CONTRACT LECTURES TRANSCRIPTS 46 mins 20 secs
C. STRICKLAND
LECTURE 3
Track/Slide 1
00.38
The purpose of this lecture is to make you aware of how an offer may be brought to an
end, that is, terminated, and we can do this under 4 headings:
i.
ii.
iii.
iv.
Revocation of offer
Lapse of time
Death
Failure of an offer-related condition
We shall deal with each of these in turn.
In addition, the topic of Intention to Create Legal Relations will be discussed.
Track/Slide 2 05.25
Starting with Termination of an offer.
First, we shall consider some of the rules surrounding how an offer, once made by the
offeror, may be revoked by the offeror. We shall start with consideration of the position
in the usual, bilateral, contracts, that is, where both sides have made promises.
The general rule here is that an offer can be revoked (that is, cancelled) at any point up to
acceptance by the offeree – but the revocation must actually be communicated to the
offeree.
If a letter of revocation is sent in a business setting, then the revocation of the offer is
probably regarded as having been communicated to the offeree once the letter arrives at
the business premises of the offeree. This is probably the case so long as the letter
arrives during normal working hours.
This general rule applies even if the offer was supposed to be open for a particular time,
for example, open for one week. Despite the offer supposedly being open for one week,
the offeror can still revoke it by communicating the revocation to the offeree. The
position would be different if the offeree had ‘bought’ the life-time of the offer by giving
some ‘consideration’.
Two cases that we can consider are:
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Byrne v Van Tienhoven 1880 and
Dickinson v Dodds 1876
In the Byrne v Van Tienhoven case, the dates are crucial.
The defendants made an offer to sell some tin plate in a letter posted on 1st October.
The defendants then posted a letter revoking the offer on 8th October and this letter
reached the plaintiffs on 20th October.
Meantime, on 15th October the plaintiff had posted a letter accepting the offer.
It was held that the contract stood. The plaintiffs did not know of the revocation of the
offer until after they had accepted the offer. In other words, the revocation of the offer
was not communicated to the offeree in time.
The Dickinson v Dodds case is authority for the proposition that actual
knowledge of revocation of an offer may come from not only the offeror
himself but from a THIRD PARTY.
In this case on 10th June 1974 Dodds offered to sell his house to the plaintiff for £800
promising to hold the offer open for 2 days – until 9am on the 12th June. Nevertheless,
on the next day, 11th June, he sold the house to someone else. Dickinson became aware
of this fact from his own agent, Berry, but still purported to accept the offer to buy the
house by 9am on the 12th.
Dodds refused this acceptance as he had already sold the house. Dickenson thus brought
an action for specific performance of the contract.
The Court of Appeal held that he was not entitled to specific performance.
He had been notified that the house had been sold to someone else by his own agent and
this amounted to notification of revocation of the offer, so he could not accept it.
What we are not sure about from this case is the degree of reliability that is needed in the
person who notifies the offeree of the revocation. It is suggested that if an offer is
revoked by someone other than the offeror himself then the onus is on the offeror to show
that the offeree learned of the revocation through a ‘trustworthy’ source – see
Cartwright v Hoogstoel 1911.
Keeping an offer open for a number of days or weeks is therefore not binding in itself as
it can be revoked. As noted above, it would only be binding if supported by some form
of consideration – for instance, if the offeree paid an amount of money to the offeror to
keep the offer open.
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Track/Slide 3 01.57
What we can consider now is how the revocation of offers applies with regards to
unilateral contracts.
If we recap on the key features of a unilateral contact, remember, that a unilateral
contract is one where, for instance, the offer comprises an advertisement offering a
reward or is an option in a contract. The performance of a specified act by the offeree (as
opposed to a corresponding promise from the offeree) is deemed to amount to both the
acceptance of the offer and the consideration for the contract.
The problem here is when is it too late to revoke the offer?
There are 2 possibilities:
i.
that the offer can be revoked right up to the point that the
the act in question HAS FINISHED. Thus, the offer of £10
reward for a lost dog could be revoked just before the dog
is handed over.
ii.
Alternatively, that the offer can only be revoked up to the point that the
performance of the act in question starts.
Thus, you would not be able to revoke the offer of £10 for the lost dog with
‘A’ if ‘A’ had already started to look for the dog.
