Contract LawIndex

1. Introduction2. Offer and Acceptance3. The Fact of Acceptance4. Termination of Offer5. Consideration6. Intention to Contract Contract7. Express Terms8. Implied Terms9. Exemption Clauses

Introduction

A Contract is an agreement which binds the parties to it. Some agreements are not contracts; for example, an agreement to meet under the clock at Selfridges: what distinguishes contractual agreements from other agreements is the feature of binding legal obligation. Some

legal obligations ( for example , in the law of torts) arise without agreement: what distinguishes contractual obligations from other obligations is the feature of agreement.

Although agreement is a basic element of every contract, it should be noted that the agreement is not always of such a kind that it would be so called in popular speech.

Offer and Acceptance

A Contract is founded on agreement. Agreement arises from offer and acceptance. One person makes an offer; another person accepts that offer. When that has happened (provided that other necessary factors, namely , consideration and intention to contract ,are present ) there is a contact. Consideration will be dealt with in chapter 2 ; intention to contract in Chapter 3.

Offer

An offer is a proposition put by one person (or persons) to another person ( or persons) coupled with an intimation that he is willing to be bound to that proposition. The offeror (that is, the person who makes the offer ) may make his offer to a particular person , or to a group of persons or to " the whole world ". He may make this offer in writing, or spoken words or by conduct. Thus the offer may take any form between an elaborate document with numerous clauses and sub-clauses and an ordinary everyday act of conduct, such as a bus driver pulling up at a bus stop. The intimation that the offeror is willing to be bound need not to be stated in words ( written or spoken); it may be, and frequently is, inferred from the nature of the offeror's proposition or from the circumstances in which the proposition is made.

True Offer distinguished from Invitation to Treat

It is necessary to distinguish a true offer from an "offer to chaffer" (as it is put in some of the old cases ) or from an "invitation to treat" ( to use a more modern phrase ). The importance of the distinction is that if a true offer is made and is then accepted the offeror is bound , whereas if what the offeror said or did is not a true offer the other person cannot by saying " I accept " create a contract ; that is , he cannot ,by saying " I accept " bind the offeror. Important though the distinction is, it is not always easy to make it. For an example of this, see Gibson v Manchester

city council (1979 , H.L.) a case involving council house sales.

Tenders

In Connection with tenders the distinction between an offer and an invitation to treat is reasonably clearly seen. If A asks a number of tradesmen to put in tenders for supplying him

with some particular goods or services he is not, in so doing , making an offer . Consequently, he is not bound to accept the lowest, or any other tender. The position is similar Where A asks one tradesman to put in an estimate for supplying particular goods or services. It is not A who makes the offer ; the offer comes from the tradesman in the form of the tender or estimate. ( see Spencer v Harding (1870) )

on the other hand, there may be cases where the person inviting tenders may bind himself to accept the highest bid. This is what happened in Harvela Investments Ltd v Royal Trust

Company of Canada (CI) Ltd. ( 1985 HL)

Display of Goods for Sale

The rule of law that calling for tenders is not the making of an offer accords with common sense. But common sense is not so clearly satisfied with the parallel rule that the displaying of goods for sale is not the making of an offer.

see Pharmaceutical Society of Great Britain v. Boots Cash chemists (southern) Ltd .( 1953 , C.A.)

Advertisements

The same rule applies to an advertisement by, for example, a trader stating that he is willing to sell some goods. The advertisement is not an offer, merely an offer to chaffer. This point is well illustrated by the case of Partridge v Crittenden (1968)

Auction Sales

The analysis of auction sales in terms of offer and acceptances is not entirely easy. The general proposition is that the bidder is the offer; his bid (which may be by words or by conduct , such as waving a catalogue ) is the offer. The auctioneer accepts the offer by striking the table with is hammer. It follows that the auctioneer can withdraw an item at any time provided he has not accepted a bid. previous bids, it seems, laps

as offers as soon as a higher bid is made. In Harris v. Nickerson (1873) it was decided that the advertising of an auction sale to be held at a particular time and place is not an offer. But it seems that an advertisement that a sale will be held " without reverse" is definite offer, if the sale once starts, that the auctioneer will accept the highest bid. According to Warlow v Harrision

(1859) the auctioneer in such circumstances makes a contract with each bidder that he will sell to the highest bidder.

