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Agreement Cases – Formation, Acceptance, Termination

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Cases On Formation Of A Contract Offer

Payne v Cave (1789)

The defendant made the highest bid for the plaintiff’s goods at an auction

sale, but he withdrew his bid before the fall of the auctioneer’s hammer. It was

held that the defendant was not bound to purchase the goods. His bid amounted to

an offer which he was entitled to withdraw at any time before the auctioneer

signified acceptance by knocking down the hammer. Note: The common law rule laid

down in this case has now been codified in s57(2) Sale of Goods Act 1979.

Fisher v Bell (1960)

A shopkeeper displayed a flick knife with a price tag in the window. The

Restriction of Offensive Weapons Act 1959 made it an offence to ‘offer for sale’

a ‘flick knife’. The shopkeeper was prosecuted in the magistrates’ court but the

Justices declined to convict on the basis that the knife had not, in law, been

‘offered for sale’.

This decision was upheld by the Queen’s Bench Divisional Court. Lord Parker

CJ stated: “It is perfectly 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.”

PSGB v Boots (1953)

The defendants’ shop was adapted to the “self-service” system. The

question for the Court of Appeal was whether the sales of certain drugs were

effected by or under the supervision of a registered pharmacist. The question

was answered in the affirmative. Somervell LJ stated that “in the case of

an ordinary shop, although goods are displayed and it is intended that customers

should go and choose what they want, the contract is not completed until, the

customer having indicated the articles which he needs, the shopkeeper, or

someone on his behalf, accepts that offer. Then the contract is completed.”

Partridge v Crittenden (1968)

It was an offence to offer for sale certain wild birds. The defendant had

advertised in a periodical ‘Quality Bramblefinch cocks, Bramblefinch hens, 25s

each’. His conviction was quashed by the High Court. Lord Parker CJ stated that

when one is dealing with advertisements and circulars, unless they indeed come

from manufacturers, there is business sense in their being construed as

invitations to treat and not offers for sale. In a very different context Lord

Herschell in Grainger v Gough (Surveyor of Taxes) [1896] AC 325, said this in

dealing with a price list:

“The transmission 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 wine of that description being

necessarily limited.”

Carlill v Carbolic Smoke Ball Co (1893)

An advert was placed for ‘smoke balls’ to prevent influenza. The advert

offered to pay £100 if anyone contracted influenza after using the ball. The

company deposited £1,000 with the Alliance Bank to show their sincerity in the

matter. The plaintiff bought one of the balls but contracted influenza. It was

held that she was entitled to recover the £100. The Court of Appeal held that:

(a) the deposit of money showed an intention to be bound, therefore the

advert was an offer;

(b) it was possible to make an offer to the world at large, which is accepted by

anyone who buys a smokeball;

(c) the offer of protection would cover the period of use; and

(d) the buying and using of the smokeball amounted to acceptance.

Harvey v Facey (1893)

The plaintiffs sent a telegram to the defendant, “Will you sell Bumper

Hall Pen? Telegraph lowest cash price”.

The defendants reply was “Lowest price £900”.

The plaintiffs telegraphed “We agree to buy… for £900 asked by

you”.

It was held by the Privy Council that the defendants telegram was not an

offer but simply an indication of the minimum price the defendants would want,

if they decided to sell. The plaintiffs second telegram could not be an

acceptance.

Gibson v MCC (1979)

The council sent to tenants details of a scheme for the sale of council

houses. The plaintiff immediately replied, paying the £3 administration fee.

The council replied: “The corporation may be prepared to sell the house to

you at the purchase price of £2,725 less 20 per cent. £2,180 (freehold).”

The letter gave details about a mortgage and went on “This letter should

not be regarded as a firm offer of a mortgage. If you would like to make a

formal application to buy your council house, please complete the enclosed

application form and return it to me as soon as possible.” G filled in and

returned the form. Labour took control of the council from the Conservatives and

instructed their officers not to sell council houses unless they were legally

bound to do so. The council declined to sell to G.

In the House of Lords, Lord Diplock stated that words italicised seem to make

it quite impossible to construe this letter as a contractual offer capable of

being converted into a legally enforceable open contract for the sale of land by

G’s written acceptance of it. It was a letter setting out the financial terms on

which it may be the council would be prepared to consider a sale and purchase in

due course.

