Contract Introduction

Question 1

What is a contract

Answer 1

A legally binding agreement made by two or more people, by which rights are acquired by one or more to the acts of forbearances on the part of one or more others

Question 2

4 elements of a binding contract

Answer 2

Offer

Acceptance

Consideration

Intention to create legal relations

Question 3

Offers

Answer 3

An offer is an unconditional expression of willingness to be bound on specific terms, made with the intention that it shall become binding upon acceptance by the person to whom it is addressed.

An offer may be made:
To a specific person, or
To the world at large (this is called a unilateral offer).

Advertisements – Offer or Invitation to Treat?
Generally, advertisements are treated as invitations to treat, not offers.
They invite customers to make an offer, which the advertiser can then accept or reject.

However, Carlill v Carbolic Smoke Ball Co is the key exception.

Facts of the Case

During an influenza epidemic, the Carbolic Smoke Ball Company advertised that:

They would pay £100 to anyone who used their smoke ball as directed and still contracted influenza.

They stated that £1,000 had been deposited in a bank to show sincerity.

Mrs Carlill bought and used the smoke ball as instructed but still caught influenza. The company refused to pay, arguing:

The advertisement was not an offer but mere sales puff.

There was no contract because Mrs Carlill had not notified them of acceptance.

Decision

The Court of Appeal held:

The advertisement was a unilateral offer to the world at large.

The deposit of £1,000 showed serious intention to be legally bound.

Acceptance occurred by performing the conditions (using the smoke ball as directed).

No separate communication of acceptance was required.

Mrs Carlill was entitled to the £100.

Legal Significance

This case established that:

An advertisement can amount to a binding offer if it is clear, definite, and shows intention to be bound.

A unilateral contract is accepted by performance.

Communication of acceptance is not always necessary in unilateral offers.

Question 4

Invitations to treat

Answer 4

Fisher vs Bell

The defendant had a flick knife displayed in his shop window
with a price tag on it. Statute made it a criminal offence to ‘offer’
such flick knives for sale. His conviction was quashed as goods
on display in shops are not ‘offers’ in the technical sense but an
invitation to treat. The court applied the literal rule of statutory
interpretation

Question 5

Invitation to treat and shop displays

Answer 5

Overwhelming view of these is that they constitute invitations to treat, and not unilateral offers

The Pharmacy and Poisons Act 1933, s18, made it a criminal offence to sell listed poisons unless under the immediate supervision of a registered pharmacist
If the sale took place when the goods were placed in the basket, an offence had been committed The court held, however, that the sale took place at the checkout, and since this was
under the supervision of a pharmacist, no offence had been committed

Question 6

Auctions and invitations to treat

Answer 6

Essence of the case was that the purchaser made the offer to buy when presented the goods : supermarket pharmacist was then free to accept or reject this. shop display was merely an invitation to treat

at auctions the general rule is that it is the bidder who makes the offer ; auctioneer concludes contract by dropping the hammer, auctioneer free to accept or reject the offer

Payne v. cave [1789]
Plaintiff alleged that the defendant had bought the Plaintiff’s goods at an auction sale .The defendant had made the highest bid but had withdrawn it before the hammer fell
Held; the offer by the bidder had been validly withdrawn, since it was made before the point of acceptance- when the hammer dropped
An advertisement to hold an auction on a particular day does not amount
to an offer that the sale will be held on that particular day

Question 7

Consensus

Answer 7

You must know of the existence of an offer if you are to accept it, and make it legally binding

If you perform a task and later find there was an offer of payment or reward for completion, this was not your motivation, and no payment is due

Taylor v. Laird [1856]
Captain of a ship resigned his command, but later voluntarily helped to work the
ship home. The owners of the ship were entitled to refuse payment to him since, by not communicating his offer to assist them, the captain had not given the owners the chance to accept or reject it.

