Transcript FORMATION OF CONTRACT

COMMERCIAL LAW 1
2011/2012 ACADEMIC YEAR
LECTURE 1
UGBS,
23RD AUG 2011
Rowland Atta-Kesson Esq.
OUTLINE
• DEFINITION OF CONTRACTS
– Ascertaining agreement
– Bargain
• CLASSIFICATION OF CONTRACTS
– Voidable, void and unenforceable
– Executed and executory
– Specialty and simple
• FORMATION OF CONTRACT
– Offer
– Acceptance
DEFINITITION OF CONTRACT
• Treitel
(1995) The
Law of Contract
• Contract is:
– An agreement giving
rise to obligations which
are enforced or
recognized by law.
• The factor which
distinguishes contractual
from other legal
obligations is that they
are based on the
agreement of the
contracting parties.
•  Anson, Principles
of the Law of Contract
• Contract is:
– A legally binding
agreement made btn 2
or more persons, by
which rights are
acquired by one or more
to acts or forbearances
on the part of the other
or others
• What is common to the 2
definitions?
–The answer is AGREEMENT
• Now, the question is;
–At what point does agreement
actually materializes?
• This answer = objective ≠
subjective
ASCERTAINING AGREEMENT
• What is the objective test?
– THE LEONIDAS D, per Lord Goff
• “if one party O so acts that his conduct,
objectively considered, constitutes an offer,
and the other party A, believing that the
conduct of O represents his actual
intention, accepts O’s offer, then a contract
will come into existence, and on those facts
it will make no difference if O did not in fact
intend to make an offer…”
• THE LEONIDAS D case teaches us that
agreement is not a mental state but an act
and can therefore be inferred from
conduct.
• The objective test =
• parties are not judged by what they actually
had in mind
• but by objective meanings of their words and
conduct.
• The subjective test=
• Ascertaining the intentions of the .parties from
their actual state of mind.
• But should we insist on the objective test
where A knows of O’s intention or where A
would suffer hardship?
– The answer is NO.
• where A knows that O’s actual state of mind was
not in accordance with the objective appearance
created by O’s conduct, the objective test will not
apply.
• Moreover the objective test will not apply when the
results would be to cause hardship to the other
party.
– E.g. where the apparent acceptance of party is based on
mistake which has been induced by the negligent acts of
the other.
» The case in support of this principle is GOLDEN
BEAR
HOW THE OBJECTIVE TEST
APPLIES
• In applying the objective test the court
considers what the parties said or did and
• how it would have been understood by a
reasonable objective bystander and
• impute that intention to the parties rather
than seeking to establish what is the
actual state of mind of the parties.
• In SMITH v. HUGHES, Blackburn J. stated
that;
– “if whatever a man’s real intention may be, he
so conducts himself that a reasonable man
would believe that he was assenting to the
terms proposed by the other party, and that
other party upon that belief enters into a
contract with him, the man thus conducting
would be equally be bound as if he intended
to agree to the other party’s terms”.
• In SMITH v. HUGHES,
• the defendant, a racehorse owner, wished to purchase
a quantity of oats.
• A sample of the oats was inspected and the defendant
agreed to purchase the whole amount.
• When the oats were delivered it was discovered they
were ‘green’, that is, that season’s oats.
• The defendant refused to pay for them, saying he
thought he was buying ‘old’ or the last season’s oats.
• When sued for the price the defendant argued that the
contract was void for mistake.
• The court held that on an objective test basis there was
a valid contract.
• On a finding of fact the seller had not misrepresented
the oats as being old nor was there any suggestion that
there was a term of the contract to this effect. The
purchaser could not establish mistake on the basis of
the fact that he had been careless and as a result
misled himself as to the nature of the oats
• SCRIVEN BROS & CO. v. HINDLEY & CO.
• the defendants wanted to buy hemp, sold by plaintiffs at auction sale.
• 2 lots were put up 4 sale from the same ship;
• One lot = hemp and another = tow,
• Identification marks on the bales were precisely the same.
• Closer examination could revealed the distinction,
• the defendants, inspected 1st lot and saw hemp,
• They mistakenly thought the 2nd lot = also hemp.
