The Formation Of The Contract

The Formation Of The Contract

1. Legally enforceable agreements/promises

   • Bilateral Contracts
     • Both parties legally bound by contract to perform their agreements (promise in exchange for a promise)
   • Unilateral Contracts
     • Only 1 party to perform agreement (1 party makes a promise in exchange for the performance by the other of an act, other party does not promise to perform an that act)
   • Required for valid contract: Intention to create legal relations. An offer. An acceptance. Consideration

2. Intention To Create Legal Relations

   • In order for an agreement to be reached, law requires meeting of the minds. Law is concerned with the objective appearance of agreement vs actual intention
     • Agreement is determined on basis on what parties words or actions objectively inferred vs actual intentions
       • Intentions are based on presumptions: (i.e what reasonable parties would have done in the situation/conclusion from the attitude of the other)
         • Strong presumption presumption of legal relations in commercial / business agreements
           • Rose and Frank v Crompton (1923): Express clause stated no legal intentions were to be created by business transaction. HELD: To be valid, reflected intentions
         • Strong presumption against legal relations in social / domestic agreements. Can be overridden by circumstances.
           • Balfour v Balfour (1919): Other cases inc. Merritt v Merritt Merritt v Merritt (1970). Simpkins v Pays (1955)

3. Offer

   • Definite promise to be bound on specific terms.
     • Offer may be made in writing, orally, or be inferred through conduct
       • Offer may be made to an individual, a group or the whole world
         • Carlill v Carbolic Smoke Ball
     • Offers must be distinguished from statements appearing to be offers:
       • 1. Invitations to Treat
         • A statement inviting negotiation
           • Courts have created presumptions in order to identify wether a statement amounts to an offer or invitation to treat
             • Advertisements, Catalogues and Brochures
               • Regarded as invitations to treat
                 • Partridge v Crittenden
                   • However, in unilateral contracts the presumption is that an advertisement constitutes an offer
                     • Carlill v Carbolic Smoke Ball
             • Displays of Goods
               • Most common form of invitations to treat
                 • Pharmaceutical Soc v Boots
                   • Fisher v Bell: Goods displayed in shop window. Offence to 'offer' dangerous 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.
             • E-Commerce
               • 1. Goods displayed online would be regarded the same as displays of goods in actual store, thus being an invitation to treat
             • Auction
               • When auctioneer calls for bids it is not an offer but invitation to treat
                 • Harris v Nickerson: Ad made no offer only ITT, the bidder would be making the offer to buy C was not successful
                   • Barry v Davies
       • 2. Request for Information
         • Harvey v Facey: (Refer to notes)

4. Termination Of An Offer

   • Rejection Of An offer
     • Offer terminated if offeree rejects it. If the offeree accepts the offer initially, but based on new or differing terms to the offer, this will serve to reject original offer and become a COUNTER-OFFER.
       • Postal rejection only in effect when received by the offeror, not when it is posted which acceptance of an offer is in effect
         • Hyde v Wrench (1840)
   • Revocation (Withdrawal)
     • Prior to acceptance of the offer, the offeror can revoke any offer made
       • Communication of the revocation
         • Before acceptance: Byrne and Van Tienhoven
         • Revocation of Unilateral offer
           • An offerree who hears of the revocation of the offer from a reliable 3rd party and knows beyond all questions will be unable to accept the offer
             • Court distinguishes between commencement of the specified act and completion of the specified act. Soon as the offeree commences performance of the specified act, the offeror can't withdraw the unilateral offer, but offeror is required to perform his side of the contract once the the act is fully performed.
             • Dickenson v Dodds
   • Lapse of Time
     • If offers not accepted by a certain time or date it will cease to exist. Based on reasonable time where no time is stated.
       • Ramsgate v Montefiore: Offeror offered to sell his company shares to the offeree, 6ms later the offeree tried to accept the offer. HELD: Offer had lapsed because 6ms was more than a reasonable time for the offer to still be open
         • What is reasonable will depend on the facts of the case, the subject matter, and the quality of the subject matter of the contract is time-sensitive (i.e perishable goods)
   • Death of a Party
     • Once an offer has been accepted, the death of either party will not terminate the offer
       • Likely that death of offeror will terminate upon their death if the contract is one of personal service.
         • Accepted view that if the offeree knows of the offerors death, then the acceptance will not be effective. However, if the offeree is ignorant of the offerors death, then acceptance will be effective and the contract will have to be performed by the deceased offerors PERSONAL REPRESENTATIVES