Negations for sale of land

In sales of land there are so many points to be settled between the parties that the courts are inclined to treat as a mere step in the negotiations a communication which in other circumstances might be held to be a definite offer. A good example of this tendency is offered by Harvey v Facey ( 1893, P.C)

Acceptance

This topic is best discussed under two heads: first, the fact of acceptance ; Secondly , the communication of acceptance.

The facts of Acceptance

How does one recognize that acceptance has occurred as a fact ? What amount to acceptance ?

Negotiations

When parties carry on complicated negotiations it is sometimes difficult to say when ( if at all ) an offer has been accepted. We have seen that it is sometimes hard to determine whether an acceptance has been made. (e.g in a situation such as arose in Clifton v. Palumbo). It is harder still sometimes to say wether an acceptance has been made.

Acceptance by conduct

Just as an offer can be made by conduct so can an acceptance . This is clearly so in the case of a unilateral contract. Thus if A offers a reward for the return of his lost dog, Fido, then B, by taking Fido to A, both accepts the offer of the reward and performs the act necessary to gain it. It is more important to note that a bilateral contract can be made by means of an acceptance by conduct. In Brogden v. Metropolitan Railway Co. ( 1877, H.L )

Acceptance must exactly fit the offer

A reply to an offer is only effective as an acceptance if it accepts all the terms of the offer without qualification or addition. Thus in Brogden's case Brogden;s returning the draft, marked "approved" , did not continue an acceptance because he had introduced a new term.

A "battle of forms"

In some cases there occurs what has come to be called a "battle of forms". A makes an offer on his own printed form containing certain terms, and B accepts on his printed form which contains conflicting terms. A contract may well come into existence by conduct, but on which terms ? Often the answer is that the party who fires the last shot wins, but this is too simple a proposition to meet all the varied facts of real commercial life. The whole matter is discussed in Buttler Machine Tool Co. Ltd v. Ex-Cell-O

Corporation (England) Ltd. (1979,C.A.)

The Communication of Acceptance

The offeree may have decided, in his own mind, that he accepts the offer, but that decision in itself does not amount in law to acceptance . It is necessary that he should communicate his acceptance to the offeror. Thus in Brogden's case, the fact that the agent of the railway company stuffed the amended draft contract in

his drawer did not amount to acceptance, even although in his own mind he did accept the amendments. It would still not have amounted to acceptance if the agent had written on the draft, before stuffing in his drawer, "Amendments accepted.

However , the terms of an offer may be such that the requirement of communication of acceptance is waived by the offeror. This is commonly the case in unilateral contracts. In Carlill v. carbolic smoke ball Co. the court rejected the argument that Mrs. Carhill should have notified the defendants of her intention put their medicament to the test. Bowen L.J said: " If I advertise to the world that my dog is lost and that anybody who brings the dog to a particular place will be paid some money, are all the police or other persons whose business it is to find lost dogs to be expected to sit down and write me a note saying that they have accepted my proposal ?" In such a case acceptance does

not require communication in the ordinary sense. But, of course , there is a kind of communication; the bringing along of the lost dog is, in a sense, a communication.

Acceptance by post

The general rule that acceptance take effect only when it is brought to the notice of the offeror raises difficulties where the acceptance is sent by post. The acceptance may be delayed, or permanently lost, in the post. It is to be said that there has been no acceptance ? If so, that very hard on the acceptor, who may have been expressly invited to make his reply by post. If on the other hand it is to be said that a postal acceptance takes effect from the moment it is posted that may be hard on the offeror. Hearing nothing from the offeree, the offeror may put it out his power to perform his offer and find himself liable in damages for breach of contract. This raises an almost insoluble problem in

justice, and the courts have been content to lay doen a rule upon a basis of convenience. The rule is that an a acceptance by post takes effects as soon as it is posted. This is special rule relating to the post was laid down in Adams v.

