Summary Lecture Notes – Contract I

These summary notes are to be read in conjunction with notes taken during lectures and the
material in standard Contract Law texts.

Traditionally, an offer and acceptance is required in order to form an agreement. In essence an inquiry
must be done of the parties’ intentions to determine whether a contract has been formed and what the
terms of that contract are.

In deciding whether parties meet the requirements of agreement, the mirror image approach has been
the dominant approach to contract formation. In other words the mirror image approach requires that
one party would have made an offer which has been accepted by another party. When this occurs it
can be said that a binding agreement has been reached.

It should be noted that there are those who feel that there is no conceptual reason why a contract must
consist of an offer an acceptance. It is felt that since a contract is a legal concept that was invented to
help explain the law, we should be free to give it whatever meaning we want. We have two options
available:

(a) We can adopt a narrow view, by focusing solely on the parties’ intent and always requiring
offer and acceptance, or
(b) We can adopt a broader approach, by not always requiring offer and acceptance, and more
generally by looking at factors other than the parties’ intent in determining what duties and
rights (if any) they should have under the law of contract.

It must be noted however, that the doctrine of offer and acceptance us useful in analyzing many
situations and when these can be found one has an appropriate basis for concluding that a contract has
been established.

One will also note that the courts have consistently and without much controversy takes into account
factors other than the parties’ intent when working out whether there should be a contract and what
rights and duties it should give rise to.

A Guiding Principle

In determining whether there is a contract the Court will be guided by the principle of objective
intention. Words are to be interpreted as they were reasonably understood by the person to whom they
were spoken, not as they were understood by the man who spoke them.

As Blackburn J said in Smith v. Hughes (1871) LR 6 QB 597

“If whatever a man’s real intention may be, he so conducts himself that s reasonable man
would believe that he was assenting upon the terms proposed by the other party, and that other
party upon that belief enters into the contract with him, the man thus conducting himself would
be equally bound as if he had intended to agree to the other party’s terms.

Contract Law Notes 2010 – Lecturer: Christine McGowan

See also: Moran v. University of Salford (1993) Tines, 27 October CA where a letter offering the
plaintiff a place of a Physiotherapy course was deemed valid despite the fact that the University
claimed the letter had been sent as a result of a clerical error.

In light of the above it is clear that in deciding whether an agreement has been reached the test is how a
honest and reasonable person in the position of the observer would interpret what transpired between
the parties

Offer & Acceptance

An offer is an indication of one party’s willingness to enter inter a contract with the party to whom it is
addressed as soon as the latter accepts its terms, and an acceptance has been defined simply as being an
agreement to be bound by the terms of the offer.

An offer is a manifestation by the offeror, made either orally, in writing or by conduct of a willingness
to be bound by the terms proposed to the offeree, as soon as the offeree signifies acceptance of the
terms. Alternatively, an offer may be described as an expression of willingness to contract on certain
terms made with an intention that it shall become binding as soon as it is accepted by the person to
whom it is addressed. If one wishes to establish that a contract exists he must prove that a definite
offer was made to him or the general public. Alternatively an offer may be described as a proposal. A
person who indicates to another his willingness to do or abstain from doing something is deemed to
make an offer. Carlill v. Carbolic Smoke Ball Co. [1893] 1 Q.B. 256

The three essential elements of an offer are:

(a) a proposal of the terms of exchange;
(b) an intimation of willingness to be bound;
(c) a conferral of power on the offeree to bind the offeror into a contract as soon as the offeree
manifests
acceptance.

After Carlill it can no longer be doubted that an offer can be made to the public at large. Bowen L.J.
said of the advertisement:
“It is an offer made to all the world, and why should not an offer be made to all the world
which is to ripen into the contract with anybody who comes forward and performs the
condition.”

See also: Bowerman v. Association of British Travek Agents Ltd. (1995) Times 24

With a unilateral offer the offer is not made to a particular individual and as such anyone who os aware
of the offer is free to accept it. Cases where a reward is offered to the public are a good example of
unilateral offers. As a consequence, once the terms of the offer are satisfied the person by a person
who knew of the officer the offeror is obligated to satisfy the reward.

See: Gibbons v. Proctor (1891) 64 LT 943

It should be noted that an offer can be made expressly or by conduct. An offer to sell a TV for $60,000
is express while operating a bus on the road can be deemed as an offer by conduct.

Contract Law Notes 2010 – Lecturer: Christine McGowan

As has been highlighted when an offer is made then the person who makes the offer can become
legally bound by it once the person to whom the offer is made accepts it. This is not the case with an
invitation to treat.

Invitation to treat

In some instances a party may deny the existence of a contract by arguing that the other party
purported to accept something which was in law not an offer but something less. It is therefore
important to differentiate between an offer and an invitation to treat.

An offer capable of being converted into an agreement by acceptance must consist of a definite
promise to be bound leaving the offeree the option of acceptance or refusal but when parties negotiate
with a view to making a contract the preliminary communication that pass between them before a
definite offer is made is usually referred to as invitations to treat. Harvey v. Facey (1893) A.C. 532

Where a person makes a request for information from a prospective supplier as to whether he can
supply goods suitable for a specific purpose this is a mere invitation to treat. Whether a statement is an
offer or an invitation to treat depends primarily on the intention with which it was made. A statement
is not an offer if it negatives the person intending to be bound e.g. where the offerer expressly states
that he is not to be bound merely by the other party’s notification of assent.

