Business Law (Agreement)

INTRODUCTION

Contract is “an agreement giving rise to obligations which are enforced or

recognised by law” (Treitel The Law of Contract)

What is it for?

“... the purpose of the law of contract is not to punish wrongdoing but to satisfy the
expectations of the party entitled to performance” as per Lord Hoffman in Co-
operative Insurance Society v Argyll Stores (Holdings) Ltd [1997] 3All ER 297.

19th century contract law – still relevant today?

‘.. contracts, when entered into freely and voluntarily, shall be held sacred and shall
be enforced by the Courts of Justice’ Printing & Numerical Registering Co v
Sampson (1875) LR 19 Eq 462.

FORMING THE AGREEMENT OFFER & ACCEPTANCE

 INTRODUCTION

4 elements must be present for a contract to be binding.

1. Offer
2. Acceptance
3. Intention to create legal relations
4. Consideration

 AGREEMENT (Offer and Acceptance)

How to ascertain agreement - the objective or subjective test? Smith v Hughes

(1871) LR 6 QB 597
 ‘if whatever a man’s real intention may be, he so conducts himself that a reasonable
man would believe that he was assenting to the terms proposed by the other party,
and that other party upon that belief enters into the 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’

a. An agreement may be made:

 in writing; or
 by word of mouth (orally); or
 by inference from the conduct of the parties and the circumstances of the
case;
 or
 by any combination of the above modes

b. Bilateral and Unilateral Contracts:

Bilateral: most common form. Parties make each other a promise to do

something. (i.e. Sell item in exchange for payment.)
Unilateral: one party makes an offer which calls for an act to be performed by one
or more other parties. (i.e. offer calling for lost item to be returned for a reward.)

*Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256

“Why should not an offer be made to all the world which is to ripen into a
contract with anybody who comes forward and performs the condition?” per
Bowen LJ

Carlill considered and applied in Bowerman v Association of British Travel Agents

(CA) 24th November 1995 (The Times)

1. OFFER
 What is an offer?
o “An offer is an expression of willingness to contract on specified
terms, made with the intention that it is to be binding as soon as it is
accepted by the person to whom it is addressed.”
o Grecoair Inc v Tilling [2005] Lloyds Rep 151
If an offer is NOT made, then there is no contract and so there can be
no breach. b. Is it an offer or is it something else?
 Is it an invitation to treat?
o *Gibson v Manchester City Council [1978] 1 WLR 520 (CA); [1979] 1
WLR 294 (HL) *Storer v Manchester City Council [1974] 1 WLR 1403

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 o General Guidelines to help distinguish an offer from an invitation to
treat:
i. Displays and Adverts *Pharmaceutical Society of GB v Boots
[1953] 1 QB 101 Fisher v Bell [1961] 1 QB 391
Partridge v Crittenden [1968] 2 ALL ER 121
ii. Timetables and Automatic Vending Machines
 Trains: Denton v Great Northern Railway Co [1856] 5 E. & B.
86
 Buses:
Wilkie v London Passenger Transport Board [1947] 1 All E.R.
258
iii. Auctions
An auction involves a number of steps:
 Advertising the auction
 Putting up goods for sale
 Bid
 The fall of the hammer
The problem arises with auctions when an auction is
without reserve (without minimum price)
Warlow v Harrison [1859] 1 E & E 309 Barry v Davies
[2000] 1 W.L.R. 1962
iv. Tenders
 General rule; an invitation to tender is an invitation to
treat
 Offer is made by persons submitting tender
 Acceptance is made when the person inviting the
tenders accepts one of them
(Harvela Investments Ltd v Royal trust Co of Canada (CI)
Ltd [1986] A.C. 207 Blackpool and Fylde Aero Club v
Blackpool BC [1990] 1 W.L.R. 1195)

 Communication of the offer

o Offer must be communicated to the offeree Taylor v Laird [1856] 25 LJ
Ex 329
o An offer may be communicated to a particular person or group of
people or generally to the whole world
Carlill (see above)
o Problems with electronic media
(i.e. WHSmith internet terms and conditions: “Pricing Errors -
Although we make every effort to ensure the prices on the website
are correct, mistakes may sometimes be made. If we discover a

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 mistake in the price of the products you have ordered, we will tell you
and give you the option of either reconfirming your order at the
correct price or cancelling your order. If we are unable to contact you
or we receive no reply from you, we will cancel your order. If your
order is cancelled and you have already paid for the products you will
receive a full refund.”)

2. ACCEPTANCE

The offer must be accepted to form a contract

“A contractual acceptance has to be a final and unqualified expression of assent to

the terms of the offer.” per Black J in Day Morris Associates v Voyce [2003] EWCA
Civ 189 at para 35.

