1 - Offer and Acceptance

Contract Law – Offer and Acceptance Notes

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Offer and Acceptance 1.Introduction to Contract Law A. Types of Contracts Contracts •

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Bilateral : - Promise for a promise - Outstanding obligation on both sides - Most contracts Unilateral : - Promise for an act, or an act for a promise - Made with intention to be bound - Outstanding obligation only on one side Executed : - Has been performed, ie. Executed eg. Buying a shop item – paid for/finished Executory : - Yet to be performed, eg. Agreement Agreement to fix house 6 months later Contracts by Deed : - Under seal (as used in the expression “signed, sealed and delivered”), eg. Royal Stamp Simple/Parol Contracts : - All else. Valid because because of presence of of consideration. consideration.

NB : - Advertisements of unilateral contracts can be treated as offers. ( Carlill v Carbolic Smoke Ball Company – Intention to be bound can be inferred from explicit details of advertisement.) - Bilateral contract advertisements are normally only invitations to treat :  Lack of sufficient detail  Absence of requisite intention to be bound on advertisement

2.Offer 1. Theoretica Theoreticall Definition Definition •

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Cheshire, Fifoot and Furmston : An offer, capable of being converted into an agreement by acceptance, must consist of a definite promise to be bound provided that certain specified terms are accepted. Touchstone of Intention  Intention to be bound Per Salleh Abas FJ (as he then was) in Preston Corporation Sdn Bhd v Edward Leong (1982) 2 MLJ 22 at 23: An offer is an intimation of willingness by an offeror to enter into a legally binding contract. Its terms either expressly or impliedly must indicate that it is to become binding as soon as it has been accepted by the offeree. 2.

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Nature of an Offer

Objective test of agreement. agreement. Instead of state of mind (subjective). (subjective). Courts will will look at what was said and done. Courts may may infer whether whether Offer or Invitation to Treat from the circumstances. Objective test much more certain : - Offer can be made expressly or impliedly (by conduct) - Wording or language used is not conclusive - Offer can be made to varying groups of people


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*Carlill v Carbolic Smoke Ball Company (1893) 1 QB 256 (Court of Appeal, England) (Phang 80) (Significance : Offer can be made to the world at large. Also, a unilateral contract can constitute an offer if there is sufficient detail, and an intention to be bound can be inferred from the circumstances.)

Facts : Defendants were proprietors of “The Carbolic Smoke Ball”. Advertisement offered to pay anyone £100 if they caught influenza after using smoke ball in specified manner for specified period. Defendants deposited £1,000 with bankers to “show their sincerity”. Plaintiff on faith of advert used smoke ball as required and caught flu, thus sued for the £100. Held : Advertisements are normally invitations to treat due to their lack of detail and intention to be bound . However, in the instant case, sufficient detail was present, and the intention to be bound could be ascertained from the alleged deposit with the bankers. On the issue of whether an offer can be made to the world at large, Bowen LJ said : It is an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? ie. Offer can be made to the world at large, but contract only exists with those who accept the offer.

C. Offer v Invitation to Treat i) Advertisements Partridge v Crittenden (1968) 2 All ER 421 (Phang 84) (Significance : Advertisements are generally invitations to treat.)

Facts : Appellant ad in classifieds “Bramblefinch cocks and hens, 25s each” – words “offer for sale” not used. Charged with offering for sale live wild birds contrary to Protection of Birds Act 1954. Held : Lord Parker noted : “I think 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.” Consider the implications if ads are offers and the consumer accepts, only to find stocks are depleted.

ii) Priced Goods on Display *Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953) 1 QB 401 (Phang 85) (Significance : Priced goods on display merely invitations to treat.)

Facts : Defendants “self-service” shop. Selected goods were brought to counter. Registered pharmacist at counter restricted the sale of certain items. Under s18 UK Pharmacy and Poisons Act 1933, it was unlawful to sell unless under the supervision of registered pharmacist. Thus, question of when sale took place. Held : Goddard J at first instance held that display of goods were only invitation to treat. CA upheld decision stating that “it is an offer by the customer to buy, and there is no sale effected until the buyer’s offer to buy is accepted by the acceptance of the price.” Quare : What if shops falsely display low prices in an attempt to attract customers?


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Also consider implications to customer if placing items in basket is acceptance of offer, or if presenting goods to cashier is acceptance. Also, if price label is an offer, but there’s no stock of item, there’s a contract if customer accepts it.