Harvela v Royal Trust (1985)

Royal Trust invited offers by sealed tender for shares in a company and

undertook to accept the highest offer. Harvela bid $2,175,000 and Sir Leonard

Outerbridge bid $2,100,000 or $100,000 in excess of any other offer. Royal Trust

accepted Sir Leonard’s offer. The trial judge gave judgment for Harvela.

In the House of Lords, Lord Templeman stated: “To constitute a fixed

bidding sale all that was necessary was that the vendors should invite

confidential offers and should undertake to accept the highest offer. Such was

the form of the invitation. It follows that the invitation upon its true

construction created a fixed bidding sale and that Sir Leonard was not entitled

to submit and the vendors were not entitled to accept a referential bid.”

Blackpool Aero Club v Blackpool Borough Council (1990)

BBC invited tenders to operate an airport, to be submitted by noon on a fixed

date. The plaintiffs tender was delivered by hand and put in the Town Hall

letter box at 11am. However, the tender was recorded as having been received

late and was not considered. The club sued for breach of an alleged warranty

that a tender received by the deadline would be considered. The judge awarded

damages for breach of contract and negligence. The council’s appeal was

dismissed by the Court of Appeal.

ACCEPTANCE

Brogden v MRC (1877)

B supplied coal to MRC for many years without an agreement. MRC sent a draft

agreement to B who filled in the name of an arbitrator, signed it and returned

it to MRC’s agent who put it in his desk. Coal was ordered and supplied in

accordance with the agreement but after a dispute arose B said there was no

binding agreement.

It was held that B’s returning of the amended document was not an acceptance

but a counter-offer which could be regarded as accepted either when MRC ordered

coal or when B actually supplied. By their conduct the parties had indicated

their approval of the agreement.

Gibson v MCC (1979)

Lord Denning said that one must look at the correspondence as a whole and the

conduct of the parties to see if they have come to an agreement.

Trentham v Luxfer (1993)

T built industrial units and subcontracted the windows to L. The work was

done and paid for. T then claimed damages from L because of defects in the

windows. L argued that even though there had been letters, phone calls and

meetings between the parties, there was no matching offer and acceptance and so

no contract.

The Court of Appeal held that the fact that there was no written, formal

contract was irrelevant, a contract could be concluded by conduct. Plainly the

parties intended to enter into a contract, the exchanges between them and the

carrying out of instructions in those exchanges, all supported T’s argument that

there was a course of dealing between the parties which amounted to a valid,

working contract. Steyn LJ pointed out that:

(a) The courts take an objective approach to deciding if a contract has been

made.

(b) In the vast majority of cases a matching offer and acceptance will create a

contract, but this is not necessary for a contract based on performance.

Hyde v Wrench (1840)

6 June W offered to sell his estate to H for £1000; H offered £950

27 June W rejected H’s offer

29 June H offered £1000. W refused to sell and H sued for breach of contract.

Lord Langdale MR held that if the defendant’s offer to sell for £1,000 had

been unconditionally accepted, there would have been a binding contract; instead

the plaintiff made an offer of his own of £950, and thereby rejected the offer

previously made by the defendant. It was not afterwards competent for the

plaintiff to revive the proposal of the defendant, by tendering an acceptance of

it; and that, therefore, there existed no obligation of any sort between the

parties.

Stevenson v McLean (1880)

On Saturday, the defendant offered to sell iron to the plaintiff at 40

shillings a ton, open until Monday. On Monday at 10am, the plaintiff sent a

telegram asking if he could have credit terms. At 1.34pm the plaintiff sent a

telegram accepting the defendant’s offer, but at 1.25pm the defendant had sent a

telegram: ‘Sold iron to third party’ arriving at 1.46pm. The plaintiff sued the

defendant for breach of contract and the defendant argued that the plaintiff’s

telegram was a counter-offer so the plaintiff’s second telegram could not be an

acceptance.

It was held that the plaintiff’s first telegram was not a counter-offer but

only an enquiry, so a binding contract was made by the plaintiff’s second

telegram.

 

Butler Machine Tool v Ex-Cell-O Corporation (1979)

The plaintiffs offered to sell a machine to the defendants. The terms of the

offer included a condition that all orders were accepted only on the sellers’

terms which were to prevail over any terms and conditions in the buyers’ order.

