LECTURE
2: OFFER, ACCEPTANCE, CONSIDERATION AND THE INTENTION TO CREATE LEGAL RELATIONS
OFFER
The objective test
An
offer is an expression of willingness to contract on specified terms, made with
the intention that it shall become binding as soon as it is accepted by the
person to whom it is addressed.
Powercor Australia
Ltd v Pacific Power [1999] V.S.C. 110
When
parties negotiate with a view to making a contract, many preliminary
communications may pass between them before a definite offer is made. One party
may simply respond to a request for information. That party is then said to
make an "invitation to treat": he does not make an offer but, invites
the other party to do so. The
distinction between an offer and an invitation to treat is often hard to draw
as it depends on the elusive criterion of intention. But there are certain
stereotyped situations in which the distinction is determined, at least prima
facie, by rules of law. Examples are as
follows:
Kiyo Itakura
Investments v Bentall Properties Ltd (1993-10-28)
B.C.S.C. 92/0018
At
an auction sale, the general rule is that the offer is made by the bidder and
accepted by the auctioneer when he signifies his acceptance in the customary
manner, e.g. by fall of the hammer. Before acceptance the bidder may withdraw
his bid and the auctioneer may withdraw the goods. It seems, moreover, that the
offer made by each bidder lapses as soon as a higher bid is made. Thus if a
higher bid is made and withdrawn the auctioneer can no longer accept the next
highest.
The
defendant auctioneer advertised that lots including certain office furniture
would be sold by him on specified dates.
The plaintiff had a commission to buy furniture and travelled to the
place of the auction. On the date of
the auction, the lots were withdrawn from sale. The plaintiff brought an action against the defendant to recover
for loss of time and expenses.
Held:
He had no such right of action, the advertisement was only an invitation to
treat and did not amount to a promise that all the articles advertised would be
put up for sale.
The
general rule is that a display of price-marked goods in a shop window is not an
offer to sell goods but is an invitation to a customer to make an offer to
buy. Similarly, the display of goods on
the shelves of a self-service shop is merely an invitation to treat; the
customer makes an offer to buy when he carries the goods to the cashdesk, where
the shopkeeper may accept or reject it.
A
shopkeeper displayed a flick knife in his shop window with a ticket stating “Ejector
Knife – 4 shillings”. Charged with
offering for knife for sale under law preventing offer of dangerous weapons.
Held:
A display of goods in a shop window with a price ticket attached was merely an
invitation to treat and not an offer for sale.
So that no offence had been committed.
Advertisements
of rewards for the return of lost or stolen property, or for information
leading to the arrest or conviction of the perpetrator of a crime, are
invariably treated as offers: they are clearly made with the intention to be
bound as no further bargaining is expected to result from them. The same is
true of other advertisements of unilateral contracts.
Carlill
v. Carbolic Smoke Ball Co.
An
advertisement promising to pay f100 to any use of a carbolic smokeball who
caught influenza was held to be an offer.
The intention to be bound was made particularly clear in this case by
the statement “that the advertisers had deposited £1000 in their bank shewing
(sic) our sincerity”.
2.3.2 Tenders
The traditional
doctrine of offer and invitation to treat generally places tenders in the
category of invitation to treat, where a party is merely being invited to make
a bid which constitutes the offer and the party issuing the invitation is
merely seeking offers. Typically, the party issuing the invitation for tenders
is not bound to accept any submitted tender; however, recent Commonwealth
decisions indicate that the issue is not as straightforward as this and there
are circumstances under which a submitted tender must be considered by the
party inviting the tenders as the submission of the tender is deemed to be an
acceptance of a tender process and the person inviting (offering) the tenders
is contractually bound to consider the bid. Moreover, a person inviting tenders
may not be permitted to accept a noncompliant bid and a person whose bid was rejected
in favour of non-compliant bid may take action against the person inviting the
tenders who accepted the non-compliant bid.
