Solicitors Qualifying Examination

Agreement & ICLR | Contract Law – Study for SQE1 exam – solicitorsqualifyingexamination.net

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Agreement & ICLR
Valid Contract:
• Capacity
• Agreement
o Offer
o No revocation of the offer
o Acceptance
• Intention to create legal relations (deal with within offer + acceptance)
• Consideration
Introduction
• We look to establish whether a valid contract exists between X and the
other parties. For a valid contract, we must establish agreement (offer
and acceptance), intention to create legal relations and consideration.
Types of contract
• Bilateral contract – exchange of promises between the two parties with
obligations on both sides
• Unilateral contract – an offer ‘prescribing performance of a specific act as
acceptance’, Carlill v Carbolic Smoke Ball [1893]
Unilateral Contract
Must have:
• Acceptance = complete performance of the prescribed act
o e.g. purchasing smoke balls, smoking them in the prescribed way
and catching flu
• Intention to be legally bound
o £1000 deposit in the bank ‘to show our sincerity in the matter’ =
intended to be bound by their advert
Carlill v Carbolic Smoke Ball
• CSB claimed that advert was an invitation to treat, and that it could not be
taken seriously
• But court ruled that there was an intention to be bound and a prescribed
act, and Mrs Carlill entitled to reward
© Liam Porritt 2020 2
Capacity
Minors
• Generally, not bound by contact entered into under age 18
• Except:
o Minor bound to pay ‘reasonable price’ for ‘necessaries’ if they
enter into such a contract – Sale of Goods Act 1979: ‘necessaries’ =
suitable to condition in life of minor or other person concerned +
to his requirements at time of sale and delivery (i.e. must be
necessary – Nash v Inman)
o Minor bound by contract of employment for their benefit (Doyle v
White City Stadium)
o Minor’s contracts voidable rather than void – may ratify contract
at 18, or minor may rescind
Mental Incapacity and Intoxication
• The Mental Capacity Act 2005: lacks mental capacity if ‘unable to make a
decision for himself in relation to the matter’:
o S3.1, impairment = unable to:
§ Understand information
§ Retain information
§ Use or weight information
§ Communicate decision
• Mentally impaired person still liable to pay reasonable price for
‘necessaries’
• Mental incapacity not for ‘necessaries’: binding unless can establish
(Imperial Loan Co v Stone):
o Did not understand what he was doing
o Other party knew that to be the case
… in which case, voidable.
• Ditto (re: ‘necessaries’ + voidable if other party aware) for alcohol / drugs
– Matthews v Baxter
Companies
• Company can enter contracts in accordance with memorandum – ultra
vires if acts outside this = contract void – Ashbury Railway Carriage and
Iron Co. v Riche
• Companies Act 2006 – protects third parties affected by this acting in
good faith + only internal workings of company between shareholders
and company that ultra vires has effect.
© Liam Porritt 2020 3
Intention to create legal relations
• Wording of offer must include intention to be bound
Presumptions
• Commercial situations = presumption that there is ICLR (Rose and Frank
Co. v Crompton Bros.)
o Edwards v Skyways: In business context, onus is on the party who
asserts that no legal effect was intended and the onus is a heavy
one ~ i.e. exclusion of ICLR must be explicit, and reference to
payment as ‘ex gratia’ not sufficient
o Bunn & Bunn v Rees & Parker: the absence of a fixed price / finer
details does not imply that there is no ICLR / C+C terms
§ If there is a formula for fixing price, this is enough
o Kleinwort Benson Ltd v Malaysia Mining Corporation: ‘comfort
letters’ stating current policy of company ≠ promise of future
conduct ≠ contractual promise
• Family, domestic and social relations = presumption that there is no
ICLR
o Especially for spouses living in amity, unless express terms or
implication from circumstances (Balfour v Balfour)
§ This applies to family (e.g. mother and daughter) (Jones v
Padavatton – NB: Danckwerts LJ + Fenton Atkinson LJ of
this opinion; Salmon LJ felt could be ICLR between mother
and daughter)
o Spouses not living in amity (i.e. separated or about to be): ICLR is
presumption (Merritt v Merritt)
Well Barn Farming Ltd v Backhouse
• Importance of items involved in agreement (cutting back of woodland in
return for licence to occupy) immaterial.
© Liam Porritt 2020 4
Objectivity Rules
• Objective test: Blackburn J: what would the reasonable man, with
knowledge of circumstances, deem to be the intentions (to create legal
relations, or not) of the parties on the basis of their words and conduct?