Financings Ltd. v. Stimson [1962] 1WLR 1184

The language used in statements is generally not conclusive in determining whether a given statement
is an offer or an invitation to treat. A statement may be an invitation to treat although it contains the
word offer.

Spencer and Harding [1870] L.Q. 5 CP 561

Despite the general statement above the language used during negotiations may prove instructive. In
Gibson v. Manchester City Council [1979] 1AER 972, the statement, “the corporation may be
prepared to sell the house to you” was deemed not to constitute an offer based on the kind of language
used.
See also: Clifton v. Palumbo [1944] 2 AER 497

However, the Court does not always adopt a narrow approach when determining whether an offer has
been made. Storer v. Manchester City Council [1974] 3 AER 824

A statement may be an offer although it is expressed to be an acceptance Bigg v. Boyd Gibbins Ltd
[1977] 1WLR 913

A statement may constitute an offer although it requests the person to whom it is addressed to make an
offer.

Harevla Investments Ltd. v. Royal trust Co. of Canada (C.I.) Ltd. [1986] AC 207

McGowan & Co v. Gomes (1891-93) LRBG 171

Contract Law Notes 2010 – Lecturer: Christine McGowan

The distinction between an offer and invitation to treat is often hard to draw however, there are certain
rules of law that apply in certain given situations in the absence of a contrary intention.

Auctions
At auctions as a general rule the offer is made by the bidder and accepted by the auctioneer when he
signifies his acceptance by the fall of the hammer. Payne v. Cave (1789) 3 TR 148
British Car Auctions Ltd. v. Wright [1972] 1 WLR 1519 – section 58 (b) Sale of Goods Act Chap
90:10

Consequently either party may change its mind before the fall of the hammer. An advertisement that
specified goods would be sold by auction on a certain day doesn’t constitute a promise of potential that
a sale would be held.

Harris v. Nickerson (1873) L.R. 8 Q.B. 286

Once it is stated that a sale would be held without reserve it constitutes a definite offer to sell to the
highest bidder once the auction actually takes place. Warlow v. Harrison (1859) 1 E&E 309 Barry v.
Heathcote Ball & Co Commercial Auctions Ltd. [2001] 1 AER 944

In summary the steps in a sale by auction are as follows:

(a) the advertisement that an auction will take place on a certain day is an invitation to treat (Harris
v Nickerson above)
(b) putting up goods for sale again, is merely an invitation to treat (British Car Auctions Ltd. v
Wright (above)
(c) a bid by the purchaser is the offer; and
(d) the fall of the hammer indicates the acceptance.
See: Sale of Goods Act Chapter 90:10

Display of Goods for Sale

Despite what members of the general population may believe, generally the display of price-marked
goods in a shop window or the price on a price-board is not an offer to sell goods but is an invitation to
the customer to make an offer. Timothy v. Simpson (1834) 6 C&P 499. In this case the following
question was asked: If goods are exhibited in a shop window or inside a shop with a price attached,
does this constitute an offer to sell at that price. When counsel in the case suggested that if a man
advertises goods at a certain price, I have a right to go into the shop and demand the article at the price
marked, the learned judge cut him short with the reply, “No if you do he had a right to turn you out.”

Lord Parker in Fischer v. Bell [1961] 1 Q.B. 394 said:

“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.”
In the case of the shop the offer is made when the customer carries the goods to the cash desk and in
the second case when the customer authorizes the filling station to fill his tank.

The above rule was reinforced in a number of cases involving statutory offences relating to the sale of
specific goods. See for example Pharmaceutical Society of Great Britain v. Boots [1953] 1AER 482

Contract Law Notes 2010 – Lecturer: Christine McGowan

Advertisements and Other Displays

Generally in order to determine whether an advertisement constitutes an offer or an invitation to treat

the Court will consider the context in which the advertisement appears and the practical consequences
of treating it as an offer or an invitation to treat.

Advertisements or displays for the return of lost or stolen property or for information leading to the
arrest or conviction of a perpetrator of a crime are treated as offers. Gibbons v. Proctor (1891) 64 LT
594; Williams v. Carwardine (1833) 5 C&P 566
Such instances are said to constitute unilateral contract (no exchange of spoken/written words between
parties).

Unilateral contracts may be viewed as contracts in respect of which the acceptance of the offer is
constitutes by the performance of an act without making any promise to perform same. Carlill v.
Carbolic Smoke Ball Co.