Harvela
Investments Ltd v Royal Trust Company of Canada (C.I.) Ltd and Others [1986] A.C. 207
Powder Mountain
Resorts Ltd v British Columbia (1999-08-24) B.C.S.C. C930682
ACCEPTANCE
In order
to be valid an acceptance must precisely conform to the terms required in the
offer if a contract is to result. The general rule of contract law is that a
contract is made in the location where the offeror receives notification of the offeree’s acceptance.
By Post
It is usually
considered that an acceptance by post takes place at the time of the posting of
the letter of acceptance. This is the exception to the general rule that a contract
is made in the location where the offeror receives notification of the
offeree’s acceptance.
Henthorn v Fraser [1892] 2 Ch 27
By Telex/Telegram
Telex and telegrams
are considered as forms of instantaneous communications and they are treated in
accordance with the general rule of acceptance which is that a contract is
formed at the place where acceptance is communicated to the offeror.
Brinkibon Ltd v
Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1982] 1 Lloyd’s Rep. 217
(H.L.)
Email
An offer by email
with an acceptance by email, problems of proof aside, is clearly binding and
just as clearly in writing, even though no handwritten signature is in
evidence.
Facsimile
Transmission
An acceptance by
facsimile transmission is treated in accordance with the general rule of place
of acceptance, in that the contract is formed at the place where acceptance is
communicated to the offeror.
Eastern Power
Limited v Azienda Communale Energia and Ambiente (1999-09-14)
Acceptance by
Conduct
An
offer may be accepted by conduct, e.g. by supplying or despatching goods in
response to an offer to buy.
Conduct
will, however, only have this effect if the offeree did the act with the
intention (ascertained in accordance with the objective principle) of accepting
the offer.
The battle of forms
The
growing use of printed contract forms by one or both parties has given rise to
problems with regard to the rule that the acceptance must correspond to the
offer.
Each
party may purport to contract with reference to his own set of standard terms
and these terms may conflict.
In
B.R.S. v. Arthur V. Crutchley Ltd. the plaintiffs delivered a
consignment of whisky to the defendants for storage. Their driver handed the
defendants a delivery note purporting to incorporate the plaintiffs'
"conditions of carriage." The note was stamped by the defendants:
"Received under [the defendants'] conditions." It was held that this
amounted to a counter-offer which the plaintiffs had accepted by handing over
the goods, and the contract therefore incorporated the defendants' and not the
plaintiffs' conditions.
This
case gave some support to the so-called "last shot" doctrine: i.e. to
the view that, where conflicting communications are exchanged, each is a
counter offer so that if a contract results at all (e.g. from an acceptance by
conduct) it must be on the terms of the final document in the series leading to
the conclusion of the contract.
Butler
Machine Tool Co. Ltd. v. Ex-Cell-0 Corporation (England) Ltd."
In that case sellers offered to supply a machine for a specified sum. The offer
was expressed to be subject to certain terms and conditions, including a
"price escalation clause," by which the amount actually payable by
the buyers was to depend on "prices ruling upon date of delivery." In
reply, the buyers placed an order for
the machine on their own terms and conditions, which differed from those of the
sellers in containing no price-escalation clause and also in various other
respects. It also contained a tear-off slip to be signed by the sellers and
returned to the buyers, stating that the sellers accepted the order "on
the terms and conditions stated therein." The sellers did so sign the slip
and returned it with a letter saying that they were "entering" the
order "in accordance with" their offer. This communication from the
sellers was held to be an acceptance of the buyers' counter-offer so that the
resulting contract was on the buyers' terms, and the sellers were not entitled
to the benefit of the price escalation clause.
In
contract law, silence is not normally construed as acceptance.
In
Felthouse v. Bindley the plaintiff offered to buy his nephew's horse by
a letter in which he said: "If I hear no more about him, I shall consider
the horse mine." Later, the horse was, by mistake, included in an auction
sale of the nephew's property. The plaintiff sued the auctioneer for damages
for the conversion of the horse. It was held that, at the time of the auction,
there was no contract for the sale of the horse to the plaintiff because
"The uncle had no right to impose upon the nephew the sale of his horse .