This latter proposition has received support in
ERRINGTON v ERRINGTON 1952 and obiter in
DAULIA LTD v FOUR MILLBANK NOMINEES LTD 1978.
Track/Slide 4 02.44
In the Errington case, the father bought a house with a mortgage and let his son and
daughter in law live in it with the promise that if they paid off all the mortgage payments
the house would be theirs. When the father died, the house was left to the widow who
sought possession of the house. In the court case that followed, it had to be determined
whether the widow could evict them because they were just tenants at will, or whether
they had a contractual licence to occupy the house. In deciding that they had a
contractual licence to occupy the house, Denning L J stated:
‘The father’s promise was a unilateral contract – a promise of the house in return
for their act of paying the installments. It could not be revoked by him once the
couple entered on performance of the act, but it would cease to bind him if they
left it incomplete and unperformed, which they have not done. If that was the
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position during the father’s lifetime, so it must be after his death. If the daughter
in law continues to pay all the building society installments, the couple will be
entitled to have the property transferred to them as soon as the mortgage is paid
off… They have acted on the promise, and neither the father nor his widow, his
successor in title, can eject them in disregard of it…’
Note that in the last sentence quoted there is a hint of the notion of ‘promissory estoppel’
that we shall consider in a subsequent lecture. Basically, the hint is that the father, nor
his widow, could go back on the promise made that was being acted upon in reliance on
it. What we shall see, however, is that promissory estoppel can only be used in the
‘defence’ of an action brought against oneself – it is a ‘shield and not a sword’ – and so
cannot be used as a cause of action in it’s own right. In the Errington case, it is thus
significant that it was the widow who brought the case for possession whilst the daughter
in law was defending the action.
Track/Slide 5 01.55
In the Daulia case, Goff L J stated obiter:
‘Whilst I think the true view of a unilateral contract must in general be that the
offeror is entitled to require full performance of the condition which he has
imposed and short of that he is not bound, that must be subject to one important
qualification, which stems from the fact that there must be an implied obligation
on the part of the offeror not to prevent the condition becoming satisfied, which
obligation it seems to me must arise as soon as the offeree starts to perform. Until
then the offeror can revoke the whole thing, but once the offeree has embarked on
performance it is too late for the offeror to revoke his offer.’
You should now be able to see that in unilateral contracts the issue of revocation of the
offer is complicated because of the fact that the performance of the specified act by the
offeree is deemed to fulfil the two functions of acceptance and consideration. You
should note that since the performance of the act in question amounts to acceptance of the
offer, in this way it was not necessary for the offeree to communicate his acceptance to
the offeror – whereas in a bilateral contract, it is necessary for the offeree to communicate
acceptance to the offeror, albeit modified by the postal rule of acceptance.
Track/Slide 6 02.04
We can now consider how an offer can be terminated by lapse of time in it being
accepted. If an offer is open for a specific length of time, acceptance will not be valid
after the date has passed. If no time is specified then the offer will normally only be held
to be open for a reasonable amount of time. Thus, an offeree cannot impose performance
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of a contract on the offeror if several months have elapsed between the original offer and
purported acceptance of it. A case in point is
Ramsgate Victoria Hotel Co v Montefiore 1866.
In this case the defendant applied to buy some shares – that is, made an offer to buy some
shares – in June 1864. However, not until late November 1864 was his offer to buy taken
up and shares allocated to him. The defendant, by then, did not want the shares. In court
it was determined that he did not have to buy the shares allocated to him because the
plaintiffs had not responded to his offer to buy within a reasonable amount of time.
This point was also discussed in Manchester Diocesan Council for Education v
Commercial and General Investments Ltd 1969 in which Buckley J stated that it is
very difficult for the court to decide what is a ‘reasonable amount of time’ to the
satisfaction of both parties – that it will depend on the whole set of circumstances in each
particular case.
Track/Slide 7 01.21
The death of the offeror may or may not revoke an offer. If the contract can be
performed by the deceased’s estate, then death may not revoke it.
But, if the contract can only be performed by the deceased personally, then death
obviously revokes the contract.
If the offeree dies before acceptance, then usually there is no contract unless the
offeree’s estate can perform the contract.
Finally we can consider the effect of the failure of an offer related condition
The case of Financings Ltd v Stimson 1962 is authority for the fact that if a condition,
implied or expressed in an offer fails,then the offer fails.
