Offer and Invitation to Treat Contents

Offer – An invitation communicated by one party to another to enter into a legally binding contract on certain specified terms.

Specific Offer – Open to specified person(s)

General Offer – Open to the world at large

e.g. Carlill v Carbolic Smoke Ball Co [1892]

Invitation to Treat – An invitation to enter into negotiations with a view to creating an offer

Invitation to Treat

Display of Goods

Pharmaceutical Society of GB v Boots Cash Chemists Ltd [1953]

– Display of goods is an invitation to treat

(Confirmed by Fisher v Bell [1961])

Chapelton v Barry Urban District Council [1940]

– Display of deckchairs for hire on beach constituted an offer which could be accepted by taking a chair and sitting on it.

– There may be circumstances where a display of goods may amount to an offer, provided that there is strong evidence of an intention to be bound by the “displayer”.

Advertisement

Partridge v Crittenden [1968]

– Advertisement is an invitation to treat (was the starting point for negotiations with anyone reading it and responding to it)

Statement of Price

Harvey v Facey [1893]

– Statement of price is an invitation to treat

Auction

Payne v Cave [1789]

– Calling for bids is an invitation to treat

Barry v Davies [2000]

– Where there is no reserve calling for bids is an offer

s52, Sale of Goods Act 1979

– The sale by auction is complete at the fall of the hammer, signifying acceptance by the auctioneer himself.

Miscellaneous: Unsolicited Goods

Unsolicited Goods and Services Act 1971 and the Consumer Protection (Distance Selling) Regulations 2000 provide that a recipient of unsolicited goods which have not been sent with a view to them being acquired for the purposes of a trade or business may be able to keep them as a gift, or require them to be collected.

Acceptance

Must be communicated

Entores v Miles Fart East Corp [1955]

– Acceptance must be communicated

Powell v Lee [1908]

– Person making/accepting offer must have proper authority

Felthouse v Bindley [1862]

– Acceptance cannot be silence

Lapse/Reasonable time

Household v Grant [1879]

– Reasonable time passed – offer to sell shares case

Ramsgate Victoria Hotel Co Ltd v Montefiore [1866]

– Reasonable time had passed – offer to sell shares

Failure of a condition precedent

Financings Ltd v Stimson [1962]

– D bought car on hire purchase terms

– In meantime car was stolen

Counter-offer/Qualified Acceptance

Hyde v Wrench [1840]

– A counter-offer rejects the original offer

Jones v Daniel [1894]

– Accepted offer subject to additional terms and conditions

– Was a counter-offer

Brogden v Metropolitan Railway Co [1877]

– Parties had a longstanding agreement for the supply of coal

– Parties decided to make a formal agreement

– Agreement was sent to Brogden who inserted an arbitration clause signed it and sent it back

– It was signed without the company looking at it again

– The Court held that the parties could not claim the contract did not exist simply because they had not given their formal agreement to an arbitration clause which was not of primary importance to the contract

Requests for Information

Stevenson v McLean [1880]

– A request for information is not a counter-offer and therefore doesn’t affect the original offer

Reliance on Offer

Williams v Carwardine [1833]

– Cannot accept offer when don’t know about the offer (not on reliance of offer)

R v Clarke

– Convicted murderer grassed on other murderers

– Knew of offer, but gave information in order to get a pardon

Unilateral Contract

Errington v Errington and Woods [1952]

– Once acceptance (by conduct) begins, cannot revoke original offer

Delivery of Acceptance

Tinn v Hoffman [1873]

-­ Means of delivery flexible as long as acceptance takes place within the same timescale

Electronic Acceptance/Telex

Entores v Miles Far East Corp [1955]

– Electronic – acceptance takes place when deemed received

The Brimnes [1975]

– Telex – Instant delivery during working hours

Postal Acceptance

Adams v Lindsell [1818]

– Where acceptance posted, it is deemed accepted upon posting

Termination of an Offer

Termination of an offer can occur in the following ways:-

1. Acceptance

2. Death of offeree

(Death of offeror continues unless a personal element involved)

3. Counter-offer/Qualified acceptance

4. Lapse of Time

5. Revocation before acceptance

6. Failure of a condition precedent

Tenders

A tender is an offer, the acceptance of which leads to the formation of a contract. However, difficulties arise where tenders are invited for the periodical supply of goods.