. . unless he chose to comply with the condition of writing to repudiate the
offer . . . "
In
Roberts v. Hayward a tenant accepted his landlord's offer of a new
tenancy at an increased rent by simply staying on the premises. It was held
that he had accepted the landlord's offer by silence; but it seems better to
say that he accepted by conduct and that the landlord waived notice of
acceptance.
In
Rusty. Abbey Life Ins Co. the plaintiff applied and paid for a
"property bond which was allocated
to her on the terms of the defendants' usual policy of insurance. After having
retained this document for some seven months, she claimed the return of her payment, alleging that no contract had
been concluded. The claim was rejected on the ground that her application was
an offer which had been accepted by issue of the policy. But it was further
held that even if the policy constituted a counter-offer, this counter-offer
had been accepted by “the conduct of the plaintiff in doing and saying nothing
for seven months...” Thus mere inaction
was said to be sufficient to constitute acceptance; and it seems to have
amounted to no more than silence in spite of having been described as
"conduct."
COUNTER-OFFERS
When a person makes an offer and the person to whom the offer is made responds by proposing changes to the terms of the offer, the law considers the response of that party not as an acceptance but rather a counter-offer.
Sousa v Marketing Board (1962) 5 W.I.R. 152
CONSIDERATION
In
English law, a promise is not, as a general rule, binding as a contract unless
it is either made in a deed or supported by some "consideration." The
purpose of the requirement of consideration is to put some legal limits on the
enforceability of agreements even where they are intended to be legally binding
and are not vitiated by some factor such as mistake, misrepresentation, duress
or illegality.
The
basic feature of that doctrine is the idea of reciprocity: "something of
value in the eye of the law" must be given for a promise in order to make
it enforceable as a contract. An informal gratuitous promise therefore does not
amount to a contract.
The
doctrine of consideration has, however, also struck at many promises which were
not "gratuitous" in any ordinary or commercial sense. These applications
of the doctrine were brought within its scope by stressing that consideration
had to be not merely "something of value," but "something of
value in the eye of the law". The
law in certain cases refused to recognise the "value" of acts or promises
which might well be regarded as valuable by a layman.
Glasbrook v
Glamorgan County Council [1925] A.C. 270
Definitions
Benefit and detriment
The traditional definition of consideration
concentrates on the requirement that "something of value" must be
given and accordingly states that consideration is either some detriment to the
promisee (in that he may give value) or some benefit to the promisor (in that
he may receive value). Usually, this detriment and benefit are merely the same
thing looked at from different points of view.
Under
the traditional definition it is sufficient if there is either a detriment to
the promisee or a benefit to the promisor. Thus detriment to the promisee
suffices even though the promisor does not benefit.
The
traditional definition of consideration in terms of benefit and detriment is
often regarded as unsatisfactory. One cause of dissatisfaction is that it is
wrong to talk of benefit and detriment when both parties expect to, and
actually may, benefit from the contract.
Sir Frederick Pollock has, accordingly, described consideration simply
as the price for which the promise is bought.
Consideration need not be Adequate
Under
the doctrine of consideration, a promise has no contractual force unless some
value has been given for it. But the courts do not, in general, ask whether
adequate value has been given, or whether the agreement is harsh or one-
sided. It is rather that they should
not interfere with the bargain actually made by the parties.
Gaumont-British
Pictures Corp. v. Alexander [19360 2 ALL ER 1686 (Check Library)
Nominal Consideration
The
rule that consideration need not be adequate makes it possible to evade the
doctrine of consideration, i.e. to make a gratuitous promise binding by means
of a nominal consideration, e.g. for the promise of valuable property, or a
peppercorn for a substantial sum of money. Such cases are merely extreme
applications of the rule that the courts will not judge the adequacy of
consideration.
Westminster
City Council v. Duke of Westminster [1991] 4 ALLER 136 (Check Library)
Nominal and inadequate consideration
It
is not normally necessary to distinguish between "nominal" and "inadequate" consideration, since
both equally suffice to make a promise binding.
