GENERAL PRINCIPLES

We traditionally require an offer and acceptance in order to form a contract. This

indicates that a contract is an agreement and that the parties’ intentions
determine whether a contract is formed and what the contents of this contract
are (what obligations it places on the parties and what rights it gives each party
against the other)

In order to ascertain whether a contract has been formed (i.e. whether there has
been offer and acceptance), we often do not focus on the parties’ actual
intention, instead focusing on what each party’s intention reasonably appeared
to be to the other party. Courts also take into account factors other than the
apparent intentions of the parties.

In some contexts we impose duties and bestow rights upon the parties that they
have not agreed to. We imply terms into a contract, while statute may permit us
to strike down terms of the contract that seem unfair. Contract law also gives one
party various remedies against the other party when the latter breaches a term
of the contract, despite the fact that the parties have not agreed to any such
remedies.

Therefore, the presence of offer and acceptance is SUFFICIENT to establish a

contract, though it is not a NECESSARY ingredient of a contract

FREEDOM OF CONTRACT
This principle permits parties to conclude agreements on a wide range of
matters, and on such terms they wish. The principle embraces the following
liberties:

 Parties have a general freedom to enter into transactions which are

intended (explicitly or otherwise) to create legal obligations. This freedom
includes the power to formulate individual terms within such a transaction
or to acquiesce in terms implied by statute or common law.
 Parties to a transaction can stipulate that it will not be legally binding
 Parties can compromise a legal dispute, or waive legal liability.

Yet, the freedom whether or not to contract at all is inhibited by legal devices
(e.g. statutory rights for tenants to purchase their council houses under the
Housing Act 1985). The freedom to choose with whom to contract is restricted by
statutes outlawing various forms of discrimination (e.g. Race Relations Act 1976,
outlawing the refusal to provide goods and services on a discriminatory basis) .
The freedom to choose the terms and content of the contract is qualified by
statutory controls (e.g. UCTA) and the prevalence of non-negotiable standard
contract terms.

OBJECTIVE PRINCIPLE
The parties’ language and conduct must be assessed according to their
OUTWARD and REASONABLE meaning or appearance eg Crest Nicholson v.
Akaria [2010]) (confusion over “market rent” and “target rent” used by the
defendant is objectively seen as not an offer) ie an OBJECTIVE TEST

1. Objective principle gives effect to REASONABLE interpretation of the

language and not fanciful or unrealistic interpretations
 Eg Thake v Maurice [1986] (It was lunacy for claimant to rely on
doctor’s assurance that the vasectomy was “irreversible” to be read as
“irreversible by God or man”. That it was reasonable to know that
“medicine is not an exact science” and that the doctor’s reassurance
was “mere therapeutic comfort”)
2. One party REASONABLY KNOWS that the other party is suffering from a
mistake (Mance J in OT Africa Line Ltd v Vickers plc [1996], though it was
held in this case there was nothing to indicate that the parties reasonably
ought to know a mistake has been made)
- Can be used to explain (and is consistent with) earlier decisions like
Centrovincial Estates plc v Merchant Investors Assurance Co (1983)
where landlord proposed renewal of rent but actually intended the rent
to be higher. CA held that the tenant was prima facie
entitled to the rent unless the tenant could show the error was
apparent to the tenant)
- SG courts in Chwee Kin Keong v Digilandmall.com Pte Ltd (2005) that
the law has no place for such reasonably ought to know errors. At most,
equity might intervene if A had sufficient suspicion of B’s error and it
was unconscionable for A to maintain the contract
 Andrews submits that the English law is more straightforward in that
if A was sufficiently alerted to the probability that B was mistaken in
that way there would be no contract (there would not even be a
need to recourse to equity)
3. Error regarding mistake to quality, value or nature of subject matter
(Smith v Hughes (1871) (HC) , just stated as oats, there was a contract
even though seller knew the buyer wanted new oats for his racing horses
though the contract just stated “oats”)
- Decision followed consistently and endorsed by the HL in multiple
occasions: Lord Atkin in Bell v Lever Bros Ltd [1932] Lord Hoffman in
BCCI v Ali [2002]
4. One party is unaware that the offer is not aimed at him, party can accept
the offer (Moran v University College Salford (No 2) (1993)) (University
offered C wrongly, held to be a contract)
5. Even if X INNOCENTLY misleds Y by mistakenly presenting or accepting
terms, X cannot take advantage of the offer (Scriven Brothers [1913],
innocent mix up and poor labelling of what was being auctioned resulting
in the buyer buying tow when he thought it was hemp, held that no
contract)
OFFER
An offer is an expression of willingness to contract on specified terms, made with
the intention that it is to become binding as soon as it is accepted by the person
to whom it is addressed (Treitel). It has two features: First, it indicates that the
offeror intends to be legally bound providing that the party to whom the
statement is addressed takes certain steps. Second, it contains not only a
promise to do something but also lays down what the offeree must do in return.

