Unit 2. Agreement

Part 1.

Unit 1 is concerned with some of the essential features which must be present in an agreement before English law will recognize it as a contract. This unit is concerned with how and when agreement is reached.

There is a difference between the situation where negotiations are in progress and the situation where a binding agreement has been reached. During negotiations, each side is free to withdraw without any sanction; after agreement has been concluded, withdrawal can amount to breach of contract. Agreement is usually shown in English law by the unconditional acceptance of an offer, and these elements will be examined in turn.

Offer

This is a statement of the terms on which the offerer is willing to be bound. If the offer is accepted as it stands, agreement is made.

An offer may be made to a specific person and only open to him to accept, as where A offers to sell his car to В for a stated price. An offer may be made to a class of persons, any one of whom may accept, as when the offer is only open to employees of a company or members of a particular club. An offer may, sometimes, be made to the whole world, as where the owner offers a reward to anyone who returns his lost canary; see also First Sport Ltd v. Barclay's Bank, later.

The following are not offers in this legal sense:

1. A mere invitation to treat. This is an indication that a person is willing to enter into negotiations, but not that he is yet willing to be bound by the terms mentioned.

In Gibson v. Manchester City Council (1979), Mr Gibson, a council tenant, received a letter from the Council saying that the Council 'may be prepared to sell the house to you at the purchase price of... £ 2180'. Mr Gibson formally applied to buy at this price, but meanwhile Council policy was changed and it refused to sell. It was held that the Council's letter was only an invitation to treat, not an offer. Therefore, there was no contract.

Catalogues or circulars advertising goods for sale constitute mere invitations. The same applies when a large undertaking invites tenders for the supply of goods or services. A company prospectus which invites investors to buy its shares is also an invitation to treat and not an offer, because the company can still refuse to allot the shares to those who apply for them.

In many cases where a person indicates that he is willing to deal with anyone in the world, as in the examples just given, this will be treated as a mere invitation to treat; otherwise there would be an impossible situation if, for example, an advertisement to sell a car were held to be a firm offer, and 20 acceptances were received. Only in cases where the advertiser very clearly intended to be bound will an advertisement be treated as a firm offer.

Perhaps the best examples of invitation to treat are goods in a shop window, even with price tickets attached. The shopkeeper does not undertake to sell the goods. They are on display merely to invite customers to come in and offer to buy at the price shown. The shopkeeper can always refuse, although obviously he rarely does so. The same rule applies to the display of goods in a self-service store.

In Pharmaceutical Society of Great Britain v. Boots Cash Chemists (1953), a criminal case, customers selected pharmaceutical goods from self-service counters, and paid later at the cash desk, where a pharmacist was in attendance with the cashier. It was held that the display on the shelves was a mere invitation to treat. The customer made the offer when he took the goods to the cashier, who could always refuse to sell. Therefore, the pharmacist was present where the sale took place.

2. A 'mere puff' or boast, which no one would take too seriously, such as a claim on the packet that 'Brand X washes whitest', will not be treated as a firm offer. There can, however, be a narrow borderline between mere boasts, and promises which a reasonable man would take seriously.

In Carlill v. Carbolic Smoke Ball Co. (1893), the defendants advertised that they would pay £ 100 to anyone who caught influenza after using their smoke balls, and that, as evidence of their sincerity, they had deposited £ 1000 with a named bank. Mrs Carlill followed their instructions, but still caught influenza, and consequently claimed £ 100. One of the many defences put forward was that the advertisement was not an offer. It was held that, in the circumstances, it was an offer. A reasonable person would take the promise seriously, and assume that the advertiser intended to be bound on the terms stated.

3. A declaration of intention is, similarly, not intended to form the basis of a contract, and is not an offer.

In Harris v. Nickerson (1873), an auction sale was advertised and later cancelled, and the claimant, who had travelled to the place of sale, claimed his travelling expenses as damages. His action failed, for the advertisement was not an offer which he could accept by making the journey.

4. Merely giving information is not an offer.

In Harvey v. Facey (1893), the claimant telegraphed 'will you sell us Bumper Hall Pen? Telegraph lowest price', and the reply was 'lowest price for Bumper Hall Pen £ 900'. This was held to be merely an answer to a request for information, and not an offer which could be accepted.

