clarke is assenting to the offer – that there is a ‘meeting of minds’. It is not clear that the widow is aware of the offer and that she acts to form the requisite consensus. 2.3 Acceptance of the Offer. For a contract to be formed, there must be an acceptance of the offer. The acceptance must be an agreement to each of the terms of the offer. A communication which falls short of this, for example, by merely expressing gratitude for instructions, will not constitute acceptance as shown in the case of Arcadis Consulting v AMEC see also the case of Reveille Independent LLC v Anotech International, here it was held that a draft agreement was accepted by subsequent conduct that's sufficiently indicated as sent to its terms, even though the draft expressly stated that it was only binding when signed. Contractual acceptance, like a contractual offer, is established objectively. So acceptance occurs when the offeree’s words or conduct give rise to the objective inference that the offer assents to the offeror’s terms. The acceptance can be by words or by conduct, see the case of Brogden v Metropolitan Railway Company, where the offeree accepted the offer by performance, as well as the case of Claxton Engineering Services Ltd v TXM Olaj-ES Gazkutato KFT where the choice of a Hungarian company to continue trading with its English counterpart after the latter had rejected a proposal for the arbitration in Hungary of any disputes was held to be an acceptance of the English companies counter offer that the resolution of disputes should be subject to English jurisdiction only. If the offer attempts to add new terms, when accepting, this is a counter offer and not an acceptance. If the offeree attempts to add new terms when accepting, this is a counteroffer and not an acceptance. A counteroffer implies a rejection of the original offer, which is thereby destroyed and cannot subsequently be accepted. See Hyde v Wrench (1840) 49 ER 132. Where the offeree queries the offer and seeks more information, this is neither an acceptance nor a rejection. It is merely an enquiry as to whether the offeror would be prepared to vary the offer and the original offer stands. See Stevenson, Jacques & Co v McLean 5 QBD 346. The majority of the Court of Appeal in Butler Machine Tool v Ex-Cell-o 1 All ER 965 held that the ‘last shot’ wins this ‘battle of the forms’. The minority judgment of Lord Denning MR in Butler criticised the ‘all or nothing’ approach of the old ‘mirror image rule’ whereby a contract was concluded on either the buyer or the seller’s terms. He preferred to look at the communications as a whole and hold there to be a contract when there is substantial agreement on all material points. If the remaining differences are irreconcilable Lord Denning thought they should be replaced by ‘reasonable implication’. Lord Denning’s radical approach has not been followed elsewhere and in Tekdata Interconnections Ltd v Amphenol Ltd EWCA Civ 1209 the Court of Appeal reasserted the traditional approach emphasising the importance of certainty in commercial transactions. Although the so called ‘last shot’ will usually prevail, it has been confirmed in TRW Ltd v Panasonic Industry Europe GmbH EWCA 1558 that this will not always be the case. Rather, by carefully drafting its initial standard form to prevent later terms from superseding it and securing the agreement of the other party, the contractor firing the ‘first shot’ might instead prevail. If it is found that there is no contract between the parties it does not follow that they will not have to pay for any benefits received. A different branch of the civil law of obligation, known as the law of restitution, may impose on the recipient of a benefit an obligation to pay something to the party who conferred that benefit irrespective of whether a contract comes into existence to bind the two parties (BSC v Cleveland Steel 1 All ER 504). Note, also, that in some cases courts have held that particular relationships are not capable of contractual analysis. In The Eurymedon AC 154 Lord Wilberforce noted that English law ‘having committed itself to a rather technical and schematic doctrine of contract’ nevertheless ‘takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance…’ On rare occasions the traditional analysis is abandoned altogether. In President of the Methodist Conference v Preston UKSC 29 the Supreme Court held that the manner in which a Methodist minister was engaged was incapable of being analysed in terms of contractual formation. Study task 5 A wrote to B offering 300 bags of cement at £10 per bag. B wrote in reply that she was very interested but needed to know whether it was Premium Quality cement. The following morning, soon after A read B’s letter, B heard a rumour that the price of cement was about to rise. She immediately sent a fax to A stating, ‘Accept your price of £10 for Premium Quality’. Assuming that the cement actually is Premium Quality, is there a contract? If so, does the price include delivery? Explain your reasoning. Show feedback A has offered the goods for sale – the requisite intention to be bound is present. B’s initial correspondence could be taken as a rejection – but it is more likely to be a request for information and the offer survives. B’s fax is good when it is communicated – probably instantly. The fax, however, adds a condition and the communication is therefore not an unqualified consent to A’s offer. On balance, this probably operates as a conditional offer – which has the effect of destroying the original offer. There is, thus, no contract. Even if there is a contract, the contract will not include the delivery price (unless such a term can be implied by reason of the course of dealing between these parties or by reason of the custom of this industry). Study task 6 What is the position under the ‘last shot rule’ if, after the exchange of forms, the seller fails to deliver the goods? Show feedback A contract has been formed. See, for example, Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd and Tekdata Interconnections Ltd v Amphenol Ltd (2009). If the seller fails to deliver the goods, they are in breach of the contract. (Mini Lecture 2) We look now at the nature of acceptance and its role in the establishment of a contract. We start with a definition of acceptance. That definition comes from Treitel's Law of Contract. The definition is that an acceptance is a final and unqualified expression of a cent to the terms of the offer. It's an agreement with the terms of the offer. It doesn't have any hesitation or qualification. I agree to this if it is a final and unqualified agreement to the terms of the offer. What are the features of acceptance? Well, it's implicit in that definition that the acceptance must match the offer. If it doesn't match the offer, it might be classified as something other than an acceptance. An offer is established objectively, that is an offer in law is not what you secretly, subjectively intend, but what a reasonable interpretation of your words and deeds would support. Just as an offer is interpreted objectively, not subjectively, then so an acceptance is interpreted objectively. It does not matter what you secretly intend, it matters only what a reasonable interpretation of your words and deeds would support. The general principle is that both offer and acceptance are interpreted objectively. The idea of correspondence between offer and acceptance is important. It follows from that, that you cannot accept an offer you are not aware of. In an old case called R v Clarke, a reward was offered, but at the time the person did the thing stipulated to entitle them to the reward, they were not at that moment aware of the offer so they could not succeed because you cannot accept an offer you are not aware of. There has to be this correspondence between offer and acceptance. Now, an acceptance must be communicated. I will stress this again in a minute, but we have a general rule and we have exceptions to it. The general rule is that acceptance must be communicated and we will talk when I put the next slide up about an exception to that general rule. The general rule is that acceptance must be communicated. That derives from a case called Entores v Miles Far East. Lord Denning, in that case, gave the example of two people verbally concluding a contract. If one person spoke to the other and the acceptance when spoken was drowned out by a noisy airplane passing overhead, that would not, in that circumstance, be a valid acceptance. You can look at that case to see further how Lord Denning deals with complications upon that scenario because he goes on to say that where acceptance is made clearly and audibly, but the offeror does not hear what