Some transactions must be made by a formal document known as a deed. This must be signed, attested by a witness who also signs, and delivered. ‘Delivery’ means an intention to
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put the deed into effect rather than physically handing it over. It is no longer necessary for the deed to be ‘sealed’. Deeds are required for the validity of promises for no consideration, and some bills of sale (mortgages of goods).
Special rules apply to land where a transfer normally takes place in two stages. The par-ties will first contract to sell or lease the land. Under the Law of Property (Miscellaneous Provisions) Act 1989, this contract must be made in writing in a signed document which
‘incorporates’ all the terms which the parties have expressly agreed; the terms can either be set out in the document itself or be included by reference to other documents. In practice, two identical documents are prepared, each signed by one of the parties, and then handed over to the other party with a deposit paid by the purchaser. These formalities do not apply to sales by public auction.
The second stage is the completion of the transaction by conveying the title of the land to the purchaser in return for payment of (the rest of) the price. This conveyance must be by deed if the land is sold or leased for more than 3 years.
2.2 Agreement
Learning Outcome: To explain how the law determines whether negotiating parties have reached agreement.
Agreement is usually shown by the unconditional acceptance of a firm offer. It marks the conclusion of negotiations, and thereafter any withdrawal will constitute a breach of con-tract. The rules governing offer and acceptance will be examined in turn.
2.2.1 Offer
This is a statement of the terms on which the offeror (the person making the offer) is will-ing to be bound and, if the offer is accepted as it stands, agreement is made. An offer may be made to a particular person, to a class of persons (e.g. employees of a company or mem-bers of a club), or to the world at large (e.g. a reward for a person returning a lost article or, as in First Sport Ltd v. Barclays Bank plc (1993), a cheque-guarantee card). Only the person or a member of the class of persons to whom the offer is made may accept it.
Offers must be distinguished from other actions which may appear to be similar. First, an invitation to treat or to make an offer is an indication that a person is willing to enter into or continue negotiations but is not yet willing to be bound by the terms mentioned.
Advertisements of goods for sale in catalogues or newspapers usually fall into this category;
if they were held to be firm offers there could well be the impossible situation where one offer was followed by ten acceptances. Other examples include goods in a shop window, shares in a company prospectus and inviting tenders for the supply of goods or services. In all of these instances, the other party is being invited to make an offer which may then be accepted or refused. It follows therefore that, in a self-service store, the goods on the shelves are an invitation to treat, the offer is made by the customer when the goods are taken to the check-out and the acceptance is made by the cashier [Pharmaceutical Society of Great Britain v. Boots Cash Chemists (1953)].
Second, a claim made about goods or services which no one would take too seriously, for example that a particular washing powder washes whitest, is not a firm offer. Care is needed here though as there may be a narrow border line between boasts and promises (see Carlill case below).
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Third, a declaration of intention is not an offer intended to form the basis of a contract.
A statement that an auction sale will be held is not actionable if a person travels to the place of sale only to find the auction has been cancelled [Harrison v. Nickerson (1873)].
Fourth, an answer to a request for information is not an offer. If a person asks for the lowest price that another will accept for a house and that other replies by stating a price, it does not necessarily mean that the house will be sold to that person at that price [Harvey v.
Facey (1893)].
Once it has been established that a firm offer has come into existence, the offer must be communicated to the other party in order to be effective. Until the other party knows of the offer, he cannot accept it. Thus, if a lost article is returned to the owner without the finder being aware that a reward is being offered for its return, he cannot later claim the reward. Similarly, an ex-employee cannot claim for work later performed of which his former employer had no previous knowledge [Taylor v. Laird (1856): ship’s captain resigned abroad and owners had no knowledge in advance that he later worked on homeward voyage].
An offer cannot continue indefinitely. It may come to an end in a number of ways so that it can no longer be accepted. An offeror may revoke or withdraw his offer at any time up to the moment of acceptance [Routledge v. Grant (1828)], provided that the revocation is communicated to the offeree. Revocation may be expressly made or it may be implied by conduct which clearly shows an intention to revoke, for example, by selling goods elsewhere and the other party learning of the sale. Communication may come directly from the seller or through some other reliable source [Dickinson v. Dodds (1876): offeree heard from a friend that the offeror had sold the horse elsewhere]. Revocation is possible at any time even though there has been a promise to keep the offer open for a specified period. If, however, an ‘option’ has been bought, that is the other party has given consideration to keep open the offer for a period of time, an early withdrawal will be a breach of this subsidiary contract.
Likewise, the offeree may reject the offer, again provided that the rejection is communi-cated to the offeror, since this only becomes effective when the offeror learns of it.
