Understanding Offers and Invitations to Treat in Contract Law, Study notes of Communication

Download Understanding Offers and Invitations to Treat in Contract Law and more Study notes Communication in PDF only on Docsity! Contracts Week 2 Part A & B lecture WEEK 2:AGREEMENT: OFFER AND ACCEPTANCE (CHAPTER 1 AND 4) Contract Formation 3 stages: 1. Agreement (offer and acceptance) -à note agreement does not create contract. For agreement to be contract must have: consideration, intent that agreement has legal effect, agreement must be certain and complete 2. Consideration (exchanges of something of value) 3. Intention (to create legal relations) (Summary) -­‐ Agreement -­‐ Offer (a) The Offer: Gibson v Manchester City Council [1979] 1 All ER 972Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1 QB 401 Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195 (b) Termination of Offers Stevenson, Jacques and Co v McLean (1880) 5 QBD 346 Dickinson v Dodds (1876) 2 Ch D 463Mobil Oil v Lyndell Nominees (1998) 153 ALR 198 (c) The AcceptanceR v Clarke (1927) 40 CLR 227Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex D 216 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (d) Alternatives to Offer & AcceptanceButler Machine Tool Co v Ex-Cell-O Corporation [1979] 1 All ER 965 1. Agreement ---à 1st element of valid contract Ø Offer & Acceptance analysis • Traditional way of resolving cases where agreement is in question -à Courts objectively consider the words and conduct of the parties to see whether an offer has been made and if it has whether it has been accepted • Courts accept evidence of communications of parties i.e. what was said, what was put in writing, conduct of parties • Courts will look: firstly for an offer, then acceptance of offer ---à if has occurred then Courts will rule that agreement has been reached • O and A approach used by Courts to determine: o Whether agreement exists or doesn’t exist between parties o Where contract was formed o Express terms of contract (agreement not an issue but substance of agreement is issue: i.e. shows content of contract) Ø The Offer ‘An offer is a clear indication by one party of a willingness to be bound on certain terms’ (CARLILL) ‘An offer is a statement of the terms upon which the offeror is prepared to be bound if acceptance is communicated while the offer remains alive’ (Nielson v Dysart Timbers Limited’ Needs two elements: 1. Willingness to be bound without further negotiation and 2. Propose an exchange o It must be clear from words &/or conduct of the promisor that the promisor is willing to be bound to his/her promise without further negotiation and that a binding agreement would be made upon acceptance (see Gibson v MCC; Carlill; Pharm Society v Boots) AND o The promise made must propose an exchange of a commitment to carry out the promise in exchange for something specified – which may be an act or return promise to do or not do something (see Carlill; Australian Woollen Mills v Cth) i.e. it must specify the “price” for which the promise is to be bought. (Australian Woollen Mills v Cth). Q) How to determine if there is an offer? 1. Need to look for a statement upon which the maker is prepared to be bound (Crest Nicholson Ltd v Akaria Investments Ltd 2010) • For valid offer to exist: must be communicated to the offeree (or his/her agent) by the offeror (or his or her agent BTY offeror is person making offer) • NOTE if offeree learns of offer from an unauthorised person the offer DOES NOT exist (Banks v Williams) 2. Court will be looking for a preparedness/willingness to be bound to the statement by the person making the statement to the person the statement is being made to • Court will look for a statement in which a reasonable person would be prepared to be bound by • Also the will or intent of the offeror to be bound in contract by the terms of the offer A. The display of goods in a shop (with a price affixed) at a self-service pharmacy is an invitation to others to enter into negotiations? (BOOTS CASH CHEMISTS ---à 1st British pharmaceutical outlet that introduced self serve chemist shop: pharmaceutical society took chemist to Court on the basis that the drugs wont sold by a pharmacist therefore boots cash was breaking the law ---à superior Court decided that went Boots company put drugs on shelf they were simply inviting customer to make an offer and when customer took jar to checkout it was customer at law making offer and there at the checkout is when the Boots company could have had a registered pharmacist to reject offer: Boots one that case AS GOODS ON DISPLAY IN A SHOP AMOUNTED TO INVITAION TO TREAT NOT OFFERS (Pharmaceutical Society of Great Britain v Boots cash Chemists) (Harris v Nickerson) SO AS GENERAL RULE A DISPLAY OF PRICED GOODS IN A SHOP OR SHOP WINDOW IS AN INVITATION TO TREAT NOT AN OFFER • Customer makes offer for goods which retailer accepts or rejects: Authority is Boots Cash chemists B. Circulars, Catalogues and advertisements • CCA setting put prices/promoting sale of products are invitations to treat • Reason why advertisements aren’t treated as offers? § Rule comes from recognition by courts of commercial convenience and commercial reality § I.e. if ads treated as offers shops would be flooded with thousands of acceptances --à unrealistic demand to meet and amount of order would exceed stock ---à seller would be in breach of contract (as doesn’t have stock to meet demand) Grainger & Son v Gough § Ads invitations to treat as they LACK PROMISSORY INTENT • Some cases ads may amount to offer --à occurs when court decides that ad shows promissory intent i.e. if the ad contains a statement to which the maker of the statement is objectively prepared to bound (LEFKOWITZ v GREAT MINNEAPOLIS SURPLUS STORE) § Store advertised a womens fur coat for sale at low price and in advertisement store used words ‘1st come 1st serve’ -à lef first customer to buy coat and store refused --à and store refused stating they had a policy that the ad could only be picked up by woman ---à taken to court: there was promissory intent and a clear offer made ‘1st serve to buy’ ---à decided that ad amounted to an offer and when Lef turned up it was his acceptance: store could not then impose new terms on the offer after he had accepted ‘Where the offer is clear, definite and explicit and leaves nothing open for negotiation is constitutes an offer’ § (CARLILL v CARBONIC SMOKE BALL) Carbolic smoke ball came up with gadget where you could buy smoke ball gadget to help prevent flu --à ads said use our carbonic smoke ball and f you do use it and get the flu we will give you 100 pounds -à Mrs Carlill bought the machine and still got the flu: she sued company for breach of contract --à Company argued ‘no contract as ad amounted to mere invitation to treat and secondly if it was an offer were not bound because we never personally had an agreement with Miss Carlile --à Court agreed with Carlil and said: v This was not an invitation to treat: the ad clearly an offer as words of offer were CLEAR ‘we will pay 100 pounds’ v CLEAR PROMISSORY INTENT IN WORDS v WILLINGNEESS TO BE BOUND v STATEMENT TO WHICH MAKER IS WILLING TO BE BOUND TO v UNILATERAL CONTRACT -à contract was formed in a unilateral way by an offer to the whole world which was accepted by Miss Carlile and by anyone who performed the act specified in the offer ‘bought and used the smoke machine’ C. Auctions • When auctioneer puts item for sale he or she not making an offer to sell to highest bidder but rather is inviting offers from the assembled bidders • When bidder makes offer can be accepted or rejected auctioneer • Acceptance of offer made my bidder occurs at the fall of the hammer Boom! (Payne v Cave) • Above means: auctioneer not bound to accept highest bid, bidder can withdraw offer before its accepted Checklist to see if offer: Ø Statement to which maker is willing to be bound to Ø Willingness to be bound Ø Clear promissory intent in words Ø Look at words used objectively Ø Ø LOOKING for an offer using an objective test -à words, conduct, actions of parties: looking for a statement upon which the maker is prepared to be bound, promissory intent Ø Some statements might resemble offer but aren’t: simply invitations to treat i.e. invitations to make offer Ø Some instances court might determine that ITT effectively amounts to offer -à look at promissory intent Ø Termination of offer: lapse of time, rejection (counter offer extinguishes offer), revocation (as long as it takes place before acceptance and is communicated effectively) D. Tenders • Tenders similar to auctions: difference is that in tendering process each bidder makes only one bid and without knowledge of the details of any other persons bid --à tenderer makes offer (people) not the invitor: the invitor can accept or reject tenders (uni calls out tenders ---à invitation to treat and tenders give offers ---à uni accepts and that concludes contract) • Call for tenders may amount to an offer (just like advertisement) if for example the uni has said ‘we will accept the first tender received’ --à hence words in statement can cause a tender to amount to an offer • ‘Process contracts’ --à formal name given to cases where an invitation to tender creates offer, and acceptance of offer forms contract: contract