(Smith v Hughes)
• Smith v Hughes – Hughes needs old oats for horses; Smith sells new oats.
o Age of oats not discussed
o Smith made offer to sell oats, which Hughes accepted
o Hughes realises that they are new oats
o Refuses to complete sale
o Smith sues Hughes for unpaid price of oats
o Blackburn: there is valid contract, even though subjective
intention of Hughes was to get old oats. Smith could not
reasonably know he wanted old oats.
o Objectivity rules.
No ICLR
• On objective view, statement is made in jest or in anger (Licences
Insurance Corporation v Lawson): what would someone in the room have
thought was intention?
• Hartog v Colin Shields [1939]
o Colin Shields mistakenly said 30 shillings per pound, instead of per
hare skin
o Reduced price – Hartog accepts
o Shields refuses to sell, saying Hartog knew he’d made a mistake
based on prior negotiations (circumstance taken into account by
the reasonable man)
o No contract – Hartog knew there was mistake: you cannot ‘snap
up’ an offer that is made accidentally – where the offeree knew or
ought to have known of the mistake, there is here no meeting of
minds.
• ‘Subject to (formal) contract’~ no presumption of ICLR (Chillingworth v
Esche)
o Can be overturned by exceptional circumstances
• ‘Honour clause’ / ‘Binding in honour only’ – no ICLR (Rose and Frank Co. v
Crompton Bros.)
o Note: there is a general rule that the jurisdiction of the courts
cannot be ousted in an agreement, so here, the logic is that in the
absence of ICLR, this does not apply
Consideration
• Currie v Misa establishes that consideration consists of some benefit or
detriment => APPLY.
© Liam Porritt 2020 5
The Offer
• Treitel: an offer is an ‘expression of willingness to contract on specified
terms made with the intention that it is to become legally binding as soon
as it is accepted by the person to whom it is addressed’.
o Terms of offer must be specified – clear and certain
o Offeror must show requisite intention to be legally bound
(objectively ascertained)
Storer v Manchester City Coucil [1974]
• ‘If you sign the agreement and return it to me I will send you the
agreement signed on behalf of the [Council] in exchange’
• Storer sends back signed agreement
• This is binding agreement as:
o Offer was clear and certain – terms of sale had been clearly
specified
o ‘I will…’ – intention to be legally bound
o Acceptance by sending agreement back – it did not matter that the
council had not yet signed the agreement when it decided it did
not want to sell.
• Must also be communication to the offeree (Taylor v Laird)
Gibson v Manchester City Council [1979]
• Conservative government – Manchester council issue letters to council
house tenants inviting them to purchase their houses
• Council sends letter: ‘may be prepared to sell the house to you at the
purchase price of £2,725, less 20 per cent’
• HoL: this is not an offer as:
o ‘May be prepared’ not sufficiently clear and certain to be an offer =
precatory rather than imperative language
§ Terms not settled, further negotiation
§ Invited to make a formal application to the council – invited
to make a formal offer to the council
o The first step in negotiations, lacking the requisite intention to be
bound.
§ ‘May’ – lack of intention to be bound
© Liam Porritt 2020 6
Invitation to Treat
• Define: the first step in contractual negotiations and not an offer.
• Inviting someone to make an offer to you: Gibson v MCC
o Lacks intention to be bound
Adverts
• An advert is in general an invitation to treat (Partridge v Crittenden),
which is the first step in contractual negotiations and not an offer.
o Advert to sell wild birds, which was illegal.
o But no contravention of this law as no offer for sale
o Lord Parker: unless adverts come from manufacturers, they should
be seen as ITTs.
• Where price is not fixed by advert, also make point: in any case, the
advert is not sufficiently clear and certain to be an offer as the price is still
to be determined (Gibson v Manchester)
Adverts – Exceptions (only discuss if relevant)
• Obiter comment of Lord Parker re: manufacturers – worth
contemplating whether or not this should apply to case at hand.
Manufacturer’s resources are not limitless, so must bear this in mind, and
consider whether adverts here constitute offers.
