A Casebook on Contract

Andrew Burrows

• Publisher: Hart Publishing
• Year: 2020
• ISBN:
  9781509936151
• Topic: Law
• Subtopic: Law Theory & Practice
• Edition: 1

'…provides everything you want in a case book: a stimulating, thought-provoking and up to date account of contract law. It combines both fantastic academic commentary and superbly selected materials making it simply one of the best contract law casebooks.' Student Law Journal This is the seventh, fully updated, edition of Professor Burrows' Casebook, offering law students the ideal way to discover and understand contract law through reading highlights from the leading cases. Designed to be used either on its own or to supplement a contract law textbook, this book covers the undergraduate contract law course in a series of clearly presented and carefully structured chapters. The author provides an expert introduction to each topic and his succinct notes and questions seek to guide students to a proper understanding of the cases. The relevant statutes are also set out along with a principled analysis of them. In addition to cross-references to further discussion in the leading textbooks, an innovative feature is the summary of leading academic articles in each chapter. The book is designed not to overwhelm students by its length but covers all aspects of the law of contract most commonly found in the undergraduate curriculum.

Part One

The Formation of a Contract

1

Offer and Acceptance

1.INTRODUCTION

(1)What is a Contract?

In order to understand the role of offer and acceptance, one must first be clear what a contract is. In basic terms one can describe a contract as a legally binding agreement. So, for example, E Peel, Treitel on the Law of Contract (14th edn, 2015) at 1-001 begins, ‘A contract is an agreement giving rise to obligations which are enforced or recognised by law.’

Most legally binding agreements comprise mutual promises. That is, each party promises to do something in return for the other party promising to do something: for example, A promises to sell his car to B and B in return promises to give A £5,000 for it. These are known as ‘bilateral contracts’ because each party is making a promise and each party is therefore bound to perform. But in some legally binding agreements only one party is making a promise. That is, one party may promise to do something in return for the other party doing something but without promising to do it: for example, A promises B £250 if B swims the Channel or if B finds A’s lost laptop computer. B is not promising to do the swim or to find the laptop. These are referred to as ‘unilateral contracts’ because only one party is making a promise and only one party is therefore bound to perform.

One significant complication in describing a contract as a legally binding agreement is that this is only really apt to describe what are sometimes called ‘simple’ contracts. These are contracts, made in writing or orally, which are valid because of the agreement and the ‘consideration’ (which is the legal term describing the element of exchange between the parties: see Chapter 3 below). It is generally understood that contracts may also be made formally by deed: that is, that promises contained in a deed are contractually binding irrespective of agreement or consideration. Thus J Beatson, A Burrows and J Cartwright, Anson’s Law of Contract (31st edn, 2020) at 77, write: ‘English law recognises only two kinds of contract, the contract made by deed, and the simple contract. A contract made by deed derives its validity neither from the fact of the agreement nor because it is an exchange but solely from the form in which it is expressed. A simple contract as a general rule need not be made in any special form, but requires the presence of consideration which … broadly means that something must be given in exchange for a promise.’ G Treitel, An Outline of the Law of Contract (6th edn, 2004) 3, in a section discussing qualifications that need to be made to the idea that a contract is an agreement, writes the following: ‘There are cases, commonly discussed under the general heading of contract, in which the obligation arises, not out of an agreement between two parties, but rather out of a promise made by one of them. This would be the position where a person made a gratuitous promise in such a form that it was legally binding: for example, in a deed. Such a promise can bind the promisor even before it is communicated to the promisee and hence without any agreement between the parties.’ (But contrast E Peel, Treitel on the Law of Contract at 3-170, which seems to deny that a promise contained in a deed is a contract). M Furmston in Cheshire, Fifoot and Furmston’s Law of Contract (17th edn, 2017) 41 writes, ‘The affinity of the deed is with gift, not with bargain, and it is fair to say that the so-called “contract by deed” has little in common with agreement save its name and its history, and that it does not seem to require detailed examination in a modern book upon the law of contract.’

The important point to emphasise, therefore, is that, while it is normally accurate and illuminating to describe a contract as a legally binding agreement, contracts made by deed do not always fit that description. Strictly speaking, therefore, it may be more accurate to define a contract as a legally binding promise or set of promises. Hence the definition in section 1 of the American Law Institute’s Restatement (2d) of Contracts: ‘A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognises as a duty.’

(2)Offer and Acceptance

Having established what a contract is, it can then be seen that offer and acceptance is the legal description of the process by which an agreement, and hence a (simple) contract, is made. Assuming that the other requirements for a valid contract are satisfied (eg the presence of consideration, as discussed in Chapter 3) a contract is formed when an offer has been accepted. The rest of this chapter is concerned with the case law on offer and acceptance.

Introductory reading: E McKendrick, Contract Law (13th edn, 2019) Ch 3; A Burrows, A Restatement of the English Law of Contract (2016) 52–62.

2.OFFERS AND INVITATIONS TO TREAT

An offer is defined by E Peel, Treitel on the Law of Contract, at 2-002, as ‘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’.