Advertisements of bi-lateral contracts do not as a general rule constitute offers since they generally
invite bargaining and the advertiser may wish to assure himself before becoming bound that the offeree
is able to perform his part of the intended contract. Therefore a newspaper advertisement that an
auction will be held is not an offer to the person who comes to bid. Harris v. Nickerson (1873) LR 8
QB 286
Similarly an advertisement that goods are for sale is not an offer. Patridge v. Crittenden (1968) 2
AER 421
Lord Parker said:
“I think when one is dealing with advertisements and circulars, unless in deed they come from
manufactures, there is business sense in their being constructed as invitations to treat and not
offer for sale.”
An advertisement that a scholarship exam will be held is not an offer to a candidate. Rooke v. Dawson
[1895] 1 Ch 480

Circulation of a price list by a wine-merchant is only an invitation to treat. Grainger & Son v. Gough
[1896] AC 325, 334
Lord Herschell said
“the transaction of such a price list does not amount to an offer to supply an unlimited quantity
of the wine described at the price-named, so that as soon as an order is given there is a binding
contract to supply that quantity. If it were so the merchant might find himself involved in any
number of contractual obligations to supply wine of a particular description which he would be
quite unable to carry out, his stock of that description being necessarily limited.”

Thornton v. Shoe Lane Parking Ltd. [1971] 2 QB 163

Chapelton v. Barry Urban District Council [1940] 1 KB 532
Lefkowitz v. Great Minneapolis Surplus Stores (957) 86 NW2d 689

Thornton v. Shoe Lane Parking Ltd. is authority for the proposition that where there is an automatic
machine, the offer is made by the person who is responsible for the machine. This means that the
individual who responds for example, by inserting money into the machine is accepting the offer and
the contract is made at that time.

Contract Law Notes 2010 – Lecturer: Christine McGowan

Timetables & Passenger Tickets

There is much difference in judicial opinion concerning the act that constitutes the offer as between the
carrier and the intended passenger. One view is that railway companies offer by issuing advertisement
stating times and conditions under which the trains run.

Denton c. G.N. Ry (1856) 5 E&B 860

Thompson v. London Midland & Scottish Rly [1930} 1 KB 41

A bus company is said to make offers to intended passengers when the bus runs along the root. Wilkie
v. LPTB [1947] 1 AER 258
Offers such as these were said to be accepted by an indication on the passenger’s part that he wished to
travel e.g. by applying for a ticket or getting on the bus. Another view is that the carrier makes the
offer by issuing tickets. The offer is then accepted by the passenger keeping the ticket without
objection.

But see: Thornton v. Shoe Lane Parking Ltd where the Court held that an automatic machines outside
a car-park stating charge rates make a standing offer which the motorist accepts by driving in and
prompting the machine to issue a ticket. As a consequence the exclusion of liability contained on a
notice placed inside the car park was not part of the contract since it came to the attention of the
motorist after the contract was made. The company could therefore not deny the motorist’s claim in
respect of injury he sustained.

It should be noted that in order to avoid much of the potential litigation in relation to such matters,
most timetables will contain express disclaimers of any obligation to provide the services contained in
the timetable.

Tenders

An invitation to persons to submit tenders is generally speaking considered as an invitation to treat.

Thus the person who asks for the tenders is free to accept or reject any of the responses. Spencer v.
Harding (1870) L.Q. 5 C.P. 561

There is no general rule to accept the highest bidder.

The offer comes from the person submitting the tender and there is no contract until the tender is
accepted. However, when the person inviting the tender states in the invitation that he binds himself to
accept the highest offer- the invitation is considered an offer.

Blackpool &. Fylde Aeroclub Ltd v. Blackpool Brough Council [1990] 3 AER 25 -a person who
invited tenders must expressly state the terms on which response will be considered or be bound by the
reasonable expectation of those who put in tenders. These issues can however, be avoided based on
the language used in the tender documents.

See also: Harvela Investments Ltd. v Royal Trust Co. of Canada [1986] AC 207

Sale of Shares
When a company makes an offer to the public asking them to apply for shares it amounts to an
invitation to treat. The invitation itself usually states that it reserves the right to decide how many
Contract Law Notes 2010 – Lecturer: Christine McGowan
shares to a lot to each applicant. The invitation to treat itself therefore negatives any intention to be
bound. Where however, a company resolves to make a rights issue to its members inviting each
member to buy a number of shares proportionate to the number he already owns, the letter informing
the shareholders is not an offer.

Jackson v. Turquand (1869) L.R. 4 HL 305

There is generally no right of action against a party who promises to keep an offer open for a specified
period but does not. See: Walford v. Miles [1992] 1 AER 155 but see Pitt v. PHH Asset Management
Ltd. [1993] 4 AER 961

An offer may be terminated by

(a) Withdrawal
(b) Rejection
(c) Lapse of Time
(d) Death

Withdrawal

An offer may be withdrawn at anytime before it is accepted.

Routledge v. Grant (1828) 4 Bing 653 and Tuck v. Baker [1990] 2 EGLR 195

Such a withdrawal must be communicated to the offeree. It is not sufficient to simply dispose of the
subject matter of the intended contract.

In Dickinson v. Doods 91875-6) Bacon VC commented at first instance and said, “in order to be
withdrawn from, information of that fact may be conveyed to the mind of the person who is to be
affected by it. It will not do for the Defendant to say, ‘I made up my mind that I would withdrawn, but
I did not tell the plaintiff.”