Midland
Bank (S Trust Co. Ltd. v. Green, where a
husband sold a farm, said to be worth £40,000, to his wife for £500. It was
held that the wife was, for the purposes of the Land Charges Act 1925, s.l3(2)
a "purchaser for money or money's worth" so that the sale to her
prevailed over an unregistered option to purchase the land, which had been
granted to one of the couple's sons.
It was not necessary to decide whether the consideration for the sale
was nominal but Lord Wilberforce said that he would have had "great
difficulty" in so holding; and that "To equate 'nominal' with
'inadequate' or even 'grossly inadequate' consideration would embark the law on
inquiries which I cannot think were ever intended by Parliament": i.e.
inquiries into the adequacy of the price.
CONSIDERATION MUST BE OF SOME VALUE
Must be of Economic Value
An
act, forbearance or promise will only amount to consideration if the law
recognises that it has some economic value. It may have such value even though
the value cannot be precisely quantified.
But
natural affection of itself is not a sufficient consideration.
The
same is true of other merely sentimental motives for promising.
White
v. Bluett a son had not provided consideration
(for his father's promise not to sue him on a promissory note) by promising not
to bore his father with complaints.
Trivial Acts or Objects
Since
consideration need not be adequate, acts or omissions of very small value can
be consideration.
In
Chappell (S Co. Ltd. v. Nestle Co. Ltd. Chocolate manufacturers sold
gramophone records for Is. 6d. plus three wrappers of their 6d. bars of
chocolate It was held that the delivery of the wrappers formed part of the
consideration though the wrappers were of little value and were in fact thrown
away. If the delivery of the wrappers formed part of the consideration it
could, presumably have formed the whole of the consideration, so that a promise
to deliver records for wrappers alone would have been binding.
Intention to
Create Legal Relations
An agreement is not binding as a contract if it was made without any intention of creating legal relations. The establishment of the intention to create legal relations is a question of fact and may be established by evidence.
Clarke and Tucker
v Tucker (1961) 4 W.I.R. 44
An
agreement, though supported by consideration, is not binding as a contract if
it was made without any intention of creating legal relations.
Mere Puffs
A
statement inducing a contract may be so vague, or so clearly one of opinion,
that the law refuses to give it any contractual effect.
Even
a statement that is perfectly precise may nevertheless not be binding if the
court considers that it was not seriously meant.
Thus
in Weeks v. Tybald the defendant "affirmed and published that he
would give £100 to him that should marry his daughter with his consent."
The court held that "It is not reasonable that the defendant should be
bound by such general words spoken to excite suitors."
Letters of Intent or of Comfort
An
issue of contractual intention may arise where parties in the course of negotiations
exchange "letters of intent" or where one party gives to the other
a "letter of comfort." The
terms of such documents may negative contractual intention.
The
fact that the parties envisage that the letter is to be superseded by a later,
more formal, contractual document does not, of itself, prevent it from taking
effect as a contract.
Appointment
of a person as a Minister of the Methodist Church did not give rise to a
contract as the relationship was not one "in which the parties intended to
create legal relations between themselves so as to make the agreement . . .
enforceable in the courts.
The
fact that a statement was made in jest or anger may also negative contractual
intention.
Defendant
was a director of the plaintiff company and of another company. The plaintiff
company held shares in the other company and resolved, in the defendant's
absence, to sell them. At a later meeting this resolution was rescinded after a
heated discussion during which the defendant said that he would make good any
loss which the plaintiff company might suffer if it kept the shares. It was
held that the defendant was not liable on this undertaking. Nobody at the
meeting regarded it as a contract; it was not recorded as such in the minute book; and the defendant's
fellow-directors at most thought that he was bound in honour.
Proof of Contractual Intention
The
question of contractual intention is, in the last resort, one of fact. The test of contractual intention is
normally an objective one.