• The auction catalogue itself did not reveal the distinction and so the
defendants paid a high price for 2nd lot , which they thought was hemp.
• They would have paid a lower price for it, if they had knew it was tow
• At the time of the sale, the auctioneer realized that the defendants had
made a mistake, about the market value of the tow rather than as to
the nature of the lot per se.
• The defendants refused to pay, alleging mutual mistake.
• On applying the objective test the court found that one could not state
with any degree of certainty which commodity formed the basis of the
contract since it was clear that a reasonable person would have been
misled as the nature of each lot.
• The contract was thus held to be void for mistake.
– Advantages of the objective test
• It is impossible to ascertain the actual
state of mind of the parties.
• For instance in 1714 Friar C.J. said
that even the devil does not know
what is in the mind of a person.
• It ensures certainty of contractual
transactions. SMITH v. HUGHES
– Applicable Situation 1
• If a reasonable observer of the
promisor’s conduct would have
supposed that the promisee did
suppose that the promisor was
making a particular promise, then the
promisor would be bound by that
promise even if it turns out that he
intended something else. TAMPLIN v.
JAMES,
• Applicable Situation 2
• If words used are capable of two different
but equally reasonable interpretations and
the parties equally misunderstood each
other with neither party intending to
mislead the other, the court would hold
that there is no contract because there is
no correspondence of offer and
acceptance. RAFFLES v. WICHELHAUS
• There is yet no contract even if the ambiguity
was caused by one of the parties. FALCK v.
WILLIAMS.
• Applicable Situation 3
• Where one party is misled by the conduct
of the other into misunderstanding the
nature of the offer, the party whose
conduct misled the other cannot enforce
the contract in the sense in which he
intended it. SCRIVEN BROS & CO. v.
HINDLEY & CO.
• Applicable Situation 4
• Where the offeree knows that the offer as
stated does not contain the real intention of
the offeror but seeks to take advantage of the
error, the law will not allow the offeree to
enforce the contract in that mistaken sense.
HARTOG v. COLIN AND SHIELDS
• Note: by the objective test
• the courts are not concerned about one party’s
unilateral undisclosed and private misconceptions
about the quality of the subject matter of the
contract as long as such misconception was not
caused by the other party’s words or conduct.
SMITH v. HUGHES
• Applicable Situation 5
• Where the parties are agreed on the same
terms with respect to the same subject
matter, they would be bound by the
contract they have made even if they
harboured in their minds some mistaken
acceptance about the quality of the
subject matter. FREDERICK E. ROSE
(LONDON) LTD v. WILLIAM H PIM JNR &
CO., LTD.
BARGAIN
• From the definitions, we ALSO see that;
– there must be an agreement , and
– there must also be the presence of a bargain
• If not, any promise could give rise to a binding
obligation.
• But a promise is not binding unless it is either
made
– under seal (specialty contract) or
– supported by consideration. (simple contract)
• Anson’s definition, indicates that there must be a
degree of quid pro quo to establish the contract
• This means each party must ‘buy’ the promise of
the other party
• To illustrate this point, let’s take the ff e.g.
– “I promise to give you GH¢500 if you promise
to give me your car”.
• NOW let’s sum up on this point.
– In simple contracts, one must establish the
existence of a BARGAIN
– A bare promise such as “I promise to give you
GH¢500” is not enforceable, being simply a
bare promise or nudum pactum.
– Another factor is INTENTION to enter into
legal relationship
CLASSIFICATION OF K
• Void, Voidable and Unenforceable Contracts
• A void contract
– has no binding effect at all and in reality the
expression is a contradiction terms.
• A voidable contract
– is binding but one party has the right, at his option, to
set it aside.
• An unenforceable contract
– is valid in all respects except that it cannot be
enforced in a court of law by one or both of the parties
should the other refuse to carry out his obligations
under it.
• E.g. contracts of guarantee are unenforceable unless
evidenced in writing.
• Executed and Executory contracts
– A contract is said to be executed
• when one or both of the parties have done all that the
contract requires.
– A contract is said to be executory
• when the obligations of one or both of the parties
remain to be carried out.