In order for the offer to be effective, it has to be communicated to the offeree

(flipside of the requirement that the offeree must be aware of the offer in order
to accept it).

INVITATIONS TO TREAT
An invitation to treat is a statement made by a party inviting offers which that
party is then free to accept or reject. An invitation to treat always precedes any
offer. There are situations where we can distinguish between a genuine offer and
a mere invitation to treat.

Invitations to treat’ and `offers’ distinguished

In determining [whether there was] a proposal made by one party (A) which was
capable of being accepted by the other (B) — the correct approach is to ask
whether a person in the position of B (having the knowledge of the relevant
circumstances which B had), acting reasonably, would understand that A was
making a proposal to which he intended to be bound in the event of an
unequivocal acceptance (Crest Nicholson v. Akaria [2010]) (confusion over
“market rent” and “target rent” used by the defendant is objectively seen as not
an offer) ie an OBJECTIVE TEST

Advertisements prima facie do not contain offers and constitute an

invitation to negotiate.
The rationale for this presumption is that the advertiser might otherwise be
exposed to a torrent of demands for acceptance (Grainger v. Gough [1896]).

However, this rationale is not convincing because it would be easy to imply the
qualification that the offer applies ‘while stocks last’. Therefore, a better
approach would be to treat a clear-cut expression of willingness to be bound,
even if contained in an advertisement, as open to acceptance, either, where
there is only one item, on the implicit basis ‘first come, first served’ or where a
series of sales is contemplated, on the implicit basis ‘while stocks last’.

The restrictive approach of English law can be contrasted with the American
decision of Lefkowitz v Great Minneapolis [1957], where a clear-cut
advertisement of goods at a store has been held to be capable of acceptance.
The newspaper advertisement stated that the defendant store was willing to sell
a fur stole ‘worth $139.50, first come, first served’, for $1. It was held that this
left nothing for further negotiation. The defendant’s refusal to sell to the claimant
was a breach of contract, and it was liable for damages to compensate for the
claimant’s loss of bargain, $138.50.
Treitel also suggests that a supplier’s list of goods sent on request to a possible
customer might be treated as a definitive set of offers, because the supplier
would be implying that he has adequate supplies.

Unilateral Contracts
Carlill v Carbolic Smoke Ball [1893] shows that there is a true offer, not a mere
invitation to treat, if an advertisement contains an (i) UNEQUIVOCAL OFFER of
a (ii) REWARD. This statement is intended to spur readers into action, so it is
intended to create a unilateral contract.

Goods on display
The rule is that goods displayed in a shop are not available for immediate
acceptance. Such a display is an ‘invitation to treat’. The customer’s attempt to
buy the goods is at best an offer, and the proprietor and staff can refuse to
accept the offer (Pharmaceutical Society v Boots [1953]).

Is this general rule correct? Unger (1953) argues that were the display to
constitute an offer, there might be a larger number of customers accepting the
offer than the shopkeeper would be able to supply. However, there is an easy
solution to this problem: the offer could be construed as only being open while
stocks last or imply a term to this effect.

Somervell LJ in Boots argues that if a display were an offer, the customer would
accept the offer by putting the goods in his basket, so a contract would be made
and the customer would not be able to change his mind and put the goods back.
However, we could equally say that if the display is an offer, the customer only
accepts it when he presents the goods at the cash desk. Putting the goods in
your basket could not be an acceptance because the customer reserves the right
to change his mind, so he does not demonstrate an unequivocal intention to
accept the offer at this stage.