In this case the IMPLIED condition of the offer for the sale of a car was that the car was
in a good condition. Since at the time of the purported acceptance it was badly damaged,
the offer had actually been revoked.
Track/Slide 8 02.19
We can now move on to consider Intention to Create Legal Relations.
So far, in looking at what the courts regard as crucial to finding the existence of a legally
binding contract between the parties, we have dealt with the finding of an agreement –
offer and acceptance.
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What the courts also look for to say there is a legally binding contract is
an intention to create legal relations by the parties. This is one of the tests of deciding
which agreements between people are actually ‘enforceable’ in a court of law.
In Cheshire, Fifoot and Furmston’s ‘Law of Contract’ 14th edition at page 121 it is noted
that some academics, such as Professor Williston from America, say that a contract is
legally established once there is evidence of Offer, Acceptance and Consideration – so
there is no need to look for Intention to Create Legal Relations (ITCLR). Cheshire,
Fifoot and Furmston disagree and say that ITCLR must also be found – and this is the
view taken in most text books. Yet other academics say that the existence of ITCLR is
all that is needed for a contract to be enforceable without the need to find consideration.
Usually, however, the issue of ITCLR is not the focus of the case because when the
courts are trying to see if a contract is enforceable the main issue usually centres on the
existence or not of consideration. Consideration is then, traditionally, seen as the main
way of establishing whether or not a contract is enforceable in the courts. Consideration
is the topic of a separate lecture.
Track/Slide 9 00.54
When ITCLR is looked at, it usually done so under 2 headings:
1.
2.
with regard to COMMERCIAL AGREEMENTS
with regard to SOCIAL/DOMESTIC AGREEMENTS.
So we will do the same.
FIRST THEN, COMMERCIAL AGREEMENTS
We can sub-divide this under 4 headings:
i.
ii.
iii.
iv.
The usual presumption
Can an advertisement provide evidence of ITCLR?
Rebutting the presumption of ITCLR in the commercial setting
Where the words purporting to rebut the presumption are
ambiguous
Track/Slide 10 01.00
Firstly then, we shall consider The usual ‘presumption’
In commercial agreements there is a presumption that in dealings between business
people both sides intended their agreement to create legal relations - they intended that
should things go wrong, the problem could be taken to court.
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This can be seen to make good commercial sense so that business people know where
they stand and it can help prevent ‘rogue’ business people making agreements they may
drop out of at will.
The courts will as usual look for ITCLR in an ‘OBJECTIVE’ way – to decide if a
‘reasonable person in the circumstances would have expected the agreement to be
enforceable through the courts’.
Track/Slide 11 02.43
Secondly, we shall consider whether an advertisement can provide evidence of
ITCLR
We already know that generally an advertisement is only regarded as an Invitation to
Treat not an offer. However, where it is regarded as an offer, can the courts additionally
find the existence of ITCLR?
Two of the leading cases here are already familiar to us from an earlier lecture:
Carlill v Carbolic Smoke Ball Co 1893 and
Bowerman v ABTA Ltd 1996.
In the former case, the deposit of £1000 in the bank helped to persuade the Court of
Appeal that the advert was more than a ‘mere puff’ or ‘gimmick’ – the promise was one
which a reasonable person could expect to enforce through the courts as the company had
deposited £1000 in the bank and this demonstrated their intention to be bound.
In the latter, the Court of Appeal held that the notice by ABTA displayed in travel agents
was a promise that could be enforced in the courts – otherwise there seemed to be no
point in the advert as it’s sole purpose was to induce the public to book holidays. Let us
remind ourselves of the facts of the case –
the plaintiffs had booked a school skiing holiday through a company that was a member
of ABTA. However, the company became insolvent before the holiday and ABTA
reimbursed the plaintiff the cost of the holiday minus £10 per head which represented
each person’s insurance. ABTA said that these amounts were not included in their
protection scheme.
The plaintiffs sued to get these £10s back on the basis of the ABTA notice displayed in
the travel agents. Parag 5 of the notice read:
‘Where holidays or other travel arrangements have not yet commenced at the time of
failure, ABTA arranges for you to be reimbursed the money you have paid in respect of
your holiday arrangements’.