Great Northern Railway Co v Witham [1873]

– A tender is a continuing offer to supply goods or services, which can be accepted by the other party at any time while the offer is open.

– If fails to supply, the party failing to supply is in breach of contract, but the offer is revoked in the future.

Certainty

Guthing v Lynn [1831]

– Promise to pay an extra “£5″ if the horse is lucky was too uncertain

White v Bluett [1853]

– Forbearance of a debt if the son “did not complain about the distribution of the father’s assets on death” was too vague to form an enforceable agreement

Foley v Classique Coaches Ltd [1934]

– The price for the supply of petrol would be “agreed by the parties in writing from time to time”.

– The parties were performing the contract and there was an implied condition that a reasonable price would be paid.

Consideration

Lush J. in Currie v Misa [1875] refers to consideration as consisting of a detriment to the promise or a benefit to the promisor:-

“…some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility given, suffered or undertaken by the other”.

There are two types of consideration:-

1. Executed – One of the parties has fulfilled his part of the contract and is waiting for the other party to fulfil his part (e.g. unilateral)

2. Executory – A promise made in return for a promise (e.g. a contract for delivery/promise of payment)

Consideration must not be past

Re McArdle [1951]

– Decorating was carried out and after there was a promise of payment

– Could not be enforced, as consideration was past

Roscorla v Thomas [1842]

– After payment seller said horse was fit, etc.

– No consideration was given in return for the promise.

Exceptions to the rule

Lampleigh v Braithwait [1615]

– Request for a pardon case

– Although consideration was past, Braithwait’s promise to pay could be linked to Braithwait’s earlier request and treated as one agreement, so it could be implied at the time of the request that Lampleigh would be paid

Re Casey’s Patient [1892]

– In a business situation where an act is done at the request of A and there was an understanding that payment would be made, the subsequent promise to pay merely fixed the amount.

In Pao On v Lau Yiu Long [1980] Lord Scarman said:-

“An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisor’s request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance”.

Consideration must move from the promisee

The rule is connected with the doctrine of Privity of Contract (only a party to a contract can sue on the contract) and states that the person seeking to enforce the contract must show that they provided consideration under that contract.

Tweedle v Atkinson [1861] – Case illustrating the old law (Contract said that a third party could enforce a contract, but as this party had provided no consideration, there was no right of enforcement by the third party)

Contracts (Rights of Third Parties) Act 1999 modifies slightly the rule. The Act provides that where A and B entered into a contract, but acknowledge on entering the contract that C has the right to enforce that contract then the Courts will allow C to enforce this right.

Consideration must be sufficient, but need not be adequate

As long as some consideration is given, it doesn’t matter that it is inadequate (not necessarily market rate)

Chapple v Nestle [1959]

Main case – chocolate wrappers were sent in – was consideration even though these were later thrown in the bin

Existing Public/Legal Duty

Collins v Godefroy [1831]

– Existing legal duty to attend Court – no consideration

Glasbrooke v GCC [1925]

– Police provided extra protection than that ordinarily necessary

– Went beyond existing legal/public duty and therefore gave consideration

Existing Contractual Duty

Stilk v Myrick [1809] (modified by Williams v Roffey [1990])

– Sailors didn’t provide more consideration than ordinarily expected even though was promised a bonus

Hartley v Ponsonby [1857]

– Sailors went over and beyond normal duties

– Sailors were placed in danger over and beyond that ordinarily expected

– Was consideration – promisor obtained an advantage

Williams v Roffey [1990]

– If extra consideration given and other party obtains a benefit/doesn’t suffer a disadvantage, it is consideration over and beyond the existing contractual duty

– If you offer a bonus and you get a benefit/avoid a disadvantage it is adequate consideration

Contract for the benefit of a third party

Scotson v Pegg [1861]

– A entered into a contract with B to deliver coal to C

– C then entered into a contract with A stating that if A delivered the coal to C then C would unload it for a fixed rate a day

– C failed to keep his promise to unload the coal and A sued

– C claimed that he owed no contractual duty to A, because A was simply fulfilling his contractual duty under his contract with B

– It was held that C was under a contractual duty to A, because A’s contractual duty with B was also sufficient consideration to satisfy the contract between A and C

Capacity

s3, Sale of Goods Act 1979

(1)     Capacity to buy and sell is regulated by the general law concerning capacity to contract and to transfer and acquire property.