Rejection may take the form of a counter-offer or by attempting to introduce new terms into the agreement. For example, in Neale v. Merrett (1930), M offered to sell land to N for
£280. N ‘accepted’ and promised to pay on credit terms. This was not an acceptance. It is important to note that once an offer has been rejected, the offeree cannot later try to revive and accept it [Hyde v.Wrench (1840)].
An offer will lapse if a time limit is fixed for acceptance and this is not adhered to by the offeree. If no time limit is expressly fixed, the offer will lapse after a reasonable time which will depend upon the circumstances. In Ramsgate Victoria Hotel Co. v. Montefiore (1866), 5 months was held to be too long a delay for the acceptance of an offer to buy shares. With perishable goods, a reasonable time would be much shorter.
Death of either party before acceptance will usually bring the offer to an end and will certainly do so when the other party learns of the death. If the identity of the parties is vital, as in a contract of employment, the offer will lapse at the time of death. The effect of death after acceptance when the contract has been made will be dealt with in Section 3.4.1.
The offer may also be conditional upon other circumstances and will lapse if these con-ditions are not fulfilled. An offer to buy a car assumes, by implication, that the car will remain in substantially the same state, and if it is subsequently badly damaged before acceptance the offer will thereafter cease to exist [Financings Ltd v. Stimson (1962)]. The posi-tion if this happens after acceptance will be dealt with later.
Finally, if an offer is made to a group of persons which can only be accepted by one of them, and one accepts, the offer ceases to exist so far as the rest of the group are concerned.
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2.2.2 Acceptance
Acceptance, while the offer is still open, completes the contract. It must be an absolute and unqualified acceptance of the offer as it stands with any terms that may be attached to it.
Anything else will amount to rejection. Sometimes, an acceptance may be made ‘subject to a written agreement’ or ‘subject to contract’. It must then be decided whether the parties intend to be bound immediately and the later document is only for the purpose of recording this, or whether there is no intention to be bound at all until the written agreement is made. If the agreement is one which is not valid until it is embodied in writing, the second of these alter-natives will apply; see Pitt v. PHH Asset Management Ltd (1993).
Since acceptance completes the contract, the place where the acceptance is made is the place of the contract. This may be important if the parties are negotiating from different countries. It may determine which country’s law shall apply and which country’s courts shall have jurisdiction.
Acceptance may be by words, spoken or written, or it may be implied by conduct by per-forming an act required by the offer. Some positive act is necessary. Mental assent by silence is not enough, nor is it possible to dispense with acceptance. There is no contract if a buyer does nothing after a seller has offered to sell him a horse for a prescribed amount and has said that if he hears nothing to the contrary he will assume that the horse has been bought [Felthouse v. Bindley (1863)].
An application of this rule today would be unsolicited goods arriving by post with a note saying that unless they are returned within a specified time, the recipient will be bound to pay for them. Provided that the buyer does not treat the goods as his by using them or intentionally destroying them, he will not be bound if he does nothing. Under the Unsolicited Goods and Services Act 1971 the recipient will become the owner of the goods after 30 days. If the seller is a dealer, to demand payment in these circumstances is a crim-inal offence.
As a general rule, acceptance must be communicated to the person making the offer and no contract will come into being until the offeror knows of the acceptance. Moreover, com-munication must be carried out by the offeree or his properly authorised agent; unlike rev-ocation, acceptance cannot be communicated by an unauthorised though reliable third party [Powell v. Lee (1908): school manager not empowered to act on behalf of other man-agers when offering headship to applicant].
There are two exceptional situations when actual communication of acceptance need not take place. First, the offeror may indicate to the offeree that, if he wishes to accept, he may merely carry out his side of the bargain without first informing the offeror. Thus, an order for goods may be accepted by delivery of the goods. In Carlill v. Carbolic Smoke Ball Co.
(1893) where the defendants advertised that they would pay £100 to anyone who caught influenza after using their product, it was held that the use itself was adequate acceptance without the need for prior communication of this to the defendants. Similarly, a retailer may accept a cheque-guarantee card without telling the issuing bank it is doing so [First Sport Ltd v. Barclays Bank plc (1993)]. Note that, while communication of acceptance may be dispensed with, acceptance itself cannot be (see Felthouse v. Bindley above).
The second exception is when the posting rule applies, for a letter of acceptance, prop-erly addressed and stamped, may be effective from the moment of posting, even if it never arrives. The rule only applies though where it is within the contemplation of the parties that the post will be used, either by express agreement or by implication; for example, this would be so if previous negotiations had taken place by post, but not if the telephone had been used.
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There must also be some evidence of posting in the normal way and handing the letter to another person to post, even a postman, is not enough. The rule does not apply to almost instantaneous methods of communication such as fax, telephone or telex, where acceptance is only effective when and where it reaches the other party [Entores v. Miles Far East Corporation (1955)]. And confirmed in Brinkibon Ltd v Stahag Stahl and Stahlwarenhandels Gmbh (1983).
