A contract is a voluntary agreement. You are only bound by the contract if you freely choose to agree to it.
Bilateral Contract: Promise for promise (eg sale).
Unilateral Contract: Promise for action (eg reward).
Objective Principle:
The agreement to a contract is assessed ‘objectively’ rather than ‘subjectively’. This means that a contract is agreed based on the reasonable appearance of the contract, not the actual intention.
Objectivity gives certainty and reliance.
Offer:
Offer: Willingness to be bound by terms, without further negotiation.
Invitation to Treat: Attempt to begin negotiations, but not an offer.
The offeree can create a contract by accepting the terms given by the offeror. Therefore, the offeree has power.
Ending an Offer:
Rejection – the oferee either wholly rejects the offer or makes counteroffer.
Revocation – the offerror takes back what they say before offer is accepted.
Conditional failure – a condition of offer is not met.
Lapse of time – either set time in offer or ‘reasonable time’ has passed since the offer was made.
In Hyde v Wrench, H’s counteroffer to W nullifies W’s original offer.
In Dickinson v Dodds, an offer is given for sale of land. The offeree hears of sale through 3rd party and finds offeror. The offeree attempts to accept the offer, despite the prior sale. Offeree sues offeror for breach of contract. Court held that there was not a legally binding contract between the parties.
Acceptance:
Acceptance: Declaration of assent to a transaction proposed by an offer.
The intended effect of acceptance is the creation of a contract from an offer.
Valid Acceptance:
Appropriate Method – the offeree must accept the offer in the offeror’s requested method (if given).
Response to Offer – an acceptance must be given in response to an offer.
Communicated – from the offeree to the offeror, even if at time of performance.
Correspond with an Offer – see mirror image.
In Felthouse v Bindley, an uncle sends nephew letter stating that if the nephew doesn’t respond, he will assume he owns the horse. The nephew seems aware of uncle’s prior letter. The horse is accidentally sold by an auctioneer. The uncle sues and the court rule that acceptance was not communicated, so there was no contract.
In Carlill vs Carbolic Smoke Ball Co, communication for the acceptance of a unilateral contract can be given at the time of performance or breach of contract.
Postal Acceptance Rule:
Acceptance is given at the point where the letter is posted, not when the offeror receives it.
‘according to ordinary usage of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.’ [1]
Acceptance does not have to be given for unilateral contracts, so the rule does not necessarily have to apply to these types of agreement.
The postal rule only applies to acceptance of offers, not revocations by an offeror. Revocations are only valid when they are received by the offeree.
The intention of the postal rule is to make the offeree certain of the existence of a contract.
The offeror can state that the postal acceptance rule does not apply in their offer. [2]
The rule does not apply if it would be deemed unreasonable to communicate via post. [3]
Mirror Image Rule:
The accepted offer is the same as the offer given by the offeror.
By changing any aspect of the offer, this amounts to a counteroffer. Therefore, the original offer ceases to exist.
Butler Machine Tool v Ex-Cell-O:
B used a standard sales form with price variation clause. E sends back their standard purchase form, without this clause. B returns tear-off acceptance slip with a letter of the original form.
Lawton LJ and Bridge LJ (Court of Appeal):
B’s acceptance of counteroffer without price variation clause. Offer and acceptance must match – ‘clear and unequivocal offer, matched by an equally clear and unequivocal acceptance'. [4] New terms are a counteroffer, not acceptance, killing off the original offer.
Denning LJ (Court of Appeal Minority):
More holistic approach, believes offer-acceptance approach is artificial by applying mirror image and criticising it (only depends on who sends documents last, not examining the entire agreement). Agrees there is a contract, but unsure of whose terms apply.
Conventional Approach of the Courts:
The offer-acceptance approach that is commonly accepted by the judiciary was established in the case of Pharmaceutical Society v Boots:
Display on shelf = invitation to treat
Customer at cash register = offer
Ringing up sale = acceptance
Gibson v Manchester CC:
Correspondence between parties on sale of house through ‘right to buy’ scheme. When Labour takes control, the scheme is revoked, and G is refused sale. G argues he already has contract.
Denning LJ (Court of Appeal): Looks over all evidence / correspondence as well as conduct of the parties to find agreement. Less conventional.
Lane LJ (Court of Appeal): Applies offer and acceptance, so concludes there was never an offer that could be accepted.
Diplock LJ (House of Lords): Applies offer-acceptance conventional approach.
In Carlill vs Carbolic Smoke Ball Co, a unilateral offer was given in an advert. Advert is usually viewed as an invitation to treat by the law.
Resources:
References:
[1] Henthorn v Fraser [1892] 2 Ch 27
[2] Holwell Securities Ltd v Hughes [1974] 1 WLR 155
[3] Henthorn v Fraser [1892] 2 Ch 27
[4] Ewan McKendrick, Contract Law (14th edn, April 2021, Macmillan Education UK) 23
Cases Mentioned: Hyde v Wrench [1840] EWHC Ch J90 Dickinson v Dodds 2 Ch D 463
Felthouse v Bindley [1862] EWHC CP J35
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1
Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1977] EWCA Civ 9
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] EWCA Civ 6
Gibson v Manchester City Council [1979] UKHL 6
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