First year llb law undergraduate contract law notesWatch
An offer is an expression to contract on the specified terms without further negotiation, so that it requires only acceptance for a binding agreement to be formed.
‘A proposal amounts to an offer if (a) it is intended to result in a contract if the other party accepts it; and (b) it contains sufficiently definite terms to form a contract’ – DCFR (II-4:201).
An offer must be distinguished from all other statements made in the course of negotiations towards a contract (so- called ‘invitations to treat’) since only an offer is capable of immediate translation into a contract by the fact of acceptance.
The intention to be bound by the mere fact of acceptance is determined objectively, so that it amounts to examining the language used.
Gibson v Manchester City Council  à the House of Lords examined the language of the correspondence between the parties in order to determine whether there was the necessary intention to be bound.
In Gibson v Manchester City Council , the council had a policy of selling council houses to tenants. Mr Gibson was such a tenant and he applied for details. The city treasurer had replied that the council ‘may be prepared to sell the house to you’ and invited Mr Gibson to complete an application form if he wished to buy. Mr Gibson did this, but the council changed its policy, and the question arose as to whether there was already a concluded contract of sale between Mr Gibson and the council. The House of Lords held that there was no concluded contract because the language of the city treasurer’s letter made it clear that the council did not intend to make a binding promise to be bound. The letter was not an offer that Mr Gibson had accepted; rather it was inviting Mr Gibson to make an offer to buy. Although Mr Gibson had made such an offer to buy, his offer had not been accepted at the time of the change of policy.
The decision in Gibson is normally contrasted with that of the Court of Appeal in Storer v Manchester City Council , in which the Court held that a binding contract had been concluded because the language used – namely, ‘if you will sign the Agreement and return it to me, I will send you the Agreement signed on behalf of the [council] in exchange’ – indicated that it was the council’s intention to be bound and therefore constituted an offer.
Acceptance is what turns a specific offer, made with the intention to be bound, into an agreement.
To constitute acceptance (and thus agreement), the offeree’s unequivocal expression of intention and assent (by statement or conduct) must be made in response to, and must exactly match, the terms of the offer. This concerns the fact of acceptance, i.e. whether we can recognise the correspondence or action as a valid acceptance. The matching acceptance must be communicated to the offeror in order to be effective.
In simple consumer transactions, it is common that only one offer is made and acceptance is straightforward. No detailed negotiation of terms is involved. Taking the example of a sale in a self-service shop, the customer takes a price- displayed item off the shelf and presents it to the cashier, thus making an offer to buy it for the displayed price. The cashier accepts the offer on behalf of the shop, payment is instantaneous, and terms as to quality are left to be implied under the Consumer Rights Act 2015. The role of acceptance in this case is crucial, but without legal difficulty.
Commercial contracts, especially for non- standard goods, may be very different. Frequently more than one offer will be made before negotiations are complete, and the language of ‘acceptance’ may be used before a technical legal analysis would identify acceptance as having been made.
Counter- offers – if when responding in a form purporting to be an acceptance, the offeree alters the terms contained in the offer or adds a new term, the offeree’s response will constitute a counter- offer. This counter-offer cannot constitute an acceptance of the original offer; instead, the following will apply;
- Because the counter- offer is itself an offer on the revised terms being made by the offeree, agreement will result only if there is acceptance of the counter- offer by the original offeror.
- The further effect of a counter- offer is to operate in the same way as a rejection- namely, to destroy the original offer, and so prevent the original offeree from changing its mind and accepting that original offer.
An offer may be expressly terminated (or revoked), or the revocation may occur by implication, e.g. where the response to the offer is a counter-offer: Hyde v Wrench. In addition, an offer may be impliedly revoked by the offeror making a second offer. The decision in Pickford’s Ltd v Celestica Ltd  provides authority for the fact that where A makes an offer to B (the first offer, or price quotation) and then makes a second (differing) offer without expressly revoking the first, the second offer may automatically revoke the first if, in making the second offer, the offeror ‘clearly indicates an intention… to withdraw the first offer’. This can be compared with the situation in which B asks for a second (additional) quotation was requested and provided on the basis of providing greater choice rather than rejecting the original offer.
