10/09/2024
1
Formation: offer and
acceptance
Offer Acceptance
•To introduce students to
formation of contracts
•To introduce students to the
legal principles relating to
offer, invitation to treat, and
acceptance
Aims
1
2
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Formation : offer and
acceptance
Offer Acceptance
- To introduce students to
formation of contracts
- To introduce students to the
legal principles relating to
offer, invitation to treat, and
acceptance
Aims
“You’ve got nothing in writing!”
“There’s no contract – there’s nothing on paper!”
“I didn’t sign a anything!”
Formation
and
formalities
Form, formation and
formalities
- Legal remedies will only usually accrue to a party who can establish that a legally binding contract existed between the parties at the time of the events
- GENERAL RULE: contracts can come in any form (no formal requirements)
- Contract: doesn’t have to be writing or signed / can be verbal or made with a handshake / doesn’t need any particular form of words
- ‘All’ you need to do is look to see if there’s an agreement between two parties (although that simple assertion masks a big problem as identifying a meeting of the minds can be easier said than done)
- NOTE : in HK certain types of contracts must be in writing (power of attorney, land) - Power of Attorney Ordinance (Cap 31) - Conveyance and Property Ordinance (Cap 219)
- OFFER : a promise to be bound on particular terms on which the offeror is willing to enter contractual relations with the offeree
- MUST : be capable of being accepted
- An indication by one person that s/he is prepared to contract with another party, on certain terms which are fixed or capable of being fixed at the time the offer is made
- Can be made by words, conduct or a mixture of the two
- Basic view applies relatively simply to some situations where two parties communicate with each other about a transaction (“I offer you my car for £5000”)
- BUT : this simple framework is not so straightforward when considering other transactions (supermarket sales, advertisements in magazines, internet sales, complex commercial negotiations)
- What the courts will look for is some behaviour that indicates a willingness to contract on particular terms - Theory which a binding contract is formed between the offeror and the offeree: principles governing offer and acceptance enable a court to decide the precise moment at - Ppractice: not so easy to identify (complexities of modern business, new methods of communication, intermediaries conducting negotiations etc) - See: Storer v Manchester City Council [1974] 1 WLR 1403 Offer Fixed “I will sell you 100 packets of paper for £4,00”’ is an offer since the terms are fixed by the offer itself Capable of being fixed The statement “I will buy from you 10,000 shares in Y Ltd at their closing price on the Hong Kong Stock Exchange next Friday’ is an offer as they are capable of becoming fixed on Friday according to the price of the shares at the close of business on the Stock Exchange
- Even though parties may appear to make an agreement by
the exchange of a matching offer and acceptance, courts
might refuse to enforce it if there’s uncertainty about what has
been agreed or if some important aspect of the agreement is
open
- In short, offers should not be too vague…
- Scammell v Ouston [1941] 1 All ER 14
- ‘O’ ordered van from ‘S’ and stipulated the contract to be “on a hire-purchase terms over a period of two years”
- Several HP terms were used and the specific terms applying to the purchase were never fully fixed
- ‘S’ refused to proceed with the sale and ‘O’ brought a claim for breaching the contract for the supply of the vehicle.