General Rules:
The acceptance must correspond with the terms of the offer The acceptance must
be given in response to the offer
The acceptance must be made by the appropriate method The acceptance must be
communicated to the offeror

a. Correspondence with the offer

I. Mirror image rule:
Acceptance must mirror the terms of the offer.
II. *Is it an acceptance, or just a counter offer?
*Hyde v Wrench (1840) 49 ER 13
III. *Is it a counter offer, or just a request for further information?
*Stevenson Jacques & Co v McLean [1880] 5 QBD 346
IV. *‘Battle of the Forms:’ confusion over the sequence of events *Butler
Machine Tool Co. Ltd v Ex-Cell-O Corp. (England) Ltd. [1979] 1 ALL ER
965
b. Acceptance must be in response to the offer

Gibbons v Proctor (1891) 64 LT 594

Upton RDC v Powell [1942] 1 ALL ER 220
Williams v Carwardine (1833) 5 C&P 566
R v Clarke (1927) 40 CLR 227 (N.B. This is an Australian case and is NOT
BINDING on English courts, although they can see it as persuasive when
considering the arguments of the parties).

c. Appropriate method

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 An offer must be accepted in a specific way. Either, the offer itself will specify
how it is to be accepted e.g. ‘Let me know by email..’ OR, any words or
conduct which objectively shows the offeree had an intention to accept the
offer is sufficient.

d. Communication of the acceptance

I. Acceptance by conduct
- Brogden v Metropolitan Railway Co. (1877) 2 App. Cas. 666 (“If the
parties have by their conduct said that they act upon the draft which
has been approved of by Mr Brogden, and which if not quite
approved of by the railway company, has been exceedingly near it, if
they indicate by their conduct that t)hey accept it, the contract is
binding.” per Lord Blackburn
*Day Morris Associates v Voyce [2003] as above (“...it seems to me
that...the conduct in question must be clearly referable to the offer, and,
in the absence of knowledge of the offeree’s reservations, not
reasonably capable of being interpreted as anything other than
acceptance.” per Black J, para 35)
II. Acceptance by silence
Felthouse v Bindley (1862) 11 CBNS 869 Day Morris Associates v Voyce
[2003]
V. Acceptance by post
*Adams v Lindsell (1818) 1 B&Ald 681 *Henthorn v Frazer [1892] 2 Ch.
27
Household Fire and Carriage Accident Insurance Co. Ltd. v Grant (1879)
4 ExD. 216
*Holwell Securities v Hughes [1974] 1 ALL ER 161
Re London & Northern Bank ex parte Jones [1900] 1 Ch. 220
VI. Further Reading:
Gardner: “Trashing with Trollope: A Deconstruction of the Postal Rules
in Contract” (1992) 12 Oxford Journal of Legal Studies

e. Acceptance by instantaneous communication

*Entores v Miles Far Eastern Corporation [1955] 2 ALL ER 493 *Brinkibon Ltd. v
Stahag Stahl [1983] AC 34
Henkel v Pape (1870) LR 6 Ex 7

Problems with modern forms of communication

Also consider the implications of contracts concluded by email and over the
Internet.
The Eastern Navigator [2005] EWHC 600

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 Chwee Kin Keong v Digilandmall.com Pte.ltd [2004] 2 SLR 594 (Hong Kong
case)

Further reading:
Capps: “ ‘You’ve Got Mail:’ Does the Postal Rule Apply to Email?” (2003) 153
NLJ 906
Capps: “Electronic mail and the Postal Rule” (2004) 15(7) ICCR 207 Deveney:
“When an Agreement Via Email is Not a Contract” (2003) 8(3) Comms L 298
Rogers: “Snap! Internet ‘Offers’ Under Scrutiny Again” (2002) 23(3) Business
Law Review 70. This article addresses the Kodak and Argos internet pricing
problem.

See Electronic Commerce (EC Directive) Regulations 2002 (SI 2002/2013) on

this issue generally.

A solution to the internet problem?

e.g. WHSmith terms and conditions for purchasing items from their website.

“No contract will subsist between you and WHSmith Direct for the sale of
products by us to you until your credit/debit card has been charged. This will
be deemed to be our acceptance of your offer and to have been effectively
communicated to you. This is to be interpreted and enforced with the laws
of England, in its entirety and will be subject to the jurisdiction of the English
courts.”

f. Acceptance in unilateral contracts

The difference between bilateral and unilateral contracts is important in

certain circumstances:

1. Acceptance
“...where a person in an offer made by him to another person, expressly or
impliedly intimates a particular mode of acceptance as sufficient to make the
bargain binding, it is only necessary for the other person to whom such an
offer is made to follow the indicated method of acceptance; and if the
person making the offer, expressly or impliedly, intimates in his offer that it
will be sufficient to act on the proposal without communicating acceptance
of it to himself, performance of the condition is a sufficient acceptance
without notification.” Per Bowen LJ in Carlill v Carbolic Smoke Ball Co.

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 2. Time for revocation of the offer
*Errington v Errington [1952] 1 ALL ER 149
Luxor (Eastbourne) Ltd. v Cooper [1941] AC 108
*Daulia v Four Millbank Nominees Ltd. [1978] 2 ALL ER 557

3. Communication of the revocation to the rest of the world

TERMINATION OF OFFER

Rules for Bilateral Contracts:

a. Rejection
Hyde v Wrench (see earlier) Rejection must be communicated

b. Revocation

Payne v Cave (1789) 3 Term Rep. 148 *Routledge v Grant (1828) 4 Bing 653 *Byrne v
Van Tienhoven (1880) 5 CPD 344 The Brimnes [1975] QB 929

*Dickinson v Dodds (1876) 2 ChD 463

c. Lapse of Time

Ramsgate Victoria Hotel v Montefiore (1866) LR 1 EX 109

Korbetis v Transgrain Shipping BV [2005] EWHC 1345 (Queen’s Bench)