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Track/Slide 12 04.37
At first instance the plaintiffs lost – the trial judge correctly took the approach of reading
the notice as ‘the public’ would understand it. However, even doing this, he found that
there was no contract because there was:
-
no offer
no intention to create legal relations
the terms in the notice were too vague to amount to a
legally enforceable promise – there was thus uncertainty of terms
However, in the Court of Appeal, the plaintiffs were successful, per Lord Justices Waite
and Hobhouse – with Lord Hirst dissenting.
Lord Justice Hobhouse said the approach taken in the Carlill case was correct and quoted
Bowen LJ who had said:
‘How would an ordinary person reading this document construe it?’
He noted that there were 2 possible ways to construe the case.
On the one hand, one could say that the notice merely tells the public about a SCHEME
that ABTA has.
On the other hand, one could say that the notice was an offer which a member of the
public could accept and hold abta to.
Hobhouse LJ preferred the second approach.
His Lordship first analysed the ‘words’ in the notice.
He said that he recognised that the notice used words in the ‘PRESENT TENSE’. For
instance, in the heading it read:
‘Notice describing ABTA’s scheme of protection’
and in paragraphs 4 and 5 it read:
‘ABTA seeks’
‘ABTA ensures’ and ‘ABTA arranges’.
These phrases might be suggestive of no intention to be legally bound as there is no
notion of futurity or promise.
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Using words in the FUTURE TENSE might seem more of a PROMISE – for example,
‘ABTA will ensure’
‘ABTA will arrange’.
However, he said that the document has to be read as a whole. ‘It is clearly intended to
have an effect on the reader and to lead him to believe that he is getting something of
value’.
[This discussion of present tense in words must be re-visited when we look at the case of
Kleinwort Benson in a little while]
His Lordship thus said the notice amounted to a UNILATERAL CONTRACT. In
response to ABTA’s claim that they did not intend to create legal relations His Lordship
said that the document
‘reasonably read by a member of the public it would be taken to be an offer of a
LEGALLY ENFORCEABLE PROMISE’.
He went on to say:
‘... it does not advance ABTA’s case to say that ABTA privately did not intend to expose
itself to any legal liability to the public. If suffices that ABTA intentionally published a
document which had that effect. A contracting party cannot escape liability by saying
that he had his fingers crossed behind his back’.
In other words, looked at OBJECTIVELY the courts did find ITCLR and it matters not
what ABTA was thinking SUBJECTIVELY.
And His Lordship added:
‘... if ABTA had wished to deny that it was accepting any legal obligations to the
traveller or wished to say that it was not making any promises, nothing would have been
simpler than for it to have said so in the document. For obvious commercial reasons
ABTA did not choose this course’. Otherwise the effect of the notice would have been
nullified!
Track/Slide 13 01.42
The dissenting judgment of Hirst LJ makes very good reading.
Hirst LJ only looked at the WORDS IN THE DOCUMENT not at the document as a
whole as per the majority and concluded that they were too vague to amount to a
promise. He contrasted them with the ‘crisp’ wording in the Carlhill advert – ‘£100
reward will be paid’.
He also said ABTA had no intention to create a legal relationship with an individual
customer.
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He agreed with counsel for ABTA that the case of Kleinwort Benson (1989) was a useful
analogy. In that case the court held that there was no intention to create legal relations in
a ‘letter of comfort’ because the words used were in the PRESENT TENSE and did not
make PROMISES of the FUTURE POLICY of the parent company.
His Lordship said that the notice by ABTA was a bit like a ‘letter of comfort’ in that it
was there simply to RE-ASSURE the public.
This case illustrates the DIFFICULTY in deciding whether an advert is to be regarded as
PROMISSORY and intending to create legal relations or not – it all depends on the
FACTS OF THE PARTICULAR CASE.
Track/Slide 14 02.11
The case of Esso Petroleum Ltd v Commissioners of Customs and Excise 1976 (HL)
also demonstrates how the senior judges in the land can differ in their approach to such
questions.
This case turned on whether the Customs &Excise could recover purchase tax on ‘World
Cup Coins’ given free to motorists who bought 4 gallons of petrol. The ‘scheme’ was
‘advertised’ in the press, on TV and on posters at garages with phrases such as, ‘Going
free, at your Esso Action Station now’ and ‘We are giving you a coin with every 4
gallons of esso petrol you buy’ and so forth.