In negotiations towards a bilateral contract, the general rule is that the offeror is free to withdraw the offer at any time before acceptance: Offord v Davies. It follows that revocation of an offer after the time of acceptance is ineffective.
in all types of negotiation, whether instantaneous or not, revocation is ineffective until actually communicated to the offeree, and until that time the offer is open for acceptance.
A revocation must be actually communicated, and the postal rule of acceptances does not apply to revocations of offers.
The fact that the postal rule applies in the case of revocation has been posted, but before that revocation is received, the acceptance will be ineffective to form a binding contract, although it was dispatched after the revocation.
There is a special rule applicable in the case of revocations of unilateral offers made to the whole world in which the offerees are necessarily unidentified, so that actual communication of a revocation to individual offerees cannot occur: Shuey v United States.
The revocation need not be authorized by the offeror, provided that the offeree ought reasonably to believe it: Dickinson v Dodds.
This conclusion means that an offeree will have to decide whether to believe revocation information that is communicated by a third party. There is a risk that the source is unreliable, and the information is incorrect. The safest course of action, if possible, will be for the offeree to check directly with the offeror in such circumstances.
Traditional analysis has usually considered the existence of consideration to be demonstrated by proof of a benefit and/ or a detriment. For example, in Currie v Misa stated that ‘[a] valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered, or undertaken by the other’. Although the act or promise said to constitute the consideration may be both a detriment to the promisor and a corresponding benefit to the promisee, it is not necessary to have both benefit and detriment, as was made clear by Lush J.
Consideration must be sufficient, but need not be adequate – once something of value can be shown, the court makes no inquiry into whether the thing offered is a genuine equivalent of the promise made.
Past consideration – it was suggested that where it is alleged that a contract exists on the basis of an act followed by a promise, the courts will not enforce such a promise. In such cases, the consideration is described as ‘past’, and the rule is easily explained by the theory of exchange, since the act is not given in exchange for the promise. The past consideration rule is well illustrated by the classic case of Roscorla v Thomas  – the plaintiff had negotiated the purchase of a horse from the defendant for a given price. When the negotiations had been completed and agreement reached, the defendant assured the plaintiff that the horse was sound and free from vice. The horse failed to match that description and the issue was whether any enforceable warranty (i.e. promise) had been given that the horse was sound. However, this express warranty was given after the making of the contract and therefore could not be the consideration to support the promise to buy, because it was not given in exchange for that promise.
Towards the end of the 19th century, the courts developed a doctrine of equitable estoppel intended to prevent injustice arising out of the kind of situation in which one party agrees to forgo his strict legal rights under the contract and this induces the other party to rely on this position, but the first party then goes back on the arrangement and seeks to enforce his strict rights.
The application of the equitable estoppel doctrine meant that one-sided variations of contract might be enforceable in some circumstances despite the absence of consideration to support them. The best example of the operation of the doctrine is the leading case of Hughes v Metropolitan Railway Co  – a lease contained a covenant requiring the lessee to repair if the lessor gave notice. Hughes, the lessor, gave notice requiring repair within six months. The railway company, the lessee, responded by offering to sell back to the lessor the company’s remaining interest in the property under the lease. Negotiations continued for some two months, before breaking down. Hughes subsequently claimed to be entitled to possession of the property on the basis that, since the lessee company had failed to carry out the required repairs within six months of the original date of the notice requiring repair, the lease had been forfeited. The company claimed that there was a tacit understanding (or implied promise) that the repairs need not be carried out if the negotiations were to come to a successful conclusion and that, in the meantime, the period of notice would not start to run. In the House of Lords, the existence of that implied promise was not really in doubt. Nevertheless, it was unsupported by consideration and therefore arguably unenforceable. However, the House of Lords refused to accept that argument.