- Held
- Clause as to hire-purchase terms was so vague that no precise meaning could be attributed to it, so there was no enforceable contract An offer must not be too vague: certainty of terms
“…the crucial sentence ‘This order is given on
the understanding that the balance price can
be had on hire-purchase terms over a period
of two years’ is so vaguely expressed that it
cannot, standing by itself, be given a definite
meaning—that is to say, it requires further
agreement to be reached between the parties
before there would be a complete consensus
ad idem. If so, there was no contract and
therefore no breach” (Viscount Simon LC)
“in view of the numerous forms of hire purchase transactions, and the multiplicity of
terms and details which they involve, the respondents are faced with what appears to me
to be a fatal alternative, namely, either (1) this term of the alleged contract is quite
uncertain as to its meaning, and prevents the existence of an enforceable contract, or (2)
the term leaves essential contractual provisions for further negotiation between the
parties, with the same result” (Lord Russell)
An offer must not be too vague: certainty of terms
- Bilateral : most contracts (or most resulting in litigation) are bilateral (or synallagmatic): each party to the contract is bound to provide something to the other - there’s an exchange of promises - the offer is a promise to do something in exchange for acceptance (which is also in the form of a promise to do something)
- Unilateral : an offer may be a promise in exchange for an act
- this type of offer, communicated to the offeree and accepted by the offeree’s performance of the requested act, gives rise to a unilateral contract
- it is unilateral since it is entirely one-sided – only the offeror is obliged to do anything (the offeree being under no obligation to perform the act) Unilateral & bilateral offers / contracts Two parties make promises to each other. For example, A promises to give B £20k in exchange for the title to B’s Boat which B wishes to sell. A promises to pay £100 if someone finds a lost item. B not obliged to find the lost item but A is obliged to pay Unilateral the £100 if B does.^ Bilateral
Not always easy to tell:
Luxor, Ltd. v. Cooper
[1941] AC 108
- Asking for information about a potential contract is not usually an offer
- Responding with information is also not usually an offer 2…from a supply of information (replies to enquiries)
Appellant
(Harvey)
Respondent
(Facey)
H sent telegraph asking if F was willing to sell them a piece of property (Bumper Hall Pen): "Will you sell us BHP? Telegraph lowest cash price“ ( telegraph 1) F responded: "Lowest price for BHP £900“ (telegraph 2) H then telegraphed: "We agree to buy BHP for £900 asked by you. Please send us your title-deed in order that we may get early possession” (telegraph 3) F did not reply and H contended that there was a completed contract for the property Harvey v Facey [1893] AC 552
- Harvey v Facey [1893] AC 552
- Held (PC):-
- There was no contract.
- Final telegram was not the acceptance of an offer to sell, for none had been made (it was itself an offer to buy, the acceptance to which must be expressed and could not be implied)
- Note : case is also authority for the idea that silence is not sufficient to accept an offer (the respondent in this case did not, through silence, accept the offer) “It has been contended for the appellants that L. M. Facey's telegram should be read as saying " yes " to the first question put in the appellants' telegram, but there is nothing to support that contention” ------ “The third telegram from the appellants treats the answer of L. M. Facey stating his lowest price as an unconditional offer to sell to them at the price named. Their Lordships cannot treat the telegram from L. M. Facey as binding him in any respect, except to the extent it does by its terms, viz., the lowest price. Everything else is left open, and the reply telegram from the appellants cannot be treated as an acceptance of an offer to sell to them; it is an offer that required to be accepted by L. M. Facey. The contract could only be completed if L. M. Facey had accepted the appellant's last telegram” (Lord Morris) F responded "Lowest price for BHP £900“ (telegraph 2) H then telegraphed: "We agree to buy BHP for £900 asked by you. Please send us your title-deed in order that we may get early possession” (telegraph 3) Supply of information Offer that needed acceptance 2…from a supply of information (replies to enquiries)
- As noted, the aim of looking for ‘offer and acceptance’ is
to decide whether an agreement is reached
- Once a statement or action is categorised as an ‘offer’,
the party from whom it emanates has put himself in the
position where he can become legally bound if the other
party ‘accepts’
- BUT: it must be clear that the statement or action
indicates an intention to be bound
- NOTE: Behaviour which may have some of the
characteristics of an offer will not be treated as such if –
viewed objectively – that was not what was intended
- Courts have traditionally approached this issue by
drawing a distinction between an offer and an ‘invitation
to treat’.
3…from an invitation to treat
- Sometimes, a person might want to merely open negotiations (test the water, as it were) rather than make an offer that could will lead immediately to a contract (if accepted) - if I want to sell my guitar I might enquire if you are interested in buying it - clearly this would not be an offer: even if I indicate a price I’m willing to sell for, this may simply be an attempt to discover your interest
- These preliminary communications have been called an ‘invitation to treat’ (or archaically: ‘invitation to chaffer’).
- Distinction between an offer and ITT is important, but not always easy to draw
- Even where the parties appear to have reached agreement, courts might decide (objectively) that the language used is more of an ITT
- Gibson v Manchester City Council 1979] 1 All ER 972 (tutorial) 3…from an invitation to treat
- Pharmaceutical Society of GB v Boots Cash Chemists [1953] 1 All ER 482 - Boots introduced a system where some medicines were available to customers on a self-service basis - No supervision until customer went to cashier (when a registered pharmacist supervised the transaction) - PSGB claimed this was an offence as the sale was complete when the customer took an article from the shelves and put it his/her basket - Held (CA):- - Display were an ITT - Sale was made at the cash desk where the customer made an offer to buy (could be accepted or rejected by the cashier). - Reason? It is unacceptable to say a contract is complete as soon as the goods are put in the basket as the customer might want to change his/her mind (and it is undoubtedly the intention of all concerned that this should be possible) Shops: self-service displays s 18(1) of the Pharmacy and Poisons Act 1933: an offence to sell certain medicines unless the sale was ‘effected by, or under the supervision of, a registered pharmacist’.