• Unilateral offers – prescribed act and intention to be bound
o Carlill v Carbolic Smoke Ball
o Lefkowitz v Great Minneapolis Surplus Store – be first in line on
time and date with required $1 payment (see limits on number of
people who can get this offer)
o Bowerman v ABTA – notice on wall describing ABTA’s scheme of
protection against financial failure of ABTA members ~ unilateral
offer accepted by choosing to do business with ABTA member –
therefore, notice on wall here is unilateral offer.
o Esso Petroleum v Commissioners of Customs and Excise – World Cup
coins for buying 4 gallons of petrol ~ ICLR? Yes, because business
context and large commercial advantage for Esso, but only
majority and some dissenting against this.
o John R.R. Leonard v Pepsico Inc. – claim prizes from points + 7
million points for jet – clear prescribed act and intention to be
bound
§ Clearly prescribed act
§ Intention to be bound – objectively, this was not serious
and therefore not an offer
© Liam Porritt 2020 7
Display of Goods
• Fisher v Bell – price marked flick knife in shop window was not an offer
but an ITT
o No offence of sale flick knives (Offensive Weapons Act, 1959)
• Pharmaceutical Society of GB v Boots Cash Chemists – same rule
o Display of goods is ITT
o Offer on presentation of goods at cash desk
o Cashier can accept or reject offer
Tenders
• ITT
• DO NOT GET BOGGED DOWN HERE: only operate in commercial context
when a major project is being tendered for
o Question will flag if discussion of tenders is required
• Spencer v Harding [1870]
• Person requesting tenders has freedom to choose which, if any,
tenders to accept
Tenders- Exceptions to ITT
• Commitments in tenders can mean you are bound to keep that
commitment
• Blackpool & Flyde Aero Club v Blackpool BC
• Invitation to deliver tenders to be considered
• Aero Club submitted tender but overlooked it (did not consider it)
• Court: no obligation to accept, but obligation to consider tender
o Because unilateral contract, with offer by Council including
specific act of sending tender, which was fulfilled by Aero Club
– therefore, breach of unilateral contract
• Harvela Investments Ltd v Royal Trust Co. of Canada
• Two companies asked to tender for purchase of plot of land: sealed bid for
best and final offer
• RT of Can: undertaking to sell to highest bidder
• Harvela bid £100,000
• Bid from other company for £50,000 or £100,000 more than other
company
• Awarded for £200,000 to other company
• Not proper bid as not clear and certain offer for a set fee – final bid can
only be worked out in reference to another bid: referential bid with no
distinct value in its own right
• Harvela’s bid highest, with RToC having breached unilateral contract,
with prescribed act the making of the highest bid
© Liam Porritt 2020 8
Auctions
• Payne v Cave – with reserve
• Auctioneer’s request for bids is an invitation to treat – auctioneer entitled
to reject any of the bids (offers) made, even if higher than reserve
• Bidder in an auction is the offeror – may revoke offer at any time before
fall of hammer (s57, Sale of Goods Act 1979)
• Acceptance occurs at fall of the hammer, the auctioneer operating as the
agent for the vendor, creating a bilateral contract of sale
• Auctions ‘without reserve’ – no lower limit
• Barry v Davies
• Contract 1: bilateral contract, with ITT from auctioneer, offers and
acceptance as Payne v Cave – fall of hammer is acceptance, and if no
acceptance, no bilateral contract and entitlement to goods does not
change.
• Contract 2: Unilateral contract to sell goods to highest bidder – goods
withdrawn from sale following bids, there is breach of unilateral contract
and highest bona fide bidder entitled to damages (difference between bid
and market value)
Websites
• Website listings are equivalent to a display of goods or advertisements –
ITT.
• Online retailer free to accept or reject
• Note: pricing errors – even if could be deemed offer (which it cannot), see
precedent on inability to ‘snap up’ goods for incorrect price (Hartog v
Colin and Shields).