(2)     Where necessaries are sold and delivered to a minor or to a person who by reason of mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable price for them.

(3)     In subsection (2) above “necessaries” means goods suitable to the condition in life of the minor or other person concerned and to his actual requirements at the time of the sale and delivery.

In general, a contract may be made by any person recognised in law as having legal personality:-

An individual

A company

The Crown (Under s1, Crown Proceedings Act 1947 it is now generally possible to sue the Crown as of right for breach of contract)

However, the following classes of persons are in law incompetent to contract, or are only capable of contracting to a limited extent or in a particular manner:-

Bankrupts

Minors

Persons of unsound mind

Alien enemies

Drunkards

Companies (There are specific rules which govern contracts made by registered companies with (1) members; (2) third parties (including pre-incorporation contracts)).

Corporations/Companies

A corporation created by Royal Charter has always had the same capacity to contract as an ordinary person, but a company incorporated under the Companies Act could until recently only make such contracts as were within the scope of the objects set out in its memorandum of association. Anything beyond that was ultra vires and void.

Example – Ashbury Railway Carriage and Iron Co Ltd v Riche [1875] – Company couldn’t enter a contract to make a railway in Belgium, as was ultra vires. Even if every shareholder of the company had expressed approval to the act, it would have made no difference, for it was an act which the company has no power at law to do.

– Applying the law to the Ashbury case, the directors committed a breach of duty by making the contract and might be restrained by a member, but once the contract was made its validity could not be questioned, provided that the making of the contract was “an act done by the company”.

NEW LAW

s171, Companies Act 2006 states that directors owe duties to the company and must act in accordance with the company constitution.

s39(1), Companies Act 2006 – Provides that the validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company’s memorandum.

Minors

At common law persons under the age of 21 were designated “infants” and only had a limited capacity to contract. From 1st January, 1970 the Family Law Reform Act 1969 reduced the age of majority to 18 and authorised the term “minor” as an alternative to “infant”.

“Minor” is now the preferred term. The capacity of a minor to contract is still regulated by the common law, modified by the Minors’ Contracts Act 1987.

The general principle is that a contract made by a minor with an adult is binding on the adult, but not on the minor. If, after attaining 18 he ratifies the contract by an act confirming the promise he made when a minor, he is bound.

There are three exceptional cases where a minor is bound to some extent.

1. Necessaries

A minor is bound to pay for necessaries supplied to him under a contract. s3, Sale of Goods Act 1979 provides:-

“….where necessaries are sold and delivered to an infant… he must pay a reasonable price”.

Necessaries in this section means goods suitable to the condition of life of such minor …. And to his actual requirements at the time of sale and delivery”.

Necessaries are those things without which a person cannot reasonably exist and include:-

Food

Clothing

Lodging

Education

Training in a trade and essential services

The “condition of life” of the minor means his social status and wealth. Whatever the minor’s status, the goods must be suitable to the actual requirements – if he has already enough fancy waistcoats, more cannot be necessary – Nash v Inman [1908].

The nature of the minor’s liability is uncertain, but the fact that the Sale of Goods Act makes him liable only for goods “sold and delivered” and to pay a reasonable price, suggests he must pay, not because he has contracted to do so, but because the law requires him to recompense the seller for a benefit conferred and accepted.

2. Beneficial contracts of service

It is for the minor’s benefit that he should be able to obtain employment which would be difficult if he could not make a binding contract. The law allows him to do so, provided that the contract taken as a whole is manifestly for his benefit.

This was held not to be the case in de Francesco v Barnum [1889] where a 14 year old dancer was able to repudiate (terminate) a contract because of the oppressive nature of the restrictions on her.