is said, a contract can nevertheless be concluded unless the offeror makes clear to the acceptor that he has not heard what was said. The general principle is that there must be communication. You can read that case or the textbook account of it for how Lord Denning adapts that principle to deal with some more challenging circumstances. One thing that might happen is that the offer might stipulate a particular method of acceptance. The offeror, that is the person who makes an offer, the person to whom it is addressed, we call the offeree, the offeror might say, "If you want to accept my offer, you must accept it in this way." The offeror might stipulate a time within which it has to be accepted or might stipulate a mode of acceptance. Acceptance in writing is required. If the offeror stipulates, requires a particular way of acceptance, then any other method of acceptance is unlikely to be accepted. The case that supports that proposition is Manchester Diocesan Council v Commercial and General Law. Again, as with all legal principles and as you will rapidly become aware, there are exceptions. Although the general rule was stated in that case, in that case, there was an exception where it was thought that an equally effective communication might have been indicated by the offeror as equally acceptable. Now we've made a simple assumption to know about parties communicating with each other, but there is of course a more likely scenario that the communications take place with the aid of machinery if you like. Perhaps by email, perhaps to a business address, perhaps to a recording machine, a telephone recording, and we collectively might describe such methods of communication as unmanned receptors. According to an old case called the Brimnes, the challenge for the principle of acceptance here is how do we know when something is communicated. Is it when it's received by your computer if it's an email, or is it when you read it on the computer? What was suggested in this case is that communication to a machine or some kind of recording device or perhaps an email to a business address say is regarded as communicated at the time at which it will be reasonable to expect it to be read. If you gave a business email, and if an acceptance was sent to that email address out of normal business hours, it would not be regarded as communicated when it was received say in the middle of the night, but at the moment, the following morning, when it will be reasonable to expect that communication to be read. Now, the general rule is that there must be communication of acceptance, but the exception, and a very unique exception to the English Law of contract is called the Postal Rule of Acceptance because in some circumstances, when communications are made by post, by mail, we mean, in the mailbox, acceptance is regarded as complete when posted. I make an offer to you by post, you receive the letter, you read it, you write back accepting. Now, the general rule would say that it is when I receive your acceptance that the contract is made but a special exception here is applied and it is said that acceptance is complete when you post your acceptance. Now, this has consequences for me the offeror because I become bound to that contract before I'm aware of it, before I receive your acceptance. A matter of principle comes from an old case called Adams v Lindsell. It's subject to a caveat and the caveat is that the acceptance must be properly addressed, it must have the correct recipient on it. Also, it must be the case that the Postal rule must reasonably be contemplated. What do we mean by that? We mean that the use of the post must reasonably be contemplated. It must be reasonable to use the post for the acceptance. Of course, the way the offeror can indicate that reply by post is acceptable to them is if they make the offer by post. If they make the offer by post, then that will impliedly convey the idea that acceptance by post is okay. Unless the offer is made by post and the offeror says, "Although I have made the offer by post, I do not require, I will not accept acceptance by post, I require actual communication to me, i.e. even if you use the post, it will only be effective upon my receipt." Holwell Securities v Hughes is the case that is authority to support the idea that the parties can themselves exclude the application of the postal rule by signifying in some way that acceptance is only effective upon actual communication or indeed that case stands to a broader proposition that the Postal Rule will not be applied when it would be unreasonable to apply it. In an old case called Felthouse v Bindley, a man was discussing the purchase of a horse belonging to his nephew. Nephew wrote to the uncle, saying there was a misunderstanding between them about the price of the horse. The uncle thought he had bought the horse for £30 when the nephew intended to sell it for 30 guineas. A guinea is an old quantity used for the sale of horses, which is slightly more than a pound. The uncle wrote back saying, "I'll split the difference. If I hear no more from you, I will consider the horse is mine for £30 and 15 Shillings, which is the equivalent of £30 pounds and 75 pence." There were no more communications between the parties. Was there a contract? It was held that there was no contract because the uncle could not insist upon the silence of the nephew as evidence of acceptance. Now, it's sometimes said that that case supports a broader proposition than it does. It's sometimes said it supports the proposition that silence can never amount to acceptance. The reason silence should not amount to acceptance is that a party should not be able to force a contract upon another unwilling party. If I meet you and say, "I offer to you for sale, my contract law textbook for the price of £1000, I will assume you have accepted it if you do not reply in the next two seconds, 1, 2." Can I rely on your two-second silence as evidence of acceptance? No, because I should not be able to force a contract on you when you're unwilling. The situation is different if silence as acceptance does not involve enforcing a contract on an unwilling party. That was established in a case called Rust v Abbey Life. The simplified facts of the case were that Mrs. Rust applied for some property bonds, Abbey Life issued them to her and sent them to her. After seven months during which the property bonds proved unprofitable, she sought to escape the contract. Court of Appeal rejected her argument. They said either her application for the bonds was an offer, the sending of them to her was an acceptance, or because the bonds were issued on slightly different terms than her application, the Court of Appeals said in the alternative, the application for the bonds was an offer. The issuing of them on different terms was a counteroffer, something we'll speak about more in the next lecture, but that her silence, her retaining them, for that period amounted to an acceptance. There is an issue here, where we can say silence can constitute acceptance. It can constitute acceptance whenever it does not involve forcing the contract on an unwilling party. For the time Mrs. Rust was silent, she was a willing party. Later on, months later, when these investments had fallen in value she wanted to escape, but until that moment, she was willing. The suggested proposition, the true proposition of law, I have written on the slide there that "Silence cannot be relied upon as acceptance and this would amount to forcing a contract on an unwilling party." 