- Slightly different issue - window display: Fisher v Bell [1961] 1 QB 394
- Def displayed in shop window a ‘flick-knife’ (price attached)
- Charged with offence: s 1(1) Restriction of Offensive Weapons Act 1959 - ‘offering for sale’
- Held
- Display was an ITT
- It was acknowledged that in ordinary language a layman might consider the knife to be offered for sale, but in legal terms its position in the window was inviting customers to offer to buy
- Statute must be construed in accordance with the legal meaning
- (Authority not cited, but the approach is in line with Boots )
- 1959 Act was soon amended by Restriction of Offensive Weapons Act 1961 (s.1: exposes or has in his possession for the purpose of sale or hire)
- Case followed in Mella v Monahan [1961] Crim LR 175 (obscene articles and the Obscene Publications Act 1959)
- HKSAR V Wan Hon Sik [2001] 3 HKLRD 283 (Copyright Ordinance, Cap. 528). Case adopts a similar approach Shops: window displays Lord Parker “It is clear that according to the ordinary law of contract the display of an article with a price on it in a shop window is merely an invitation to treat. It is in no sense an offer for sale the acceptance of which constitutes a contract.” “…any statute must be looked at in light of the general law of the country, for Parliament must be taken to know the general law” (Lord Parker CJ).
- Slightly different issue - window display: Fisher v Bell [1961] 1 QB 394
Rationalizing this approach?
- Based on freedom of contract?
- Freedom includes the principle that a person can choose with whom to contract (shopkeeper should be allowed to say “I don’t want to do business with you”)
- There are of course problems with this
- this freedom has the potential to be used in a discriminatory way (race, sex, disability etc) – dealt with by legislation
- this freedom, as far the law of contract is concerned, means a shopkeeper is not bound by any price attached to displayed goods (“Sorry. That’s a mistake. The price is higher”)
- again, the issue is dealt with by statute (misleading selling) Advertisements Advertisement 1 Standard Post Classified Advertisement “$1000 reward to anyone who finds and returns my Bavarian Mountain Hound. He disappeared from my home on Monday and hasn’t been seen since. Call 000066868686” Advertisement 2 Standard Post Classified Advertisement “Fender guitar for sale. American Vintage II 1972 Telecaster. Vintage Fender tone and feel. Authentic CuNiFe Wide-Range Humbucking Pickups. Excellent condition. Call 000066868686”
- Most famous case of an advertisement constituting an offer: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. - Facts:- - Def published advert promoting their ‘smoke ball’. - Carlill caught influenza and claimed £ - Note - Def. argued: advert was not an offer which could be accepted / ‘mere puff’ - Def. also said advert was widely distributed and that this was therefore not an offer made to anybody in particular (one cannot legally make an offer to the whole world) - Def. also said Carlill should have given them notice of acceptance. Advertisements Advert “£100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. £1000 is deposited with the Alliance Bank, Regent Street, shewing our sincerity in the matter”.
- Held (CA):-
- There was a legally enforceable agreement
- Offers must be sufficiently clear to allow courts to enforce agreements that follow from them: the offer here was “a distinct promise expressed in language which is perfectly unmistakable” (Lindley LJ)
- Could not be a ‘mere puff’ in view of the £1,000 deposited specially to show good faith.
- An offers can be made to the world at large – it was accepted by any person who bought the product and used it in the prescribed manner.
- Carlill accepted the offer by her conduct when she did as she was invited to do and used the smoke ball.