There is an implied obligation not to revoke an offer once the offeree embarks on performance, except
where it is reasonable for the offeree to bear the risk. Daulia Ltd. V. Four Millbank Nominees Ltd.
Luxor (Eastborne) Ltd. V. Cooper (1941) AC 108

Adams v. Lindsell
Byrne & Co. v. Leon van Tienhoven
Where the offeree by virtue of his conduct does not receive the revocation when in the normal course
of things he would have, he is prevented from denying that he received a revocation

When the offer is made to the public once the offeror takes reasonable steps to bring the withdrawal to
the notice of the public as for instance by putting a notice of withdrawal he will be excused of
performing the intended contract notwithstanding that a particular person may not have had a
revocation communicated to him

Communication of a revocation need not come from the offeror once it comes from a reliable source.

Rejection

Contract Law Notes 2010 – Lecturer: Christine McGowan

When an offer is rejected it is terminated with respect to the person rejecting same but it remains in
existence in respect of all other persons to whom it might have been made. It should be noted that a
counter-offer takes effect as a rejection of an offer. A mere enquiry however, for the purpose of
verifying terms does not operate to nullify the offer.

Stevenson, Jacques & Co. v. Mc Lean

Gibson v. Manchester Cc [1979] 1 WLR 294
There is little authority on whether a rejection has to be communicated to the offeror for it to be
effective but general principles seem to suggest that it would have to be communicated to prevent a
subsequent acceptance from taking effect.

Lapse of Time

Offers which are stated to last for a fixed time cannot be accepted after the prescribed time has passed
or elapsed. Where an offer contains no express provision limiting the duration it determines after the
passage of what in the court’s view constitutes the reasonable time.

Ramsgate Victoria Hotl Co. Ltd v. Montenhore (1866) LR 1 Ex 109

Financings Ltd. v. Stimson
Death

It has been submitted that the death of the offeror or offer prior to the consummation of the contract
determines the contract, except in instances where it would not have been open to the offeror fit him to
terminate the offer during his lifetime and performance does not depend on the offeror’s personality
and can be satisfied out of his estate. Errington v. Errington [1952] 1 KB 290

Unilateral and Bilateral Contracts

A distinction must be drawn between unilateral and bilateral contracts. The key difference is that only
the latter type of contract places obligations upon and grants rights to both parties. In the case of a
unilateral contract the offeree makes no promise and so is under no duty to do anything.

Acceptance

Having established that an offer has been made it becomes necessary to ascertain the existence of an
acceptance in order to conclude that an agreement has been reached. As one author explains an offer
and acceptance must fit together like two pieces of a jigsaw puzzle. If they are not the same, they will
not slot together and the picture will be incomplete.

It is necessary to establish
(a) the fact of acceptance; and
(b) the communication of acceptance.

Acceptance has been defined as the final and unqualified expression of assent to the terms of an offer.
Once made the agreement is binding and the door is closed on the contract room. Whether an act or a
Contract Law Notes 2010 – Lecturer: Christine McGowan
statement constitutes an acceptance is determined by the objective standard. A mere acknowledgement
of an offer is not an acceptance. A statement to the effect that one has an intention to place an order is
not an acceptance.

OTM Ltd v. Hydranutics [1981] 2 Lloyds’s Rep 211

As stated earlier one cannot accept an offer of which he has no knowledge but if a reward is offer his
motive for acceptance of the reward need not be that which was offered.

See: Williams v. Carwardine (1883) 4 B&Ad 621

Gibbons v. Proctor

As Chaudray outlines in his work there are some basic requirements for a valid acceptance.

1. An offer must be accepted absolutely i.e. on the same terms of the offer. In other words the
acceptance must mirror the terms of the offer. In some circumstances a person attempts to
make an acceptance but instead varies the terms of the offer or adds new terms. In such an
event this is generally not considered to be a valid acceptance but a counter-offer. A counter
offer is made where the offeree while purporting to accept the offer introduces a new term
which the offeror has not had the opportunity of examining.

Neal v. Merrett [1930] W.N. 189

Hyde v. Wrench (1804) 3 Beav 334
Tinn v. Hoffman & Co (1873) 2 LT 271
North West Leicestershire D.C. v. East Midlands Housing Association [1981] 1 WLR
1396

The requirement that acceptance must be unqualified does not mean that there must be a precise
exchange between offer and acceptance or offeror and offeree. The acceptance may be good although
it does not adopt the exact wording of the offeror e.g. it speaks of a term which the court would imply
in any case.

A request for information does not constitute a refusal of the offer. This principle is exemplified in the
case of Stevenson, Jacques & Co. v. Mc Lean (1880) 5 QBD 346 where negotiations were in train for
the sale of iron at a particular price. The offeree sent the following message.
“Please wire whether you would accept 40 for delivery over two months or if not longest time
you would give.”
The seller did not reply but sold the iron, & claimed that the above statement was a rejection of the
offer. The Court was satisfied that it was merely a request for information.