© Liam Porritt 2020 9
Termination of an offer
Offer may come to an end by:
• Rejection
• Lapse
• Revocation – must be communicated
Rejection by counter offer
• Fundamental change to offer = counter-offer = extinguishes the
original offer by proposing alternative terms for acceptance
o Change in price – Hyde v Wrench
• Butler Machine Tool v Ex-Cell-O Corp
o HoL: whoever fires the last shot wins – the most recent terms sent
to offeree, when accepted unequivocally = terms of contract
• Requests for further information do not terminate the offer – they are
mere enquiries, expressed in precatory language seeking to clarify
the offer’s terms
• Must not challenge any fundamental terms of offer
o Stevenson, Jaques v McLean
o McLean wants to sell iron at 40 shillings
o Stevenson: can I pay in installments? – no response
o McLean sells to someone else, and then Stevenson accepts offer of
40 shillings
o Stevenson’s question = request for further info
§ Ancillary matter couched in tentative language
© Liam Porritt 2020 10
Termination through lapse
• Offer lapses after a reasonable time – passage of time – reasonable
depends on facts of case
o Ramsgate Victoria Hotel Co v Montefiore – sale of shares: highly
time sensitive so offer in June had lapsed by purported acceptance
in November
• Death of offeror if the offeree knows about death; if not, probably will not
lapse
o Bradbury v Morgan
• Death of the offeree
o Duff’s Executors’ Case
o Kennedy v Thomassen – solicitors, acting on behalf of client who
they did not know was dead, accept offer – offer lapses on death
• Non-fulfillment of a condition precedent by the offeree
o Such a condition may be implied
o Financings Ltd v Stimson
o Stimson’s offer to buy car under hire purchase agreement has
implied condition that car remains in same condition up to time of
acceptance
o Car stolen and damaged before acceptance, therefore offer
terminated, and customer not bound
Revoking an offer
• Payne v Cave: Revocation prior to valid acceptance
• Bryne v Van Tienhoven: Revocation must be communicated – it is only
effective upon it reaching the offeree
o Revocation by post effective on date of receipt, not of posting
• Dickinson v Dodds: revocation can be by a third-party, without need for
the offeror’s authorisation.
o Treitel is critical of the rule in Dickinson v Dodds, as it creates
uncertainty and unfairness, due to the burden of judging whether
the third-party is reliable placed on the offeree.
o Jill Poole states that the question that must be asked is: ‘ought the
third party reasonably be believed?’
• Here, the facts suggest (apply both!)…
o The offeror evidences an intention to revoke (e.g. by selling to
someone else)
o Notice of that intention has reached the offeree – what is the
nature of the notice (i.e. of sale, or of less concrete nature)?
• Conclude whether third-party thus ought reasonably to be believed to be
revoking.
© Liam Porritt 2020 11
Options
• A bilateral contract may be created for an option, e.g. the option to buy
something for £X by a 10th May 2019, if there is consideration and
intention to create legal relations.
• Otherwise, the offeror is not bound to keep an offer open for the amount
of time specified – i.e. can revoke the offer at any time.
Revocation of a unilateral offer
When?
• A unilateral offer can be revoked any time prior to completion of the
required acts.
o Great Northern Railway (GNR) Company v Witham – any time
before complete performance (within 500yds of York)
Equitable Considerations
• Part performance AND is willing and able to complete
• Errington v Errington & Woods
o Father says to son and daughter-in-law: move in, pay mortgage,
and once mortgage paid, I will give you the house
o Errington dies and leaves house to his wife
o Son moves in with mother, divorcing wife and leaving Woods in
the house
o Woods continues to pay mortgage
o Mother seeks to recover possession of house
o No complete acceptance as paying the mortgage not complete, and
therefore possible to revoke
o However, Lord Denning: where performance has begun and it
would be inequitable for the offeror to revoke the offer, the
offeror must give the offeree the opportunity to complete the
required act
• Daulia v Four Millbank Nominees
o Confirms Errington and adds:
o Not only must you allow completion, but you cannot do anything
to prevent completion.
How?
• Offer made to the ‘whole world’ – revocation effective if reasonable steps
taken to bring the revocation to the attention of all those who may have
read the offer
• Shuey v US (US case, as no English case) – no act in reliance upon offer
prior to revocation + ‘same notoriety’ given to revocation as to offer
© Liam Porritt 2020 12
Acceptance
Acceptance only by offeree
Boulton v Jones
• If offer addressed to individual or group, offer can only be accepted by
that individual or group (i.e. the offeree).
Acceptance cannot be made in ignorance of offer
• R v Clarke – reward for information leading to arrest and conviction;
Clarke gives info after arrest for crime, but had forgotten reward offer at
that time, and therefore did not act in reliance upon offer.
• Williams v Carwardine – ulterior motive for acceptance irrelevant if
offeree who accepts offer is aware of the offer.
• Gibbons v Proctor – reward for information ~ acceptance is on arrival of
information: Gibbons gives information to two agents before reward
offered for information, but it arrives after this reward is offered, at which
time Gibbons knows of reward. Therefore, knows of reward on
acceptance = valid contract.
Information = first one to accept gets reward, in general
Lancaster v Walsh
• This depends on wording of offer, but is a general rule.