The C&E could only recover purchase tax if the coins were ‘produced in quantity for
general sale’ under s 2(1) of the Purchase Tax Act 1963, as detailed in Schedule 1.
Were the coins ‘sold’ at the garages? Part of the argument in the House of Lords was that
the coins could only be ‘for sale’ if there was an ITCLR. Was there?
The majority said that there was ITCLR due to the general business context and the fact
that Esso would get a huge commercial advantage from increased sales.
The minority said that there was not ITCLR because the language of the offer was vague,
the coins were of trivial value and the fact that motorists who did not actually get a coin
on buying 4 gallons of petrol were unlikely to try to sue Esso.
Overall, on the facts of the case it was held that the coins were not sold and so not subject
to purchase tax.
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Track/Slide 15 03.12
The third issue we can consider is how the presumption of ITCLR in the
commercial setting can be rebutted
In the Bowerman v ABTA case Hobhouse LJ said that ABTA could have avoided
ITCLR by expressly saying so in the advert.
This is what was done in Jones v Vernons Pools Ltd 1939 and in Rose & Frank v
Crompton 1923.
In the Rose case the defendants, Crompton, were manufacturers of tissues for carbonising
papers. They made an agreement in 1913 with the plaintiffs giving them selling rights in
the USA and Canada for 3 years plus an option to extend. A clause in the agreement,
which was described as an HONOURABLE PLEDGE CLAUSE, stated:
‘This arrangement is not entered into, nor is this memorandum written, as a formal or
legal agreement, and shall not be subject to legal jurisdiction in the Law Courts either of
the United States or England, but it is only a definite expression and record of the
purpose and intention of the three parties concerned to which they each honourably
pledge with each other, that it will be carried through by each of the three parties with
mutual loyalty and friendly co-operation’.
The agreement was later extended to March 1920 but in 1919 the defendants terminated it
without giving the notice specified in the agreement and they refused to fulfil orders that
they had already accepted from the plaintiffs. The plaintiffs sued for:
i.
ii.
breach of the agreement and
non-delivery of the goods in the orders already placed.
They failed on ground i. because the agreement was NOT intended to create legal
relations as was EXPRESSLY stated in the agreement.
They succeeded on ground ii. because the court held that once orders were received and
accepted each order gave rise to a contract and these contracts could be enforced without
reference to the original agreement – each one was free standing. In other words, the
‘conduct’ of the parties made ‘de facto’ contracts.
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Track/Slide 16 01.21
Fourthly, we need to consider those situations where the words purporting to rebut
the presumption are ambiguous
The words used in the Rose case were very clear indeed. However, in some cases one
side tries to say there was no ITCLR by reliance on clauses containing words such as
‘ex gratia payments’ or ‘an understanding’ or ‘without prejudice’ or ‘it is our policy’
and so forth.
In such cases the outcome will depend on all the facts in the case – it is difficult to be too
prescriptive.
In such cases the person claiming that there is NO ITCLR has the ONUS OF
REBUTTING the general commercial presumption. Two important cases are:
Edwards v Skyways Ltd 1964 and
Kleinwort Benson Ltd v Malaysian Mining Corporaton Bhd 1989
We will first look at the Edwards case.
Track/Slide 17 01.21
In this case the plaintiff was a commercial airline pilot employed by Skyways. When the
company had to make pilots redundant, under their contract of employment they could
either
a)
b)
withdraw all the money they had paid into the contributory
pension fund or
wait and take their pension as normal at age 50.
When Edwards agents (British Air Line Pilots Association) met with the company, the
company said that if Edwards took option a) then the company would make him an EX
GRATIA payment of funds of the same amount.
Edwards took option a) but Skyways refused to match the amount saying that although
there was consideration for the promise, there was no ITCLR due to the phrase ‘ex
gratia’.
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Megaw J held that it was up to Skyways to rebut the usual presumption and they had
NOT done so in what was obviously a very commercial agreement.
Track/Slide 18 03.36
Next we can consider the Kleinwort Benson case..
Kleinwort Benson (Bankers) provided MMC Metals Ltd (Metals) with a credit/multicurrency cash loan facility so that they could trade on the London Metal Exchange. The
Bankers sought an assurance from the parent company of Metals, the Malaysian Mining
Corporation (Corporation) as to their responsibility regarding Metals’ ability to repay the
loan.