– For example, if A and B agree to exchange A’s Mercedes
Benz for B’s BMW and do it immediately, the possession of
the goods and the right to the goods are transferred
together and the contract is executed.
– If they agree to exchange the following week the right to the
goods is transferred but not the possession and the contract
is executory.
– Thus an executed contract conveys a chose in
possession, while an executory contract conveys
a chose in action.
• Specialty contracts
– Specialty contracts are also called deeds.
– A deed has certain characteristics which
distinguish it from a simple contract:
• (a) Merger.
– If a simple contract is afterwards embodied in a deed made between
the same parties, the simple contract merges into, or is swallowed
up by the deed, for the deed is the superior document.
– The deed is then the only contract between the parties.
– But if the deed is only intended to cover part of the terms of the
previous simple contract, there is no merger of that part of the simple
contract not covered by the deed.
• (b) Limitation of Actions.
– The right of action under a specialty contract is barred unless it is
brought within 12 years from the date when the cause of action
arises on it, i.e. when the deed could first have been sued upon,
which is in general when one party failed to carry out a duty under it.
• (c) Consideration is not essential to support
a deed,
– though specific performance, which requires a party in
default to actually carry out the contract as distinct from
paying damages, will not be granted if the promise is
gratuitous.
– Simple contracts must be supported by consideration.
• (d)Estoppel.
– Statements made in a deed tend to be conclusive against
the party making them, and although he might be able to
prove there were not very true, the rule of evidence called
‘estoppel’ will prevent him from doing this by excluding the
very evidence which would be needed.
– In modern law, however, a deed does not operate as
estoppel where one of the parties wishes to bring evidence
to show fraud, duress, mistake, lack of capacity or
illegality.
– E.g. of specialty contracts = a lease of more than
three years,
• Section 2 of the Conveyancing Decree, 1973 (NRCD 175) gets rid
of the requirement for sealing where a deed is entered into by an
individual.
• The signature of the individual making the deed must be witnessed
and attested.
• The attestation consists of a statement that the deed has been
signed in the presence of a witness.
• The section also provides that it must be clear on the surface that is
intended to be a deed or conveyance.
– For companies,
• Under sections 140 and 144(1)(b) of the Companies Code,
1963 (Act 179): a company may continue to execute
documents by putting its common seal on them,
• sealing is not required where a person, duly authorized,
signs a conveyance on behalf of a company registered under
Act 179 (see also section 2 of the Contracts Act, 1960 (Act
25))
• Simple contracts ≡ parol contracts.
– Simple contracts ≤
• contracts not by deed, and for their enforcement they
require consideration.
– Simple contracts may be made
• orally or
• in writing, or
• inferred from the conduct of the parties;
– but no simple contract can exist which does not
arise from a valid offer and a valid acceptance
supported by consideration.
– when these elements exist, the contract is valid in
the absence of some defect such as lack of
capacity of one of the parties, lack of reality of
consent, or illegality or impossibility of
performance.
FORMATION OF CONTRACT
• Classical approach to formation of K:
– OFFER + ACCEPTANCE = AGREEMENT
• In other words, the essential validity of contract = ff:
1.
2.
3.
4.
5.
6.
7.
There must be an offer and acceptance, which in effect
is the agreement.
There must be an intention to create legal relations
There is a requirement of written formalities in some
cases
There must be consideration (unless the agreement is by
deed)
The parties must have capacity to contract
There must be genuineness of consent by the parities to
the terms of the contract
The contract must not be contrary to public policy
• In the absence of one or more of these essentials, the
contract may be void, voidable, or unenforceable
OFFER
• An offer is a statement or conduct
indicating willingness to contract on terms
stated or on terms which can reasonably
be inferred from conduct.
• An offer can be made to a particular
individual or to a group or a class of
persons or to the world at large. CARLILL
v. CARBOLIC SMOKE BALL CO
• In CARLILL v. CARBOLIC SMOKE BALL CO
Bowen L.J. stated:
– “Although the offer is made to the world, the
contract is made with that limited portion of the
public who come forward and perform the
condition on the faith of the advertisement”
• Also in CARLILL, the defendants contended
that the plaintiff had not accepted their offer
and therefore there was no consensus ad
idem and thus no agreement.