Tenders In *Blackpool & Flyde Aero Club v Blackpool Borough Council (1990) 3 All ER 25 (Phang 130). CA considered an invitation to tender as an offer and not as an invitation to •

treat The invitation to tender was addressed to a small number of interested parties; Tender procedure was ‘clear, orderly and familiar’ Outcome was consistent with the assumptions of commercial parties Club held the concession and could have a legit expectation of consideration for renewal Invitation was issued by local authority, had a fiduciary duty to ratepayers to act with reasonable prudence in managing its financial affairs Spencer v Harding (1870) LR 5 CP 561 . A tender is an invitation to negotiate • • • •

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iii)

Auctions

Quare : Is an auctioneer’s request for bids an offer which forms a contract when it is accepted by the highest bidder? In Payne v Cave (1789) 3 Term Rep 148 (Phang 82), Court held that an auctioneer’s request for bids is not an offer. The bid itself is an offer which the auctioneer is free to accept or reject . In accordance with the above case, the UK Sale of Goods Act 1979 provides that the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner, and that until such announcement is made, any bid may be retracted. •

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Quare : Is an advertisement of an auction on a special day a promise to potential bidders that the auction will really be held?

Harris v Nickerson (1873) LR 8 QB 286 (Phang 82) Facts : Plaintiff attempted to recover travelling expenses for going to venue of advertised auction which was cancelled. Held : Court held that this was “an attempt to make a mere declaration of intention a binding contract”. Quare : Does an advertisement that the sale would be without reserve constitute a definite offer to sell to the highest bidder? Scottish Court in Fenwick v MacDonald, Fraser & Co (1904) 6 F (Court of Sess) 850 (Phang 83) held this was not so. But in the English case of Warlow v Harrison (1859) 1 E&E 309 (Court of Exchequer Chambers) (Phang 83), although the action failed on other grounds, 3 of the judges stated (strictly obiter), that Plaintiff would have succeeded if he had argued that the advertisement on sale without reserve constituted an implicit promise to sell to the highest bidder. •

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This dicta has come under academic criticism, eg. When was the contract of sale formed? If the advertisement was only an invitation to treat, then the Plaintiff’s bid was not acceptance of the offer.


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If the advertisement stating the auction was without reserve constituted a binding promise, then the Defendant would not be liable if he never held the sale at all but would be bound to sell to the highest bidder once the auction was started.

“Quotes” In *The Barranduna (1985) 2 Lloyd’s Rep 419 , Court held that quotations of freight rates (by telex) was not an offer but an invitation to treat. Material terms were not clearly stated , hence quote was too vague to amount to offer.

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D. Termination of the Offer i)

Lapse of Time An offer containing a specific time period for acceptance cannot be accepted on a later date. Even where no time period is stated, an offer is normally deemed open only for a reasonable time.

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Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Ex 109 (Court of Exchequer) (Phang 124) (Significance : Offer can become invalid due to lapse of reasonable time.)

Facts : Defendant applied in June for shares in Plaintiff Co. In November, Defendant was informed that shares were allotted, thus asked to pay up. Defendant refused and was sued. Held : Court held that Defendant’s offer should have been accepted within a reasonable time, and the interval between June and November was excessive.

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Failure of a Condition Subject to which the Offer was made An offer may be subject to certain conditions failing which there is no acceptance. (fundamental element of contract?) The conditions may be implied as well as expressed .

Financing Ltd v Stimson (1962) 3 All ER 386 (CA, England) (Phang 124) (Significance : No acceptance where certain conditions to which offer is subjected is unfulfilled.)

Facts : Plaintiffs financed Defendant’s purchase of a car from dealer. Form stated that the contract was only binding on the Plaintiffs when they signed the agreement. Defendant not satisfied with car and returned it after a few days. Car subsequently stolen from dealer’s premises and recovered in bad condition. Next day, Plaintiffs in ignorance of these facts, signed agreement. Held : Court held that the “agreement” was an offer by the Defendant to make a contract with the Plaintiffs but was subject to the implied condition that the car remained in essentially the same state until the moment of acceptance. As this implied condition was broken before the purported acceptance by the Plaintiffs, no contract was formed.

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Death

The offeree cannot accept the offer if he knows the offeror has died. If nature of contract is independent of the offeror’s personal abilities and can be satisfied by his estate, the offeree can still accept in ignorance (until death is notified).