Esso
Petroleum Ltd. v. Commissioners of Customs and Excise [1976] 1 WLR 1 (Check
Library)
The
representative of a firm of forwarding agents told a customer, with whom the
firm had long dealt, that henceforth his goods would be packed in containers
and assured him that these would be carried under deck. About a year later,
such a container was carried on deck and lost. At first instance, Kerr J. held
that the promise was not intended to be legally binding since it was made in
the course of a courtesy call, not related to any particular transaction, and
indefinite with regard to its future duration. The Court of Appeal, however,
held that the promise did have contractual force, relying principally on the
importance attached by the customer to the carriage of his goods under deck,
and on the fact that he would not have agreed to the new mode of carriage but
for the promise.
CHAPTER 2 – COMMONWEALTH CARIBBEAN
BUSINESS LAW – RAMLOGAN & PERSADIE
CASES THAT ARE NOT IN OUTLINE CAN BE FOUND IN CHAPTER
2, SUPRA
TUTORIAL QUESTIONS
1. Steinberg received a catalogue,
applied for a admission to Chicago Medical School, and paid a $15 fee. He was
rejected. Steinberg filed a contract action against the school, claiming it had
failed to evaluate his application and those of other applicants according to
the academic criteria in the school’s bulletin. According to the complaint,
Chicago used non-academic criteria, primarily the ability of the applicant or
his family to pledge or make payment of large sums of money to the school.
Does Steinberg have any grounds for relief?
2. Marlene orally placed an order
for fabrics with Carnac. No method of dispute resolution was discussed at the
time. Almost immediately thereafter, Marlene sent Carnac a “purchase order” and
Carnac sent Marlene an “acknowledgement of order”. Marlene’s form did not
provide for arbitration; it did declare that it would not become effective as a
contract unless it were signed by the seller and that its terms could not be
“superseded”. Carnac’s form, on the other hand, contained arbitration clause in
the midst of some 13 lines of small-type “boiler plate”. After the fabrics were
delivered, a dispute arose. Was Marlene bound to arbitration?
3. Mary Ann
Boggess (the first appellant) a farmer and rancher resided in Hereford,
Texas. She was involved in farming in
the USA before she came to Belize in 1971.
On her arrival, she bought a farm known as Rancho Grande. She also purchased a further 25 acres of
land on which there was a dwelling-house, and another building which was used
for the purposes of a restaurant/bar/dance floor. Her third acquisition some six or seven years later was another
farm of 162 acres. All those properties
were purchased with her own funds. Soon
after her arrival in Belize the first appellant met the respondent, they
developed a relationship and were very soon living together. They also began to work the Rancho Grande
farm together. Relations which the
first appellant described as ‘good’ at first gradually deteriorated until they
parted company in 1987. name of the
first appellant only. The first
appellant left Belize in 1987 after what she described as a final break. On 15 September 1987, she wrote to the
respondent offering to sell him her share of the ranch on terms. The respondent claims that he accepted this
offer by word of mouth over the telephone.
The terms of the telephone contract was reduced to writing as follows: ‘Badder,
‘Received the cheque, opened an account for Nazira in the bank in
Canyon. She is doing so well adjusting
to college and making friends and seems to be enjoying it all. Her classes are going well and she is
working hard to make good grades and get a scholarship for next semester. I talk to her a couple of times a week.
‘The payment schedule for her tuition, room
and board are as follows:
2nd September $705.00 pd.
16th September $735.00 pd.
14th October $735.00
11th November $735.00
Plus books $100.00 pd.
Ins. $155.00 pd.
Other fees $200.00 pd.
‘I have come up with what I hope is a reasonable figure for
my share of the ranch, $150,000. It is
the amount which I paid for the land. I
would like to have my personal effects from the house also. ‘The $150,000 could be paid as follows. Down-payment – yearly payments balance in
five years and 10 percent interest on the balance after the down-payment. ‘Guess you will let me know so we can go
from there.
Best of luck to you
My love to the girls
Mary Ann.’
Can Badder proceed with an action
against Mary Ann to enforce the terms of the letter as reproduced above?