- She had not been asked to let the company know that she was using it. Advertisements NOTE Case is authority for the proposition that an advert can constitute an offer to the world (to anyone who reads it) and that it may waive the need for communication of acceptance prior to a claim under it Carlill has been viewed as giving a surprisingly broad scope to the situations which will fall within the law of contract
Lindley LJ: “I... think that the true view, in a case of this kind, is that the person who makes the offer shows by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance apart from notice of the performance.” Bowen LJ: “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? Why, of course, they at once look [for] the dog, and as soon as they find the dog they have performed the condition” Lindley LJ: “In point of law this advertisement is an offer to pay 100 to anybody who will perform these conditions, and the performance of the conditions is the acceptance of the offer. That rests upon a string of authorities, the earliest of which is Williams v. Carwardine (1), which has been followed by many other decisions upon advertisements offering rewards.”
- In business, a tender (sometimes called a ‘Call / Request for Tender’) is an invitation to potential suppliers or service providers to submit their proposals or bids for a particular project or contract.
- Commonly used by public sector organizations, government agencies, and large corporations to ensure transparency and fair competition when procuring goods and services
- Can be issued to the world or specific parties
- Some confusion may arise as to what constitutes an offer when a company decides to put work out to tender
- GENERALLY SPEAKING: request for tender will amount simply to an ITT (person making it will be free to accept or reject any responses (offers)) - See, Spencer v Harding (1870) LR 5 CP 561 (“We are instructed to offer to the wholesale trade for sale by tender the stock in trade……”) Tenders Company Request for tender Company A Offer Company B Offer Company C Offer Willes J: “the question is, whether there is here any offer to enter into a contract at all, or whether the circular amounts to anything more than a mere proclamation that the defendants are ready to chaffer for the sale of the goods, and to receive offers for the purchase of them. In advertisements for tenders for buildings it is not usual to say that the contract will be given to the lowest bidder, and it is not always that the contract is made with the lowest bidder. Here there is a total absence of any words to intimate that the highest bidder is to be the purchaser. It is a mere attempt to ascertain whether an offer can be obtained within such a margin as the sellers are willing to adopt”
- Warlow v Harrison (1859) 1 E & E 309; 29 LJ QB 14
- Auction of horse (advertised ‘without reserve’)
- Pl bid of sixty guineas, then discovered the owner was being allowed to bid (effectively allowing the owner to set a price below which he would not sell)
- Pl refused to continue bidding and asserted the horse belonged to him because he was the highest bona fide bidder at an unreserved auction
- Pl sued the auctioneer (def), claiming the def served as his agent to carry out this contract
- Held:-
- On the pleadings, pl could not succeed (no agency relationship between pl and def)
- BUT: court expressed the view that a collateral contract between the auctioneer and the highest bona fide bidder exists when items are auctioned without a reserve (i.e., had case been pleaded correctly, pl would have been entitled to succeed in an action for breach of contract against the auctioneer)
- “..the auctioneer who puts the property up for sale upon such a condition pledges himself that the sale shall be without reserve; or, in other words, contracts that it shall be so; and that this contract is made with the highest bona fide bidder” Auctions
‘Without Reserve’: auction where the sale item will be sold to the
highest bidder (regardless of price).
From the seller's perspective, this can be desirable (but risky) as it
potentially attracts more bidders looking for a possible bargain
(higher price might be achieved because of heightened competition)
- Due to the pleadings, the Warlow ruling was strictly obiter, but the principle was reconsidered and confirmed Barry v Heathcote Ball & Co (Commercial Auctions) Ltd [2001] 1 All ER 944 - Auction of two new machines (worth approx. £14,000 each) being sold by Customs & Excise (instructed auctioneer to sell without reserve) - No bids apart from the pl (bid £200 each) - Auctioneer thought this was too low and refused to accept (withdrew machines from sale and sold them privately for £750 each) - Pl sued the auctioneer for breach of contract. - Held (CA):- - Pl succeeded (court followed the reasoning of Warlow) - Auctioneer who conducts a sale ‘without reserve’ is making a binding promise to sell to the highest bidder - Action of the auctioneer was tantamount to bidding on behalf of the seller (which was prohibited: s 57(4) SGA 1979). - Pl was entitled to recover the difference between what he offered and the market price (award of £27,600 damages) Auctions
- What about the advertisement of the action itself?