Bradbury v Morgan (1862) 1 H&C 249 (Court of Exchequer) (Phang 126)


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Facts : Deceased acted as guarantor of credit extended by Plaintiffs. Plaintiffs unaware of his death, continued to extend credit. Debtor faulted and Plaintiffs tried to recover from deceased’s executors. Held : Contract was not terminated by the offeror’s death. If an offeree dies , the offer is no longer capable of acceptance by the offeree’s personal executors because it is implied that the offer is made personally to the offeree only . The contact is frustrated.

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Rejection

The offeree must unreservedly assent to the exact terms proposed by the offeror. If, while purporting to accept the offer as a whole, he introduces a new term which the offeror has not had the chance of examining, he is merely making a counter-offer. The effect of a counter-offer is to destroy the original offer forever, and constitutes a new offer.

Hyde v Wrench (1840) 3 Beav 334 (Phang 89) (Significance : Counter-offer is a final rejection of original offer).

Facts : Defendant offered to sell estate to Plaintiff for £1,000. Plaintiff counter-offered £950. Defendant rejected counter-offer. Plaintiff purported to accept original offer. Held : Court held no contract existed. •

A counter-offer is distinguished from a request for information where the original offer still stands.

Stevenson v McLean (1880) 5 QBD 346 (Phang 90) (Significance : A counter-offer is distinguished from a request for information where the original offer still stands.)

Facts : Defendant offered to sell goods at 40s per ton. Plaintiff telegraphed back asking for Defendant to consider delivery over 2 months or longest possible time. Defendant did not reply and Plaintiffs sent another telegraph accepting offer. Held : Court held that Plaintiff’s 1st telegram was not a counter-offer , but merely a request for information and hence, they could accept the original offer through the 2 nd telegram.

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Revocation

Offer can be revoked at any time before acceptance ( Payne v Cave). This is so even where the offeror has stated that the offer will be kept open for a specific period, unless the offeree buys this option by a separate contract. Revocation of an offer must be communicated to the offeree.  Business necessity and convenience require some overt act from which intention to revoke might be inferred. • •

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Byrne v Van Tienhoven (1880) 5 CPD 344 (Phang 119) (Significance : Revocation of an offer effective only when communicated to the offeree.)

Facts : Defendants posted letter revoking offer to sell goods. Plaintiffs telegraphed acceptance before revocation letter reached.


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Held : Revocation letter was inoperative until the date it reached the Plaintiffs and contract was formed in the meantime. Revocation need not be communicated by the offeror himself provided that it is reasonable for the offeree to believe the source. 

*Dickinson v Dodds (1876) 2 ChD 463 (CA, England) (Phang 120) (Significance : Revocation need not be communicated by the offeror himself provided that it is reasonable for the offeree to believe the source , ie. Implied Revocation.)

Facts : Defendant made offer to sell house to Plaintiff and promised to keep offer open for specific period. Plaintiff subsequently heard from 3 rd party that Defendant had sold house to another person. Plaintiff handed a formal letter to Defendant purporting to accept offer just before lapse of time period. Held : Plaintiff before attempting to accept offer, knew that Defendant would no longer sell the house to him “as plainly and clearly as if [the Defendant] had told him in so many words”. The Defendant had validly withdrawn the offer and Plaintiff’s acceptance was too late. NB : This case provides support for revocation by conduct (implied revocation) as well.

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Revocation of Unilateral Offers

Acceptance of the offer is performance of the required act . Therefore, acceptance is only complete when the act is completely performed. Thus application of the ordinary rules of revocation suggests that an offeree may revoke his offer at any time before completion of the act. However, this solution is felt to be too harsh, and methods of evasion have been developed. 2 separate offers are inherent in the offeror’s statements: Firstly, an express offer to (i) pay on the performance of the act, and Secondly, an implied offer not to revoke if the offeree begins his task within a reasonable time.  On this assumption, the beginning of the task not only constitutes the acceptance of the implied offer, but also supplies the consideration which the law requires for its validity, as for that of every contract not under seal. If the offeror attempts thereafter to revoke, he may be sued for the breach of this secondary promise. (ii) In England, it has been suggested that a distinction could be drawn between the acceptance of the offer, and the consideration necessary to support it. The latter, no doubt, is the completion of the act, and until this takes place, the offeror need not pay any money. The former may be assumed as soon as the offeree “has made an unequivocal beginning of the performance requested”, and proof of this fact makes revocation impossible.