2.4 Communication of the acceptance Core text The general rule is that acceptance is not effective until it is communicated to the offeror. This is sometimes expressed by saying that the acceptance cannot be made through silence and Felthouse v Bindley is often cited to support this proposition. Such a statement is, however, too broad and the true rule of law is discoverable by reflection upon what is ‘wrong’ with saying that silence cannot amount to acceptance. Most people would agree that is inconsistent with the view of a contract as a voluntarily assumed obligation to allow one party to ‘force’ a contract upon a party that that party does not want at the time of contracting. If a lecturer and author was able to say to his contract class that he will assume that all his audience want to buy a copy of his book unless they say not in the next five seconds it is perhaps obvious that she should not be able to rely upon those five seconds silence as evidence of acceptance of an offer to sell a copy of her book. The so-called rule (i.e. that silence cannot constitute acceptance) should extend only as far as the policy that justifies it (i.e. that the law should not allow an offeror to force a contract on an unwilling offeree). So qualified the proper rule becomes: silence will not constitute acceptance when to so hold would involve forcing a contract on an unwilling party. It then follows that silence can constitute acceptance when this does not involve forcing a contract upon an unwilling party. In Rust v Abbey Life 2 Lloyd’s Rep 334 the Court of Appeal, by way of obiter dicta, approved this more limited statement of the ‘silence as acceptance’ rule. Where the law of contract insists on communication either as here in relation to acceptance or in relation to the revocation of a contractual offer (Section 2.7.1) a question can arise as to the timing of communication when it is received by a machine (e.g. a fax or email), maybe outside of usual office hours. By analogy with a case, in Tenax Steamship Co v Owners of the Motor Vessel Brimnes (The Brimnes) QB 929, concerning the notice of the withdrawal of a ship under a ship charter, it is suggested that communication to any ‘unmanned receptor’ is effective from the time at which it is reasonable to expect that machine to be checked. Therefore, if it is not reasonable to expect a computer to be checked out of usual business hours a communication sent at this time may only be regarded as communicated after the next opening of the office concerned. Study task 7 You offer to buy a kilo of oranges from your local shop for 9p. Nothing further is said, nor do you receive any written correspondence. The next day, however, a kilo of oranges arrives at your house from the local shop. Is there a valid acceptance of the contract? Has there been a communication of the acceptance? See Brogden v Metropolitan Railway Company 2 App Cas 666. Show feedback If your ‘offer’ amounts to an offer in law according to the authorities set out in Section 2.1, there has been an acceptance of your offer. The acceptance has been by act, rather than by writing or by discussion. Your offer has been accepted by conduct. The oranges have been despatched in response to your request for them. Self-assessment questions What was the detriment to the offeree in Felthouse v Bindley? Could an offeror use this case to avoid liability? (Mini Lecture 3) We are still talking about agreement, which is a corresponding, offer and acceptance, and is one of the three basic building blocks of a contract together with consideration and an intention to create legal relations. In our previous lectures, mini-lectures on offer, we looked at the nature of an offer. In the mini-lecture on acceptance, we looked at the definition and requirement of communication of acceptance. In this lecture, we're going to look at other responses to an offer. That is responses to an offer that are not acceptance. The most obvious response, the one we've already dealt with is acceptance. What we're going to talk about today are other responses. Response number two, I've called rejection. I make an offer, and if you respond with a simple statement that you have no interest in the offer that I made, that is a rejection. There's a key point here, and it provides an interesting contrast to something we've looked at already, because the question arises, when is a rejection effective? A rejection is only effective upon communication. There is a clear contrast here between when a rejection is effective and when a posted acceptance is effective if the postal rule applies. If the postal rule applies then acceptance is not effective upon communication, but it is effective at the moment when a properly addressed letter of acceptance is put into the post. In contrast, rejection is only effective upon communication. A third response other than acceptance or rejection is something called a counteroffer. This is best illustrated by the facts of a well-known case, called Hyde v Wrench. In Hyde v Wrench, the defendant makes an offer to the plaintiff to sell land for £1,000. The plaintiff responds offering to purchase the land for £950. This is called a counteroffer. The response to the counteroffer is the defendant refuses to sell for £950. This is a straight rejection. It's simply saying as we previously defined, "No, I don't want those terms." It's not putting anything in its place, which would make it a counteroffer. Finally, here, the plaintiff writes to the defendant accepting the offer to sell for £1,000. Now, we sometimes use the phrase that the law looks to the substance not the form of the communication. Because although the plaintiff here is saying, "I accept your offer to sell for £1,000," the plaintiff's communication in the fourth bullet point here cannot be an acceptance because there is no offer left to accept. The offer to sell for £1,000 was destroyed by the second communication, the counteroffer. What you can see from what I've just said about the facts of Hyde v Wrench is that a counteroffer has two different effects. It acts as a rejection of the existing offer, so it brings the offer to an end. It also puts in place a new offer. Never forget the counteroffer has two effects, killing the original offer and creating a new one. In comparison to a rejection which has only the first of those effects, putting an end to the offer it is responding to. The fourth response here is something we would call a mere enquiry. This is an intermediate response. Let's look at the facts of the case again as the best way of illustrating what we mean by a mere enquiry. In Stevenson v McLean, parties were negotiating the sale of iron. An offer was made to sell this for 40 shillings net cash. If any of you are as old as I am, you might remember that we used to have four 20 shillings to a pound, so a shilling was five pence. I'm sad to say that Page 2 of 2 I'm old enough to remember how excited I was as a child when my pocket money was put up to 1 shilling a week, i.e five pence per week. The response to this offer to sell for 40 shillings net cash was, "Will you accept 40 for delivery over two months?" Now, what is that response? Well, it's not an acceptance, is it? Because we know that an acceptance has to be an unequivocal assent or agreement to the terms proposed, but it's not a rejection either because it's not unequivocal, i.e, clear refusal to deal on the terms proposed. It's a mere enquiry. It's asking simply whether the term proposed can be varied. The assumption seems to be that the offer was for instant delivery and the response was, "Can you deliver over a longer period? Can I take delivery over a longer period?" What is the effect? Well, the effect is to leave the original offer intact, and so available for acceptance. When you make this mere enquiry, you don't destroy the offer the way a rejection would. It stays in place available for acceptance, and you are merely adding a request as to whether it can be varied. This is an important intermediate category of response. I've left some extra reading here for you to do because the rules on responses to offers often come up, and particularly the concept of counteroffer we've looked at, in a context, which has become known as the battle of the forms. By the battle of the forms, we mean the situation where as is very common now, parties deal on standard forms, standard written contracts. They always have a standard written contract, which unsurprisingly favors that party. One party will make an offer on the basis of their standard terms of contract, and we will often get a response in a commercial context from the other party on their standard terms. They will be at variance because they will favor the other party. They will then act usually as a counteroffer. As each party keeps exchanging their standard forms, we get this battle of the forms. The leading case on Battle of the Forms is a case called Butler v Excello. 2.5 Exceptions to the need for communication of the acceptance As we saw above, the general rule is that for an acceptance to be valid it must be communicated to the offeror. It must be brought to the offeror’s attention. To this general rule there are certain exceptions – situations where the law does not require communication of the acceptance. 2.5.1 Where the offeror has waived the requirement of communication As we have seen above, in certain circumstances the offeror may waive the necessity for communication. This is what occurred in Carlill v Carbolic Smoke Ball Co which was a case involving a unilateral offer. 