LECTURE 1 - FORMATION OF A CONTRACT; OFFER AND INVITATION TO TREAT.

18 terms by lawoflaw

Create a new folder

Advertisement Upgrade to remove ads

LECTURE 1 - FORMATION OF A CONTRACT; OFFER AND INVITATION TO TREAT.

KEY POINTS:

• To have a binding contract you must have an offer and an acceptance.
• An offer must be sufficiently certain to be capable of acceptance.
• The concept of offer must be distinguished from an invitation to treat, this turns on the objective perception of the intention of the parties.
• A unilateral offer is an offer made to the whole world which is accepted by embarking upon performance.
• Tenders and auctions held without reserve have the potential to create a collateral contract as to the promise of how the tender process or auction will be run.

• To have a binding contract you must have an offer and an acceptance.
• An offer must be sufficiently certain to be capable of acceptance.
• The concept of offer must be distinguished from an invitation to treat, this turns on the objective perception of the intention of the parties.
• A unilateral offer is an offer made to the whole world which is accepted by embarking upon performance.
• Tenders and auctions held without reserve have the potential to create a collateral contract as to the promise of how the tender process or auction will be run.

1. WHAT IS A CONTRACT?





A contract is a legally binding agreement.

Contracts may therefore be in writing, or may be oral, or may be inferred from conduct.

So dispel immediately the idea that the law of contract only applies to an agreement contained in a written document, it applies just as much to the cup of coffee/tea/water/cuddly toy you bought in the refectory before entering the lecture hall.

A contract is a legally binding agreement. It is the most common type of legal transaction. Examples of contracts include sale of goods, sale of land, contracts of employment, contracts of hire and contracts for the provision of services.

Contracts may therefore be in writing, or may be oral, or may be inferred from conduct. So dispel immediately the idea that the law of contract only applies to an agreement contained in a written document, it applies just as much to the cup of coffee/tea/water/cuddly toy you bought in the refectory before entering the lecture hall. Contracts cover a wide range of transactions and sometimes statutory rules can vary in their application as to whether you are dealing purely in a commercial context in the course of business or as a consumer. You will study examples of these later in the course. Certain contracts are also subject to specific regulation according to subject matter; for instance contracts of employment. This course focuses on the 'general principles' of contract law which apply to all species of contract in the absence of specific regulation.

The defining feature of a contract,


The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties." (Treitel)

The defining feature of a contract, whether it be a multimillion pound commercial contract or an everyday consumer transaction is that it is a legal obligation which arises from the voluntary choice of the parties to enter into it.

The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties." (Treitel)

The concept of agreement

The concept of agreement is the key to this area of law. Parties to a contract are free to make any bargain they choose, this is referred to as the 'freedom of contract', to what extent should the law interfere with a freely entered transaction? Evidently if contracts were not legally enforceable business, and the running of a successful economy, would become very difficult, if not impossible but to what extent should the law regulate the content of agreements themselves or redress inequalities of bargaining power?

Through the course you will be looking at:

a) the formation of a contract, in other words what factors are required to render a bargain enforceable at law;
b) the terms of a contract, expressly agreed by the parties themselves and implied from other sources; so called vitiating factors for example misrepresentation, mistake , duress and undue influence which may render a contract unenforceable as the parties did not freely or actually agree to the terms being put forward;
c) and finally the course will consider the potential consequences of one party not performing their obligations under the agreement in other words being in breach of contract and the potential remedies available.

SOURCES OF THE LAW OF CONTRACT (info for me).

Contract law is primarily a common law subject that is its rules and principles have been formulated and laid down by judges in their judgements in actual cases - this is known as case law. (You will need to be able to cite case law accurately, therefore get into the habit now of learning the legal principle with its supporting case).

However, some rules of contract law are found in statute. Statute means acts of Parliament, or regulations made under the authority of acts of Parliament. Some statutes affecting contract law have mainly codified previous rules of case law, e.g the Sale of Goods Act 1979 but others have not simply reproduced and codified previous case law but also altered it e.g. Misrepresentation Act 1967 or the Unfair Contract Terms Act 1977. ( Remember that some legislative procisions will have been interpreted by the courts and you will need to be able to cite the cases to support your analysis of the statutory section).