formed unilaterally. How does it happen? o Well the invitor (uni) stipulates that the tenderer must compy with certain requirements when they put in tender and uni will follow a certain process ---à if process not followed breach of contract occurs, a breach of process contract o (BLACKPOOL AERO CLUB v BLACKPOOL COUNCIL) Blackpool council sent out an invitation to 7 different companies and asked them to tender for providing a service at the local airport (wanted joy flights to be run by a company and approached seven companies) ----à Aero club put in tender ---à invitation by council made it clear that for sake of transparency and anonymity a certain procedure was to be followed: one term was that no late tenders would be considered --à Aero club submitted on time but council marked tender as received out of time and therefore the club lost any opportunity it had to get the contract and sued council: argued that when council called for tenders that call amounted to an offer to consider all properly submitted tenders: club also argued that when it put in its tender on time it accepted offer and when council didn’t consider tender this amounted to breach of process contract ---à court agreed that there was a contract to consider tenders in certain way, by a particular process and in this case was breached by council: didn’t mean that aero club was going to get joy club job but aero club could get damages from council because it lose the opportunity to be considered by council it (email: electronic communication by email takes place depending on whether or not the offeree has stipulated an email address, and if they have takes place when the email address goes into inbox) Non instaneous revocation takes place when the offeree is reasonably expected to get the msg (i.e. faxing) 2nd rule Communication of revocation • Revocation is effective only when it has been communicated to the offeree, establishing a ‘meeting of the minds’ (Stevenson Jaques v McLean) • “an uncommunicated revocation, is no communication at all”(DICK V DODDS) • A promise cannot accept an offer if they hear (through any means) that the offer has been revoked and it is no longer available for acceptance (DICK V DODDS) • If revocation is done via post, it is effective upon receipt • Revocation of a unilateral: can revoke after performance has commenced (MOBIL) • Communication of revocation does not need to be communicated by the offeror- so long as the information that gets to the offeree is reliable (DICKONSON v DODDS) • Communication rule- needs to established when communication will occur: o Instantaneous com (face to face, telephone) occurs when O speaks to O o NOTE if com is drowned by aircraft noise or telephone line has gone dead no communication (Entores v Miles Fare east Corporation) o Non instaneous communication (fax) occurs when a the offeree can reasonably access the msg (faxed msg received during non business hours will be deemed to have been received by the offeree at the start of the next business day- DELTA SHIPPING v ASTARTE SHIPPING o Email communication: if offeree has specified an email address communication occurs when the offeror’s email enters the offerees information system ---à IF offeree has not indicated that he or she has an email address, com occurs when email actually comes to his or her attention (statute introduced to clarify some anomalies that have arisen through revocation via electronic means) Problem of revocation with unilateral offers • Unilateral offer (one sided contract: one party makes an express promise without 1st securing an agreement from other party) • Carbolic smoke ball company (unilateral offer --à contract is formed on the performance of an act i.e. using smoke ball machine…. Question here is what if performing an act takes time? How do you revoke a unilateral offer? (Essentially revocation problems) o 1st problem: Revocation for a unilateral offer can be done as long as its done as effectively the same way as the unilateral offer was done i.e. if smoke ball machine made statement in newspaper revocation needs to be communicated in same way as offer = valid revocation (even if offeree is not aware of revocation) o 2nd problem: person has started to perform terms of offer but no fully competed performance when offeror revokes offer i.e. you stop smoking for a month and then person revokes offer? § Mobil Oil v Lyndel Nominees ---à Mobil Oil contacted all of its franchisees and said they would be able to extend period of franchise for all the franchisees if franchisees achieved certain sales targets --à Lyndel put in certain programs to try and achieve targets -à then