An acceptance may be good notwithstanding that the offeree asks for additional time to pay. The
Courts have indicated that it is possible for an acceptance which introduces a new term to amount to an
acceptance of the terms offered coupled with a new and separate offer. The Master Stelios [1983] 1
Lloyds Rep 356. In such a case a contract would have been concluded based on the terms of the
original offer; but none of the terms of the new offer would be binding unless and until they have been
accepted.

Contract Law Notes 2010 – Lecturer: Christine McGowan

 2. The form of the acceptance may be varied e.g. it may be oral, written or by conduct. It should
be noted that as a general rule an acceptance must be communicated to the person who made
the offer. If this is not done, no acceptance would exist.
B.G. Credit Corp. v. Da Silva (1965) 7 WIR 530
The rationale for this principle is to avoid hardship to an offeror by causing him to be bound
without knowing that he entered into a contract. This does not mean however, that the acceptance
has to be communicated by the acceptor himself.

Bloxham’s Case (1864) 33 Beav. 529

Leita’s Case (1867) L.R. 3 Ch. App 36

It would appear that communication by a third party has to be with the authority of the offeree.
Powell v. Lee (1908) (( LT 284
For an acceptance to be communicated is should be brought to the notice of the offeree
Entores Ltd v. Miles Far East Corp [1955] 2 Q.B. 327
As Lord Denning said:
“The contract is only complete when the acceptance is received by the offeror and the contract
is made at the place where the acceptance is received”

In this case Lord Denning gave a few examples:

“ Suppose, for instance that I shout an offer to a man across a river or a courtyard but I do not hear
his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment.
If he wishes to make a contract he must wait till the aircraft is gone and then shout back his
acceptance so that I can hear what he says. Not until I have his answer am I bound …

Now take a case where two people make a contract by telephone. Suppose, for instance, that I
make an offer to a man by telephone and, in the middle of his reply, the line goes ‘dead’ so that I
do not hear his words of acceptance. There is no contract at that moment. The other man may not
know the precise moment when the line failed. But he will know that the telephone conversation
was abruptly broken off: because people usually say something to signify the end of the
conversation. If he wishes to make a contract, he must therefore get through again so as to make
sure that U heard. Suppose next that the line does not go dead but it is nevertheless so indistinct
that I do catch what he says and I ask him to repeat it. He then repeats it and I hear his acceptance.
The contract is made, not on the first time when I do not repeat it, there is no contract. The
contract is only complete when I have his answer accepting the offer.”

There are however some exceptions to the requirement to communicate the acceptance to the
offeror.

(a) Communication may be made to the offeror’s agent depending on the nature and scope of the
agent’s authority. Henthorn v. Fraser [1892] 2 Ch 27

See: Dickinson v, Dodds (1875)

Powell v. Lee (1908)

(b) Conduct of the Offeror

Contract Law Notes 2010 – Lecturer: Christine McGowan

 If as a result of his own fault the offeror does not actually receive the acceptance in circumstances
in which he would normally have, he is said to be precluded from denying that he received the
acceptance.
Entores Ltd. v. Miles Far East Corp. [1955] 2 QB 327

(c) In some circumstances it is not necessary to communicate one’s acceptance. The expressed
terms of the offer may wave the requirement that acceptance be communicated. The court may
imply that in circumstances of the offer. Communication is waived. The most common
occurrence of this type of situation occurs in the case of an offer of a unilateral contract.
Performing a particular act could constitute the necessary acceptance. Carlill v. Carbolic
Smoke Ball

(d) Acceptance by post

The general rule in relation to acceptance by post is that postal acceptance takes effect when the
letter of acceptance is posted.

Adams v. Lindsell (1818) 1 B & Ald 687 ; Henthorn v. Fraser [1892] 2 Ch 27; Brinkibon Ltd. v.
Stahag Stahl [1983] 2 AC 34 and Re London & Northern Bank exp. Jones [1900] 1 CH 220

It should be noted that the posting rule is only applicable in circumstances where it would be
reasonable to use the post as a means of conveying one’s acceptance or when the terms of the offer
dictate that acceptance cane or must be by post. In Henthorn v. Fraser, it was said that it must be
“within the contemplation of the parties that, according to the ordinary usages of mankind the post
might be used as a means of communicating the acceptance is coming as soon as it is posted.” The
general position is that in the absence of any specific stipulated in the offer the manner in which the
offer was made determines the manner of acceptance e.g. if the offer was made orally, acceptance
should be made orally. The postal rule can be excluded by the terms of the offer. Holwell
Securities Ltd. v. Hughes [1974] 1 WLR 155 In this case, the terms of the offer required
acceptance to be made by notice in writing. This was sufficient to displace the postal rule.

Where however, acceptance is made by some form of instantaneous communication by telephone

or fax communication the postal rule does not apply. The laws related to acceptance through
electronic means is still uncertain. The two approaches used suggest that either acceptance occurs
when the communication is actually received or at the time when in the ordinary course it would
have been received.