2.5.2 Unilateral offers A unilateral contract is one where one party makes an offer to pay another if that other party performs some act or refrains from some act. The other party need make no promise to do the act or refrain from the act. In these cases, acceptance of the offer occurs through performance and there is no need to communicate acceptance in advance of performance. An example of the offer of a unilateral contract is an offer of a reward for the return of a lost cat. In the case of Carlill v Carbolic Smoke Ball Company (1893) it was established that full performance is the acceptance of the offer and there is no need to communicate the attempt to perform. Communication of the acceptance is waived because it would be unreasonable of the offeror to rely on the absence of a communication which would have been superfluous or which no reasonable person would expect to be made. The other principal exception is the postal acceptance rule. 2.5.3 The postal acceptance rule Communication by post gives rise to special practical difficulties. An offer is posted. The offeree receives the offer and posts her acceptance. The letter of acceptance will take several days to arrive. At what point is the acceptance good? If one waits until the offeror receives the letter, how will the offeree know when this is? The offeree has known from the time she posted the letter that she has accepted the offer. There is also the occasional problem of the letter that never arrives at its destination. To overcome these problems, the courts devised an exception to the general requirement of communication (which would have been that the acceptance is only good when the letter arrives). The exception was devised in the cases of Adams v Lindsell 106 ER 250 and Household Fire and Carriage Accident Insurance Co Ltd v Grant 4 Ex D 216. These decisions establish the ‘rule postal acceptance’, that is, that acceptance is complete when posted. This puts the risk of delay and loss on the offeror. It is important to understand that the rule is an exception to the general rule requiring communication. The postal acceptance rule will only prevail in certain circumstances. It will prevail where use of the post was reasonably contemplated by the parties or stipulated by the offeror. See Household Fire Insurance v Grant (1879). It may be that the post is the only reasonable form of communication available. See Henthorn v Fraser 2 Ch 27. The postal acceptance rule will not allow a contract to be concluded by posting the acceptance where the letter is incorrectly addressed by the offeree. The offeror may accept the risk of delay occasioned by the post but not the carelessness of the offeree: LJ Korbetis v Transgrain Shipping BV EWHC 1345. The operation of the postal acceptance rules creates practical difficulties. The greatest problem is that contracts can be formed without the offeror being aware of the contract. For example, an offeror makes an offer. Unbeknown to him, the offeree accepts. The offeror then revokes the offer before receiving the postal acceptance. The offeror contracts with another party over the same matter – and then receives the postal acceptance from the original offeree. The offeror is now in breach of his contract with the original offeree. Partly because of these problems and partly because of technological advances (the post is no longer a such crucial method of communication), courts seem to be confining the scope of the postal acceptance rule. This is a rationale behind the decision in Holwell Securities v Hughes 1 WLR 155. In this case, the postal acceptance rule did not apply because the offeror did not intend that it would apply. While this case is authority for the proposition that the terms of an offer must be met for acceptance to be valid, it also illustrates the reservations modern courts have over the postal acceptance rule. In cases involving telexes (a now unused mode of communication where text was sent over a telephone line and printed by the recipient’s automatic typewriter – in essence a forerunner of SMS communication), the courts refused to extend the application of the postal acceptance rules. See Entores v Miles Far East Corp 2 QB 327 and Brinkibon Ltd v Stahag Stahl 2 WLR 264. As modern forms of communication such as fax and email have become almost instantaneous, courts have shown a marked reluctance to extend the postal acceptance rule to these new forms of communication. In JSC Zestafoni Nikoladze Ferroalloy Plant v Romly Holdings EWHC 245 (Comm) an acceptance by fax was held to be an instantaneous communication. In Thomas v BPE Solicitors EWHC 306 Blair J said obiter that the postal rule should not apply to contracts concluded through the exchange of emails and this is supported by the Singapore decision of Chwee Kin Keong v Digilandmall Pte Ltd 2 SLR 594. Regulations governing internet trading (i.e. the purchase of goods or services from websites), principally the Electronic Commerce (EC Directive) Regulations (2002) do not identify at what stage acceptance is effected. However, Regulation 11(2) provides that in contracts with a consumer the order and acknowledgment of the order are deemed to be received when the addressee is able to access them. This reference to receipt in the Regulations would appear to indicate that the default rule that acceptance is effective upon receipt, rather than as with the postal rule on sending, should apply to all internet sales. English contract law awaits a definitive case involving an almost instantaneous communication – such as a fax or an email. It is clear that a contract can be formed through such mediums (see, for example, Athena Brands Ltd v Superdrug Stores plc EWHC 3503 (Comm)). Because of the technology involved in both these forms of communication they are not entirely instantaneous. An email, in particular, may take some time to arrive at its destination, depending upon the route it takes to its recipient. There are two possible approaches to the email communication of the acceptance: postal analogy or receipt rule but, from the above case, it seems that the receipt rule will be preferred. Study task 8 What rules do you think courts should adopt for communication by fax or email? Show feedback Contrast the merits of a ‘receipt’ rule with those of a rule which, like the postal rule, stipulates an earlier time when acceptance is effective. Refer to the following matters. Does the sender know, or have the means of knowing, if the communication has not been received? How quickly will the sender know if the communication has not been received? Which party, if any, accepted the risk of using this form of communication? Has the communication been sent to arrive during normal business hours? Self-assessment questions What reasons have been given by the courts for the postal acceptance rule? A posts a letter offering to clean B’s house. B posts a letter accepting A’s offer. Later in the day, B’s house burns down and B now no longer needs a house cleaner. B immediately posts a letter to A rejecting A’s offer. Both of B’s letters arrive at the same time. Is there a contract or not? See Countess of Dunmore v Alexander (1830). In what circumstances will the postal acceptance rules not operate? When, if ever, can an offeror waive the need for communication? Summary For a contract to be formed, the acceptance of an offer must be communicated. There are exceptions to this general rule. The most significant of these exceptions is the postal acceptance rule. The postal acceptance rule is, however, something of an anachronism in the modern world and is unlikely to be extended in future cases. 2.6 Method of acceptance Sometimes an offeror may stipulate that acceptance is to be made using a specific method. See Manchester Diocesan Council for Education v Commercial and General Investments 1 WLR 241. In other cases, the required method for communicating acceptance may also be inferred from the making of the offer. See Quenerduaine v Cole 32 WR 185. The problem that arises is this: if the offeree uses another method of acceptance, does this acceptance create a contract? The answer is that if the other method used is no less advantageous to the offeror, the acceptance is good and a contract is formed. This is the result unless the offeror stipulates a certain method of acceptance and further stipulates that only this method of acceptance is good. See Manchester Diocesan Council for Education v Commercial and General Investments (1970). Self-assessment questions Where a method of acceptance has been prescribed by the offeror: May the offeree choose to use another (equally effective) method of communicating his acceptance? What does equally effective mean? Whose interest should prevail? Can an offer made by fax be accepted by letter? Summary If an offeror intends that a certain method of acceptance is to be used, he must stipulate this method and that only an acceptance using this method is to be used. If he only stipulates a method, an offeree can use another method provided that the other method is no less advantageous than the method stipulated. (Mini