• This defence, which was rejected, exposes
the fact that offers may arise in two forms,
either bilateral or unilateral.
• A bilateral offer arises
– where one party promises to do
something for a promise made by the
offeree.
– Both parties are agreeing to do
something in return for some reciprocal
promise from the other.
• An example of such offer would be if A
promises to sell his car in return for B
promising to pay him GH¢50,000.00.
– The vast majority of offers are of this
type.
• A unilateral offer occurs
– where one party, the offeror, promises to pay
for the act of another, that is, a conditional
promise.
– The acceptance of the offer takes place when
the offeree performs the in act in question.
– The offer here is said to be unilateral because
only one party is making a promise.
– The facts of the CARLILL case provide an
obvious example of such an offer.
• When does the general offer take effect to
create a power of acceptance?
– It must be communicated to the offeree.
• Generally speaking the performance of an act in
ignorance of the general offer normally does not
constitute an acceptance
– BUT in GIBBONS v. PROCTOR
• a policeman was held entitled to recover a reward
offered by handbills, for information given to the
superintendent of information which led to arrest
and conviction, although the policeman did not
know of the handbills before he sent the
information by his agents, or before the handbills
reached the superintendent.
• Once a person knows of a general offer,
even if in performing the specific act, he
had other motive apart from the offer, his
performance will amount to an acceptance
of the offer. WILLIAMS v. CARWARDINE
• Cross-offers will not create a binding
contract when persons make identical
offers to each other simultaneously neither
party knowing of the other’s offer at the
time of making his own. TINN v.
HOFFMAN
OFFER v INVITE TO TREAT
• Elements of offer
– willingness to contract and
– made with definite intention to make a contract
binding when accepted.
• In this regard, the law distinguishes between
contractual offer and invitation to treat.
• Contractual offers are converted as soon as are
accepted.
• An invitation to treat is a statement of intention
which is only meant to solicit or attract offers from
other people and is not intended to result in any
immediate binding obligations.
• Distinction between offer & invite to treat =
based on convenience or expedience for
the ff commercial practices;
– (a) tender notices,
– (b) display of goods in a shop window with
prices attached,
– (c) advertisements of goods for sale,
– (d) circulation of catalogue or price list and
– (e) auction notices.
• Tenders:
– a notice which is stated that goods are
sold by tender and inviting people to
submit tender for their purchase is an
invitation to treat and not an offer which
is accepted when the person submits
the highest tender. The tender which
constitutes the offer may or may not be
accepted by the seller. SPENCER v.
HARDING
• Exhibition of goods for sale:
–A display of goods in a shop with
prices marked is not an offer. It is
merely an invitation to treat and it is
for the customer to offer to buy the
goods which offer the shopkeeper
may or may not accept. FISHER v.
BELL
• Self-service;
–A display of goods with prices
marked on the shelf of a selfservice shop is also in law an
invitation to treat and not an offer at
those prices. PHARMACEUTICAL
SOCIETY OF GREAT BRITAIN v.
BOOTS CASH CHEMISTS
(SOUTHERN) LTD
• Advertisements;
– generally advertisements in newspapers
etc declaring the availability of goods for
sale are deemed in law an invitation to
treat and not contractual offer.
PARTRIDGE v. CRITTENDEN
• Circulation of catalogues:
– The same conclusion was reached in the case of
GRAINGER & SON v. GOUGH where a price list
was circulated by a wine merchant, though notice
declaring that deck-chairs were for hire was held
in CHAPELTON v. BARRY as amounting to an
offer.