Quare : When performance of the required act takes some time, can the offeror revoke his offer after an offeree has embarked on the performance?

Luxor (Eastbourne) Ltd v Cooper (1941) 1 All ER 33 (House of Lords) (Phang 122) Facts : Owner promised agent £10,000 if he effected a sale of the land at a price of £175,000. Held : Their Lordships held that in the circumstances of the case, it would not be proper to imply an undertaking by the owner not to revoke his offer once performance had begun. NB : This implies that given the proper circumstances , revocation of a unilateral offer may not be allowed after performance has begun .


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Errington v Errington and Woods (1952) 1 All ER 149 (CA, England) (Phang 122) (Significance : revocation of a unilateral offer may not be allowed after performance has begun.)

Facts : Father told son and daughter-in-law that if they paid the weekly installments, he would give them the house after the payment was complete. They duly did so. Held : As long as they were paying the installments, the father’s promise was irrevocable. •

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In Daulia Ltd v Four Milbank Nominees Ltd (1978) 2 All ER 557 (CA, England) (Phang 122), CA stated (strictly obiter ) that once the offeree had embarked on performance, it was too late for the offeror to revoke his offer. In Dickson Trading (S) Pte Ltd v Transmarco Ltd (1989) 2 MLJ 408 (Phang 123), position in Daulia (1978) was endorsed locally, but also obiter dictum. The Court viewed Unilateral Contracts as consisting of 2 contracts : Firstly, the main unilateral contract; and Secondly, a collateral contract not to revoke the offer after a reasonable embarkation of performance has been undertaken by the offeree.


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3. Acceptance A. Theoretical Definition •

Treital : An acceptance is a final and unqualified expression of assent to the terms of an offer.

B. Forms of Acceptance • •

Bilateral Contracts  Making the required promise. Unilateral Contracts  Doing the required act.

3. Acceptance must be Unconditional and Unqualified • •

Acceptance must be final and clear. A conditional assent to an offer does not constitute acceptance (eg. Advice of 3 rd party).

Nicolene Ltd v Simmonds (1953) 1 QB 543 (CA, England) (Phang 95) (Significance : Acceptance must be final and clear.)

Facts : Plaintiffs wrote to Defendant offering to buy a large quantity of goods. Defendant wrote back accepting this offer, stating that “I assume we are in agreement that the usual conditions of acceptance apply”. Plaintiff acknowledged this letter without reference to the usual conditions of acceptance and sued when the Defendant failed to deliver the goods. Defendant argued that since there was no explicit agreement on the conditions of acceptance, no contract was formed. Held : Since there were actually no usual conditions of acceptance, the words were meaningless and should be ignored. Judgment for Plaintiffs. •

Acceptance must be on same terms as offer , ie. No counter-offers or conditional accents. In Winn v Bull (1877) 7 ChD 29 (Phang 91), Court held that a document embodying the phrase “subject to preparation and approval of formal contract ” or other such expression is merely a conditional accent and not a binding contract.

Branca v Cobarro (1947) KB 854 (CA, England) (Phang 91) (Significance : Ultimately, it is a question of construction in each case whether parties intended to undertake immediate, if temporary, obligations, or whether they were suspending all liability until the conclusion of formalities.)

Facts : Terms of contract were agreed upon a written document which was declared to be “a provisional agreement until a fully legalised agreement, drawn up by a solicitor and embodying all the conditions herewith stated, is signed”. Held : The word “ provisional” implied that the parties had intended the contract to be binding from the outset, though this would be subsequently replaced by a more formal contract. It is a question of construction in every case whether the parties intended to contract immediately or not .

D. Acceptance must be Communicated to the Offeror Even if the offeree has made up his mind to a final acceptance, the agreement is not yet complete. There must be an external manifestation of assent, ie. Some word or act done by the offeree or by his authorised agent which the law can regard as the communication of the acceptance to the offeror. What constitutes communication varies with the nature of the case, and has provoked many difficult problems. 

Contract Law – Offer and Acceptance Notes •

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If the offeror has stipulated a mode of acceptance, then that mode or a faster one should be used. If the offeror has stipulated that only one mode is applicable, then the offeree must use it. If no particular mode is prescribed, then it depends upon the nature of the offer and the circumstances in which it is made .

Acceptance can be either express or implied , ie. Acceptance can be communicated indirectly by conduct. 

Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 (House of Lords) (Phang 88) (Significance : Acceptance by conduct.)