Lecture 4) In previous lectures, we've talked about the difference between bilateral and unilateral contracts. We are going to look and bring together some special rules that were applicable to unilateral contracts. Let's just refresh our memories as to what it is that is distinct about a unilateral contract because the objective today is to understand both the nature of a unilateral contract as well as the special rules applicable to it. What is it essentially that makes something a unilateral contract? Well, the definition arises from what is being exchanged. The things that are being exchanged in a unilateral contract are a promise being exchanged for an act. In the classic example, which we looked at in the previous mini-lecture, Carlill and Carbolic Smoke Ball Company, a promise was made by the Carbolic Smoke Ball Company. It was a promise that they would pay a sum of money if anyone did enact, that is used their Carbolic Smoke Ball and caught influenza, caught the flu. That distinguishes the contract from a bilateral contract, which would be an exchange of promises where I promise to pay you a sum of money for your car and you promise to deliver the car to me on a particular date. Now, from the example we've used Carlill, you'll see that a frequent feature of unilateral contracts is that the offer is made to many people. If the classic example of a unilateral contract is a reward case of which you can think of Carlill as a type of reward case, but if you think of a more typical reward case, let's say, I've lost property and I offer a reward for the return of my lost property. The nature of the contract is that I want to motivate as many people as possible to look for it, and so I will want to give the maximum publicity to my offer. I want many people to hear it so that many people are motivated to go and look for my lost property. But publication of the offer to to many people is a frequent but it is not a necessary feature of a unilateral contract. A unilateral contract might exist where one party makes a promise to one other party only. If I lose my property and I happen to say to someone I know who's very good at finding things, "If you find my property, I will pay you this sum of money." It's just as much a unilateral contract because it is an exchange of promise for an act, even though it is only addressed to one person. Well, the first special rule we're going to look at is one that we've mentioned already, which is about advertisements because we can't generalize whether an advertisement is more likely to be an invitation to treat or is more likely to amount to a contractual offer, but we can generalize a little if we can ascertain whether the advertisement is proposing a unilateral contract or is proposing a bilateral contract. Because the case we've mentioned already, the classic case on unilateral contracts, Carlill and Carbolic Smoke Ball Company is authority for saying that where the advertisement proposes a unilateral contract, that advertisement is more likely to be considered as an offer. Now, the next special rule deals with the communication of revocation because a unilateral offer may be revoked if the revocation is given equivalent publicity to the offer. Well, why is that special? It's special because revocation may be effective in relation to a unilateral offer even if it is not actually communicated to the offeree. This special rule is an exception to the general rule that revocation of an offer must be communicated to the offeree. The law is full of propositions and exceptions, and you have to be careful that you can always distinguish the proposition from the exception. The general proposition is that revocation is only effective upon communication.. In relation to a unilateral contract, there is an exception where revocation may be effective without actual communication if the revocation is given equal publicity to the original offer. Surprisingly, it's an American case, not a UK case that is authority for this quite sensible proposition. I say quite sensible because you can imagine if in that typical case, which I've already described of a unilateral offer, you publicize the offer to as many people as possible. You can never be sure when you, the offeror, seek to revoke it, that you can make every single recipient of the offer aware of the revocation. We need a practical mechanism. It is surprising that UK law hasn't had to address that before now. What happened in Shuey v the US is that the US Supreme Court held that an offer of a reward for information leading to the arrest of certain criminals was revoked by a presidential decree. There was no requirement or indeed any realistic possibility that the revocation will be communicated to every person who read the original offer, rather it was enough to quote the case that the same notoriety be given to the revocation that was given to the offer. Translating that to our jurisdiction, if I made an offer in a national newspaper, I don't think you could say that If I then revoked that offer by putting a smaller ad in a local newspaper, I would be giving the same notoriety to the revocation that I gave to the offer. Our final special rule is about revocation and part performance. This is a particular problem we have because revocation can sometimes be attempted by a unilateral offeror after the offeree has begun performance of the act that is stipulated. Now, if I offered a sum of money as a reward to my student who ran 40 times round the law faculty building, if on the 39th lap just as they're coming to complete the final circuit, I shouted, "I revoke," I think we have an instinctive sense of the injustice that would follow. That does give us a challenge. You could see it in a more serious context in Errington v Errington, because a father told his son and daughter-in-law, that if they made the mortgage payments on a house he'd bought, a house he'd bought with the aid of a mortgage, the house would become theirs. They made these payments and after the father died, the personal representative of the estate of the father tried to revoke the promise that was made by the father, but it was held, it could not be revoked. Now, that is sometimes overstated because students will write this in exams every year and say that in the case of a unilateral contract, you can never revoke the offer once performance of the stipulated act has begun. It was decided that on the facts of Errington v Errington, there could be no revocation, but it was not the correct proposition of law to say that there never can be revocation in a unilateral contract. That is because this rule that you can't revoke depends upon the implication of a term. It is only the case that you cannot revoke a unilateral offer once performance of the stipulated act has begun. It is only the case that you can't revoke when a term is implied to that effect, and that term will usually be implied, but won't always be implied. The example of the case where it was not implied is Luxor v Cooper. Because in Luxor v Cooper, the owner of two cinemas offered an agent £10,000 if the agent introduced a purchaser to whom the owner sold these cinemas. The agent introduced a buyer prepared to pay the asking price, but the owner declined to sell. Now the case went all the way to the House of Lords with the agent trying to claim his commission. The House of Lords held that the owner could revoke the promise to pay commission. There was no need to imply a term that the owner could not revoke that promise once the offeree, the agent had begun performance, i.e had tried to find unsuccessfully found someone prepared to buy the cinemas. Why is this so? Well, the test for the implication of a term is said to be one of business efficacy. We can imply a term into a contract when it is needed to give business effectiveness to that contract. There was no need to imply such a term here to give business effectiveness to the contract. That arises from the fact that a huge amount of money was being given for a relatively small task. The £10,000 in 1941, the House of Lords noticed was more than the salary of the Lord Chancellor for a whole year. Now, if an agent was being offered a sum of money to do a small task of finding purchases for more than a whole year of the most senior judge's salary, it was said that you don't need to imply a term saying that the endeavors of the agent can be frustrated by the owner simply declining to go through with the offer. Because so much is at stake, it is always worthwhile the agent trying to find the people to buy in the event or in the hope that the owner won't change his mind. Luxor v Cooper is the highest authority for saying that it is not always the case that a term will be implied to the effect that the unilateral offeror will not revoke once the offeree has begun performance of the stipulated act. This case is proof of the proposition and proof from the highest court that not every unilateral offer is accompanied by an implied promise that it will not be revoked once the offeree has begun performance of the stipulated act. 2.7 The end of an unaccepted offer Offers do not exist indefinitely, open for an indeterminate time awaiting acceptance. Indeed, some offers may never be accepted. What we will consider at the conclusion of this topic is what happens to an offer before it has been accepted. There is no legal commitment until a contract has been concluded by the acceptance of an offer. 