The defendants replied ordering the machine but on different terms and

conditions. At the foot of the order was a tear-off slip reading, “We

accept your order on the Terms and Conditions stated thereon.” The

plaintiffs signed and returned it, writing, “your official order… is

being entered in accordance with our revised quotation… “.

The Court of Appeal had to decide on which set of terms the contract was

made. Lord Denning M.R. stated:

In many of these cases our traditional analysis of offer, counter-offer,

rejection, acceptance and so forth is out-of-date. This was observed by Lord

Wilberforce in New Zealand Shipping Co Ltd v AM Satterthwaite. The better way is

to look at all the documents passing between the parties and glean from them, or

from the conduct of the parties, whether they have reached agreement on all

material points, even though there may be differences between the forms and

conditions printed on the back of them. As Lord Cairns L.C. said in Brogden v

Metropolitan Railway Co (1877):

… there may be a consensus between the parties far short of a complete mode

of expressing it, and that consensus may be discovered from letters or from

other documents of an imperfect and incomplete description.

Applying this guide, it will be found that in most cases when there is a

“battle of forms” there is a contract as soon as the last of the forms

is sent and received without objection being taken to it. Therefore, judgment

was entered for the buyers.

GNR v Witham (1873)

GNR advertised for tenders for the supply of stores and W replied ‘I

undertake to supply the company for 12 months with such quantities as the

company may order from time to time’. GNR accepted this tender and placed orders

which W supplied. When W later refused to supply it was held that W’s tender was

a standing offer which GNR could accept by placing an order. W’s refusal was a

breach of contract but it also revoked W’s standing offer for the future, so W

did not have to meet any further orders.

Lord Denning in Entores v Miles Far East Corp (1955)

If a man shouts an offer to a man across a river but the reply is not heard

because of a plane flying overhead, there is no contract. The offeree must wait

and then shout back his acceptance so that the offeror can hear it.

Powell v Lee (1908)

The plaintiff applied for a job as headmaster and the school managers decided

to appoint him. One of them, acting without authority, told the plaintiff he had

been accepted. Later the managers decided to appoint someone else. The plaintiff

brought an action alleging that by breach of a contract to employ him he had

suffered damages in loss of salary. The county court judge held that there was

no contract as there had been no authorised communication of intention to

contract on the part of the body, that is, the managers, alleged to be a party

to the contract. This decision was upheld by the King’s Bench Division.

Felthouse v Bindley (1862)

The plaintiff discussed buying a horse from his nephew and wrote to him

“If I hear no more about him, I consider the horse mine… ” The

nephew did not reply but wanted to sell the horse to the plaintiff, and when he

was having a sale told the defendant auctioneer not to sell the horse. By

mistake the defendant sold the horse. The plaintiff sued the defendant in the

tort of conversion but could only succeed if he could show that the horse was

his.

It was held that the uncle had no right to impose upon the nephew a sale of

his horse unless he chose to comply with the condition of writing to repudiate

the offer. It was clear that the nephew intended his uncle to have the horse but

he had not communicated his intention to his uncle, or done anything to bind

himself. Nothing, therefore, had been done to vest the property in the horse in

the plaintiff. There had been no bargain to pass the property in the horse to

the plaintiff, and therefore he had no right to complain of the sale.

Entores v Miles Far East Corp (1955)

The plaintiffs in London made an offer by Telex to the defendants in Holland.

The defendant’s acceptance was received on the plaintiffs’ Telex machine in

London. The plaintiffs sought leave to serve notice of a writ on the defendants

claiming damages for breach of contract. Service out of the jurisdiction is

allowed to enforce a contract made within the the jurisdiction. The Court of

Appeal had to decide where the contract was made.

Denning L.J. stated that the rule about instantaneous communications between

the parties is different from the rule about the post. 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. The contract was made in

London where the acceptance was received. Therefore service could be made

outside the jurisdiction.

The Brimnes (1975)

The defendants hired a ship from the plaintiff shipowners. The shipowners

complained of a breach of the contract. The shipowners sent a message by Telex,

withdrawing the ship from service, between 17.30 and 18.00 on 2 April. It was

not until the following morning that the defendants saw the message of

withdrawal on the machine.