• Auction sales:
– An auction notice advertising sale is merely a
statement of an intention to treat and in the
absence of fraud an intending purchaser has
no right to sue if the auction is cancelled or
the items withdrawn. HARRIS v. NICKERSON
– Where the goods are sold in lots, each lot put
up at the auction sale constitute the subject
matter of a separate contract of sale. The
authority for this is Section 4(1)(a) of the
SALE OF GOODS ACT, 1962 (ACT 137)
– The auctioneer by putting up the goods and
inviting bids makes an invitation to treat and
not an offer. At the auction sale each bid
submitted constitute an offer which the
auctioneer may or may not accept. The
authority for this point is PAYNE v. CAVE
– The contract of sale is complete when the
auctioneer announces his acceptance by the
fall of the hammer or in any other customary
manner. Section 4(1)(b) of ACT 137
– At any time before the auctioneer announces
his acceptance, the bidder is entitled to
withdraw or revoke his bid. Section 4(1)(c) of
ACT 137
• There are two kinds of auction sale;
• (i) auction sale subject to reserve price and
• (ii) auction sale without a reserve price
• Auction sale with reserved price;
• the vendor/seller or his agent is allowed to bid once
only and openly at the beginning of the auction before
any other bid is made. Section 4(1)(f) of ACT 137.
• It has been held in MCMANUS v. FORTESCUE that
the auctioneer in an action sale subject to a reserve
price is not bound to sell the goods to the highest
‘bona fide’ bidder if his bid is below the notified
reserved price and this is so even if the auctioneer
accidentally knocks down the goods to him.
• Section 17(7) of the AUCTION SALES LAW, 1989
(PNDCL230) is the Ghanaian authority on this point.
– Auction sale without a reserve price
• Where there is no minimum price the law
presumes that the seller is prepared to sell
the goods to the person who submits the
highest bid no matter what that price may
be.
• The general principle is that the highest
‘bona fide’ bidder is entitled to buy the
goods at the price bid even if the
auctioneer refuses to accept his bid or
complete sale. Section 4(1)(d) of ACT 137.
• Neither the seller nor his agent can bid at
the auction sale. WARLOW v. HARRISON
COMMUNICATION OF OFFER
• Offer cannot take effect until it as been
received by the offeree TAYLOR v LAIRD
• The timing of the communication of the offer
can be of importance when determining the
time within which it can be accepted by the
offeree.
• BUT if the offer specifies some date by which
the offer must be accepted and that date has
passed when the offer is received, the
offeree is not able to accept the offer.
• Similarly, it may be that there has been a
very long delay in the transmission of the
offer to the offerree, and in these
circumstances it may well be the case,
depending on the subject matter of the
offer, that the offer has in fact lapsed,
rendering it incapable of acceptance
• The problem here is where the delay in
the transmission of the offer is the fault of
the offeror himself. ADAMS v LINDSELL
OFFER V REQUEST 4 INFO
• HARVEY v. FACEY applt telegram read “will
you sell us Bumper Hall Pen? Telegraph
lowest cash price” respt reply read “lowest
price for Bumper Hall pen, £900.” The applt
then telgraphed, “we agree to buy Bumper
Hall Pen for £900 asked by you. Please send
us your title deeds in order that we may get
early possession”
• HELD; respt’s reply was not offer to sell but
simply a statement as to the minimum price
required should he decide to sell.
COMMUNICATION OF OFFER
• Offer takes effect only when it has been received by offeree
TAYLOR v LAIRD
• Timing of the communication of the offer can be very
important when determining the time within which the offeree
has to accept
• TAYLOR v LAIRD establishes the principle that acceptance
can only take place when the offer has been received;
however, if the offer specifies some date by which the offer
must be accepted and that date has passed when the offer is
received, then the offeree is to able to accept the offer.
• Similarly, it may be that there has been a very long delay in
the transmission of the offer to the offeree, , and in these
circumstances it may well be the case, depending on the
subject matter of the offer, that the offer has in fact lapsed,
rendering it incapable of acceptance.
• But in ADAMS v LINDSELL
• Dffs offered to sell wool to the pffs.
• The dffs’ letter of offer was wrongly
addressed so that it reaced the pffs 2 days
later thatn the dffs could, in nor
circumstnace, have expected it to arrive.
• Pff on receiving the letter immediately
accepted the offer and it was held that they
were entitled to do so, creating a binding
contrat, despited the fact that the deffs had
considered the offer lapses by the delay
and sold the wool to a third party.
ACCEPTANCE
• Treitel (1995) defines acceptance as
– ‘a final unqualified expression of assent to all the
terms of an offer’
• The objective test applies
• 2 principles evolve from the definition
– 1st , expression of intention to assent to the offer
must be in response to the offer and match the
terms of the offer precisely.