• Note: especially if says ‘give information leading to a conviction’ as only
one person can do this
© Liam Porritt 2020 13
Acceptance must be unqualified = MIRROR IMAGE!
Hyde v Wrench
• Offeree must assent to all the terms, express and implied, of a firm offer
• Acceptance must thus be unqualified and correspond exactly with the
terms of the offer – ‘the mirror image rule’.
o Use this in all cases where there is communication by offeree
(e.g. acceptance, counter-offer or request for further information)
Prescribed mode of acceptance
Manchester Diocesan Council for Education v Commercial and General Investments
• Modes of acceptance may be excluded…
• However, for a prescribed mode of acceptance to be only binding mode,
per Buckley J, offeror must expressly exclude the use of other modes.
• If not expressly excluded, any other mode that is no less advantageous
to the offeror will suffice (Tinn v Hoffmann) ~ e.g. equally expeditious in
absence of specific reason for a certain method
• Alternative methods acceptable if no less advantageous for offeror
o Yates Building Co. Ltd v Pulleyn & Sons (York) Ltd – registered or
recorded delivery only of benefit for offeree to prove postage, so
can equally post ordinarily.
Acceptance must be communicated by the offeree (Entores v Miles)
Felthouse v Bindley
• Silence ≠ acceptance, even if stipulated by offeror
o Note: use this case where there is an offer and no response
Third-party communication of acceptance
• Can be third-party
• Will not constitute acceptance if:
o Not authority of offeree (Powell v Lee); AND
o Offeree does not regard decision to accept as irrevocable (based on
circumstances)
Postal Rule
• Adams v Lindsell: Where post is proper means of communication,
acceptance at moment of proper posting (Post box, or Post office
employee authorised to receive letters for posting – not postman (Re
London and Northern Bank)).
• Only applies to acceptance; revocation at time of receipt (Bryne v Van
Tienhoven)
© Liam Porritt 2020 14
• Postal rule applies even if acceptance is delayed or lost in the post –
Household Fire and Carriage Accident Insurance Co. v Grant.
Exceptions
• Postal rule– must be reasonable in all the circumstances for offeree to use
post (Henthorn v Fraser)
o No PR where ‘manifest inconvenience and absurdity’ (Holwell
Securities v Hughes)
o PR does not apply where express or implied condition that prompt
acceptance is required (e.g. when offer / counter-offer by
immediate communication) (Quenerduaine v Cole)
• No PR if acceptance incorrectly addressed (Getreide-Import Gesellschaft v
Contimar) – NB, Misdirected acceptance takes effect at time least
favourable to party responsible for misdirection.
Avoiding PR
• PR can be ousted:
o Acceptance valid ‘only if reaches offeror’ may be stipulated
§ ‘by notice to’ = needs to be received (Holwell Securities v
Hughes)
o Time of acceptance = ‘on receipt’
Retraction of posted acceptance
• No UK authority, but generally considered it cannot be retracted
• Dunmore v Alexander – Scottish authority suggests retraction possible
• Disapproved by later Scottish authority Thomason v James
© Liam Porritt 2020 15
Communication by instantaneous means
• The House of Lords have held that there is no universal rule regarding
purported acceptance by instantaneous means (Brinkibon v Stahag Stahl,
per Lord Wilberforce).
• However, in general, acceptance at moment acceptance received by
offeror (Entores v Miles Far East Corporation)
o Use this as authority that acceptance must be communicated,
where mode of communication is instantaneous.
• Email ≠ Postal Rule + meaning of office hours varies depending on the
context (Thomas v BPE Solicitors).
o It is unclear whether office hours is determined subjectively or
objectively. However, this case suggests that a subjective approach
is taken.
• If acceptor reasonably believes he has communicated acceptance, but this
is not so because of fault of offeror, the offeror may be estopped from
saying he did not receive acceptance.
• If outside office hours, will be at start of next business day (Mondial
Shipping)
• If acceptance sent within office hours (defined in context of case) or
outside of office hours but it is the start of the next business day, it is
effective when received in the office, not when the office staff see it (The
Brimnes)
Acceptance = performance of prescribed act in unilateral contracts
• No need for communication of acceptance (Carlill v Carbolic Smoke Ball
Co.)
Conclusion
• There is no contract between X and A, B or C, so A, B and C do not have
any legal claim to the furniture. D and E appear to have formed a valid
contract with X and thus will be liable, if he decided not to sell [thing] to D
and E for breach of contract, or to either D or E if he sells to one of them.

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