2.7.1 Change of mind Because there is no legal commitment until a contract has been formed, either party may change their mind and withdraw from negotiations any time before there is acceptance (Payne v Cave 100 ER 502). In situations where an offeror has stipulated that the offer will be open for a certain time period, he or she can nevertheless withdraw the offer within this time period. This will not be the case, however, where the offeror is obliged (by a separate binding collateral contract) to keep the offer open for a specified period of time: Routledge v Grant 172 ER 415. If a time has been set by which to accept, then the offer will automatically lapse at the end of that period. For the revocation of an offer to be effective, there must be actual communication of the revocation. See Byrne v van Tienhoven 5 CPD 344. It is not necessary for revocation to be communicated by the offeror. Communication to the offeree through a reliable source is sufficient. See Dickinson v Dodds 2 Ch D 463. Unilateral contracts pose particular problems here. As the act stipulated as acceptance of a unilateral offer may take some time to complete, the situation may arise where the offeror tries to revoke the unilateral offer after the offeree has begun, but before he has completed, performance of the stipulated act. Intuitively it might seem unjust if revocation was allowed in these circumstances and in most cases it is not (see Errington v Errington 1 KB 290 and Soulsbury v Soulsbury EWCA Civ 969). However, the way in which such revocation is usually prevented means that revocation is not always impossible. In Luxor (Eastbourne) Ltd v Cooper AC 108 the House of Lords explained that the revocation of a unilateral offer after the offeree has begun performance of the act stipulated would not be possible in most cases because a term would be implied into the contract that the offeree would not seek to revoke his offer (or otherwise prevent the completion of performance) once that performance had begun (see also Daulia v Four Millbank Nominees Ch 231). Such a term will be implied where it is necessary to make the agreement commercially effective (‘to give it business efficacy’). It follows that where it is not necessary to imply any such term, as Luxor – the offeror – is free to revoke the offer after performance has begun. In Luxor the House of Lords said that it would not be appropriate to imply such a term where a very large consideration was being offered for a small amount of work. The Court of Appeal in Schweppe v Harper EWCA Civ 442 emphasised that cases such as Luxor where the offeror is able to revoke after performance has begun will be rare. In circumstances analogous to those in Luxor, the Supreme Court in Barton v Morris UKSC 3 held that there was no basis for implying a term under the so called Moorcock or ‘business efficacy’ principle into a unilateral contract to the effect that the offeror was not entitled to take a course of action that deprived the offeree of the benefit to which he would have been entitled if the stipulated condition had been fulfilled. In a contract between B and F, it was agreed that, if B introduced to F a purchaser who bought from F a particular property for £6.5 million or more, F would pay B a commission of £1.2 million. B introduced to F a buyer who was initially prepared to purchase the property for £6.5 million. However, because the property was affected by the planned route of a new rail track, the sale price was reduced to £6 million. The main contract was a unilateral one involving the exchange of a promise (to pay £1.2 million) for an act (introducing a purchaser who bought the property for £6.5 million or more). The main stipulated condition was not fulfilled so B argued that he was entitled to a reasonable fee if the property was sold for less than £6.5 million. This contention was rejected by the Supreme Court. Study task 9 Your neighbour offers to sell you her car for £10,000. She tells you to ‘think about it and let me know by Monday’. On Saturday, she puts a note under your door to say, ‘forget it – I want to keep my car’. Can she do this? Explain. Show feedback Your neighbour is free to withdraw her offer. The offer is not a contract and there is nothing which binds her to keep the offer open until Monday. Authority for this proposition can be seen in the case of Offord v Davies (1862). In this case, the defendant undertook to guarantee certain debts of another party for a period of a year. Before any bills were due, and within the year, the defendant cancelled the guarantee. The Court held that as the offer was not binding, it could be revoked at any time prior to the other party acting upon it. The time limit created no extra liabilities but merely stipulated a period at which liabilities will definitely come to an end. Special problems arise where the offeror has made an offer of a unilateral contract which is accepted through performance. Here, the revocation is more difficult. The English authorities appear divided as to whether or not this is possible. In Luxor (Eastbourne) Ltd v Cooper (1940) the House of Lords allowed an offeror to revoke its offer once the offeree had performed the act stipulated, whereas in Errington v Errington (1952) the Court of Appeal did not allow revocation. The proper reconciliation of the cases is that such revocation will only be allowed where, as in Luxor, no extra undertaking can be implied into the contract whereby the offeror can be considered to have impliedly promised not to revoke the unilateral offer after performance has started. By what process must the offeror of a unilateral contract revoke his offer? The problem of an appropriate process exists when the offer is made to the world. In this situation, what must the offeror do to alert ‘the world’? English law provides no answer to this question, but it is thought that the principle of Shuey v USA 92 US 73 would also apply in the UK (i.e. that revocation may be effected by giving the same prominence to the revocation as was given to the original offer). If this is done then revocation, contrary to the usual rule, may be effective even if it does not actually come to the attention of the offeree. If the offeree rejects an offer, it is at an end. A counter offer (i.e. an offer substantially at variance with an earlier offer) is simultaneously a rejection of the original offer and also a new offer (see Section 2.3). Study task 10 Analyse all the communications in Hyde v Wrench (1840) and state whether they are: an invitation to treat, a contractual offer, a counter offer, a rejection or an acceptance. Show feedback June 6 – Defendant’s letter to the plaintiff offering to sell property for £1,000 satisfies the definition of an offer (i.e. it is a definite offer to be bound if certain conditions are met). It specifies exactly the key price term being proposed. June 6 – Plaintiff’s response (via an agent) offering to purchase the property for £950 is a counter offer because it is substantially different to the original offer. This has two effects: it acts as a rejection of the offer to sell for £1,000 and stands as a new offer to buy the property for £950. June 27 – The defendant’s letter saying he could not accept the plaintiff’s offer was simply a rejection. June 29 – The defendant’s purported acceptance of the original offer to sell the property for £1k cannot be an acceptance. An acceptance can only take effect in response to a prior and subsisting offer. The defendant’s original offer to sell for £1,000 came to an end (was ‘terminated’) when it was rejected. It is sometimes said that the law looks to the ‘substance’ not the ‘form’ of communications. The analysis of the June 29 communication illustrates this. It cannot be the acceptance it purports to be because there is no prior offer. However, it could be interpreted as an offer to purchase the property for £1,000. However, no contract is concluded as there is no evidence of a subsequent acceptance by the defendant of the claimant’s offer to purchase the property for £1,000. Different problems arise when it is the offeree who changes his or her mind. For example, if after posting a letter of acceptance, the offeree informs the offeror by telephone, before the letter arrives, that they reject the offer, should the act of posting an acceptance prevail over the information actually conveyed to the offeror? In the absence of English cases the books refer to a number of cases from other jurisdictions – see Dunmore v Alexander 9 S 190 (Scotland) and Wenkheim v Arndt 1 JR 73 (New Zealand) – but when citing them, it is important to emphasise that they are not binding, and indeed have very little persuasive authority. The question must therefore be answered primarily as a matter of principle. Treitel suggests that ‘the issue is whether the offeror would be unjustly prejudiced by allowing the offeree to rely on the subsequent revocation’. 