Entores Ltd. v. Miles Far East Corp. [1955] 2 QB 327

See also: The Brimnes [1974] 3AER 88 where it was held that a telex received during office hours
was binding though not read until the following morning.
Brinkibon Ltd. v. Stahag Stahl [1982] 1 AER 293 the approach in Entores was approved.
Mondial Shipping & Chartering BV v. Astate Shipping Ltd [1995] Com LC 1011 – acceptance
can occur at the time one would reasonably expect the offeror to receive it

The postal rule has some unusual consequences

(i) A postal acceptance prevails over a previously posted withdrawal of an offer. This position
is as a result of the rule in relation to revocation which is that for a revocation to be
Contract Law Notes 2010 – Lecturer: Christine McGowan
 effective it must be actually be received by the offeree whether sent by post or not. As a
consequence an unformate offeror may still find himself bound by an offer made
notwithstanding that he might have taker steps to revoke it.
Byrne & Co. v. Leon Vantienhoven (1880) 5 C.P.D. 344
Lindley J said:
“Where an offer is made & accepted by letter sent through the post, the contract is completed
the moment the letter accepting the offer is posted even though it never reaches its destination.”

Where the writer has expressly or impliedly assented to treat an answer to him by a letter duly posted
as sufficient acceptance and notification to himself, In other words he has made the Post Office his
agent.

Harris Case (1872( LR 7 Ch. App. 587

(ii) An acceptance takes effect on posting even though it may never reach the offeror as where
it is lost through an accident in posting.

Household Fire Insurance v. Grant (1879) 4 ExD 216

(iii) The contract is taken to have been made at the time of posting and operates to preclude the
formation of any other contract which the offeror might have entered into at the time of
posting.
Potter v. Sanders

Where however, the acceptance is misdirected as the direct result of the fault of the acceptor e.g. by
placing an incorrect address on the envelope is posting cannot amount to an acceptance. It has
been submitted that such an acceptance may take effect when and of the offer actually reaches hi,

It has been generally said that an acceptance once posted cannot be revoked by the offeree. The
reason for this is that the contract is formed at the time of posting and thereafter cannot be revoked
by a unilateral act of one party to the contract. It should be noted however, that there are some
conflicting Commonwealth authorities on this point.

3. If an offer has lapsed or is revoked and attempt to accept that offer is invalid. Once a
valid acceptance has been made the offer cannot be revoked.

4. An acceptance which is made “subject to contract” is not an absolute acceptance.

As a general principle where an offer makes alternative proposals the purported acceptance must
indicate which proposal is being accepted.

Peter Lind & Co. Ltd. v. Mersey Docks & Harbour Board [1972] 2 Lloyds Rep. 234
Brogden v. Metropolitan Rly Co. (1877) 2 AC 666

It should be noted that an offer may be accepted by conduct e.g. by supplying goods or materials in
response to an offer made to purchase the said goods or materials. Thornton v. Shoe Lane Parking
Ltd. [1971] 1 AER 686
Harvey v. Johnston (1848) 6 C.B. 295; Interfoto Picture Library Ltd. v. Stilletto Visual Programmes
Ltd. [1989] Q.B. 433
Contract Law Notes 2010 – Lecturer: Christine McGowan
Steven v. Bromley & Son [1919] 2 KB 722
If someone offers to supply goods to another and sends the goods to the them, the offer can be
accepted by using them.

Weatherby v. Banham (1832) 5 C&P 228 and Hart v. Mills (1846) 15 LJ Ex 200
However, conduct can only constitute an acceptance of the offer, if the said conduct is done with the
intention to accept the offer. Taylor v. Allon [1966] 1 QB 304

Where it is alleged that the offer has been made or accepted by conduct it is often difficult to ascertain
what circumstances have been agreed. It is possible that no agreement has been reached. In suitable
circumstances the Court has the power to imply the terms of the contract.

One Way Instantaneous Communication

While the principles in relation to two-way instantaneous communication were clearly established in
Brinkibon Ltd (mentioned above) the situation is a bit different in one way instantaneous
communication such as text-messaging, answer-phone messages, faxes or telexes. This is because
while the message arrives almost instantaneously the recipient may not receive it at that particular
time. The generally accepted position seems to be that acceptance takes place when a reasonable
offeror would access the message received. See the reasoning in Tenax SS Co Ltd. v The Brimmes
[1975] QB 929.

See also:

Mondial Shipping and Chartering BV c. Astarte Shipping Limited [1955] 2 AER 493

Entores Ltd. v. Miles Far East Corp [1955] 2 QB 327

Brinkibon Ltd v. Stahag Stahl und Stahlwarenhandel GmbH [1983] 1 AER 293

Entores Ltd v. Stahag Stahl and Stahlwaren handel GmbH is authority for the proposition that
acceptance takes place at the place where the commincation is received. In the Brimmes, the Court
found that a notice of withdrawal of a ship from a charter party was received when it arrived although
it was not read until the following morning.

However, as Lord Wilberforce opined in Brinkibon Ltd. v. Stahad Stahl there is no universal rule but
we are to be guided by the intention of the parties, sound business practice and our judgment of where
the risk should lie.

The general approach suggests that acceptance takes place when the communication (fax/email) etc. is
received during office hours. If received outside of office hours, accepted is likely to be treated as
occurring when the office would normally open for business again.

When is an acceptance of a Unilateral Contract

In general a person will not be allowed to revoke a unilateral offer after performance has begun. There
are two different ways that the law can prevent this from happening.