Whether or not the postal rules apply to Email communications is not certain. The Electronic Commerce (EC Directive) Regulations 2002 identifies clearly when an offer is deemed to be communicated by e-mail. This is at the point in time when the party to whom the offer is addressed is able to access the communication. (See in Readings the article
‘You’ve got mail’ for an extended consideration of e-mail usage, and in such circumstances, the significance today of the postal rules.)
Since this posting rule only applies to acceptance and not to revocation or rejection, there may be unexpected problems. In Byrne v. Van Tienhoven (1880), the offeror posted a letter of revocation before the offeree posted his acceptance. Nevertheless there was a contract, because the acceptance was posted before the revocation arrived. However, it is always possi-ble for the offeror to stipulate that he will not be bound until the acceptance actually reaches him. In Holwell Securities Ltd v. Hughes (1974), the vendor specified in his offer that accept-ance could only be made ‘by notice in writing to the intending vendor’; the posting rule did not apply, and a letter of acceptance which was posted but never arrived had no effect.
On occasions, pre-contractual negotiations may consist of a series of counter-offers, and it is not easy to determine what terms have eventually been agreed. As in Butler Machine Tools Ltd v. Ex-Cell-O Ltd (1979), there may be a ‘battle of forms’, where seller and buyer each sends his own printed standard terms to the other, and the two sets of terms differ. In this case, the buyer’s terms were received last; the seller probably did not read them, but he acknowledged receipt and went on with the contract. The buyer’s terms prevailed.
You are warned against the not uncommon confusion between acceptance of an offer, which concludes a contract, and acceptance of goods, which may signify per-formance of the contract and take away the buyer’s right to reject the goods as unsatisfac-tory. The latter is dealt with in Chapter 4.
2.3 Consideration
Learning Outcome: To explain what the law regards as consideration sufficient to make the agreement binding.
The English law of contract is concerned with bargains and not mere promises. If a bare promise to deliver goods is broken there will be no remedy. If, however, the promise to deliver goods is countered by a promise to do something in return, for example to pay for them, then a contract will come into being. The promised payment is the consideration for the promised goods, and vice versa.
Thus, a contract must be a two-sided affair, each side providing or promising to provide some consideration in exchange for what the other is to provide. This may take the form of an act, a forbearance to act, or a promise. If a promise is to be fulfilled in the future, it is known as executory consideration. When the promise is eventually fulfilled it is executed consideration.
Consideration must have some monetary value. Vague promises without such value, for example to show natural love and affection or to behave as a good son should, are not
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sufficient. But a court will not concern itself as to whether the value is adequate in relation to that which is given in exchange. The value of property or services is largely a matter of opinion for the parties to decide and a court will not intervene to substitute its own view of what the bargain should be. The price may be relevant in deciding whether the goods are of a satisfactory quality at that price (see Chapter 3) but this does not directly affect the validity of the contract. Goods, services or other things sold at a very high or very low price may be evidence, but only evidence, of fraud.
‘Past consideration’ has no value, and therefore is not consideration. No agreement will have been made whereby the two parties are aware of consideration to be provided by each. One party will have provided a benefit (its in the past). This will then be identified as considera-tion for a subsequent promise made by another. If a promise is made for work already done, the work cannot constitute consideration for the promise, as its benefit has already been received. In the old case of Roscorla v. Thomas (1842), promises made about a horse after sale simply had no effect; the same would apply today to promises made by a car salesman after the car had been sold. On the other hand, if work is requested or authorised and it is the type of work which is normally paid for, then it may be implied that everyone concerned intended from the outset that the work would be paid for this time. The buyer, in effect, is taken to promise at the outset that he will pay the bill – so long as it is reasonable – in due course. In Stewart v.
Casey (1892), the defendant asked the claimant to promote the defendant’s patents (work which is normally paid for). The claimant did this work successfully, and after he had done so the defendant promised him a share in the profits. This promise was binding. The con-sideration had impliedly been promised at the outset, and was not past. The same would apply today if a builder was asked to do certain repairs, did the work and sent his bill after-wards; the implied promise by the buyer to pay the bill would be binding.
A promise to perform an existing obligation to the promisee similarly has no value. The promisor is only giving what he is already bound to give. This applies particularly if the promisor merely promises again to perform an existing contract with the promisee. Thus, if a debtor promises to pay part of his debt in consideration of the creditor releasing him from the rest, the release is not binding. This is known as the rule in Pinnel’s Case (1602).
Examples
The following cases show ways in which this rule has been applied and has evolved.
In Foakes v. Beer (1884), the debtor owed £2,090 to a creditor who had obtained a court judgment for this amount.
In Foakes v. Beer (1884), the debtor owed £2,090 to a creditor who had obtained a court judgment for this amount.