4. By facsimile messages (‘the invitation’) dispatched on 15 September
2001, the Crown Bank of Corbeauville invited David Smith and Peter Piper to
make offers to purchase Crown Bank shares in a finance house called John Crow
Ltd. The invitation stipulated that
offers must be made by sealed tender which would not be divulged by Crown Bank
before the invitation expired at 3.00 pm on 16 September 1981 when the vendors
would accept ‘the highest offer’.
Completion of the purchase was to take place within 30 days of 16
September 2001 in United States Dollars.
Smith offered US$2,175,000 and Piper offered US$2,100,000 or US$100,000
in excess of any other offer which Crown Bank may receive. Crown Bank decided to sell the shares in
John Crow Ltd. to Piper for US$2,200,000 as the highest offer. Smith would like to stop the
transaction and is seeking your advice.
Please advise Smith.
5. Brutal Car Company Ltd. advertised a B14 Nissan for sale
in the Daily Rag for the sum of $20,000.00.
Ramrajee Dass called an inquired as to the availability of the vehicle
and was told it was available and that an offer would be faxed to her and that
she would be required to accept the offer within 48 hours. Ramrajee received the faxed offer and
immediately dispatched a faxed acceptance to Brutal Car Company Ltd. Unfortunately, the faxed message rolled out
of the machine of Brutal Car Company Ltd. and under the desk of the secretary.
Three days later after the faxed offer to Ramrajee, the vehicle was sold to
Sokeelal Chutasingh. The faxed
acceptance was discovered 7 days after it was sent to Brutal Car Company
Ltd. Ramrajee would like to
initiate legal proceedings against Brutal Car Company Ltd. for breach of
contract and she has come to you for advice.
Please advise.
6.
Samson Portillo had entered into a master/slave relationship with Robert
Duvalier who was originally a client of Samson Portillo's when he worked as a
male prostitute. In 1997 Samson Portillo and Robert Duvalier jointly instructed
a law firm in connection with the drafting of a deed of cohabitation designed,
according to the deed, to "create legally binding arrangements as to
financial and other matters" for the duration of Samson Portillo and
Robert Duvalier's cohabitation and in the event of termination of the
arrangement. Robert Duvalier accepted
liability for repayment of a bridging loan for an apartment bought in Samson
Portillo's name. Samson Portillo and Robert Duvalier had intended to cohabit in
the apartment, but Robert Duvalier never went to live with Samson Portillo and
the relationship broke down. The
agreement indicated that Samson Portillo agreed to transfer the apartment to
Robert Duvalier if the relationship broke down but was entitled to continue
living there up to a certain date.
Robert Duvalier would like to evict Sampson Portillo immediately and is
claiming the cohabitation agreement is void.
Please advise Robert Duvalier.
7. The plaintiff is claiming on an
alleged contract for services. The defendant takes the position that there was
no contract. The defendant was
interested in getting an inspection and report with respect to a possible mould
problem in ten buildings that he owned. He arranged a meeting with
representatives of the plaintiff and a meeting was held on or about November
16, 1999 and the problem was discussed.
The meeting was followed up by a letter dated November 17, 1999 from the
plaintiff to the defendant. The letter
proposed that for a fixed fee of $7,500.00, the plaintiff would conduct a
one-day on-site inspection of ten selected buildings including the school and
clinic, recommend structural repairs as required, do sampling and lab analysis
of mould and air quality and make recommendations for vacating of residences
for safety and health concerns if required.
The letter provided that the plaintiff would coordinate the work with
Barry Swan (an employee of the defendant) and would undertake the assignment as
soon as written approval was provided and a payment of $7,500.00 was
received. The plaintiff claimed he
received a telephone call from Barry Swan who wanted the plaintiff to go ahead
with the work (this is denied by Barry Swan). This is supported by an in-house
email from the defendant to Barry Swan.
The plaintiff claimed although he had not received a cheque to start the
job he was asked by Barry Swan to start the job which he did. The defendant is claiming that he never gave
any written indication to the plaintiff to start the work and is not liable for
the portion of the work that was completed before the plaintiff was
stopped. Advise the defendant.