An offer should be distinguished from an ‘invitation to treat’, which is an expression of willingness to negotiate. A person making an invitation to treat does not intend to be bound as soon as it is accepted by the person to whom the statement is addressed. There is no contract if an invitation to treat rather than an offer is accepted.

A number of cases illustrate the distinction between offers and invitations to treat. These will be examined under the following sub-headings:

(1)Two General Illustrative Cases;

(2)Display of Goods for Sale;

(3)Advertisements;

(4)Auction Sales;

(5)Tenders.

(1)Two General Illustrative Cases

Harvey v Facey [1893] AC 552, Privy Council

The claimants (who were the appellants) sent a telegram to the defendants (Facey and his wife) saying, ‘Will you sell us Bumper Hall Pen? Telegraph lowest cash price.’ Bumper Hall Pen was a property in Jamaica. Facey telegraphed in reply, ‘Lowest price for Bumper Hall Pen £900.’ In reply, the claimants telegraphed, ‘We agree to buy Bumper Hall Pen for £900.’ Facey made no reply to that. It was held by the Privy Council that there was no contract for the sale of Bumper Hall Pen because Facey’s telegram was not an offer to sell (ie, although this terminology was not used, it was merely an invitation to treat).

Lord Morris (giving the judgment of himself, Lord Herschell LC, Lord Watson, Lord Hobhouse, Lord Macnaghten and Lord Shand): Their Lordships cannot treat the telegram from L. M. Facey as binding him in any respect, except to the extent it does by its terms, viz., the lowest price. Everything else is left open, and the reply telegram from the appellants cannot be treated as an acceptance of an offer to sell to them; it is an offer that required to be accepted by L. M. Facey. The contract could only be completed if L. M. Facey had accepted the appellant’s last telegram. It has been contended for the appellants that L. M. Facey’s telegram should be read as saying “yes” to the first question put in the appellants’ telegram, but there is nothing to support that contention. L. M. Facey’s telegram gives a precise answer to a precise question, viz., the price. The contract must appear by the telegrams, whereas the appellants are obliged to contend that an acceptance of the first question is to be implied. Their Lordships are of opinion that the mere statement of the lowest price at which the vendor would sell contains no implied contract to sell at that price to the persons making the inquiry.

Gibson v Manchester City Council [1979] 1 WLR 294, House of Lords

The defendant city council adopted a policy of selling council houses to its tenants. The claimant, on a printed form supplied by the council, applied for details of the price of the council house he was renting and mortgage terms. In February 1971, the city treasurer replied, ‘The corporation may be prepared to sell the house to you at the purchase price of £2,725 less 20% = £2,180 (freehold).’ The letter then gave details of the mortgage and went on, ‘This letter should not be regarded as a firm offer of a mortgage. If you would like to make formal application to buy your Council house please complete the enclosed application form and return it to me as soon as possible.’¹ In March 1971, the claimant completed the application form except for the purchase price and returned it to the council. In May 1971 Labour took control of the council from the Conservatives and instructed its officers not to sell council houses unless there was already a legally binding contract. It declined to sell to the claimant.

At first instance and on appeal it was held that there was a concluded contract for the sale of the council house. The defendant’s appeal was allowed by the House of Lords, which held that there was no contract because the February letter was not an offer to sell (ie, although this terminology was not used, it was merely an invitation to treat).

Lord Diplock: The corporation’s appeal … was dismissed by a majority of the Court of Appeal (Lord Denning M.R. and Ormrod L.J.); Geoffrey Lane L.J. dissented. Lord Denning M.R. rejected … the conventional approach of looking to see whether upon the true construction of the documents relied upon there can be discerned an offer and acceptance. One ought, he said, [1978] 1 W.L.R. 520, 523H, to “look at the correspondence as a whole and at the conduct of the parties and see therefrom whether the parties have come to an agreement on everything that was material.”

…

Geoffrey Lane L.J. in a dissenting judgment, which for my part I find convincing, adopted the conventional approach. He found that upon the true construction of the documents relied upon as constituting the contract, there never was an offer by the corporation acceptance of which by Mr. Gibson was capable in law of constituting a legally enforceable contract. It was but a step in the negotiations for a contract which, owing to the change in the political complexion of the council, never reached fruition.

My Lords, there may be certain types of contract, though I think they are exceptional, which do not fit easily into the normal analysis of a contract as being constituted by offer and acceptance; but a contract alleged to have been made by an exchange of correspondence between the parties in which the successive communications other than the first are in reply to one another, is not one of these. I can see no reason in the instant case for departing from the conventional approach of looking at the handful of documents relied upon as constituting the contract sued upon and seeing whether upon their true construction there is to be found in them a contractual offer by the corporation to sell the house to Mr. Gibson and an acceptance of that offer by Mr. Gibson. I venture to think that it was by departing from this conventional approach that the majority of the Court of Appeal was led into error.

…

My Lords, the words I have italicised seem to me, as they seemed to Geoffrey Lane L.J., to make it quite impossible to construe this letter as a contractual offer capable of being converted into a legally enforceable open contract for the sale of land by Mr. Gibson’s written acceptance of it. The words “may be prepared to sell” are fatal to this; so is the invitation, not, be it noted, to accept the offer, but “to make formal application to buy” upon the enclosed application form. It is, to quote Geoffrey Lane L.J., a letter setting out the financial terms on which it may be the council will be prepared to consider a sale and purchase in due course.