The United Kingdom has been a member of the European Union since 1973. European Union law has been applicable in the UK since then and therefore can be cited as a third source of contract law. The influence of EU law in contract law has become increasingly significant. An example, that we will come across later in the course, of contract law deriving from EU law, are the Unfair Terms in Consumer Contract Regulations 1999 and in the next couple of weeks the Consumer Protection (Distance Selling) Regulations 2000. (You must be able to use these legislative provisions accurately)

When answering seminar questions or doing assessments you will always gain credit for supporting your legal analysis with the appropriate authority, Try to remember for each point you make - identify the legal principle involved, support that analysis with appropriate case law, legislative provision or academic opinion, and apply it back to the question- ISA (identify, support and apply)

FORMATION OF A CONTRACT

OFFER + ACCEPTANCE = Enforceable Agreement.

FORMATION OF A CONTRACT

OFFER + ACCEPTANCE = Enforceable Agreement.

FORMATION OF A CONTRACT


Establishing agreement


The justification for enforcing contracts is that both parties have freely entered into the agreement. But not all contractual negotiations result in agreement. In order to determine whether agreement has been reached the law uses an analysis of offer and acceptance: so there are two stages,

Establishing agreement

The justification for enforcing contracts is that both parties have freely entered into the agreement. But not all contractual negotiations result in agreement. In order to determine whether agreement has been reached the law uses an analysis of offer and acceptance: so there are two stages, first, the law asks whether one party has made an offer, and, if so, secondly whether that offer has been accepted by the other party. In this lecture the first of these stages will be considered.

FORMATION OF A CONTRACT

Definition of an offer


An offer is a proposition made by one party to another on terms that are fixed or capable of being fixed with the intention that it will be binding on him when accepted by the other person, for example:

Definition of an offer


An offer is a proposition made by one party to another on terms that are fixed or capable of being fixed with the intention that it will be binding on him when accepted by the other person, for example: 'Do you wish to buy my car for £2,000?' This is a firm proposal on terms (identity of the car, assuming you have only one, and price) that are fixed. If this offer is accepted then a contract between the two parties will be formed. If the offer is not accepted there is no contract.

FORMATION OF A CONTRACT

Definition of an offer

case////////////
Lofthouse v Roberts (1902) 18 TLR 532

Bear Sterns Bank Plc v Forum Global Equity Ltd [2007] EWCH 1576

Consider: Lofthouse v Roberts (1902) 18 TLR 532 where an ' West End salary to be mutually agreed by us' was too uncertain to amount to an offer. (A West End salary can vary greatly between the fee for Johnny Depp and a member of the chorous).
By contrast in Bear Sterns Bank Plc v Forum Global Equity Ltd [2007] EWCH 1576 there was sufficient certainty as to price and product to make a binding agreement although many terms had still to be agreed. From this you can deduce that an enforceable agreement can be formed even though there is uncertainty as to subsidiary matters.

FORMATION OF A CONTRACT

Terminology

The party making the offer is called the offeror; the party to whom it is made is called the offeree.

Terminology

The party making the offer is called the offeror; the party to whom it is made is called the offeree. (Always ensure you use technical language accurately, you will gain marks in courseworks and examinations for doing so).

FORMATION OF A CONTRACT


Form of offer



An offer may be made in writing, spoken or by conduct. Care must be taken however, to distinguish an offer

Form of offer

An offer may be made in writing, spoken or by conduct. Care must be taken however, to distinguish an offer, which will bind the offeror to its terms, if accepted, from an invitation to treat where the communication is intended to be no more than an expression of willingness to enter negotiations.

DISTINGUISHING AN INVITATION TO TREAT FROM AN OFFER.


case////////////
Harvey v Facey [1893] AC 552

The following telegraphs were sent:

H: "Will you sell us Bumper Hall Pen?

The distinction is a fine one, can be of great practical importance because whereas an offer can be turned into a legally-binding contract by the acceptance of the other party an invitation to treat cannot. Both the fineness of the distinction and its importance is illustrated by the following case:


Harvey v Facey [1893] AC 552

The following telegraphs were sent:

H: "Will you sell us Bumper Hall Pen? Telegraph lowest cash price."
F: "Lowest cash price for Bumper Hal Pen £900."
H: "We agree to buy Bumper Hall Pen for £900 asked by you."