Facts : Brogden had long supplied Defendants with coal without a formal agreement. Defendants sent draft agreement to Brogden who signed it and returned it. Defendant’s agent left it on his desk and did nothing further to execute the contract. Both parties thereafter conducted business in accordance with the contract until a dispute arose and Brogden denied that any binding contract existed. Held : A contract could be implied in this situation, and came into existence either when the company ordered its 1 st load of coal from Brogden upon these terms or at least when Brogden supplied it. NB : Contract has to be accepted in its entirety . In this case, return of draft form constituted no acceptance since new term had been added, which required consideration by the company as a “new” (counter) offer. Offeror has right of waivering the need for communication of acceptance. Such a waiver can be express or implied, eg. Unilateral contracts. In Carlill v Carbolic Smoke Ball Company (1893) 1 QB 256 (CA, England) (Phang 105), Bowen LJ said “In the advertisement cases it seems to me to follow as an inference to be drawn from the transaction itself that a person is not to notify his acceptance of the offer before he performs the condition”. Acceptance must be brought to the notice of the offeror, except in : (i) Unilateral Contracts (ii) Acceptance inferred from conduct (iii) Postal Acceptances •

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The Postal Acceptance Rule (or Mailbox Rule)

Where no particular method of communication is prescribed and the parties are not in each other’s presence, the rule that acceptance occurs only when received by offeror may prove impracticable or inconvenient. An acceptance by post takes effect when it is posted . 

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Limitations of the Rule : Not applicable if wrongly addressed by offeree’s own fault . Only applies to communication of acceptance. Only applies to non-instantaneous acceptance (eg. letters and telegrams). Rule is only applied where no particular mode of communication is prescribed by the offeror. Thus, being the creature of expediency, it must yield to any manifest inconvenience or absurdity, having regard to all the circumstances of the case. • • • •

Adams v Lindsell (1818) 1 B & Ald 681 (Phang 109) (Significance : An acceptance by post takes effect when it is posted.)


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Facts : Plaintiffs accepted offer by post as stipulated by the Defendants. Defendants sold goods to 3rd party after Plaintiffs posted acceptance but before they had received it. Held : Contract was formed when acceptance was posted. In *Household Fire and Carriage Accident Insurance Co v Grant (1879) 4 ExD 216 (Phang 110), CA reaffirmed decision in Adams v Lindsell. Local Position : In Lee Seng Heng v Guardian Assurance Co Ltd (1932) MLJ 17 (Phang 111) (HC, Singapore), Court applied the postal acceptance rule in the context of termination of an insurance policy. Malaysian Position : Ignatius v Bell (1913)  Rationale (Justification) : Based on general convenience and expediency . If offeror chooses to accept by post, then risks of postal acceptance should be adopted by offeror. Post is common means of communication for both parties. Revocation rules puts the offeree at risk but the postal acceptance rule reduces the length of time the offeree is at risk and balances the situation. •

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NB : The general rule applies to instantaneous communications, eg. discussions where both parties are in physical contact, phone, telex, fax, etc.

Entores v Miles Far East Corporation (1955) 2 QB 327 (CA, England) (Phang 107) (Significance : Acceptance is incomplete until received by the offeror .)

Facts : Plaintiffs in London sent offer by telex to Defendant’s agents in Amsterdam. Agents accepted offer by telex. Plaintiffs subsequently alleged that Defendants had broken contract and attempted to serve a writ upon them. Defendants claimed that contract was formed through acceptance in Amsterdam and therefore writ could not be served. Held : Court held that a telex operated like a discussion in physical contact or by phone, hence the general rule that there was no binding contract until acceptance was received applied. Since acceptance was received in London, writ could be served.

*Brinkibon Ltd v Stahag Stahl (1983) 2 AC 34 (House of Lords) (Phang 108) (Significance : Affirmation of rule that acceptance is incomplete until received by the offeror.)

Facts : Essentially the same as in Entores’s case above, except that offer was made by telex from Vienna and accepted by telex from London to Vienna. Held : Decision in Entores’s case was reaffirmed, holding that the contract was made in Vienna. NB : Decision was confined to transmissions to the offices of the parties and sent during ordinary office hours. Other variants left for future decision.

Acceptance by Silence Silence is a common indicator of rejection, too vague and ambiguous to amount to acceptance. An offeror may not arbitrarily impose contractual liability upon an offeree merely by stating that silence deems consent. •

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*Felthouse v Bindley (1862) 11 CBNS 869 (Court of Common Pleas) (Phang 103) (Significance : Silence is usually equivocal as to consent.)