2.7.2 If a Condition in the Offer is not Fulfilled, the Offer Terminates Where the offer is made subject to a condition which is not fulfilled, the offer terminates. The condition may be implied. See Financings Ltd v Stimson (1962). In this case, the offeror purported to accept an offer to purchase a car after the car had been badly damaged. 2.7.3 Death: If the Offeror Dies, the Offer May Lapse This is a point on which the cases divide. On the one hand, Bradbury v Morgan (1862) 158 ER 877 (Ex) held that the deceased offeror’s estate was liable on the offer of a guarantee after the death of the offeror. However, obiter dicta in Dickinson v Dodds (1876) state that death of either party terminated the offer because there could be no agreement. The best view is probably that a party cannot accept an offer once notified of the death of the offeror but that in certain circumstances the offer could be accepted in ignorance of death. The death of an offeree probably terminates the offer in that the offeree’s personal representatives could not purport to accept the offer. 2.7.4 Lapse of an Offer The offeror may set a time limit for acceptance; once this time has passed the offer lapses. In many cases, the offeror can revoke the offer before the time period lapses provided that the offer has not been accepted. See Offord v Davies (1862). In cases in which no time period is stipulated for the offer, an offeree cannot make an offeror wait forever. The offeror is entitled to assume that acceptance will be made within a reasonable time period or not at all. What a reasonable time period is will depend upon the circumstances of the case. See Ramsgate Victoria Hotel v Montefiore LR 1 Ex 109. Self-assessment questions Why can the offeror break his or her promise to keep the offer open for a stated time? In a unilateral contract which is accepted by performance, when has the offeree started to perform the act (so as to prevent revocation by the offeror)? Does the offeror need to know of the performance? How can the offeror inform all potential claimants that the offer of a reward has been cancelled? Will there be a contract if the offeree posts a letter rejecting the offer but then informs the offeror by telephone, before the letter arrives, that he accepts the offer? What is the purpose of implying that the offer is subject to a condition? Summary Until an offer is accepted, there is no legal commitment upon either party. Up until acceptance, either party may change their mind subject to the next sentence. An offeror may not revoke a unilateral offer after performance has begun whenever the offeror has undertaken, perhaps impliedly, not to do so. An offeree may reject an offer prior to acceptance and may do so by making a counteroffer. An unaccepted offer expires either: at the end of any time period stipulated, or within a reasonable time period where no time period is stipulated. An offer will lapse where it is made on an unfulfilled condition. An offer may lapse when the offeror dies. Examination tips The detailed rules of offer and acceptance provide a ready source of problems and difficulties on which examiners can draw. Here are some examples. Is a particular statement an offer or an invitation to treat? Is there a counteroffer or is it merely an enquiry? When does a posted acceptance fall outside the postal rule? Was the offeror or offeree free to have second thoughts? When is a telephone call recorded on an answering machine actually received? When is an email received? There are also several everyday transactions where the precise contractual analysis is not immediately apparent – the motorist filling up with petrol (gas), the passenger riding on a bus, the tourist buying a ticket for the Underground (subway) from a machine and so on. The fact that some of these problems are not covered by authority does not make them any less attractive to examiners – indeed, the opposite might well be the case. The key to most problems of offer and acceptance is the idea that the law should give effect to actual communication wherever possible. Sample examination question 1 Question Alice wrote to Bill offering to sell him a block of shares in Utopia Ltd. In her letter, which arrived on Tuesday, Alice asked Bill to ‘let me know by next Saturday’. On Thursday Bill posted a reply accepting the offer. At 6pm on Friday he changed his mind and telephoned Alice. Alice was not there but her telephone answering machine recorded Bill’s message stating that he wished to withdraw his acceptance. On Monday Alice opened Bill’s letter, which arrived that morning, and then played back the message on the machine. Advise Alice. Tutor guidance Using the guidance below, think about how you would answer the question. When you are ready, read the feedback. It’s important to break the question down into its constituent issues. You are considering each of these issues with a view to determining whether or not a contract has been formed. Before looking at the feedback try to determine the response to the issues in this problem. These questions will help to focus your answer. What is the effect of Alice writing to Bill to offer to sell him shares? What is the effect of Alice’s stipulation as to the time the offer is open? What is the effect of Bill’s posting a reply? What is the effect of Bill’s change of mind? Is there effective communication when a message is left on an answering machine? Which of Bill’s two communications is determinative? Feedback When the issues are listed in this form it is apparent that the biggest issue is whether or not a contract has been formed. This is dependent upon whether Alice’s offer has been accepted. This, in turn, depends upon whether Bill has communicated his acceptance or his rejection. We will examine these issues in turn. Alice’s letter appears to be an offer within the criteria of Gibson v Manchester City Council and Storer v Manchester City Council. You should outline these criteria and apply them to the facts – sometimes the designation of an ‘offer’ in a problem question or in everyday life turns out not to be an offer in the legal sense. Alice’s stipulation that the offer is open for one week is not binding (apply the criteria in Offord v Davies) unless there is a separate binding contract to hold the offer open. There does not appear to be such a separate binding agreement. Because Bill posts his letter of acceptance, we need to consider whether or not the postal acceptance rules apply. Consider the criteria in Household Fire Insurance v Grant. Does the case apply here? In the circumstances, it probably does. Alice has initiated communications by post and thus probably contemplates that Bill will respond by post. In these circumstances, the acceptance is good when Bill posts the letter – it is at this point that a contract is formed. It does not matter that the letter does not arrive until Monday (at which point the offer will have expired, given Alice’s stipulation as to the time period). A possible counter argument to this is that Alice asked Bill to let her know by Saturday – and this ‘let me know’ means that there must be actual knowledge of his acceptance – that it must really be communicated. This necessity for actual communication means that Bill’s acceptance is not good until Monday when Alice actually opens the letter. To apply this counter argument, one needs to consider the criteria set out in Holwell Securities v Hughes. One might also note that since that decision, courts are reluctant to extend the ambit of the postal acceptance rule. Bill changes his mind. Here there is no authority as to the effect of his change of mind. In addition, given the two possible positions in point (c) above, two possible outcomes exist. If the postal acceptance rules apply, then a contract has been formed and Bill’s later change of mind