It is accepted that there is, in the name of equity, a doctrine that makes certain promises enforceable despite the absence of consideration. However, the nature and exact limits of this doctrine remain unclear. It should be noted that, in many of the cases discussed in the following sections, the expression ‘promissory estoppel’ is used, rather than ‘equitable estoppel’. The change in terminology came about because of developments in the law starting in 1947.
The doctrine of privity of contract provides that a person who is not a party to a contract cannot acquire any rights under that contract cannot acquire any rights under that contract or be subject to any of its burdens. This doctrine remains the general rule in English Law.
The fact that a third party beneficiary of a contract could not enforce the contractual benefits in its favour was generally regarded as unsatisfactory and a number of devices were developed in order to circumvent this aspect of the privity doctrine. In addition, a number of exceptions were developed whereby third party rights were recognised. These devices and exceptions can be artificial and complex, so that there were calls for reform of the third party beneficiary rule. However, these devices and exceptions remain, despite legislative reform.
The contracts (rights of Third Parties) Act 1999 allows the parties to a contract to grant enforceable rights (such as the ability to rely on an exemption or limitation) to third parties. It is not every third party who will be able to enforce a contractual provision in its favour, only those third parties who satisfy the test of enforceability in S.1 of the act. Part of this test requires that the third party be expressly identified in the contract by name, description, or as falling within a particular class, e.g. independent contractors.
Where the S.1 test is satisfied, it will not matter that the third party may not have provided consideration for the promise that it is seeking to enforce, as long as the promise is not gratuitous (i.e. as long as it is supported by consideration supplied by another).
The 1999 Act includes provisions dealing with the effect on third parties of variations and cancellations of the original contract terms and the question of enforcement by both the promise and third party.
If the third party has not been given an enforceable right under the 1999 Act, it is still possible for the promise to enforce the promise and seek to obtain and seek to obtain a remedy on behalf of the third-party beneficiary, e.g. specific performance requiring that the promisor perform the promise for the benefit of the third party. The difficulty in a promisee seeking to recover damages on behalf of a third party is that a party is generally restricted to recovering damages for their own loss. In some circumstances, it is possible for a promisee to recover substantial damages to compensate for a loss suffered by a third party. One argument, giving a broad interpretation to the scope of the promisee’s performance interest, has been the subject of much academic debate and has wider potential implications for damages for breach of contract. However, there is no judicial consensus as to its merits.
The 1999 Act does not affect the rule that a contract cannot impose an obligation (or burden) on a person who is not a party to the contract. Nevertheless, some specific exceptions exist at common law.
Intention to create legal relations is one of the necessary elements in formation of a contract. It is because, intention to create legal relations consists of readiness of a party to accept the legal sequences of having entered into an agreement. Intention to create legal relations is a motion of every contracting party must have the necessary intention to enter into a legally binding contract.
The contracting parties mind will be obvious to enter a serious contract. When two parties decided to enter in the environment of a contract, their mind will understand the contents of the contracts. This is due to their ‘intention' to be consenting mind which both of the parties have to agree. If there is no agreement by both of the parties, it may make the contact being a void agreement. Thus, both of the contracting parties will enable to be serious into the contract.
If there is no intention to create legal relations the contract would not be enforceable, legal and binding. Intention to create a legal relation is one of the essential elements of contract. So, if there is no intention to create a legal relation, the contract can be assumed as a not legal. Due to that, the contract may not be being enforceable because there is no intention to create legal relations at the beginning which not making contracting parties to be legally binding.
Without intention to create legal relations, the parties cannot sue each other. With no intention to create legal relations, it may cause the contracting parties are not being legally binding and this circumstances may cause the contract is enforceable. Therefore, when the contract is enforceable, the contracting parties cannot sue each other, and this will spoil their business crisis. This will make the contracting parties hard to enquire their justice.