5 - formation of a contract

• 4 things needed for formation of a contract

  1. A valid offer
  2. the offer must be validly accepted
  3. there must be intention to create legal relations
  4. there needs to be consideration (the exchange of promises that are being made in an agreement)
• if multiple offers which one is accepted

  • Butler Machine tool co v Ex-Cell-O Corp - issues with the terms and conditions in the contract, the terms had a price variation clause in (price can be subject to change), ECOC didn't accept these terms and sent back a letter with the exact same contract but without the clause with a bit at the bottom for BMT to tear off and sign if they accept, BMT did that and sent a letter acknowledging the T&S but they are going to stick with their T&C. Court stated the offer that was provided last was the offer that wins (without the price variation clause)
• invitations to treat are not offers (use reasonable person term to determine whether its an inv to treat or offer)

  • Gibson v Manchester City Council - Gibson was offered by council to buy the house he was renting, he bought the house and there was a letter saying his application would be accepted as an offer. When Labour was elected, policies changed and City council then said there was never an offer to buy the house. Held it was not the intention of the city council to treat the application as a form of accepting an offer
• invitation to treat

  • fisher v Bell - sale and advertisement of flick knives illegal, fisher displayed flick knives in shop window advertised as being sold for 4 shillings. Held, the display of goods in a window is not an offer for sale but an invitation to treat
• invitation to treat

  • Pharmaceutical Society of GB v Boots Cash Chemists - had to ask licensed chemist for advice and they provide a remedy, illegal at the time to sell certain types of drugs (medicine) without being sold by a registered professional, the drugs were listed on shelves. Held, display of goods was an invitation to treat but consumer still had to take it to cashier who was a registered pharmacist
• invitation to treat

  • Partridge v Crittenden - advert in newspaper about sale of exotic animals at a specific price. Held, advertisement in general are not offers but invitations to treat
• exception: unilateral contract

  • Carlill v Carbolic smoke ball - exception is the type of adverts that are an offer in the form of a unilateral contract, smoke ball make you immune to influenza, C wife used it and got flu, advert stated if you get flu you are awarded £100. Held, this advert was an offer to enter a unilateral contract
• How to terminate an offer

  • Refusal
  • Revocation - changing your mind, the offer must be revoked prior to being accepted
• revocation

  • Byrne v Leon Van Tienhoven - London contract with NY, contract in form of a letter, letter sent containing the offer, when the offer was received it was immediately accepted and a letter sent back, during the time the acceptance letter had to travel, the original offeror sent another letter revoking the offer. Held, acceptance happens when you send the letter and so there was a contract in place
• Lapse of time - offer terminated if it has a deadline

  • Ramsgate Hotel v Montefiore - M made an offer to buy shares, RH didn't respond for 6 months, during this time price of the share fell, after 6 months accepted, M refused. Held, no contract as too much of a time gap between offer made and acceptance of the offer
• communication

  • when identifying the acceptance of an offer, the rule is that acceptance must be communicated - being silent is not an effective method of communicating acceptance
• Felthouse v bindley

  • F offered to buy a horse off of his nephew, nephew never said yes but always intended to sell, f sent a letter saying if he doesn't hear from the nephew he will consider the horse his, nephew had an agent who was told not to sell the specific horse F wanted, however it got sold. Held, there was never transfer of ownership of the horse from the nephew to F
• Robophone facilities v Blank

  • RF distributed answering machines and installed them, B filled a provisional rental form and signed it, a salesman then started the process of getting him an answering machine, it never got installed. B called customer support 3 times and then again to cancel. Held, there was acceptance of a contract when the salesman got the forms filled our for a subscription for the answering machine
• Rust v Abbey Life Assurance

  • R wanted to invest money quickly to make money, wanted to invest in a specific property development, ALA explained she can't make quick money from this, she nevertheless agreed to invest, clause in the contract saying there's a fee incurred every time money is withdrawn, R then tried to withdraw all her money. Held, there was acceptance as she agreed to invest after it was explained to her that she couldn't get quick money
• communication of acceptance

  • the postal rule - acceptance occurs when you send the letter of acceptance
  • for instantaneous methods of communication, acceptance occurs when you receive the acceptance
• taking notice of the acceptance (acceptance using instant communication happens when you receive the letter but also when you take notice of it)

  • Mondial Shipping and chartering BV v Astarte Shipping - hire and rehire of a vessel every 14 days, paid every 14 days, possession clause triggered when no payment (person given notice of missed payment, if not paid within 2 days, possession of the ship lost), failure to pay and notice sent on Thursday, ship got possessed on Monday, Defendant stated they never received the notice. Held, court accepted D's position
• counter offer (use reasonable person test to identify a counter offer)(the latter offer is a counter offer and it vitiates the initial offer)

  • Hyde v Wrench - W offered to sell farm for £1,200, H offered to pay £1,000, time passed for W to think about it, just before W said yes H offered £950, W said no to £950 and so H said he was happy to go back to the original £1,000, by that time W sold to someone else. Held, there was no contract as the £1,000 offer was vitiated when the £950 was proposed
• intention to create legal relations

  2 presumptions in place

  1. if there is a social relation between parties (eg family), presumed that there will not be a contract in the eyes of the law as there is no intention to create legal relations
  2. any business agreement is presumed to be having the intention to create legal relations unless proved otherwise
• Jones v Padavatton

  • law student agreed with mother that up until she became a barrister, she would take an allowance and a place to live, they fell out and mother sought to re possess the house daughter lived in, daughter sued mum. Held, no contract in place