Another view is that holding the display to constitute an offer removes the shop’s
freedom to decide which of its customers it wants to sell its goods to. However,
this view is becoming increasingly out of date as the law increasingly focuses on
the protection of consumers. For example, there is anti-discrimination legislation
such as s20 Race Relations Act 1976, which limits the shopkeeper’s freedom to
choose which customers to serve.

This general rule can be departed from when it is clear from the display that the
shop intends to be bound if the customer accepts the terms of the display.

OBJECTIVE APPEARANCE OF AN OFFER

The courts adopt an objective test to the offeror’s intention. Words are to be
interpreted as they would appear to a reasonable person in the recipient’s
position.

The purpose of this rule is to protect B, the party to whom the offer or
acceptance in question is made, by allowing him to rely on A’s apparent intent. It
prevents A from turning around and saying that he did not have the intent which
he appeared to have. Thus the following conditions are necessary for its
application:

 B must be seeking to hold A to A’s apparent intent. In Moran v. University

College Salford (No. 2) [1993], the defendant university offered Moran a place
to study which he accepted. The University then claimed that it had made a
clerical error and did not mean to offer him a place. CA held that there was a
contract formed. The University’s apparent intent was clearly to offer Moran a
place and Moran had acted reasonably in accepting. Contract had been
broken and Moran is entitled to compensation in respect of his detrimental
reliance.
 B must have actually believed that A’s apparent intent represented A’s actual
intent. There is no need to protect B through the objective principle where B
does not believe or assume that A means what he says
 It must be possible to work out what the apparent intent of A was. In Raffles v
Wichelhaus, the parties agreed a sale of bales of cotton, to be delivered from
Bombay on the =Peerless. Unfortunately, there were two ships with this
name, leaving Bombay at different times. One party thought the agreement
referred to the ship leaving in October, but the other thought it referred to the
ship leaving in December. The claimant brought an action for the price. It was
held that the fact that the meaning of the agreement was ambiguous was
capable of giving a defence. It was not reasonably possible to work out what
the apparent intent of the defendant was, so the objective principle did not
apply and the court had to look at the actual intent of the parties. If the actual
intention of one party was different from that of the other, there would be no
contract.
 It must not be B’s fault that A appeared to agree to something that he did not
actually intend to. If B’s offer was confusing in some way, A should not be
bound by his apparent intent. In Scriven Brothers [1913], a number of bales
of hemp and of tow were to be sold by auction. The seller had not made clear
which lot was hemp and which lot was tow. When the lots representing the
tow were put up the buyer made a bid which was an extravagant price for
tow, and the lots were at once knocked down to him. The buyer then tried to
resile from the contract, contending that he had honestly believed he was
bidding for hemp, whereas the relevant lot was ‘tow’, an inferior commodity.
Normally, the buyer would be bound by the objective principle to pay for the
tow because the other party would assume reasonably that this is what the
buyer wanted. It was held that there was no contract for the sale of the tow,
because the defendant’s apparent intent (to bid for the tow) had been caused
by the claimant’s carelessness in not making it clear which lot was
which. Accordingly, it was not reasonable to rely on the defendant’s apparent
intent. The court looked at the parties’ actual intention. The defendant’s
intention (to buy the hemp) did not coincide with the claimant’s intention (to
sell to the defendants tow) so there was no contract.

TENDERS (AS A FORM OF IMPLIED COLLATERAL CONTRACT)

At common law, the general rule is that the invitation to tender is not an offer
but an invitation to negotiate (Spencer v Harding [1870]).

In Spencer v Harding [1870], it was held that there is no duty to accept the
highest tender for the purchase of goods, nor is there any duty to accept the
lowest tender price for the opportunity to construct a building. This approach is
sound as it leaves the invitor with discretion to decide which, if any tender to
accept – the invitor might lack confidence in the relevant entity’s capacity to
deliver on time or might doubt the quality of the work etc.

However, in Blackpool Club v. Blackpool BC [1990] (tenderer successfully sued

auctioner for not considering bid as tender submitted tender by hand 1 hour
before the deadline and the council’s janitor failed to clear the letter box the next
day. That tender was struck out), the court imposed three obligations upon the
invitor that were minimum standards of fair dealing:

1. The invitor must ‘consider’ each valid tender

2. The invitor must ignore invalid tenders eg Fairclough Building v Port Talbot
BC (1992) CA held that invitor had not acted wrongly when refusing to
consider a tender because a member of the tender committee was
married to a director of the relevant tendering company
3. The invitor must not award the contract ahead of the deadline for
submission of tenders.