Mobil Oil changed policy: Lyndel took legal action against Mobil arguing that msg given out by Mobil was a unilateral offer and Lyndel had accepted that offer. They said we started and now they’ve revoked --à Court held there was a clear offer from Mobil but offeror should be able to revoke as long as offeree has benefitted somehow from offer (just because Lyndel has started act of acceptance doesn’t mean Mobil could not revoke offer --à can revoke offer as long as acts done by Lyndel nominees was done for their benefit) § Prior to this case it was thought that offeror could not revoke the offer once the offeree has started performance of it terms (England) 3nd rule: failure of a condition • Offer can lapse upon a failure of a condition --à offer may be subject to an express or implied condition that a certain state of affairs remains unchanged until acceptance: if the state of affairs changes the offer lapses and cannot be accepted e.g. I might make an offer to purchase a home subject to finance- if finance falls through so does the offer (offer subject to express condition) i.e. I might offer to buy car but when you deliver car its smashed- offer will lapse as car isn’t delivered in right state (implied condition in offer that car is delivered in the state it was when the offer was made) {FINANCINGS v STIMSON) Death of offeror or offeree • If offeror dies before acceptance and offeree knows of death, the offeree cannot accept offer (Dickson v Dodds) • Death of offeree terminates offer Implied Ancillary Contract Q: In the circumstances would the court infer an IAC? -­‐ An offer cannot be revoked unless there is an IAC preventing revocation o The more detriment/suffering it causes the offeree, the more likely to be an IAC. “ The courts will be more willing to infer an IAC if there is detriment” (MOBIL) o If the offeree also benefits, less likely that there will be an IAC (MOBIL) o The further extent that the offeree has gone to complete performance, the more likely that there will be an IAC (MOBIL) o The easier it is to identify commencement, the easier it will be to imply IAC Q: When can an offer be revoked? • As a general rule, An offer may be revoked at any time prior to acceptance (Goldsbrough Mort v Quinn, Dickinson v Dodds) Q: Is revocation still legitimate even if the offerror said it would be open for a certain period? • Revocation of the offer is legitimate even if the oferror has stipulated that the offer is to remain open for a specified period. A promise to hold an offer open is not contractually binding unless consideration is given for that promise. (GOLDSBROUGH MORT). • Therefore the offeror can withdraw even if it has been stipulated that it will be open for a set time provided that it is communicate and no consideration has been paid. - ‘An option given for value is not revokable’ (GOLDSBROUGH MORT) Q: Is communication via a third party sufficient communication? • Communication of revocation via a third party is sufficient as it estabilishes a ‘meeting of the minds’ (DICKINSON V DODDS) Q: Is revocation legitimate in a unilateral contract once the promisee has begun to perform the required act? (MOBIL) An Offeror cannot revoke a unilateral contract after the Offeree has commenced performance or before the offeree completes performance (DICKINSEN V DODDS) There is no ‘universal proposition that an offeror is not at liberty to revoke the offer once the offeree ‘commences’ or ‘embarks upon’ performance of the sought act of acceptance …' (MOBIL) In some cases there may be an ‘implied ancillary unilateral contract’ in which the ‘offeror promises not to revoke once the offeree’ commences performance. (MOBIL) ACCEPTANCE: by the 25th of December --à court concluded offeror wanted to receive acceptance through letter v. Revocation of postal acceptance: § Send letter accepting and then change mind through speedier means of communication (telephone)… does postal acceptance rule apply? § 1st line of authority: (Wenkheim v Arndt) suggests that offerees later rejection of offer is ineffective: cannot withdraw from contract § 2nd line of authority: (Dunmore v Alexander) Court says that withdrawal of acceptance is effective as the offeror is unaware of the acceptance and therefore no harm is done     2. Communication - acceptance must be communicated to the offeror GENERAL RULES: • Acceptance is effective only when it has been communicated to the offeror (CARLILL) • Need for some “external manifestation of assent to an offer” (EMPIRNALL) (McHugh JA) • Until acceptance is communicated, the offeror is free to withdraw its offer. QA: What will amount to communication? (i) can acceptance be inferred from the silence of offeree? - A contract cannot be forced on the offeree by stipulating silence as the prescribed method of acceptance. (FELTHOUSE V BINDLEY) Test: “Would a reasonable bystander regard the conduct of the offeree, including his or her silence, as signalling to the offeror that their offer has been accepted” (EMPIRNALL HOLDINGS) (ii) Can acceptance be inferred from the conduct of the offeree? A person who makes the offer can stipulate a particular method of acceptance. Any subsequent acceptance must comply with such requirements Test: ‘whether a reasonably bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted.’ (EMPIRNALL) 2(b) Communication – any qualifications or exceptions to the general rule? (i) Waiver It is open to the offeror to expressly or by implication waive the need for the offeree to communicate its acceptance to the offeror (CARLILL) (ii) Prescribed mode of acceptance Q: can the offeror stipulate a specific manner of acceptance? Is it mandatory? -­‐ The offeror may, by the terms of its offer, stipulate the specific manner in which the offer is to be accepted. -­‐ The method of acceptance prescribed is not mandatory is acceptance is received regardless. (MANCHESTER DIOCESAN V COMMERCIAL) (ii) Postal acceptance rule Q: In what circumstances does the rule apply? -­‐ If it looks that the parties intend posting a letter should indicate acceptance, then agreement occurs when the letter of acceptance is put into the mailbox. When this rule applies, acceptance is deemed to be effective at the time and place the letter of acceptance is sent. (HENTHORN V FRASER) NOTE: -­‐ Does not apply to revocation. Where an offer is revoked by the offeror, it is not effective until communicated to the offeree. -­‐ The rule does not apply when communication is via electronics, as this communication is instantaneous. Electronic transactions Act 2000 (NSW) Thus agreement will occurs once acceptance has been received. -­‐ The postal acceptance rule does not apply in countries with civil law systems (e.g. France) Acceptance and date and place of contract • Date of contract is date of acceptance ---à for postal acceptance rule it’s the date the letter is sent • Place of contract is place of acceptance ---à place where offeror is when communication of acceptance takes place: for postal acceptance rule it’s the place from which letter is sent from Alternatives to offer and acceptance: offer and acceptance cannot be applied to every case • ‘Battle of form’ cases (commercial contracts) illustrates the difficulty in applying the offer and acceptance analysis: o A offers to purchase goods from B on its terms and B will only sell on its terms --à Courts will then have to look at conduct of parties o Buttler Machine Tool Co v Ex Cell O Co • Look for an offer using an objective test-----à looking for a statement upon which objectively maker is prepared to be found o Have to find promissory intent --à no PI then no offer ---à no offer no need for acceptance ---à no contract Ø Contract formation (go over) • First element of contract formation is agreement • No offer no need for acceptance no contract Ø Termination of offer • Can be terminated by lapse of time, refection (or a counter offer that extinguishes the existing offer), can be terminated by revocation Contract Formation • Agreement (offer and acceptance) • Consideration (exchange of something of value) • Intention (to create legal relations) Agreement Offer & Acceptance analysis (courts objectively consider the words and conduct of the parties to see whether an offer has been made and, if it has, whether it has been accepted). OFFER “Statement upon which maker is prepared to be bound” • Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd [2010] EWCA Civ 1331: “In determining whether an offer has been made the correct approach is to ask whether [the offeree] (having the knowledge of the relevant circumstances which [the offeree] had), acting reasonably, would understand that [the offeror] was making a proposal to which he intended to be bound in the event of an unequivocal acceptance” • Gibson v Manchester City Council [1979] 1 All ER 972 --à illustrates how Court determines how a statement is an offer or not Invitation to Treat This is an invitation to make an offer, to bargain • Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401 • Harris v Nickerson (1873) LR 8 QB 286 • Lefkowitz v Great Minneapolis Surplus Store 86 NW 2d 689 (1957) • Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Tender • Blackpool & Fylde Aero Club v Blackpool Borough Council [1990] 3 All ER 25 (process contracts) Ø Revocation Termination of Offer