3. Acquisition of property with obligations

Where a minor acquires “a subject of permanent nature … with certain obligations attached to it”, such as a leasehold, or shares in a company – he is bound by the obligations as long as he retains the subject.

He must pay the rent or calls on the shares – London & North Western Railway v M’Michael [1850]

The contract is voidable by the minor i.e. he may repudiate it at any time during his minority or within a reasonable time thereafter.

The unfair nature of minority contracts

Where a minor has obtained property under a contract which is not enforceable against him, the adult party who can neither sue for the price nor get the property back may suffer an injustice.

Even where the minor has lied about his age, no action in deceit will lie, because this would in effect enable the contract to be enforced against him.

s3, Minors’ Contracts Act 1987 now affords a limited measure of redress. Where a contract made after the commencement of the Act is unenforceable against a defendant because he was a minor when it was made:-

“….the court may, if it is just and equitable to do so, require the defendant to transfer to the plaintiff any property acquired by the defendant under the contract or any property representing it”

Mental Incapacity

The ancient rule of the common law was that a lunatic could not use his own insanity to avoid an obligation which he had undertaken.

However, Pollock C.B. in Moulton v Camroux [1847] said that “the rule had in modern times been relaxed and unsoundness of mind would now be a good defence to an action upon a contract, if it could be shown that the defendant was not of the capacity to contract ‘and the claimant knew it’”.

s3, Sale of Goods Act 1979 makes the same provision for persons who are incompetent to contract by reason of mental incapacity as for minors.

Intoxicated persons

The authorities are scanty.

Gore v Gibson [1845]

– A contract made by a person so intoxicated as not to know the consequences of his act is not binding if his condition is known to the other party.

Matthews v Baxter [1873]

– If the drunken party upon coming to his senses ratifies the contract, he is bound by it.

– It appears that the contract is not void but voidable.

s3, Sale of Goods Act 1979 makes the same provision for persons who are incompetent to contract by reason of “drunkenness” as for minors and the mentally incompetent. No doubt, the same rule would be applied to persons intoxicated by drugs other than alcoholic drink, either by a broad interpretation of “drunkenness” or at common law.

Discharge of a Contract by frustration

The doctrine of frustration operates in situations where due to a change in circumstances, the contract is impossible to perform, or it has lost its commercial purpose by an event and not due to the act or default by either party.

1. The 2 tests!

There are two alternative tests for frustration:

(1) The implied term test,

See Taylor v Caldwell (1863)

Caldwell agreed to let a music hall to Taylor so that four concerts could be held there. Before the date of the first concert, the hall was destroyed by fire. Taylor claimed damages for Caldwell’s failure to make the premises available. The court held that the claim for breach of contract must fail since it had become impossible to fulfill. The contractual obligation was dependent upon the continued existence of a particular object and the court could infer an implied term that in the event that the hall no longer existed then of course there would no longer be a contract

Lord Loreburn explained this position in FA Tamplin v Anglo-Mexican Petroleum [1916]. He said that the court:

‘… can infer from the nature of the contract and the surrounding circumstances that a condition which was not expressed was a foundation on which the parties contracted … Were the altered conditions such that, had they thought of them, the parties would have taken their chance of them, or such that as sensible men they would have said “if that happens of course, it is all over between us”.’

(2) The radical change in the obligation test.

This was adopted by the majority of the House of Lords in:

Davis Contractors v Fareham UDC [1956] where Lords Reid and Radcliffe stated that the ‘radical change in the obligation’ test required the court to:

Construe the contractual terms in the light of the contract and surrounding circumstances at the time of its creation.

Examine the new circumstances and decide what would happen if the existing terms were applied to it.

Compare the two contractual obligations and see if there is a radical or fundamental change

In National Carriers v Panalpina [1981] Lord Wilberforce was reluctant to choose between the two tests. He took the view that they merged one into the other and that the choice depends upon “what is most appropriate to the particular contract under consideration”.

