LA1040Elements of the Law of Contract

Ramona Vansluytman

Academic Year 2011-2012

OFFER AND ACCEPTANCE

• A simple contract (that is, a contract made not under seal) requires an offer made by one party and accepted by the other, valuable consideration given by either side, or a common intention that the agreement should be legally binding

OFFER

OFFER

• An offer is made when one party makes it clear, by words or actions, that he is prepared to be bound as soon as the offer is accepted by the person to whom it is made. An offer is thus quite different from an invitation to treat, though it is not always easy to distinguish the two.

Grainger v Gough [1896]

• Grainger v Gough [1896] AC 325, HL• AA were London agents for a French wine merchant X;

they distributed catalogues and accepted orders which they passed on to X, X reserving the right to refuse any order. The case turned on whether X was liable for tax on contracts made by his agents in England. The House of Lords held that the distribution of catalogues was an invitation to treat and that the offer was made by the intending purchaser. This offer was transmitted by AA to X, and the contract was not made until X accepted the offer in France.

Gibson v Manchester CC [1979]

• Gibson v Manchester CC [1979] 1 All ER 972, HL• A local council write to tenants inviting them to apply

to purchase their homes. One such tenant P did apply, and a price was agreed. Following a change of party control, the new council DD refused to go ahead with the sale. The House of Lords said there was no binding contract: P had made an offer which DD had not yet accepted. Phrases in the correspondence such as "may be prepared to sell" and "please complete the enclosed application form" were indicative of an invitation to treat.

Display of goods

• A display of goods in a shop window, or on the shelves of a self-service shop, is generally regarded as an invitation to treat rather than as an offer to sell.

Pharmaceutical Society v Boots [1953]

• Pharmaceutical Society v Boots [1953] 1 All ER 482, CA• Certain products that were to be sold only under the

supervision of a registered pharmacist were displayed on shelves in a self-service shop. The Pharmaceutical Society of Great Britain (who are responsible for enforcing this legislation) brought a prosecution against the shop for allowing customers to buy these products by helping themselves, but the Court of Appeal said they had no case. The customer having selected the goods made an offer to purchase when he took them to the cash desk, and there was a registered pharmacist supervising that point at which the sale took place.

Fisher v Bell [1960]

• Fisher v Bell [1960] 3 All ER 731, DC• It was a statutory offence under the Restriction of

Offensive Weapons Act 1959 to offer for sale any of various items, including flick-knives. A Bristol shopkeeper R displayed such a knife in his window, with a ticket reading "Ejector knife - 4s." [4 shillings = 20p], and was prosecuted for an offence under the Act. The Divisional Court took a literal interpretation of the statute and said he had committed no offence: the display was an invitation to treat, not an offer to sell.

• This analysis of the transaction leaves both parties free to change their minds. The shopkeeper can refuse to sell to a customer whom he does not like (for example, one who is under age or drunk), and the customer having taken goods from a supermarket shelf can return them if he changes his mind before going to the till.

• An advertisement is usually an invitation to treat but can be an offer, depending on its wording and on the circumstances.

Partridge v Crittenden [1968]

• Partridge v Crittenden [1968] 2 All ER 421, HC QBD• The appellant placed an advertisement in a magazine:

"Bramblefinch cocks and hens, 25s. [25 shillings = £1.25] each". He was charged with offering for sale a wild bird, contrary to statute, but the High Court said he must be acquitted. The advertisement was an invitation to treat, not an offer to sell; with limited stock the advertiser could not reasonably intend to be bound to sell to all those who might accept. (If the advertiser indicated that he was willing to sell only to the first person accepting, there would be no such problem.)

Carlill v Carbolic Smoke Ball Co [1893]

• Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, CA• The makers DD of a health product published newspaper

advertisements promising to pay £100 to anyone who contracted flu after buying one of their smoke balls and using it as directed. The advertisement also said DD had deposited £1000 in a named bank to show their sincerity in this matter. P bought a smoke ball, used it as directed, and still caught flu; she sued for the £100 promised. The Court of Appeal said the advertisement in this case was an offer; the wording of the advertisement clearly showed an intention to be bound to anyone accepting.

Thornton v Shoe Lane Parking [1971]

• Thornton v Shoe Lane Parking [1971] 1 All ER 686, CA• P parked his car in DD's car park, paying his money and taking a

ticket from the automatic machine at the entrance. When P returned later to collect his car, there was an accident in which he was seriously injured; his action for damages turned on the validity of an exclusion clause printed on the ticket. Lord Denning MR said a motorist buying a ticket [or presumably any other goods] from a machine is irretrievably committed when he puts the money in the machine, and that the contract must be completed at that time. The car park owners made an offer when they held out the machine as ready to receive money, and the motorist accepted the offer when he put the necessary coins in the slot.