In the various meetings between Bankers and the Corporation it was made clear that it
was the Corporation’s POLICY ‘not’ to ‘guarantee’ the borrowings of their subsidiary
companies. A ‘letter of comfort’ was eventually provided by the Corporation to Bankers
rather than a guarantee. It read:
‘It is our policy to ensure that the business of MMC Metals Ltd is at all times in a
position to meet it’s liabilities to you under the above agreement’.
The Tin Market collapsed and Metals went into liquidation. Bankers called upon the
Corporation to ensure that they got their loan repaid from Metals. The Corporation said
that it did not have to ensure that Bankers got their money.
At first instance, Hirst J said that Bankers could recover the money, the transaction being
highly commercial with there being no sign of the normal presumption of ITCLR having
been rebutted.
In the Court of Appeal however it was held that there was no binding contract as there
was not ITCLR. Gibson LJ said that the trial judge had only ‘found’ ITCLR by saying
that the words, ‘It is our Policy’ in the letter of comfort ‘necessarily’ meant ‘It is our
policy and will be our policy’. In other words, the trial judge implied into the words a
‘future promise’. Gibson LJ held that this was wrong. The letter of comfort words were
written as a statement of ‘present fact’ not as a promise of future conduct.
This case only seems to make good commercial sense because of the background
circumstances whereby the Corporation had made it very clear that they did not want to
give a guarantee. You may wish to reflect on the Bowerman v ABTA case mentioned
earlier where the use of present tense words did not prevent the Court of Appeal finding a
legally binding unilateral contract.
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Track/Slide 19 01.11
Finally, the case of Edmonds v Lawson 2000 is probably of interest to some of you.
At first instance it was held that the pupillage of a pupil barrister was a contract of
employment for the purposes of the National Minimum Wage Act 1998 because there
was ITCLR because it was a business setting.
In the Court of Appeal it was held that there was ITCLR and so a binding contract BUT
that it was not covered by the Act because it was not ‘a contract of apprenticeship’. The
court focused on the ‘seriousness’ of the arrangement for all concerned and so found
ITCLR.
We can now leave the commercial setting and move on to consider domestic/social
arrangements.
Track/Slide 20 04.09
Having considered the position regarding ITCLR in the commercial setting, we can now
move on to consideration of the
DOMESTIC/SOCIAL SETTING.
The usual presumption is that in domestic situations agreements are not intended to be
legally enforceable in the courts. We can consider some key cases.
First, Balfour v Balfour 1919
In this case a husband verbally promised to pay his wife £30 a month while he went to
work in Ceylon and she remained in England while her health improved. When things
turned sour between them, she started divorce proceedings. She also sued her husband to
enforce the payment of the £30 a month. At first instance she was successful but in the
Court of Appeal the husband’s appeal was successful. The leading judgment is that of
Lord Atkin who said that there was no contract here because in no way could one say that
the husband intended to create legally binding relations with the oral agreement. Note
that the couple were on good terms when the agreement was made.
However, this presumption can be rebutted.
Second, Merritt v Merritt 1970
In this case a husband and wife separated. They met in a car and he agreed to pay her
£40 a month and wrote on a piece of paper at her insistence that once she had paid the
mortgage, partly out of the £40 and her own money, he would transfer the house to her
name. He did not do this and so she brought the issue to court.
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It was held that the normal presumption about family situations not creating I to CLR was
rebutted here because when the agreement was made in the car, the two of them were no
longer in amity – there was hostility between them.
Thirdly, Jones v Padavatton 1969
In this case there was an arrangement between a mother and a daughter concerning a
house in London. The daughter had moved to London from the USA to study to become
a barrister – the mother bought the house but let the daughter live in it rent free and let
her let out rooms. When their relationship turned sour, and daughter not doing too well
in the bar exams, the mother sued for possession of the house. It was held that there was
no legally binding contract between the two – the presumption against an ITCLR in the
family situation was not rebutted – the agreement between them was quite loosely
arranged and vague and there was nothing in writing. They were just ‘trusting’ one
another. Salmon LJ thought that one could find ITCLR here but felt that even if present
the agreement was not enforceable because it was too difficult to ascertain just what the
terms of the contract would be – the whole arrangement was very vague.
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