…

I therefore feel compelled to allow the appeal. One can sympathise with Mr. Gibson’s disappointment on finding that his expectations that he would be able to buy his council house at 20 per cent. below its market value in the autumn of 1970 cannot be realised. Whether one thinks this makes it a hard case perhaps depends upon the political views that one holds about council housing policy. But hard cases offer a strong temptation to let them have their proverbial consequences. It is a temptation that the judicial mind must be vigilant to resist.

Lord Russell of Killowen: My Lords, I cannot bring myself to accept that a letter which says that the possible vendor “May be prepared to sell the house to you” can be regarded as an offer to sell capable of acceptance so as to constitute a contract. The language simply does not permit such a construction. Nor can the statement that the letter should not be regarded as a firm offer of a mortgage operate to turn into a firm offer to sell that which quite plainly it was not.

Lord Fraser of Tullybelton agreed with Lords Diplock and Russell. Lord Keith of Kinkel agreed with Lord Diplock. Lord Edmund-Davies gave a concurring speech.

NOTES AND QUESTIONS

1.Would the decision have been different if the council’s letter of February 1971 had started, ‘The corporation will sell …’ or ‘The corporation is prepared to sell …’?

2.The approach to the formation of a contract by Lord Denning in the Court of Appeal (as set out by Lord Diplock at the start of the extract above) was roundly rejected by the House of Lords. What was Lord Denning’s approach and what are the advantages and disadvantages of that approach? See also below, 27–32.

3.Which type of exceptional contracts do you think Lord Diplock had in mind in his reference to their not fitting easily into an offer and acceptance analysis? See below, 55–57.

(2)Display of Goods for Sale

Fisher v Bell [1961] 1 QB 394, Divisional Court of the Queen’s Bench

The defendant was charged with the offence of ‘offering for sale’ a flick knife contrary to section 1(1) of the Restriction of Offensive Weapons Act 1959. He had displayed the knife in his shop window with a ticket behind it saying ‘Ejector knife – 4s.’ The magistrates dismissed the case. On appeal by the police to the Divisional Court, it was held that the display was an invitation to treat, not an offer for sale, so that the appeal failed.

Lord Parker CJ: The sole question is whether the exhibition of that knife in the window with the ticket constituted an offer for sale within the statute. I confess that I think most lay people and, indeed, I myself when I first read the papers, would be inclined to the view that to say that if a knife was displayed in a window like that with a price attached to it was not offering it for sale was just nonsense. In ordinary language it is there inviting people to buy it, and it is for sale; but any statute must of course be looked at in the light of the general law of the country. Parliament in its wisdom in passing an Act must be taken to know the general law. It is perfectly clear that according to the ordinary law of contract the display of an article with a price on it in a shop window is merely an invitation to treat. It is in no sense an offer for sale the acceptance of which constitutes a contract. That is clearly the general law of the country. Not only is that so, but it is to be observed that in many statutes and orders which prohibit selling and offering for sale of goods it is very common when it is so desired to insert the words “offering or exposing for sale,” “exposing for sale” being clearly words which would cover the display of goods in a shop window. …

In those circumstances I am driven to the conclusion, though I confess reluctantly, that no offence was here committed. At first sight it sounds absurd that knives of this sort cannot be manufactured, sold, hired, lent, or given, but apparently they can be displayed in shop windows; but even if this – and I am by no means saying it is – is a casus omissus it is not for this court to supply the omission. I am mindful of the strong words of Lord Simonds in Magor and St. Mellons Rural District Council v. Newport Corporation. [1952] A.C. 189; [1951] 2 T.L.R. 935; [1951] 2 All E.R. 839, H.L. In that case one of the Lords Justices in the Court of Appeal [1950] 2 All E.R. 1226, 1236, C.A. had, in effect, said that the court having discovered the supposed intention of Parliament must proceed to fill in the gaps – what the Legislature has not written the court must write – and in answer to that contention Lord Simonds in his speech said [1952] A.C. 189, 191 – “It appears to me to be a naked usurpation of the legislative function under the thin disguise of interpretation.”

Ashworth and Elwes JJ concurred.

NOTES AND QUESTIONS

1.Do you agree that words in a criminal statute should be interpreted according to the (civil) law of contract?

2.The wording of section 1(1) of the Restriction of Offensive Weapons Act 1959 was subsequently widened so that the defendant in this case would now commit an offence.

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401, Court of Appeal

Section 18(1) of the Pharmacy and Poisons Act 1933 provided that, ‘… it shall not be lawful (a) for a person to sell any poison listed in Part I of the Poisons List, unless … (iii) the sale is effected by, or under the supervision of, a registered pharmacist.’ The defendants owned a self-service shop in which certain non-prescription drugs and medicines (listed in the Poisons List) were displayed on open shelves. Customers would select goods from the shelves, put them into a basket and pay for them a...