Wilkie v London Passenger Transport Board [1947]

• Wilkie v London Passenger Transport Board [1947] 1 All ER 258, CA

• P was an employee of DD and was injured through the negligence of the driver when travelling on one of DD's buses. He was travelling on a free pass subject to wide exclusions of liability, and so was unable to claim. But Lord Greene MR said obiter that when a public bus plies for hire it is making an offer accepted by the passenger on boarding. [This analysis has been doubted by some writers, and it would certainly make it difficult (unless the offer is regarded as conditional) for the bus driver to refuse to allow a drunk or abusive passenger to board.]

Auction Sales

• At an auction sale, s.57(2) of the Sale of Goods Act 1979 confirms the common law rule that a prospective buyer makes an offer by bidding, which the auctioneer accepts when he drops his hammer. Thus a buyer may withdraw his bid until the hammer falls, or an item may be withdrawn from the sale even after bidding has begun. The special rules for auctions, however, mean that the lot cannot legally be sold at the auction to anyone other than the highest bidder.

Barry v Davies (2000)

• Barry v Davies (2000) Times 31/8/00, CA• A sale of machinery by auction was advertised as being

"without reserve". Two machines were put up, whose list price would have been £14000 each, but the only bid (of £200 each) was made by C. The auctioneer D refused to accept the bid and withdrew the machines from sale. C sued, and the judge's award of £27600 damages was affirmed on appeal. Although there had been no contract between vendor and purchaser, there was a collateral contract between auctioneer and bidder.

Internet Shopping

• The growth of internet shopping has led to further developments in this area of law. Where a company advertises goods or services on its web site this is normally (depending on the wording used) an invitation to treat, and the customer makes an offer by sending in an order. So far, so good. If the company sets up an automatic e-mail reply system, this (again depending on its wording) may amount to an acceptance of the offer, and this may have unfortunate consequences for the company if there is any error (e.g. £100 as a misprint for £1000) in the published details.

Invitation to Tender

• Public authorities are required by law to invite tenders for many services, and some other bodies do so even when not so required. The offer in such cases is clearly made by the tender or and accepted by the authority, but the situation is more complex than it might seem.

Harvela Investments v Royal Trust [1985]

• Harvela Investments v Royal Trust [1985] 2 All ER 966, HL• Two parties were invited to bid secretly for a block of

shares, on the understanding that the shares would be sold to whoever bid higher. PP bid $2 175 000, while the other party bid "$2 100 000, or $10 000 more than any other cash bid, whichever is higher". The House of Lords said the referential bid was ineffective and that PP's cash bid should have been accepted. The use of referential bids, they said, defeated the whole purpose of confidential competitive tendering and was not to be encouraged.

Blackpool & Fylde Aero Club v Blackpool BC [1990]

• Blackpool & Fylde Aero Club v Blackpool BC [1990] 3 All ER 25, CA

• PP and six other parties were invited to submit tenders for the concession to run pleasure flights from Blackpool Airport. PP submitted a tender in due form, but this was not considered owing to a clerical error. DD argued that PP had merely made an offer which they (for whatever reasons) had not accepted, but the Court of Appeal said there was an implied collateral warranty. The Council had selected the parties invited to tender and thus knew them all, and had set out in detail the procedure to be followed; this implied that any invitee conforming with that procedure would be entitled to have his tender properly considered.

WITHDRAWL

• WITHDRAWL• As a general rule, an offer can be withdrawn at

any time before it has been accepted; any purported acceptance after withdrawal is ineffective

Routledge v Grant (1828)

• Routledge v Grant (1828) 130 ER 920, Best CJ• D offered to take a lease of P's premises, a definite

answer to be given (by P) within six weeks. After three weeks D withdrew his offer, and just within the six weeks P purported to accept it. The judge said the acceptance was too late; if one party has six weeks to accept an offer, the other has six weeks to put an end to it. One party cannot be bound without the other.

•

Mountford v Scott [1975]

• Mountford v Scott [1975] 1 All ER 198, CA• D offered to sell P his house for £10 000, and P paid

him £1 for an option to purchase at that price, exercisable within six months. Before the end of that time, and before the option was exercised, D purported to withdraw his offer. P then exercised the option, and the Court of Appeal said he was entitled to specific performance. The token payment was valuable consideration, however small, and made the offer irrevocable until the option expired

Withdrawal

• Withdrawal must normally be communicated to the offeree, and does not take effect until such communication is received: the special rule for postal acceptances (below) does not apply to withdrawals.

Byrne v Van Tienhoven (1880)

• Byrne v Van Tienhoven (1880) LR 5 CPD 344, Lindley J• DD posted a letter on 1 October offering to sell PP a

quantity of tinplate, then posted another letter on 8 October withdrawing the offer. The first letter reached PP on 11 October and they accepted the offer at once by telegram, following with a confirmatory letter four days later. The second letter purporting to withdraw the offer arrived on 20 October, by which time the offer had been accepted and it was too late for DD to withdraw.