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Facts : Plaintiff wrote to nephew offering to buy horse for certain price stating that “If I hear no more about him, I consider the horse mine at that price”. Nephew told Defendant auctioneer that horse was not to be sold. Auctioneer inadvertently sold horse. Plaintiff sued him in conversion. Held : Plaintiff had no right to impose silence as a condition of acceptance. Judgment for Defendant. 

This decision has been criticised by academics : Nephew had accepted by conduct in telling auctioneer not to sell the horse. (Implied Acceptance) Offerors can waive notice of acceptance and the Plaintiff had done so. An offeree is not silent just because he had failed to inform the offeror. (could be considered acceptance by conduct, ie. by his silence.) •

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E. Acceptance when Ignorant of Offer Quare : Can an offeree accept an offer he is ignorant of?

*R v Clarke (1927) 40 CLR 227 (High Court, Australia) (Phang 116) (Significance : An offeree cannot accept an offer he is ignorant of.)

Facts : Reward offered by government for information to capture 2 criminals. Clarke saw reward notice but forgot about it when he gave the information some time later. Held : “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”. NB : Position would be different if the offer had been present in the Plaintiff’s mind when he gave the information, although he may have been predominantly influenced by some other motive.  To form a contract, there must be a consensus of wills between the parties.

F. Cross-Offers (Controversial area of law!) •

Identical offers between 2 parties do not result in a contract. Offer and Acceptance must be in reference to each other.

Tinn v Hoffmann & Co (1873) 29 LT 271 (Court of Exchequer Chambers) (Phang 117) (Significance : Identical offers between 2 parties do not result in a contract.)

Held : 5 judges against 2 held that on the facts of the case, no contract was formed. Of the majority 5, 2 judges proceeded on the grounds that the letters in question were not identical offers. The remaining 3 judges held that cross-offers could never amount to a contract. Blackburn J said “the promise or offer being made on each side in ignorance of the promise or offer made on the other side, neither of them can be construed as an acceptance of the other”. NB : The case is not very impressive because it stands alone in English Common Law and the reasoning is diluted by the difference in opinion. The judgments also reflected the contemporary preoccupation with consensus. Criticisms by Academics : Certainly true that the act of neither party is in direct relation to that of the other, in that strict requirements of offer and acceptance are unsatisfied. •

Contract Law – Offer and Acceptance Notes •

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However, in contrast with situations as in R v Clarke, each party does in truth contemplate legal relations upon an identical basis, and each is prepared to offer his own promise as consideration for the promise of the other. There is not merely a coincidence of acts, but also a unanimity of minds.

4. The Requirement of Certainty and Completeness •

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If there appears to be agreement on all essential matters , either on the face of the documents or by praying in aid commercial practice or the previous course of dealing between the parties, the court will ignore a subsidiary and meaningless addendum .  Nicolene v Simmonds (1953) illustrates the anxiety of Courts to give effect to contracts to promote business efficacy. Judges will always seek to implement and not to defeat reasonable expectations. Courts will not enforce a contract containing bad terms and conditions which lead to uncertainty and incompleteness .

However, where there is no particular trade in question and no familiar business practice to clothe the skeleton of the agreement, the task of spelling out a common intention from meagre words may prove too speculative for courts to undertake : 

Scammell v Ouston (1941) 1 Al l ER 14 (House of Lords) (Phang 94) (Significance : Courts will not enforce a contract containing bad terms and conditions which lead to uncertainty and incompleteness .)

Facts : Ouston gave a written order to purchase a type of van from the appellants stating that this was subject to “hire-purchase terms over a period of 2 years”. The order was accepted but the hire-purchase terms were never worked out. The appellants refused to provide the van and Ouston sued for damages for non-delivery. It appeared in evidence that there was a wide variety of hire-purchase agreements and nothing to indicate which of them the parties favoured. Held : Their Lordships stated that where there is “an ascertainable and determinate intention to contract”, the Courts would give effect to such agreements. However, in the instant case, the ambiguity and unintelligibility of the words used coupled with the difference in interpretation of the contract (should the House find one) between the parties results in the uncommon situation where the Courts cannot justly determine the existence of a contract. NB : In this case, not only were the lacunae themselves serious, there was also nothing in the previous dealings of the parties, or in accepted business practice which might help to supply them. Vital questions had originally been left unanswered, and no subsequent negotiations ever settled them. In these circumstances, the judges could not invent a contract which parties had been too idle to make for themselves. •

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If both parties have been willingly operating an incomplete or vague contract, Courts will give effect to the contract with reasonable interpretations.