5. Acceptance

   • Unconditional assent to all the terms of the offer
     • Consequences as follows: Silence cannot be acceptance Felthouse v Bindley(1862). Silence does not constitute a valid acceptance
       • Acceptance by conduct Brogden v Metropolitan Railway (1877)
         • Certainty in offer and acceptance Hillas v Arcos [1932]
           • Specifying a particular type of acceptance Yates v Pulleyn [1975]
             • Meeting of minds essential- communication of acceptance
   • Acceptance must match the terms of the offer. Any variation will not amount to acceptance, and may constitute as a counter-offer. Known as the....
     • Mirror Image and Counter Offers
       • Counter offer has 2 effects: 1. New offer created by the offeree, who now becomes the offeror and the original offeror becomes the offeree. 2.The original offer is now destroyed, so the former offeree can't subsequently accept it.
         • Hyde v Wrench: Seller offered house for sale for 1k. Prospective purchaser (Hyde) said he would give £950 for it. Wrench was not willing to settle for this price. HELD: Acceptance was invalid. Hyde's letter counted as counter-offer, destroying original offer, meaning Hyde could not accept it.
           • Distinguishing Counter-Offers from requests for information
             • Request for info will not effect the original offer or create a new one.
               • Stevenson v McLean: D offered to sell goods at a stated price. C sent a query about the terms, with D not replying to the telegram. C sent another telemgram accepting the original offer. However, D already sold goods to 3rd party. HELD: Telegram did not constitute as counter-offer, merely an inquiry. As original offer was still open to accept, C recovered damages.
             • Battle of the forms
               • Can occur over exchange of standard forms by parties
                 • Butler v Ex-Cell
   • Communication of Acceptance
     • Acceptance must be communicated to offeror. Acceptance does not have to be communicated by offeree but a 3rd party (i.e their agent). Attempted acceptance is insufficient
       • EXECPTIONS: (i) conduct of offeror – The Brimmes [1975] (ii) terms of the offer / unilateral contracts - Carlill (iii) postal acceptance rule
     • Postal Rule Exception
       • Acceptance is effective when the letter is posted not when the offeror receives it
         • Adams V Lindsell
         • If the postal acceptance rule applies it is irrelevant if the letter never arrives.
           • Household Fire Insurance v Grant(1878)- letter never arrived.
             • Can the Postal Rule Be Excluded
               • Offer specifies actual communication: Holwell Securities v Hughes [1874] – ‘notice in writing’
                 • Instantaneous methods of communication e.g. telephone, telex, e-mail Entores v Miles Far East Corporation [1955] Electronic Commerce (EC Directive) Regulations 2002
     • Electronic Forms of Communication
       • Standard rule of acceptance applies that acceptance must be communicated to the offeror
         • Standard rules apply to contracts created by telephone, telex and fax
           • However, such methods may not be as instantaneous, e.g phone may lose signal or fax may malfunction. What is the outcome for such situations. Denning LJ in Entores v Miles Far East states...
             • 1. Where offeree knows his acceptance has not been received, there will be no contract, thus offeree needs to repeat acceptance. 2. Where offeree believes acceptance has been communicated and it has not, unless the offeror asks for it to be repeated a contract exists (Offeror is at fault for his failure to receive acceptance). 3. If no party is at fault and neither is aware of the communication problem, no contract will exist.
               • However, standard rules do not apple to EMAIL...
                 • Emails are not instantaneous, whereby email is stored in server before being sent to the recipient. Thus, acceptance occurs when the email is received, with the view that an email is delivered to the recipients inbox