There is thus an implied duty on the part of the invitor to conduct the tender
process in good faith … Pratt Contractors Ltd v Transit New Zealand (2003). But
the PC in Pratt emphasised that the need for good faith does not preclude the
tender committee from drawing on its member’s specific knowledge of the
competing parties’ commercial performance and “track record”

Sealed bids (AS A FORM OF IMPLIED COLLATERAL CONTRACT)

This is where two or more bidders are invited to submit their best bid by a sealed
bidding process. Unlike in an auction, the bidder in a sealed bid process has only
once chance to name a figure.

In Harvela Investments v. Royal Trust [1986], the first defendants invited sealed
bids from the claimant and the second defendant, stating that they will accept
an offer if it is the highest and complies with the terms of the invitation. The
second defendant submitted a lower bid than the plaintiff BUT with an additional
sum in excess of any other offer which the first defendants might receive, which
made the overall bid higher (referential bid). The plaintiff sued both defendants
and HL held that the second defendants’ bid was indeed invalid and the first
defendant was contractually bound to transfer the shares to the plaintiff.

The referential bid issue

Lord Templeman, in rejecting the attempt to make a referential bid, gave two
main reasons:

 First, the reason the other bidder had not made a referential bid was that
the invitation to bid, on an objective view, did not indicate that such a bid
was permissible. The terms of the invitation expressly or impliedly prohibit
a referential bid.
 Second, an impasse would emerge if more than one respondent made a
referential bid (unless where there are only two bidders, the referential bid
is capped).
Lord Templeman added that an auction through referential bids could only be
conducted by (i) making express provision in the invitation for the purpose and
(ii) require each bidder to specify a maximum sum he was prepared to bid.

Unilateral contract analysis

Lord Diplock said that the legal nature of the invitation sent out by the first
defendants was that of a unilateral contract, which was made at the time when
the invitation was received by the promisee to whom it was addressed by the
vendors. Since two bidders, two unilateral contracts. The first defendant thus
assumed a legal obligation to the plaintiff, and also to the second defendant, to
enter into a contract to sell shares to the promisee who submitted the highest
bid in accordance with the terms of the invitation. This unilateral contract is then
transformed into a binding bilateral contract, while the unilateral contract with
the unsuccessful bidder would be terminated by the submission of the higher
bid.

AUCTIONS (AS A FORM OF IMPLIED COLLATERAL CONTRACT)

Auctions with a reserve price
Here, inviting bids to be made constitutes an invitation to treat. The bidders are
the ones making offers, and the offer is accepted by the auctioneer bringing
down his hammer (British Car Auctions v Wright [1972] and Sale of Goods Act
1979, s57(2)). The auctioneer acts as agent for a vendor, so when the hammer is
brought down, a contract is made between the highest bidder and the vendor.

Auctions without a reserve price

Here, the approach taken by the CA in Barry v Davies [2001] is that it is the
auctioneer who makes the offer to sell the goods to the highest bidder, and that
this offer is accepted as soon as the highest bid is made. Yet this decision does
not deal with when exactly the offer was made by the auctioneer: either it is
made when the auction is advertised or it is made when the auctioneer actually
puts up the goods for sale at the auction.

AUTOMATED MACHINES
In Thornton v Shoe Lane Parking [1971], the claimant drove up to the entrance of
a garage and after receiving a ticket from the machine, drove into the garage
and parked his car. It was suggested by Lord Denning MR that ‘the offer was
contained in the notice at the entrance giving the charges for garaging’. It is only
when the customer is ‘committed beyond recall’ by putting the money into the
slot that he demonstrates an unequivocal intent to accept.

TERMINATION
Can an offer, once made, be withdrawn or revoked?

Termination by the offeror

The general rule is that an offer may be withdrawn at any time before it has been
accepted, and for this purpose, the revocation must have been communicated to
the offeree prior to his acceptance of that offer. While the revocation must have