Question 8

Revocation of an offer

Answer 8

This can be by:

lapse of time

express communication of revocation prior to the point of acceptance being made

death

failure of a condition precedent

a valid counter offer

Question 9

revocation conditions

Answer 9

revocation is not effective once a valid acceptance is made

the postal rule never applies to revocation of an offer

revocation is not possible once the offeree has started to perform a condition stipulated with the terms of the offer

Question 10

Lapse of time

Answer 10

If acceptance is expressly requested to be made within the terms of an offer by a certain date, the offer is no longer able to be accepted past this date

If no time limit has been specified, offer will expire within a reasonable time, what is reasonable depends on circumstances in which offer was made

Ramsgate Victoria Hotel Co. Ltd v. Montefiore [1866]
In this case the defendant offered to buy the plaintiff’s shares in June. In November he was informed that he had been allocated the shares. Although the express offer had not been withdrawn, the court held that it had lapsed since acceptance
had not been made within a reasonable time

Question 11

Express revocation

Answer 11

This can be communicated by the offeror to the offeree at any time prior to acceptance

Communication must be actually made before it is effective

Dickinson v Dodds
Key Facts

The defendant (Dodds) offered to sell his house to the claimant (Dickinson).

He promised to keep the offer open until Friday.

On Thursday, Dodds sold the house to a third party.

A friend informed Dickinson that the offer had been withdrawn.

On Friday morning, Dickinson attempted to accept the offer and then sought specific performance.

Held

The court held that no contract existed because the offer had been effectively revoked before acceptance.

Legal Principles Established

Revocation of an Offer

An offer can be revoked at any time before acceptance.

Revocation is effective once it is communicated to the offeree.

Communication does not have to come directly from the offeror; reliable third-party communication is sufficient.

No Binding Promise to Keep Offer Open

The promise to keep the offer open until Friday was not binding.

There was no consideration given by Dickinson in exchange for that promise.

Therefore, it was not a binding option contract.

Knowledge of Sale Prevents Acceptance

Since Dickinson knew the property had already been sold to someone else, he could not validly accept the offer.

An offer cannot be accepted once it has been revoked.

Specific Performance and Equity

Specific performance is an equitable remedy.

It requires clean hands and equitable conduct.

As there was no valid contract, specific performance could not be granted

Question 12

Revocation and death

Answer 12

As a general rule death of the offeree probably leads to automatic termination of offer

However, death of offeror may not lead to termination unless the offeree knew of the death prior to making an acceptance or if the offer contained some element of personal service by the offeror

Question 13

Revocation and failure of condition precedent

Answer 13

Failure of a condition precedent
In other words, ‘I will only go ahead and accept this offer if certain
circumstances exist’ (an express provision)

Or

It goes without saying that I would not have gone ahead with the
purchase of the car if I had known that its engine had been
stolen before I gave notice of my acceptance of the offer to sell

Question 14

Revocation and a valid counter offer

Answer 14

A valid counter-offer

‘I offer to sell you my car for £1000’

‘I accept your offer, but I will only pay £800’.

Once a counter-offer is made, the original offer cannot be reclaimed; if a term of the offer is rejected, there is nothing left to accept, and the original offer is always
revoked by the offeree’s action
Hyde v. Wrench [1840]
21

Question 15

Hyde v Wrench (1840)

Answer 15

The defendant offered to sell a farm to the claimant for £1,000. The
claimant in reply offered £950 which the defendant refused. The
claimant then sought to accept the original offer of £1,000. The
defendant refused to sell to the claimant and the claimant
brought an action for specific performance.

Held:
There was no contract. Where a counter offer is made this
destroys the original offer so that it is no longer open to the
offeree to accept.

Question 16

Stevenson vs McLean (1880)

Answer 16

Facts

McLean (the defendant) offered to sell iron at 40 shillings per ton, stating the offer would remain open until Monday.

Stevenson Jaques & Co (the claimants) sent a telegram asking whether McLean would accept payment over two months, or what the longest credit period would be.

McLean did not reply and instead sold the iron to a third party without informing the claimants.

On Monday morning, unaware of the sale, the claimants sent a telegram accepting the original offer.

Legal Issue

Was the first telegram:

A counter-offer (which would terminate the original offer),
or

A mere inquiry for information (leaving the original offer intact)?

Held

The court held that the first telegram was only an inquiry, not a counter-offer.

Therefore:

The original offer remained open.

The Monday telegram constituted a valid acceptance.

A binding contract was formed.

McLean was liable for breach of contract for non-delivery.

Key Legal Principles
1. Inquiry vs Counter-Offer

A request for clarification or additional terms does not automatically reject the original offer.
The wording must clearly show rejection to amount to a counter-offer.

This case is contrasted with Hyde v Wrench, where a counter-offer did terminate the original offer.