2. Examples of frustrated contracts

i) Destruction of the specific subject matter of the contract

The destruction of the specific object essential for performance of the contract will frustrate it. See: Taylor v Caldwell (1863) (above).

ii) Personal Incapacity

Personal incapacity, where the personality of one of the parties is significant, may frustrate the contract: See

Condor v The Baron Knights [1966]

A drummer engaged to play in a pop group was contractually bound to work on seven nights a week when work was available. After an illness, Condor’s doctor advised that it was only safe to employ him on four nights a week, although Condor himself was willing to work every night. It was necessary to engage another drummer who could safely work on seven nights each week. The court held that Condor’s contract of employment had been frustrated in a commercial sense. It was impracticable to engage a stand-in for the three nights a week when Condor could not work, since this involved double rehearsals of the group’s music and comedy routines.

iii) Non – occurrence of a specified event

The non-occurrence of a specified event may frustrate the contract. Compare the leading cases:

Krell v Henry [1903]

Henry hired a room from Krell for two days, to be used as a position from which to view the coronation procession of Edward VII, but the contract itself made no reference to that intended use. The King’s illness caused a postponement of the procession. It was held that Henry was excused from paying the rent for the room. The holding of the procession on the dates planned was regarded by both parties as the basis for the contract.

Herne Bay Steamboat Co v Hutton [1903]

Herne Bay agreed to hire a steamboat to Hutton for a period of two days for the purpose of taking passengers to Spithead to cruise round the fleet and see the naval review on the occasion of Edward VII’s coronation. The review was cancelled, but the boat could have been used to cruise round the assembled fleet anyway. It was held that the contract was not frustrated. The holding of the naval review was not the only event upon which the intended use of the boat was dependent. The other object of the contract was to cruise round the fleet, and this was still possible.

iv) Interference by the government

Interference by the government may frustrate a contract. See:

Metropolitan Water Board v Dick Kerr [1918]

Kerr agreed to build a reservoir for the Water Board within six years. After two years, Kerr was required by a wartime statute to stop work on the contract and to sell the plant. The contract was held to be frustrated because the interruption was of such a nature as to make the contract, if resumed, a completely different contract.

v) Supervening illegality

A contract may become frustrated if it later becomes illegal. See:

Re Shipton, Anderson and Harrison Brothers [1915]

A contract was concluded for the sale of wheat lying in a warehouse. The Government requisitioned the wheat, in pursuance of wartime emergency regulations for the control of food supplies, before it had been delivered, and also before ownership in the goods had passed to the buyer under the terms of the contract. It was held that the seller was excused from further performance of the contract as it was now impossible to deliver the goods due to the Government’s lawful requisition.

vi) Delay

Long and unexpected delay may frustrate a contract. The problem is to know how long a party must wait before the delay can be said to be frustrating. See:

 Jackson v Union Marine Insurance (1873)

A ship was chartered in November 1871 to proceed with all possible despatch, danger and accidents of navigation excepted, from Liverpool to Newport where it was to load a cargo of iron rails for carriage to San Francisco. She sailed on 2 January, but the next day ran aground in Caernarvon Bay. She was refloated by 18 February and taken to Liverpool, where she underwent extensive repairs, which lasted till August. On 15 February, the charterers repudiated the contract.

The court held that such time was so long as to put an end in a commercial sense to the commercial speculation entered upon by the shipowner and the charterers. The contract was considered frustrated.

3. Limitations of the doctrine

In Tsakiroglou [1961] (see below). Viscount Simmonds stated that ‘The doctrine of frustration must be applied within very narrow limits’

In Pioneer Shipping v BTP Tioxide [1982] Lord Roskill stated that the doctrine of frustration was ‘not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains’

Note the following general principles regarding limitations of the doctrine:-

i) The doctrine of frustration cannot override express contractual provision for the particular frustrating event – consider force majeure clauses

ii) The mere increase in expense or loss of profit is not a ground for frustration. See:

Davis Contractors v Fareham UDC [1956]

The claimant agreed to build 78 houses in eight months at a fixed price. Due to bad weather, and labour shortages, the work took 22 months and cost £17,000 more than anticipated. The builders said that the weather and labour shortages, which were unforeseen, had frustrated the contract, and that they were entitled to recover £17,000 by way of a quantum meruit. The House of Lords held that the fact that unforeseen events made a contract more onerous than was anticipated did not frustrate it.