Edmund-Davies L.J. agreed with the conclusion of the trial judge. The trial

judge held that the notice of withdrawal was sent during ordinary business

hours, and that he was driven to the conclusion either that the charterers’

staff had left the office on April 2 ‘well before the end of ordinary business

hours’ or that if they were indeed there, they ‘neglected to pay attention to

the Telex machine in the way they claimed it was their ordinary practice to do.’

He therefore concluded that the withdrawal Telex must be regarded as having been

‘received’ at 17.45 hours and that the withdrawal was effected at that time.

Note: Although this is a case concerning the termination of a contract, the

same rule could apply to the withdrawal and acceptance of an offer.

Brinkibon v Stahag Stahl (1983)

The buyers, an English company, by a telex, sent from London to Vienna,

accepted the terms of sale offered by the sellers, an Austrian company. The

buyers issued a writ claiming damages for breach of the contract.

The House of Lords held that the service of the writ should be set aside

because the contract had not been made within the court’s jurisdiction. Lord

Wilberforce stated that the present case is, as Entores itself, the simple case

of instantaneous communication between principals, and, in accordance with the

general rule, involves that the contract (if any) was made when and where the

acceptance was received. This was in Vienna.

Adams v Lindsell (1818)

2 Sept. The defendant wrote to the plaintiff offering to sell goods asking

for a reply “in the course of post”

5 Sept. The plaintiff received the letter and sent a letter of acceptance.

9 Sept. The defendant received the plaintiff’s acceptance but on 8 Sept had sold

the goods to a third party.

It was held that a binding contract was made when the plaintiff posted the

letter of acceptance on 5 Sept, so the defendant was in breach of contract.

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Household v Grant (1879)

G applied for shares in the plaintiff company. A letter of allotment of

shares was posted but G never received it. When the company went into

liquidation G was asked, as a shareholder, to contribute the amount still

outstanding on the shares he held. The trial judge found for the plaintiff.

The Court of Appeal affirmed the judgment. Thesiger LJ stated that “Upon

balance of conveniences and inconveniences it seems to me… it was more

consistent with the acts and declarations of the parties in this case to

consider the contract complete and absolutely binding on the transmission of the

notice of allotment through the post, as the medium of communication that the

parties themselves contemplated, instead of postponing its completion until the

notice had been received by the defendant.”

Holwell Securities v Hughes (1974)

The defendant gave the plaintiff an option to buy property which could be

exercised “by notice in writing”. The plaintiffs posted a letter

exercising this option but the letter was lost in the post and the plaintiffs

claimed specific performance. The Court of Appeal held that the option had not

been validly exercised. Lawton LJ stated that the plaintiffs were unable to do

what the agreement said they were to do, namely, fix the defendant with

knowledge that they had decided to buy his property. There was no room for the

application of the postal rule since the option agreement stipulated what had to

be done to exercise the option.

Tinn v Hoffman (1873)

Acceptance was requested by return of post. Honeyman J said: “That does

not mean exclusively a reply by letter or return of post, but you may reply by

telegram or by verbal message or by any other means not later than a letter

written by return of post.”

Yates v Pulleyn (1975)

The defendant granted the plaintiff an option to buy land, exercisable by

notice in writing to be sent by “registered or recorded delivery

post”. The plaintiff sent a letter accepting this offer by ordinary post,

which was received by the defendant who refused to accept it as valid.

It was held that this method of acceptance was valid and was no disadvantage

to the offeror, as the method stipulated was only to ensure delivery and that

had happened.

R v Clarke (1927) (Australia)

The Government offered a reward for information leading to the arrest of

certain murderers and a pardon to an accomplice who gave the information. Clarke

saw the proclamation. He gave information which led to the conviction of the

murderers. He admitted that his only object in doing so was to clear himself of

a charge of murder and that he had no intention of claiming the reward at that

time. He sued the Crown for the reward. The High Court of Australia dismissed

his claim. Higgins J stated that: “Clarke had seen the offer, indeed; but

it was not present to his mind – he had forgotten it, and gave no consideration

to it, in his intense excitement as to his own danger. There cannot be assent

without knowledge of the offer; and ignorance of the offer is the same thing

whether it is due to never hearing of it or forgetting it after hearing.”

Williams v Carwardine (1833)

The defendant offered a reward for information leading to the conviction of a

murderer. The plaintiff knew of this offer and gave information that it was her

husband after he had beaten her, believing she had not long to live and to ease

her conscience. It was held that the plaintiff was entitled to the reward as she

knew about it and her motive in giving the information was irrelevant.