• The acceptance must be unequivocal and
unconditional
– 2nd, mere acknowledgement of the offer is
insufficient, there must be a communication of the
acceptance to the offeror
• In certain cases, there may be cross-offers
e.g. when 2 identical offers cross in the
post; X offers to buy Y’s car from him for
GhC5000, while at the same time Y offers
to sell his car to X for GhC5000.
• In such a case, no contract exists,
although the parties may be in some
subjective agreement, there must be an
objective outward indication of the
agreement TINN v HOFFMAN
THE MODE OF ACCEPTANCE
• Acceptance of the offer may be communicated either
orally or in writing or inferred from conduct
– Generally speaking the first two methods of accepting an
offer present little difficulty; but difficulty arises where one
attempts to infer acceptance by conduct as to the nature
and precise moment of the inferred conduct.
• The main difficulty concerning inferring acceptance
from conduct usually arises where there have been
protracted negotiations between the parties BROGDEN
v METROPOLITAN RAILWAY CO
• The act of acceptance must be completely performed
for it to be valid, e.g. using smoke ball in particular
manner and not just mere use
• Very often, an offer may prescribe a particular mode of
acceptance, in such a case conduct cannot amount to
acceptance until the mode stipulated is complied with.
COUNTER-OFFERS
• As defined, acceptance must be an
unqualified expression of assent.
• It follows that any attempt to introduce a
new term amounts not to an acceptance of
an offer, but in fact itself becomes a
counter-offer.
• The effect of a counter-offer is to destroy
the original offer, that is, it operates as a
rejection of the original offer. HYDE v
WRENCH
• In HYDE v WRENCH, the dff offered to sell
his farm for £1000. The pff at first made a
counter-offer of £950, but 2 days later agreed
to pay £1000, attempting to accept the
original offer. The dff refused to complete the
the sale and the pff brought an action against
him for a decree of specific performance.
Held that no contract existed since by his
letter offering £950 the pff had made a
counter-offer, the effect of which was to
reject and destroy the orginal offer, so that
the latter was therefore not available for him
to accept 2 days later.
OTHER COMMUNICATIONS
• CONDITIONAL ACCEPTANCE
– A conditional acceptance is neither a full
acceptance of the original offer nor a counteroffer.
– A party might wish to consult a third party for
advice before entering into contract . E.g.
purchase of house, there are many factors to be
considered before committing to formal
agreement
– The result is that any agreement is arrived at
‘subject to contract’. i.e. presumption that the
parties do not intend to enter into any legally
binding contract
• CLARIFYING THE TERMS OF THE OFFER
– In lengthy and complex contracts, business
people often have difficulty arriving at a finite and
settled agreement.
– For this reason, there may be many
communications between the parties which are
not intended to operate as counter-offers but
merely as attempts to clarify the extent and terms
of the offer, or to ascertain whether the offeror
would consider changing certain aspects of the
offer.
– This is mere request for information and not
counter-offer
• BATTLE OF THE FORMS
– Most companies make use of standard form of
contract.
– This is more efficient and convenient that to have
to discuss and negotiate each contract with a
customer on an individual basis
– It is not surprising therefore that that in the offer,
acceptance and counter-offer situation conflicts
are likely to result when companies attempts to
impose on the other party their own standard
conditions of contracts.
– The company which wins the battle of forms is
the person who last submit the counter-offer
which is accepted by the other party.
– This is the principle of ‘last shot’
COMMUNICATION OF
ACCEPTANCE
• The general rule is that some objective or
external manifestation of the acceptance
must be communication to the offeror.
HOLWELL SECURITIES LTD v HUGHES.
• Also in POWEL v LEE, where dff decided to
appoint the pff as headmaster of a school,
and where the terms of the appointment were
never communicated to the pff. It was held
that no contract existed since the dff’s
acceptance of plff’s offer of service had not
been communicated to him.
• Acceptance must not only be
communicated, but it must be received by
the Offeror. ENTORES v MILES FAR
EAST CORP where Lord Denning
illustrated the principle; A shouts an offer
to B across a river and A does not hear
the reply because of the noise of an
aircraft flying overhead. In such a case,
there is no offer.