Contract Law Notes 2010 – Lecturer: Christine McGowan

 (a) By agreeing that the offer is accepted by commencing performance

Lord Denning in Errington v. Errington [1952] 1 AER 149

“The father’s promise was a unilateral contract – a promise of the house in return for their act of
paying the instalments. It could not be revoked by him once the couple entered on performance of
the act, but it would cease to bind him if they left it incomplete and unperformed.”

(b) By saying that the offer is only accepted upon complete performance, but once a person has
commenced performance there is an implied obligation not to revoke offer.

Viscount Cave LC in Morrison Shipping Co. Ltd v. The Crown (1924) LI L Rep 283

I doubt whether a conditional offer in general terms, whether made to the public (as in Carbolic
Smoke Ball case) or to a class of persons is converted into a contract so soon as one of the
persons to whom the offer is made takes some step towards performing the condition. It may
be that, when work is done and expense incurred on the faith of a conditional promise, the
promisor comes under an implied obligation not to revoke his promise, and if he does so may
be sued for damages on a quantum meruit; but it is unnecessary now to determine that question.

Prescribed Method of Acceptance

Once an offer states the manner in which an acceptance is to be made the acceptance must be made in
the stipulated manner. As a consequence if the offer stipulates that acceptance must be in writing an
oral acceptance would not suffice.

Financings Ltd. v. Stimson [1962] 1 WLR 1184

Where however, the offeror waves his right to insist on the stipulated manner, he may be bound. The
Courts presume that where an offer has a prescribed method of acceptance the offeror makes the
stipulation with a particular object in mind. Once therefore an offeree uses a comparable mode of
communicating his acceptance which is at least as efficacious as the prescribed method the Court may
exempt the offeree from compliance.

Manchester Diocesan Council for Education v. Commercial & General Investments Ltd. [1970] 1
WLR 242

Silence

Silence in response to an offer as a general rule does not bind the offeror. Felthouse v. Bindley (1862)
11 C.B. N.S. 869 and Financial Techniques (Planning Services) v. Hughes [1981] I.RL.R. 32

The policy behind the reason in Felthouse v. Bindley is intended to avoid the offeree being put to the
trouble or expense of rejecting an offer. The rule also protects the offeree from accepting offers that he
does not intend to accept.

There are circumstances however where neither of the abovementioned policy decisions apply, and this
has led to the development of some exceptions to this rule.

Contract Law Notes 2010 – Lecturer: Christine McGowan

 1) If the offeree does not say anything but his conduct clearly indicates to the other party that the
offeree intends to accept the offer, then his intent is not equivocal and a contract is not being
forced upon him, acceptance can occur in these circumstances.

Nissan UK Ltd. V. Nissan Motor Manufacturing (UK) Ltd. (1994) unreported

2) Another exception arises where the silence of the offeree does indicate to the other party an
intention to accept the offer even in the absence of any conduct on his part. This does not occur
regularly but may arise in circumstances where there have been previous dealings between the
parties,

Rust v. Abbey Life Insurance Company (1979) 2 Lloyds Rep 334

The doctrine would also appear to be inapplicable in circumstances where the offeree either expressly
or impliedly waives his right to communicate his acceptance.

Tracomin S.A. v. Auto C. Nielson [1984] 2 Lloyds Rep 195

It is also said that where a person knows of an offer but at the time of the alleged acceptance has
forgotten it no contract is formed. Gibbons v. Proctor (1891) 64 LT 594 and R v. Clarke (1927) 40
CLR 227

The House of Lords in The Santa Clara (1996) AC 800 said:

“Sometimes in the practical world of businessmen an omission to act be be as pregnant with

meaning as a positive declaration.”

See also: Re Selectmove Ltd [1995] 1 WLR 474

Battle of The Forms

A person may make an offer to contract using his standard terms of business and the other party will
reply that he is willing to accept but only on his standard terms of business. The first party might then
indicate that the contract must be on his standard terms. This sending back and forth of offers and
counter-offers to contract on eac party’s standard terms is known as the battle of the forms. At some
point, one party may start to perform the work envisaged by the parties. This will raise the question of
whether there is a contract and if so what are the terms of that contract.

The approach taken by the English courts is to look at the last offer made by either of the parties and
ask if it was accepted by the other party. If it was there will be a contract on the terms of the last offer,
and if it was not, there will be no contract at all. This is known as the ‘last shot approach’

See: Butler Machine Tool Co, Ltd v. Ex-cell-o Corporation (England) Ltd [1979] 1 AER 965

This approach has a number of problems including the fact that it may be concluded that there is no
contact and that the contract if it exists will only reflect the expectations of one party.

It has been submitted that the Courts should adopt a broader view of what constitutes a contract and to
this end should waive the requirements of offer and acceptance.
Contract Law Notes 2010 – Lecturer: Christine McGowan
Retraction of an Acceptance

As soon as the acceptance takes place the parties to the contract are bound. The issue which arises
therefore, is whether it is possible to retract or revoke a valid acceptance.