An offer must be communicated to the other party, unless the offeree is aware of the offer he is unable to accept it. If X finds a wallet and returns it to the owner, he cannot claim any reward that may have been offered if he had no previous knowledge of this.

In Taylor v. Laird (1856), the captain of a ship resigned his command in a foreign port, but later helped to work the ship home. The owners were entitled to refuse payment for this. They had not known that the captain was still willing to work, and they had neither accepted nor rejected his services.

Duration of the offer.

An offer does not continue indefinitely. While the offerer may be content at the moment to deal on terms of the offer, circumstances may change. Once an offer has come to an end, it can no longer be accepted. It can end in the following ways:

1. It is possible for the offerer to revoke or withdraw his offer at any time up to acceptance. He is entitled to do this even if he has promised to keep the offer open for a specified time, unless the offeree had paid a sum of money or given some other consideration in return for such a promise (sometimes known as 'buying an option'). Even then, the offer can be withdrawn before the agreed time, but withdrawal will be a breach of this subsidiary contract to keep open the negotiations.

In Routledge v. Grant (1828), Grant offered to buy Routledge's house, and gave him six weeks to decide whether to accept his offer. Before six weeks had elapsed, Grant withdrew his offer. He was held entitled to do so at any time before acceptance.

Revocation is only effective if it is communicated to the offeree, either by express words or by conduct which shows a clear intention to revoke. Selling the goods elsewhere would be an example of such conduct, but this will only revoke the offer when the first prospective buyer learns of the sale. Communication can be by the seller himself, or by another reliable source.

In Dickinson v. Dodds (1876), the defendant had offered to sell a house to the claimant. Before the claimant accepted, the defendant sold the house to someone else. The claimant learned of this from a friend, Berry. It was held that, since the claimant had heard of the revocation from a reliable source, the original offer to him was revoked, and he could not now accept it. (On the other hand, a mere rumour would be much less likely to amount to reliable communication of revocation.)

2. An offer will lapse if the offeror imposes a time limit for acceptance, and the other party does not accept within that time. If no express time limit is imposed, the offer will lapse after a reasonable time. What is reasonable will depend on all the circumstances.

In Ramsgate Victoria Hotel Co. v. Montefiore (1866), an investor offered in June to buy shares in the claimant company. He heard nothing until November, by which time he no longer wanted the shares. It was held that it was now too late for the company to accept his offer.

3. The death of either party before acceptance will normally terminate the offer, certainly from the moment when the other party learns of the death and, when the identity of the other party is vital, from the time of death.

4. Once the offeree has rejected an offer he cannot later go back and purport to accept it. A counter-offer will operate as a rejection.

In Hyde v. Wrench (1840), an offer was made to sell a farm for £ 1000. A counter-offer of £ 950 was made and refused, whereupon the buyer tried to accept the original offer of £ 1000. It was held that the seller could refuse this, because the original offer had been rejected.

Acceptance subject to conditions will also be a rejection, because the offeree is trying to introduce new terms into the bargain.

In Neale v. Merrett (1930), the defendant offered to sell land to the claimant for £ 280 The claimant 'accepted' this offer, sent a cheque for £ 80, and promised to pay the rest by instalments of £ 50. It was held that there was no contract; the purported acceptance introduced credit terms which the seller did not want.

However, a mere request for further information is not a rejection.

In Stevenson v. McLean (1880), a prospective buyer asked whether the seller would be prepared to give more time for performance. This was an enquiry, not a rejection.

Rejection, like offer and revocation, must be communicated, and is only effective from the moment when the offeree learns of it. If, therefore, the offeree sends a letter of rejection, but then changes his mind and telephones acceptance before the rejection arrives, there will be a valid contract.

5. An offer may be conditional upon other circumstances. If the conditions are not fulfilled, the offer will lapse. The conditions may be express or implied.

In Financings Ltd v. Stimson (1962), a customer offered to take a car on hire-purchase from Financings Ltd. Before the offer was accepted, the car was stolen from the dealer's garage where it was being kept, and badly damaged. Unaware of this, Financings Ltd purported to accept the offer. It was held that the company could no longer do so. The customer's offer was subject to the implied condition that the car remain in substan­tially the same state between offer and acceptance.

6. Acceptance, by completing the contract, will bring the offer to an end. If an offer, capable of acceptance by only one person, is made to a group of people and one accepts, the offer ceases to exist so far as the rest of the group is concerned.