Lindsell (1818) The rule laid down , the postal acceptance dates from posting, has been the rule ever since, though not without one or two attempts to overturn it by judges who felt that it was inconsistent with a true doctrine of agreement. There is no meeting of mind, no consensus, if merely posting a letter can clinch a contract. That is the law takes an objective, not a subjective, view of agreement.

The rule for postal acceptance applies even where the letter of acceptance is delayed in the post, and even where it is totally lost. This was laid down in Household Fire (etc) Insurance Co. v.

Grant (1879, C.A) In this kind of extreme case the rule may operate very hardly on the offeror.

Termination of offer

There are five ways in which an offer may terminate without ripening into a contaract.

Revocation

An offer can be revoked (that is, withdrawn) at any time before it is accepted.

Revocation, to be effective must be communicated to the offeree; the offeror cannot revoke his offer simply by a mental decision that he no longer wishes to proceed.

Unlike the acceptance, a revocation need not be communicated by the party himself. It is sufficient if the offeree learns from a third party that the offer has been revoked.

The revocation mustbe actually communicated to the offeree.

Refusal and Counter offer

Refusal of an offer puts an end to the offer.

Laps of time

If an offer is stated to be open for a fixed time, then it cannot be accepted after that time. If no time is stated in the offer, then the offer lapses after a reasonable time. What is a reasonable time is a question of fact, depending on the means of the offer and the subject-matter of the offer.

Non-Occurrence of Condition

An offer which is expressly or impliedly made subject to some condition cannot be accepted if the condition fails. A very important practical application of this principle is that an offer to buy goods ( or to take goods on hire-purchase ) is subject to an implied condition that they will continue, until acceptance, in substantially the same state as they were in at the time of offer.

Death

The effect of death on an offer is a surprisingly difficult question. At first sight one would think that there is an implied term in every offer that is conditional upon the continued existence of the offeror and the offeree. But this does not appear to be the law. putting it shortly, it seems that if the offeree does not know that the offeror has died, an acceptance will be valid if the nature of the contract is such that it can be performed by the offeror's personal representatives; see Bradbury v. Morgan (1862)

Certainty

A contract may fail to come into existence, even though there is offer and acceptance, because of uncertainty as to what has been agreed.

"Subject to contract"

It is common practice in negotiations for the sale and purchase of land ("land, " in law, includes a building , e.g a house) for the intending purchaser to make an offer which is

expressed to be "subject to contract." In that event it is well settled that neither party is bound unless and until a definite contract is made between the parties.

The phrase "subject to contract" has become a kind of magic formula, and the rule that neither party is bound is so well known that authority for it is sometimes lost sight of. If authority is wanted, it is to be found in Chillingworth v. Esche (1924,C.A). The clear general rule is that the phrase is conditional, in that the condition to be fulfilled before a contract comes into existence is that there should be an exchange of contracts; before that event, either party can withdraw.

The limits of offer and acceptance

It is variably possible to analyse agreement into offer and acceptance. But there are circumstances in which this analysis is

impossible or highly artificial. A good example is to be found in Clarke v. Dunraven (1897,H.L)

one cannot always point to an offer and an acceptance, but there may still be an agreement there. In the vast majority of situation, however, the bones of the agreement are plain to se-offer and acceptance.

Note on Mistake

Ii is right to point out , however , that some (but not all) kinds of mistake amount to a failure by the offeror and offeree to reach agreement.

Consideration

An Agreement does not, by itself, bind the parties at law. Two further elements are required to make the agreement binding: consideration and the intention to contract.

It is sometimes a contract is made "under seal" or by "deed" . Those phrases have substantially the same meaning. The seal is said to give a contract "form", and a contract under seal can be called a "formal Contract". A contract not under seal is called a "simple contract".

What is consideration ?

Consideration is an essential element in every contract which is not made under seal. Having regard to the matters mentioned above, it would not be inaccurate to say that consideration is an essential element in every contract.