- Follows the general rule regarding an advertisement
(ITT), which means an individual who intended to bid on
items cannot bring an action against the auctioneer who
does not auction the item
- Harris v Nickerson (1872) LR 8 QB
- Def advertised an auction of furniture on a particular day
- Pl travelled to the auction
- Item pl was interested in had (without notice) been withdraw (so pl brought an action for to recover expenses)
- Held (QBD):
- Advert did not give rise to a contract that the items mentioned would be put up for sale
- The practical consequences of treating the advert as an offer would be such that it is highly unlikely that this is what the person placing the advert can have intended Auctions
Blackburn J: to hold
otherwise would be “a
startling proposition, and
would be excessively
inconvenient if carried out.
It amounts to saying that
any one who advertises a
sale by publishing an
advertisement becomes
responsible to everybody
who attends the sale for his
cab hire or travelling
expenses”
Online sales
- Operate on a similar basis to advertisements and displays of goods
- They are considered an ITT (as customer has the freedom to pick and choose the items in their virtual ‘basket’ before committing to purchase)
- Issue arose before the Singapore High Court: Chwee Kin Keong Digilandmall.com Pte Ltd ([2004] 2 SLR 594 ) (mistake case) - Website selling laser printers - Actual price $3,854, but mistakenly advertised at $ - Pl ordered 1,606 units and the orders were processed by the def - Def refused to supply and pl brought proceedings - Pl claims were dismissed on the basis vitiatiation by mistake - BUT Rajah JC (in the High Court ([2004] 2 SLR 594) said ……….
Revocation
- GENERAL RULE: offer can be revoked at any point
before it is accepted
- General rule will apply regardless of whether the
offeror may have promised to keep the offer open
for a specified time: Routledge v Grant (1828) 4
Bing 653
- Def contacted pl in writing and offered to purchase pl’s home
- Offer stated it would remain open for 6 weeks.
- During this period (before pl had accepted) def changed his mind and wrote to pl withdrawing
- After receiving second letter (still within six weeks) pl accepted def’s offer.
- Held:-
- Original letter did not bind def to keep the offer open for a full six weeks so the offer was validly withdrawn
Note
Main reason for this is that
before there is an acceptance,
there is no contract, and if there
is no contract, then the offeror
cannot be legally bound to a
promise
Note
If the offeree pays for the time
allowance (has given
consideration to keep the offer
open) then it will be upheld
- The need for communication
- To be effective, revocation of an offer must be communicated
- This was implicit in Byrne v van Tienhoven (1880) 5 CPD 344 Revocation Def wrote to pl offering the sale of 1000 boxes of tin plates (def based in Cardiff and pl based in New York so letters took around 10-11 days) 1 October 1879 Def letter 1 (offer) Pl received def’s offer and accepted it on the same day by telegram (as well as by letter on October 15) 11 October 1879 Pl telegram Offer sent^ (acceptance) Pl letter (acceptance) 15 October Acceptance Acceptance 1879 On October 8 def sent a letter to the pl which withdrew the offer Def letter 2 (withdrawal) 8 October 1879 Withdrawal letter received 20 October 1879 Pl claimed for damages for the non- delivery of the tin plates Issue: was withdrawal of the offer valid?
Revocation
- Held:
- Withdrawal of the offer was ineffective as a contract was constructed between the parties on October 11 when the pl accepted the offer in the letter dated October 1.
- An offer cannot be withdrawn by simply posting a secondary letter which does not arrive until after the first letter had been responded to and accepted.
- NOTE: the distinction between acceptance and withdrawal by post: Adams v Lindsell (1818) 1 B & Ald 681 postal rule doesn’t apply to revocations of offers (see also, Henthorn v Fraser [1892] 2 Ch 27)
- “But this principle appears to me to be inapplicable to the case of the withdrawal of an offer. In this particular case I can find no evidence of any authority in fact given by the plaintiffs to the defendants to notify a withdrawal of their offer by merely posting a letter; and there is no legal principle or decision which compels me to hold, contrary to the fact, that the letter of the 8th of October is to be treated as communicated to the plaintiff on that day or on any day before the 20th, when the letter reached them.” Byrne v van Tienhoven, Lindley J)
- Communication of revocation need not come directly from the
offeror.
- Provided the offeree is fully aware at the time of a purported
acceptance that the offeror has decided not to proceed with the
contract, the offer will be regarded as having been revoked and
acceptance will not be possible
- The was the position in Dickinson v Dodds (1876) 2 Ch D 463
- James LJ: pl “knew that Dodds was no longer minded to sell the property to him
as plainly and clearly as if Dodds had told him in so many words, ‘I withdraw the
offer’”.
Revocation