Facey did not rely. The Privy Council held that there was no contract. The second telegraph was no more than a statement of the minimum price which Facey would accept if he decided to sell, not an indication that he had a present intention to sell. Hence, the second telegraph was an invitation to treat not an offer.

DISTINGUISHING AN INVITATION TO TREAT FROM AN OFFER.

Standard presumptions

In order to achieve clarity and certainty, the courts have in previous cases laid down rules which will apply in certain standard commercial situations, such as goods on display in a shop, auctions or advertisements for the sale of goods or services. However, these rules are simply general rules or to use a more technical legal expression 'presumptions'.

Standard presumptions

In order to achieve clarity and certainty, the courts have in previous cases laid down rules which will apply in certain standard commercial situations, such as goods on display in a shop, auctions or advertisements for the sale of goods or services. However, these rules are simply general rules or to use a more technical legal expression 'presumptions'. This means that it is presumed that they normally apply in the situations to which they refer but they will not apply, and will be overridden, if it appears from the facts of the situation that they do not reflect the actual intention of the parties.

DISTINGUISHING AN INVITATION TO TREAT FROM AN OFFER.

Standard presumptions

1. Displays of goods for sale:

case////////////

Fisher v Bell [1961] 1 QB 394

A shopkeeper who displayed flick knives




Sorry it is urban myth that a shop has to sell at the price displayed. They may commit an offence of interest to trading standards but they are not legally obliged to sell to you at that price.

1. Displays of goods for sale:

Displays of priced goods are not offers; they are only invitations to treat:

Fisher v Bell [1961] 1 QB 394

A shopkeeper who displayed flick knives in his window and had sold them to customers was charged under the Restrictions of Offensive Weapons Act 1959, which made it an offence to "offer for sale" these articles. He was found not guilty since the display of goods in a shop window is only an invitation to treat, not an offer. The offer is made by the customer, which the shopkeeper is free to accept or reject.

The display rule is the same for display of goods on supermarket shelves - Pharmaceutical Society of G.B. via Boots Cash Chemists Ltd [1953] 1 QB 401.

Sorry it is urban myth that a shop has to sell at the price displayed. They may commit an offence of interest to trading standards but they are not legally obliged to sell to you at that price.

DISTINGUISHING AN INVITATION TO TREAT FROM AN OFFER.

Standard presumptions

2.Advertisements:

case////////////

Partridge v Crittenden [1968] 1 WLR 1204 it was an offence to offer bramble finches for sale. The advertisement was an invitation to treat and not an offer

Grainger & Sons v Gough [1896] AC 325 the circulation of a price list was not an offer to sell at that price but an invitation to treat.


distinction between an invitation to treat and an offer turned on intention. This can also apply to advertisements. Consider the advert in the shop window advertising a reward for the return of a lost kitten, which is capable of being a unilateral offer accepted by embarking upon performance.

Advertisements:

In Partridge v Crittenden [1968] 1 WLR 1204 it was an offence to offer bramble finches for sale. The advertisement was an invitation to treat and not an offer therefore no offence was committed using a literal approach to the interpretation of the offence.
In Grainger & Sons v Gough [1896] AC 325 the circulation of a price list was not an offer to sell at that price but an invitation to treat.


Right at the beginning of this section we said that the distinction between an invitation to treat and an offer turned on intention. This can also apply to advertisements. Consider the advert in the shop window advertising a reward for the return of a lost kitten, which is capable of being a unilateral offer accepted by embarking upon performance.

DISTINGUISHING AN INVITATION TO TREAT FROM AN OFFER.

Standard presumptions

2.Advertisements:

case////////////

Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256 is the authoritative case in this area. The Smoke Ball Co advertised a reward of £100 to any customer who bought their product and having used it appropriately caught influenza

distinction between an invitation to treat and an offer turned on intention. This can also apply to advertisements. Consider the advert in the shop window advertising a reward for the return of a lost kitten, which is capable of being a unilateral offer accepted by embarking upon performance.

Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256 is the authoritative case in this area. The Smoke Ball Co advertised a reward of £100 to any customer who bought their product and having used it appropriately caught influenza. The company claimed that this was just an invitation to treat, their advertisement being no more than a 'mere puff ' to increase sales. The court held that the company had intended to be bound to their promise as they had deposited £1000 in the bank for such a purpose. It was a unilateral offer made to the whole world at large which could be accepted by anyone who complied with the terms.

We will return to unilateral offers when we deal with revocation of an offer and acceptance.

DISTINGUISHING AN INVITATION TO TREAT FROM AN OFFER.

Standard presumptions

3.Tenders:

A tender is an estimate given in response to a request. An invitation for tenders is an invitation to treat - it is not an offer to use the person quoting the lowest price.

case////////////

offer comes from the person making the tender: Spencer v Harding (1870) LR 5 CP 561, which can then be accepted or rejected.

Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1WLR 1195.- there was a breach of contract in not considering a tender submitted in accordance with their rules

Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] AC 207.
The tender promised to accept the highest price, in accepting an offer of C$2,100,000 in 'excess of

Tenders:

A tender is an estimate given in response to a request. An invitation for tenders is an invitation to treat - it is not an offer to use the person quoting the lowest price.

The offer comes from the person making the tender: Spencer v Harding (1870) LR 5 CP 561, which can then be accepted or rejected. Be aware of the potential creation of a collateral contract to accept the lowest or highest bid dependent on the terms of the invitation to tender.

Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1WLR 1195.- there was a breach of contract in not considering a tender submitted in accordance with their rules.
Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] AC 207.
The tender promised to accept the highest price, in accepting an offer of C$2,100,000 in 'excess of any other offer' was not legally an offer and therefore the claimants offer should have been accepted.

DISTINGUISHING AN INVITATION TO TREAT FROM AN OFFER.

Standard presumptions


4. Auction sales:

case////////////

An advertisement that an event is going to be held is an invitation to treat- Harris v Nickerson (1872) LR 8 QB 286.

The auctioneer inviting bids is an invitation to treat, the bidder is making an offer, which the auctioneer is free to accept or reject. Acceptance being communicated by the fall of the hammer and of course the offer can be withdrawn at any time before that Payne v Cave (1789) 100 ER 502. This situation is now covered by s.57(2) of the Sale of Goods Act 1979.

In Warlow v Harrison (1859) 1 E & E 309 it was said biter that in advertising a sale without reserve a unilateral offer is made that the auctioneer will sell to the highest bidder. That offer is accepted by the person making the highest bid or perhaps only bid. If the auctioneer does not sell to that bidder he is in breach of a collateral contract with the highest bidder. The bidder can claim the damages from



which could be substantially more than the goods were actually sold for) as in Barry v Davies (t/a Heathcote Ball & Co) [2001] 1 WLR 1962.

Auction sales:

Looks complicated but isn't.

An advertisement that an event is going to be held is an invitation to treat- Harris v Nickerson (1872) LR 8 QB 286.

The auctioneer inviting bids is an invitation to treat, the bidder is making an offer, which the auctioneer is free to accept or reject. Acceptance being communicated by the fall of the hammer and of course the offer can be withdrawn at any time before that Payne v Cave (1789) 100 ER 502. This situation is now covered by s.57(2) of the Sale of Goods Act 1979.

Using the rationale we have just discussed with regards to tenders consider the situation where an auction is advertised as being held 'without reserve' i.e that there is no minimum acceptable bid.

In Warlow v Harrison (1859) 1 E & E 309 it was said biter that in advertising a sale without reserve a unilateral offer is made that the auctioneer will sell to the highest bidder. That offer is accepted by the person making the highest bid or perhaps only bid. If the auctioneer does not sell to that bidder he is in breach of a collateral contract with the highest bidder. The bidder can claim the damages from the auctioneer as to the difference between what he would have paid and the market value of the goods (which could be substantially more than the goods were actually sold for) as in Barry v Davies (t/a Heathcote Ball & Co) [2001] 1 WLR 1962.

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions above and try again

Example:

Reload the page to try again!

Reload

Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

Star this term

You can study starred terms together

NEW! Voice Recording

Create Set