There are conflicting views of this. While some object to revocation being possible on the ground that
it unfairly gives the offeree the best of both worlds there are those who believe that revocation of an
acceptance is possible if the revocation is done by a faster means than the acceptance itself and actually
reaches the attention of the offeror before the acceptance takes place.

There is no English authority on this point. However Bramwell LJ commented in his dissenting
judgment in Household Fire Insurance Co. v. Grant (1879) that the revocation would be effective if
done by a faster method

See: Countess of Dunmore v Alexander (1830) 9 Shaw 190

Wenckheim v Arndt (1861-1902) 1 JR 73 (New Zealand)
A to Z Bazaars (Pty) Ltd v Minister of Agriculture (1974) (4) SA 392

Certainty in Offer and Acceptance

Despite the fact that there is sufficient correspondence between offer and acceptance, there is no
enforceable contract if the agreement expressly anticipates the need for further agreement or impliedly
does so because it is vague or is silent on material points. This is so because certainty on all material
aspects of a contract is important and as such the courts will not enforce an agreement if there is
uncertainty about what was agreed. Scammell v. Ouston [1941] 1 AER 14.

In Foley v Classique Coaches Ltd [1934 2 KB 1 Maugham LJ said:

“unless all the material terms of the contract are agreed there is no binding obligation. An
Agreement to agree in the future is not a contract; nor is there a contract if a material term is
neither settled or implied by law and the document contains no machinery for ascertaining it.”

This however does not mean that all the details of a contract must be finally decided in advance.
Hillas v. Acros (1932) 147 LT 503

In the area of certainty there are two broad categories.

1. Vague Agreements – Scammel v. Ouston where the contract spoke of a purchase on hire
purchase terms.
2. Incomplete agreements – May v. Butcher, Walford v. Miles. etc.

Where an agreement appears to be uncertain, the uncertainty may be cured by trade custom,
application of statute, previous dealing, use of a mechanism inserted to resolve the dispute or by
ignoring that which is uncertain if the deletion of the clause will not adversely affect the contract.

Meaningless phrases can be ignored once they don’t relate to a significant aspect of the contract.
Nicolene v. Simmonds [1953] 1 AER 822. Incomplete agreements may be rescued depending on the

Contract Law Notes 2010 – Lecturer: Christine McGowan

circumstances, although traditionally there was a reluctance to give effect to an agreement to agree.
Courtney v. Fairbairn Ltd. v. Tolani Bros (Hotels) Ltd, May and Butcher v. R [1934] 2 KB 17
Section 9 of the Sale of Goods Act Chapter 90:10 provides as follows:

9(1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner
thereby agreed, or may be determined by the course of dealing between the parties.

(2) Where the price is not determined in accordance with the foregoing provisions the buyer must pay
a reasonable price, and what is a reasonable price is a question of fact dependent on the circumstances
of each particular case.

Obligations v. Machinery

A contract can either stipulate the terms of the contract or alternatively it can provide the machinery
(mechanism for determining the terms of the contract. The contract will not be regarded as uncertain if
it provides a machinery for resolving an aspect of the contract which has been left uncertain. See:
Sudbrrok Trading Estate v. Eggleton [1982] 3 AER 1, Didymi Corp v. Atlantic Lines and Navigation
Co. Inc.[1987] 2 Lloyds Rep 166, Gillatt v. Sky Television Ltd [2000] 1 AER Comm 461

Typically a contract which provides for the price to be determined by reference to a valuation, market
price or arbiter will be enforceable and will not be deemed void for uncertainity. This is so even when
one of the parties fails to make an appointment. Sudbrook Trading Estate v. Eggleton.

Conditional agreements may not be enforceable where the condition is a pre-condition to the formation
of a valid contract (e.g. subject to contract, subject to legal; advice etc.

The Courts generally will seek wherever possible to uphold agreements where the parties show
commitment to the contract e.g. by commencing performance even when the parties have not reached
agreement on every point. As referred to above gaps are filled and vagueness given enforceable
meaning by reference previous dealing, the customs of the trade and the standard of reasonableness,
the technique of severance, the nature of the agreement (e.g. to negotiate or not to negotiate) and the
workability of any agreed mechanism for ascertaining material terms.

See also: Walford v Miles [1992] 2 AC 128

Agreement to Agree

See: May & Butcher v. The King [1934] 2 KB 17

Agreement to Negotiate

Courtney & Fairbairn Ltd v. Toalni Bros (Hotels) Ltd [1975] 1AER 716

Walford v Miles

Cable & Wireless plc. v. IBM [2002] 2 AER (Comm) 1041

Agreement to negotiate in good faith

Contract Law Notes 2010 – Lecturer: Christine McGowan

Walford v. Miles

Agreement to use reasonable endeavours to reach agreement

Queensland Electricity Generating Board v. New Hope Collieries Pty Ltd. [1989] 1 Lloyd’s Rep 205

Agreement to use best endeavours to reach agreement

Little v. Courage (1995) CLC 164

Lock Out Agreements

Walford and Pitt v PHH Asset Management Ltd (1993)

Contract Law Notes 2010 – Lecturer: Christine McGowan