The Barranduna (1985) 2 Lloyd’s Rep 419 Where parties have reserved major questions such as price for future decisions, it is prudent to provide machinery to deal with situations of disagreement. Thus, incomplete contracts can be saved if the contract contains the machinery or criterion to conclude the open terms. In Brown v Gould (1972) Ch 53, no machinery was present but a criterion existed. Court stipulated the machinery to be used. Where a stipulated machinery proves defective, Courts have held agreements ineffective, but the law has been liberalised in :


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Sudbrook Trading Estate v Eggleton (1982) 3 WLR 315 (House of Lords) (Phang 100) (Significance : Despite defective machinery used, courts could provide its own machinery to come to reasonable conclusions.)

Facts : Lessee had an option to purchase a freehold. The price was to be fixed by 2 valuers, one appointed by the lessee and lessor each. If they were unable to agree, they were to appoint an umpire. When lessee attempted to exercise option, lessor refused to appoint a valuer and argued that the option was ineffective for uncertainty. Held : The provision held that the provision for fixing the price by valuers was decisive in indicating that the price was to be a reasonable market assessment. The option agreement was therefore a valid contract but with defective machinery and if necessary, the Courts could provide their own machinery.

5. Artificiality of the Offer and Acceptance Rules A. Artificiality in Analysis • • • •

Few disputes arise from whether there is offer and acceptance. Modern contracts are difficult to analyse in terms of offer and acceptance. Parties may not want to sue due to the small claims involved. Facts can be analysed in different ways giving rise to different results, eg. Pharmaceutical Society v Boots Cash Chemists (1953) and the following 2 cases :

Chapelton v Barry UDC (1940) 1 KB 532 (CA, England) (Phang 265) Facts : Plaintiff wished to hire deck chairs on Defendant council’s beach. Sign stated price and duration of hire plus a notice to obtain a ticket from the chair attendant and retain it for inspection. Plaintiff hired 2 chairs and was provided with tickets which he put away without reading. Injured when a chair he sat on broke. Council relied on exclusion clause printed on ticket. Held : The ticket would not be reasonably construed as anything more than a receipt. The notice on the beach constituted the offer which was accepted when the Plaintiff took a chair. As the contract was made then, the exclusion clause on the ticket came too late. NB : An alternative offer and acceptance analysis could be that the display of the deck chairs was an invitation to treat. Taking of a chair was an offer and acceptance was constituted when the ticket was sold. This would, inter alia, result in the conditions on the ticket forming part of the contract.

*Thornton v Shoe Lane Parking (1971) 2 QB 163 (Court of Appeal, England) (Phang 269) Facts : Defendants operated an automatic carpark. Plaintiff saw sign outside stating charges and that all cars were parked at the owners’ risk. Plaintiff took ticket from machine noticing that the time was stamped but drove in without reading ticket. Ticket stated that it was issued subject to conditions displayed on the premises. One of these conditions on the notice in the carpark claimed to exclude liability for personal injuries. Plaintiff never saw these conditions nor thought to look for them and was injured when returning to collect his car. Defendant proprietors pleaded the exclusion terms on the notice. Held : The contract was made before the ticket was issued, and as such, its conditions or any of the notice in the carpark came too late. Also, that the exclusion of liability for personal injuries


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was a very unusual condition which required sufficient notice, not given in the instant case. Lord Denning said “the offer is made when the proprietor of the machine holds it out as being ready to receive the money. The acceptance takes place when the customer puts his money into the slot”.

NB :  An alternative analysis could be that the machine was an invitation to treat. Activating the machine constituted an offer while the dispensed ticket was a counter-offer and acceptance of the counter-offer is constituted by driving into the carpark.  Yet another analysis could be that the machine was an invitation to treat and the dispensed ticket was an offer while acceptance was constituted by parking the car, reading the conditions and walking away.

B. Inventing Contracts •

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While a contract is ultimately based upon the assumption of agreement, the courts cannot peer into the minds of parties and must be content with external phenomena. Thus, the existence of a contract, in many cases, is inferred only from conduct. In the interests of justice, Courts sometimes have to infer a contract where one does not immediately seem to exist. This normally occurs where the parties in question have mutual contracts with a 3 rd party. An offer and acceptance analysis is not useful in such situations.