TERMINATION OF THE OFFER

Byrne v Van Tienhoven (1880)

1 Oct. D posted a letter offering goods for sale.

8 Oct. D revoked the offer; which arrived on 20 Oct.

11 Oct. P accepted by telegram

15 Oct. P posted a letter confirming acceptance.

It was held that the defendant’s revocation was not effective until it was

received on 20 Oct. This was too late as the contract was made on the 11th when

the plaintiff sent a telegram. Judgment was given for the plaintiffs.

Dickinson v Dodds (1876)

Dodds offered to sell his house to Dickinson, the offer being open until 9am

Friday. On Thursday, Dodds sold the house to Allan. Dickinson was told of the

sale by Berry, the estate agent, and he delivered an acceptance before 9am

Friday. The trial judge awarded Dickinson a decree of specific performance. The

Court of Appeal reversed the decision of the judge.

James LJ stated that the plaintiff 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.” This was evident from the

plaintiff’s own statements. It was clear that before there was any attempt at

acceptance by the plaintiff, he was perfectly well aware that Dodds had changed

his mind, and that he had in fact agreed to sell the property to Allan. It was

impossible, therefore, to say there was ever that existence of the same mind

between the two parties which is essential in point of law to the making of an

agreement.

Shuey v U.S. (1875)

On 20 April 1865, the Secretary of War published in the public newspapers and

issued a proclamation, announcing that liberal rewards will be paid for any

information that leads to the arrest of certain named criminals. The

proclamation was not limited in terms to any specific period. On 24 November

1865, the President issued an order revoking the offer of the reward. In 1866

the claimant discovered and identified one of the named persons, and informed

the authorities. He was, at all times, unaware that the offer of the reward had

been revoked.

The claimant’s petition was dismissed. It was held that the offer of a reward

was revoked on 24 November and notice of the revocation was published. It was

withdrawn through the same channel in which it was made. It was immaterial that

the claimant was ignorant of the withdrawal. The offer of the reward not having

been made to him directly, but by means of a published proclamation, he should

have known that it could be revoked in the manner in which it was made.

Errington v Errington and Woods (1952)

A father bought a house on mortgage for his son and daughter-in-law and

promised them that if they paid off the mortgage, they could have the house.

They began to do this but before they had finished paying, the father died. His

widow claimed the house. The daughter-in-law was granted possession of the house

by the trial judge and the Court of Appeal.

Denning LJ stated: “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, which they

have not done. If that was the position during the father’s lifetime, so it must

be after his death. If the daughter-in-law continues to pay all the building

society instalments, the couple will be entitled to have the property

transferred to them as soon as the mortgage is paid off; but if she does not do

so, then the building society will claim the instalments from the father’s

estate and the estate will have to pay them. I cannot think that in those

circumstances the estate would be bound to transfer the house to them, any more

than the father himself would have been.”

Daulia v Four Millbank Nominees (1978)

The defendant offered to sell property to the plaintiff. The parties agreed

terms and agreed to exchange contracts. The defendant asked the plaintiff to

attend at the defendant’s office to exchange. The plaintiff attended but the

defendant sold to a third party for a higher price. It was held that the

contract fell foul of s40(1) Law of property Act 1925 and the plaintiff’s claim

was struck out. However, Goff L.J. stated obiter:

In unilateral contracts the offeror is entitled to require full performance

of the condition imposed otherwise he is not bound. That must be subject to one

important qualification – there must be an implied obligation on the part of the

offeror not to prevent the condition being satisfied, an obligation which arises

as soon as the offeree starts to perform. Until then the offeror can revoke the

whole thing, but once the offeree has embarked on performance, it is too late

for the offeror to revoke his offer.

Ramsgate v Montefiore (1866)

On 8 June, the defendant offered to buy shares in the plaintiff company. On

23 Nov, the plaintiff accepted but the defendant no longer wanted them and

refused to pay. It was held that the six-month delay between the offer in June

and the acceptance in November was unreasonable and so the offer had ‘lapsed’,

ie it could no longer be accepted and the defendant was not liable for the price

of the shares.

Financings Ltd v Stimson (1962)

The defendant at the premises of a dealer signed a form by which he offered

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