EXCEPTION TO
ACCEPTANCE RULE
• Effect of silence; FELTHOUSE v
BINDLEY
• However, it is an over implication to say
that silence can never amount to
acceptance since there may well be
‘special circumstance’ that will render
silence as constituting acceptance; eg
previous of course of dealing might give
rise to this
• Mailbox/postal rule; the rule that
acceptance must be communicated to the
offeror is overturned when acceptance is
sent via the post since here the rule is that
acceptance takes place as soon as the
letter is validly posted.
• ADAMS v LINDSELL
• The Dffs wrote to the Pffs on 2 Sept offering to sell them
some wool on certain terms and requested a reply “in course
of post”.
• The letter containing the offer was wrongly addressed and
only received on 5 Sept.
• As a result the letter of acceptance was received on 9 Sept, 2
days later that it should have been received from the Pffs.
• The question which arose was whether a contract of sale had
been entered into before 8 Sept when the wool was sold to
the TP.
• The Court held, however, that the offer had been accepted as
soon as the letter of acceptance had been posted. The
contract was thus in existence before sale of the wool to the
TP even though the letter of acceptance had not been
received by the Dff, who was thus liable for breach of
contract.
• HOUSEHOLD FIRE AND CARRIAGE ACCIDENT
INSURANCE CO v. GRANT
• The Dff applied for shares in the Pff’s company.
• The shares were allotted to him but the letter of
allotment was never received.
• The company then went into liquidation and the
liquidator claimed the balance of the purchase
monies from him.
• The Dff disputed the fact that he was a
shareholder on the basis that he had not received
an acceptance, in the form of the letter of
allotment, to his offer to purchase the shares.
• It was held that the contract had been entered
when the letter of allottment had been posted to
him despite the fact that it had never arrived.
• Today, it is firmlly established in the
BRINKIBON LTD v STAHAG STAHL that
acceptance is effective when it is placed in
the control of the Post Office, i.e. into a post
box, or handed to an offeicer of the post
authorised to receive or collect letters.
• A postman delivering letters is not so
authorised and the handing of a letter of
acceptance to such an individual would only
take effect when actually communicated to
the offeror RE LONDON AND NORTHERN
BANK
• In HENTHORN v FRASER, it was stated
that the postal rule only applied where it
was reasonable for the offeree to use the
post as a means of communication.
• Instantaneous forms of communication
The postal rule as an exception to the
general principle requiring communication
is confined to communications through the
post, telegrams and probably also
telemessages.
• Modern technology, however, provides
other methods of communication which
are instantaneous in their operation to the
extent that the parties are, as it were, in
each others’ presence.
• ENTORES v MILES FAR EAST CORPORATION
• The Pffs were a company based in London who were dealing with
the Dffs, an American company, with agents in Amsterdam.
• Both parties possessed telex equipment.
• The Pff offered to buy goods from the Dffs’ agent using the
equipment.
• The agents accepted the offer by telex
• Subsequently a dispute arose between the partiesand the Pffs
wished to serve a writ on the Dffs alleging breach of contract.
• This was only possible if the contract had in fact been made in
England and it was this question that arose before the court.
• The CA held that the parties were in the same position as they
would have been if they had been in each other’s presence.
• The consequence of this was that the contract was entered into
when the acceptance by the agents was received in London by the
Pffs, not when the telex was sent in Amsterdam, which would have
meant that the contract would be subject to Dutch law.
• Lord Denning confirmed, obiter, that the same principles also apply
to acceptance by telephone.
TUTORIAL 1
• What is meant by the statement that “the
test of agreement is objective and not
subjective”? Illustrate its application in the
Law of Contract.
TUTORIAL 2
• On 1st January, X wrote to Y offering to sell to
him a house for ¢1,000,000.00, the offer to
remain open for a week. On 3rd January, Y
posted a letter stating, “I am still considering
our offer but now I am only willing to pay ¢
700.00”. later the same day, Y posted a
second letter stating “I have reconsidered the
matter, ¢1000,000.00 is an excellent offer
and I accept”. X received the first letter on 5th
January and at once entered into a contract
to sell the property to some one else. Y’s
second letter arrived on 6th January. Advise
X.