Tsakiroglou v Noblee Thorl [1961]

T agreed to sell Sudanese groundnuts to NT, the nuts to be shipped from Port Sudan to Hamburg, November/December 1956. As a result of the ‘Suez crisis’, the Suez Canal was closed from 2 November 1956 until April 1957. T failed to deliver, arguing that shipment round the Cape of Africa was commercially and fundamentally different. The court held that the contract was not frustrated. T were, therefore, liable for breach – the change in circumstances was not fundamental.

iii) The frustrating event must not have been self-induced. See:

Maritime National Fish v Ocean Trawlers [1935]

Maritime chartered from Ocean a vessel which could only operate with an otter trawl. Both parties realised that it was an offence to use such a trawl without a government licence. Maritime was granted three such licences, but chose to use them in respect of three other vessels, with the result that Ocean’s vessel could not be used. It was held that the charterparty had not been frustrated. Consequently Maritime was liable to pay the charter fee. Maritime freely elected not to licence Ocean’s vessel, consequently their inability to use it was a direct result of their own deliberate act.

A party cannot rely on an event which was, or should have been, foreseen by him but not by the other party. See:

Walton Harvey Ltd v Walker & Homfrays Ltd [1931]

The defendant’s granted the claimants the right to display an advertising sign on the defendant’s hotel for seven years. Within this period the hotel was compulsorily acquired, and demolished, by a local authority acting under statutory powers. The defendants were held liable in damages. The contract was not frustrated because the defendant’s knew, and the claimants did not, of the risk of compulsory acquisition. They could have provided against that risk, but they did not.

4. Effects of the doctrine

The Law Reform (Frustrated Contracts) Act 1943 was passed to provide for a just apportionment of losses where a contract is discharged by frustration.

(i) Recovery of money paid

Section 1(2) provides three rules:

Money paid before the frustrating event is recoverable, and

Money payable before the frustrating event ceases to be payable, whether or not there has been a total failure of consideration.

If, however, the party to whom such sums are paid/payable incurred expenses before discharge in performance of the contract, the court may award him such expenses up to the limit of the money paid/payable before the frustrating event.

See: Gamerco v ICM/Fair Warning (Agency) Ltd [1995]

The claimants, pop concert promoters, agreed to promote a concert to be held by the defendant group at a stadium in Spain. However, the stadium was found by engineers to be unsafe and the authorities banned its use and revoked the claimants’ permit to hold the concert. No alternative site was at that time available and the concert was cancelled. Both parties had incurred expenses in preparation for the concert; in particular the claimants had paid the defendants $412,500 on account. The claimants sought to recover the advance payment under s1(2) Law reform (Frustrated Contracts) Act 1943, and the defendants counterclaimed for breach of contract by the claimants in failing to secure the permit for the concert.

It was an implied term of the contract that the claimants would use all reasonable endeavours to obtain a permit, yet once the permit was granted they could not be required to guarantee that it would not be withdrawn. The contract was frustrated essentially because the stadium was found to be unsafe, a circumstance beyond the control of the claimants. The revocation of the permit, subsequent to its being obtained by the claimants, was not the frustrating event; the ban on the use of the stadium was. Under s1 of the 1943 Act, the claimants were entitled to recover advance payments made to the defendants. The court did have a discretion to allow the defendants to offset their losses against this, but in all the circumstances of the present case the court felt that no deduction should be made in favour of the defendants and their counterclaim should be dismissed.

(ii) Valuable benefit

Section 1(3) provides:

‘If one party has, by reason of anything done by the other party in performance of the contract, obtained a valuable benefit (other than money) before the frustrating event, he may be ordered to pay a sum in respect of it, if the court considers it just, having regard to all the circumstances of the case.’

s1, Law Reform (Frustrated Contracts) Act 1943

(1)     Where a contract governed by English law has become impossible of performance or been otherwise frustrated, and the parties thereto have for that r