Collateral Contracts :

There may be a contract, the consideration for which is the making of some other contract. Eg. If you will make a certain contract, I will give you £100. It is collateral to the main contract, yet each has its independent existence, and they do not differ in respect of their having the full character and status of a contract. Its purpose usually is to enforce a promise given prior to the main contract, and but for which this main contract would not have been made. It is often, though not always, rather a preliminary than a collateral contract. •

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-------------------------------------------------------------------------------------------------------------------------------------------(Not in Syllabus, but for info sake!) To establish the presence of a collateral contract, Plaintiffs must show that : ( Kluang Wood Products Sdn Bhd v Hong Leong Finance Bhd ) There must be a representation which was intended by the Defendants to be relied upon. The representation induced signing of the contract. The representation itself must amount to a warranty, collateral to the main contract, and existing side by side with it. -------------------------------------------------------------------------------------------------------------------------------------------• • •

Clarke v Dunraven (1897) AC 59 (House of Lords) (Phang 127) (Significance : Inference of collateral contract to achieve justice.)

Facts : Defendant’s yacht hit and sank Plaintiff’s yacht at start of race. Both parties had agreed in a letter to follow the rules of the Club which included an obligation to pay all damages caused by fouling. Defendant argued that he had no contract with the Plaintiff and was only liable under statute to pay £8 per ton. Held : By entering into a contract with the Club, they had formed a contract with each other when they entered their yachts for the race or when they actually sailed in it. The competitors had accepted the rules as binding upon each other.


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Shanklin Pier Ltd v Detel Products Ltd (1951) 2 KB 854 (Phang 128) (Significance : Inference of collateral contract to achieve justice.)

Facts : Plaintiffs contracted with X and Co to repair and repaint pier. Defendants induced Plaintiffs to instruct X and Co to use Defendant’s manufactured paint. Paint caused damage and Plaintiffs sued. Defendants argued that their only contract was with the X and Co and not the Plaintiffs. Held : Court held that in addition to the contract for the sale of the paint, a collateral contract existed between the Plaintiffs and Defendants by which in return for the Plaintiffs specifying that the Defendants’ paint be used, the Defendants guaranteed its suitability.

C. Battle of the Forms •

Contract between 2 parties using their own standard forms which contain different conditions giving rise to disputes and the issue of which standard form is the contract based on.

*Butler Machine Tool Co v Ex-Cell-O-Corp (1979) 1 WLR 401 (CA, England) (Phang 271) Facts : Buyers ordered sellers’ machine tools with delivery in 10 months. Both offer and order were on sellers’ and buyers’ standard forms respectively. Sellers’ form contained price variation clause. Buyers’ form had a tear-off slip which sellers filled in and returned. At delivery, Sellers attempted to increase price in accordance with their form. Held : Court held that contract was on Buyers’ terms since the return of the Buyers’ acknowledgment slip amounted to an acceptance of the Buyers’ counter-offer. 2 of the Judges felt the answer lay in applying the traditional rules of offer and counter-offer. Lord Denning MR dissented stating that the Court should look to see if the parties thought they had consented and if so to look at the documents as a whole to discover the content of the agreement. NB : Decision unsatisfactorily turned entirely on Sellers’ tactical error in returning the acknowledgment slip. Majority decision reflected the “last shot fired” rule. Academics prefer Lord Denning MR’s dissenting opinion on analysing the documents as a whole.

Gibson v Manchester City Council (1979) 1 WLR 294 (House of Lords) (Phang 87) Facts : City Council invited Plaintiff to buy council house asking him to make a formal application which he did. Before the exchange of contracts, new Council took over and reversed policy of selling the houses. Plaintiff claimed that a binding contract already existed. Held : Court of Appeal gave judgment for Plaintiffs on 3 grounds : (i) There was no need to look for a strict offer and acceptance (ii) The case involved a policy decision by a Council and not a conventional contract between private individuals (iii) Plaintiff relied on Council’s policy remaining unchanged, and had made improvements to the house House of Lords reversed the decision, rejecting the factual basis of the 3 rd ground of the CA’s reasoning and stated that the Treasurer’s letter to the Plaintiff was only an invitation to treat, and hence the Plaintiff’s application was an offer not acceptance.

1 - Offer and Acceptance

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