Dickinson v Dodds (1876)

• Dickinson v Dodds (1876) LR 2 ChD 463, CA• D offered to sell P his house, leaving the offer open

until Friday. On Thursday P decided to buy the house, but then heard from another person that D had contracted to sell to a third party. On Friday P accepted the offer, and subsequently sought specific performance. The Court of Appeal said the news (conveyed by a reliable third party) that the house had been sold was sufficient notice of the withdrawal of the offer for sale, and the purported acceptance was therefore ineffective.

Shuey v United States (1875)

• Shuey v United States (1875) 92 US 73, Supreme Court (USA)• An advertisement was published in several newspapers

advertising a reward to be paid for information leading to the arrest of any of several named criminals. Six months later the President issued a proclamation cancelling the reward, and this was published in a similar manner. Five months after that, P (who was aware of the original advertisement but not that the reward had been cancelled) identified one of the wanted men and claimed the reward. The Supreme Court said that since the offer had been made by general advertisement rather than to him personally, he should have realised that it might be withdrawn in the same way.

Financings Ltd v Stimson [1962]• Financings Ltd v Stimson [1962] 3 All ER 386, CA• D decided to buy a car on hire purchase and signed a form

supplied by the dealer which declared that the HP agreement became binding only when signed by the finance company PP. D paid a first instalment and took the car away, but returned it two days later saying he had changed his mind. The court said this was an effective withdrawal, and that PP's purported acceptance five days after the car was returned was too late. (In fact, the car was stolen from the dealer's forecourt during the five days and was recovered in a damaged state; PP were thus unable to fulfil their part of the bargain to supply the car as originally seen, giving another reason for their purported acceptance to be ineffective.)

Ramsgate Victoria Hotel v Montefiore (1866)

• Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Exch 109, Exchequer

• D made an offer in June to buy shares in PP's company, but heard nothing. PP made an allocation of shares in November, and purported to accept D's offer, but D refused to go ahead. The court said that although the offer had not been formally withdrawn, it would expire after "a reasonable time", and given the fluctuating nature of the subject matter the

• time interval had gone beyond what was reasonable.

Luxor (Eastbourne) v Cooper [1941]

• Luxor (Eastbourne) v Cooper [1941] 1 All ER 33, HL• Vendors AA promised an estate agent R £10 000 as a fee

for selling a cinema; R found a buyer and a sale was agreed "subject to contract", but AA then decided not to complete the deal and disposed of the cinemas elsewhere. R sued for his commission but lost: the House of Lords found for AA on the basis that there was no reason to infer an undertaking by not to revoke their offer. R was being offered a substantial sum for comparatively little effort, and should therefore have realised that AA might wish to withdraw.

Acceptance by Conduct

• Where an offer is to be accepted by conduct, then it is not clear what rules govern its withdrawal. This is particularly important to rewards and "challenges" (e.g. £10 000 to the first person to swim the Atlantic): although such offers can certainly be withdrawn - that is only reasonable - it is unfair if the offeror can withdraw his offer moments before the other party "accepts" by completing the task.

Errington v Errington & Woods [1952]

• Errington v Errington & Woods [1952] 1 All ER 149, CA• A father bought a house for his son and daughter-in-law DD to live

in, paying £250 in cash and borrowing the other £500 from a building society. The house was put into the father's name, but he said that as long as DD paid the instalments he would transfer it to them as soon as the mortgage was discharged. After some fifteen years the father died, and his widow P sued for possession of the house. The Court of Appeal said there was a unilateral contract: DD were not bound to go on paying, but if they did so that father was bound to transfer the house to them in accordance with his promise. Denning LJ said (perhaps obiter) that a unilateral contract cannot be revoked once the potential acceptor has embarked upon performance.

Daulia v Four Millbank Nominees [1978]

• Daulia v Four Millbank Nominees [1978] 2 All ER 557, CA• PP sought to buy various properties from DD, and draft contracts were

prepared. DD undertook that if PP produced the draft contract and a bankers' draft by a certain time they would enter into a full contract. PP obtained the bankers' draft and attended at DD's offices before the deadline, but DD refused to go ahead. PP's claim for damages was dismissed by Brightman J and the Court of Appeal because the collateral contract (relating to an interest in land) did not conform with the Law of Property Act 1925 s.40, but Goff LJ said obiter that while the offeror of a unilateral contract is entitled to require full performance of his condition and short of that is not bound, there must be an implied obligation on his part not to prevent the condition becoming satisfied, and that obligation arises as soon as the offeree starts to perform. Until then the offeror can revoke the whole thing, but once the offeree has embarked on performance it is too late for the offeror to revoke his offer.

•