cannot upset this arrangement. However, this seems a somewhat absurd result since Alice learns almost simultaneously of the acceptance and the rejection. Bill has attempted to reject the offer by a quicker form of communication than the post. In these circumstances, you could apply the reasoning of Dunmore v Alexander and state that no contract has been formed between the parties. In addition, given the reservations of the court in Holwell Securities v Hughes, it seems improbable that a court would rely upon the postal acceptance rule, an unpopular exception to the necessity for communication, to produce an absurd result. The second possible outcome here is that the postal acceptance rules never applied and no contract could be formed until Alice opened the letter. Since she received the rejection at almost the same time, she is no worse off (see reasoning above) by not having a contract. You might also wish to consider the application of the rules for instantaneous communications in Entores v Miles Far East Corp and Brinkibon v Stahag Stahl 2 AC 34. Should the communication made by telephone be deemed to have been the first received? If so, there is no contract. This is really the answer to the question. For the reasons stated above, the rejection should be determinative. Accordingly, no contract arises in this situation and Bill is not obliged to buy the shares in Utopia Ltd. Sample examination question 2 Question Cyril, a stamp dealer, had a rare Peruvian 5 cent blue for sale. He wrote to Devi, a collector who specialises in Peruvian stamps, asking whether she would be interested in purchasing it. Devi wrote in reply, ‘I am willing to pay £500 for the “blue”; I will consider it mine at that price unless I hear to the contrary from you and will collect it from your shop on Friday next week.’ Advise Devi as to the legal position: if Cyril disregarded Devi’s letter and sold the stamp to Eric for £600 if Cyril put the stamp on one side in an envelope marked ‘Sold to Devi’ but Devi decided that she no longer wished to buy it. Tutor guidance Using the guidance below, think about how you would answer the question. When you are ready, read the feedback. It’s important to break the question down into its constituent issues. You are considering each of these issues with a view to determining whether or not a contract has been formed. Before looking at the feedback try to determine the response to the issues in this problem : The effect of Cyril’s letter – is it an offer or an invitation to treat? The effect of Devi’s letter – is it an acceptance? Does the postal acceptance rule apply? Is Devi’s letter a statement of intention? Is Devi’s letter an offer? Can she waive the necessity for the communication of the acceptance Feedback Note at the outset that in two-part questions such as this you must answer both parts (unless clearly instructed that candidates are to answer either a or b). Again, your approach should be to break down the question into its constituent parts: The effect of Cyril’s letter – is it an offer or an invitation to treat? The effect of Devi’s letter – is it an acceptance? Does the postal acceptance rule apply? Is Devi’s letter a statement of intention? Is Devi’s letter an offer? Can she waive the necessity for the communication of the acceptance? By considering these issues, you can determine whether a contract has been formed or not. With respect to part (a), if a contract has been formed, then Cyril is in breach of this contract when he sells the stamp to Eric. You need to consider whether Cyril has made an offer – has he exhibited a willingness to commit on certain terms within Storer v Manchester City Council (1974)? Or is his communication an invitation to treat or a step in the negotiation of a contract? If his letter is an offer, it seems reasonable that he expects an acceptance by post and the postal acceptance rules will apply: Household Fire Insurance v Grant (1879). On balance, it seems unlikely that his letter is an offer – it is phrased in terms that seek to elicit information and not to be binding upon further correspondence from Devi. Devi may have made an offer and waived the necessity for further communication – see Felthouse v Bindley (1862). It is, however, possible that either Devi never made an offer to buy the stamp (she was merely giving an indication of her top price) or that Cyril never accepted the offer. In these circumstances, no contract has been formed with Devi and Cyril is free to sell the stamp. With regard to part (b), if Devi has (and can, given the law in this area – see Felthouse v Bindley (1862) and Rust v Abbey Life (1979)) made an offer, then Cyril has (if possible) accepted the offer when he takes the step of setting aside the stamp. In these circumstances, a contract has been formed and Devi is obliged to buy the stamp. There are, however, significant weaknesses in reaching this conclusion – primarily that she seems to be indicating the top price she would pay for the stamp and that if a broad interpretation is taken of Felthouse v Bindley (1862) (but this would be contrary to the obiter dicta in Rust v Abbey Life) she cannot waive the necessity for communication of the acceptance. Sample examination question 3 Question On 1 January A writes to B saying, ‘I am considering selling my horse, Shadowfax, and I wonder whether you would like to buy him. I would expect to receive about £500 for him’. On 2 January B writes back, ‘I accept your offer and will send you the money in a few days’. On 3 January A writes to B: ‘Don’t be ridiculous, I wasn’t offering the horse for sale, and anyway I want £750 for him. To avoid misunderstanding, do not write back unless you do not want the horse at this price’. B was so annoyed on reading the first sentence that he tore up the letter without reading further and did not reply. Three weeks later A came round and demanded £750, offering to deliver the horse. Advise B. Would your answer be any different if upon reading A’s second letter B decided to purchase the horse for £750 and A now refuses to deliver it? Tutor guidance Using the guidance below, think about how you would answer the question. When you are ready, read the feedback. It’s important to break the question down into its constituent issues. You are considering each of these issues with a view to determining whether or not a contract has been formed. Before looking at the feedback you should consider the communications chronologically because the proper legal analysis of a later communication will often depend upon that of a prior one. Feedback Communications must be considered chronologically because the proper legal analysis of a later communication will often depend upon that of a prior one. A communication from A to B cannot be an acceptance unless there has been a prior communication from B to A that constitutes an offer; a communication from A to B cannot be a counter offer unless B has previously made an offer to A. Sometimes it may not be possible to come to a firm conclusion as to the proper analysis of a communication, in which case two alternatives may need to be considered, of the type: if A’s letter to B is an offer then B’s reply may be an acceptance, but if A’s letter to B is only an invitation to treat (negotiate) then B’s reply may be a contractual offer, etc. A–B Jan 1 Is this an offer or an invitation to treat? You should define each and consider Gibson v Manchester City Council and Storer v Manchester City Council. On the authority of Gibson words such as ‘considering’, ’wonder’, ’expect’ are likely to be considered too equivocal to support the existence of an offer so this communication will be an invitation to treat. B–A Jan 2 This is phrased as acceptance but the law looks to the substance not the form of communications. For example, in Hyde v Wrench a purported acceptance was held to amount to an offer only and in Pickford v Celestica EWCA Civ 1741 a purported acceptance was held to be a counter offer. Here the purported acceptance must be an offer to buy. A–B Jan 3 This is a counter offer as it is substantially different to the previous offer, see Hyde v Wrench; it cannot be a ‘mere enquiry’ as in Stevenson v McLean. Was this offer accepted? B’s silence cannot constitute acceptance: Felthouse v Bindley. If B’s silence amounted to acceptance then this would involve forcing a contract on an unwilling party. This is the wrong which the rule that silence should not amount to acceptance aims to avoid. What if? In this variation the offeree B wants to waive the protection usually offered by the Felthouse v Bindley rule, so here B’s silence could constitute acceptance on the authority of Rust v Abbey Life.

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