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Wiss, J (2003), Formation of Contracts, available online at
http://www.papplewickcollege.com/Example4LawYR3.doc
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Formation of Contracts
General Comments: A sound, well-structured and well written answer which
incorporated good logic and pertinent case law. In relation to Energysave, it is worth at
least considering whether there was an offer or invitation to treat. Each answer will of
course proceed in a different direction. In relation to Heatahome, your conclusion about
the existence of a contract, unless Hyde applies, could be re-examined. When Winston
clicks ‘OK’, what precisely, according to the words on the website, is he agreeing to?
Why, in addition, is paperwork being sent out to him, if the contract has already been
formed online?
(1st class)
To advise Winston what action may be taken by him or against him, it is necessary to
establish with whom he has a binding contract. For there to be a contract, there must be
agreement consisting of offer and acceptance, consideration and an intention to create
legal relations.
The relationship between Winston and Gasgo, Energysave Ltd and Heatahome is
commercial, and there is a presumption that both parties intend the agreement to be
legally binding [Edwards v Skyways (1964) REF1].  [75]
The consideration here is the price paid, or promised, by Winston for the Service
Company’s promise of service. The money is a benefit to the Company and a detriment
to Winston; conversely, the service is a benefit to Winston and a detriment to the
Company [Currie v Misa 1875 REF2]. [45]
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 Good, well spotted. The determining factor in each case is whether Agreement was
reached. For an agreement to be valid, there must be an offer by one party – where the
offeror intends to be bound straight away by his offer – and an unequivocal acceptance
by the other party. [45]
[Winston’s liability to Gasgo]
Winston receives a letter from Gasgo plc stating that, unless they hear from Winston,
they will renew his contract automatically. Although Gasgo’s letter includes a price and
constitutes an offer, Felthouse v Bindley 1862 [REF3] shows that silence does not constitute
acceptance.  In this case, it was held that an uncle had no right to impose upon his
nephew a sale of his horse unless his nephew wrote to him to repudiate the offer. This
rule is designed to protect the offeree and it is not therefore relevant that Gasgo expressly
waived the need for communication of acceptance [Unit 3 p. 86 REF 4]. Therefore,
although Winston does nothing about the offer from Gasgo, this will not constitute
acceptance and there is no binding contract. [94]
[Winston’s liability to Energysave Ltd]
On the 28th July, Winston telephones Energysave Ltd, who quote a price for an annual
contract based on information he has given them. This constitutes an offer. [Is there any
mileage in the notion that we also have an invitation to treat?] An offer is “..an expression
of willingness to contract on certain terms, made with the intention that it shall become
binding as soon as it is accepted by the person to whom it is addressed” [G. H. Treitel
The Law of Contract p.8 – p.40 REF 5] [62] – has emphasis been added here (“certain
terms”)? If so you need to say so.
Winston replies “at that price I’d be a fool not to sign up with you.” Acceptance is “a
final and unqualified expression of assent to the terms of the offer” [Trietel, p.16 REF5].
Winston does not accept the offer expressly – he just states that he would be a fool not to.
[48]
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The salesperson states he will send documentation for Winston’s signature. Energysave
can choose their means of acceptance and oust the ‘postal rule’ established in Adams v
Lindsell (1818) [REF7] and Household Fire Insurance Co v Grant 1879 [REF6]. If Winston
had expressly accepted the offer on the telephone, the statement concerning paperwork
wouldn’t be relevant. [avoid abbreviations] The fact that a formalised agreement has yet
to be provided and signed is irrelevant – generally, contracts do not have to be in a
particular form and the parties would already be in agreement [Branca v Cobarro 1947 2
All ER 101 REF8]. However, I don’t believe Winston accepted the offer expressly. [use
neutral language] [81]
Winston received the documentation on 30th July, signed it immediately and posted it on
his way to work. The documents were sent by post and so presumably the postal rule will
apply. Posted acceptance is complete on posting [Adams v Lindsell (1818) REF7], 
unless offeror expressly states that acceptance has to be communicated i.e. it must reach
him to be binding [Household Fire Insurance Co v Grant 1879 REF6].  Winston now has
a binding contract with Energysave – there is a valid offer, acceptance, consideration and
a presumed intention to create legal relations. Unless the postal rule does not apply,
Winston is bound. [89]
[Winston’s liability to Heatahome/Heatahome’s liability to Winston]
Winston then visits the Heatahome website, which offers a quote based on information
supplied by Winston, including a price. The site describes the quote as an offer and, by
Trietel’s definition, it would appear to be as such [REF5]. [38]
The site prompts for Winston to click okay and the relevant documentation will be sent.
Winston clicks okay. Bradgate states: “It is not uncommon for businesses to make
contracts … and then later send out standard terms…” [REF 9]. The documents, as a
formalised agreement or paperwork, are irrelevant [Branca v Cobarro 1947 REF8] and
furthermore, if the documents are not forthcoming or state different express terms to
those agreed (i.e. the price), the original agreement will remain in place. [73]
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Winston clicked okay to “take advantage of their offer” and I believe [use neutral
language] this constitutes acceptance. Winston therefore has a valid contract with
Heatahome. [23] – Acceptance of what though? Read the EXACT words.
Winston telephones Energysave to try and cancel the contract made with them. A strict
application of the postal rule would mean that retraction of Winston’s acceptance is
impossible. There is a binding contract as soon as the letter of acceptance is posted and
retraction is only possible before a contract comes into existence. The only exception
would be if Energysave had ousted the postal rule, or expressly stated that acceptance had
to be communicated i.e. had to reach them.  [79]
Winston hears a recorded message and leaves a message saying he has decided not to
take out a maintenance contract with Energysave. [22]
This is not relevant if Winston already has a binding contract via strict application of the
postal rule. If he doesn’t, The Brimnes [1975] [REF10] must be considered. A notice of
revocation in this case was held to be effective when the sender would reasonably expect
it to be read – and in this case, during office hours would be reasonable. [56] (Avoid
abbreviations)
Winston e-mails Heatahome, and receives the response. To withdraw their offer,
Heatahome must make sufficient notice of withdrawal before the offer was accepted.
[Shuey v United States (1875) 92 US 73 REF11]. Assuming they didn’t, their ‘revocation’
was ineffective as their original offer had already been accepted by Winston. The new
offer is of no relevance unless Heatahome specified the original offer had to be accepted
by documentation – in which case the new price is a new term and destroys the original
offer [Hyde v Wrench (1840) REF12]. Winston would not, in that case, have to accept it.
[90] 
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In conclusion, Winston doesn’t have a binding contract with Gasgo unless at some point
he authorised them to automatically renew his contract. Silence is not acceptance
Felthouse v Bindley 1862 [REF3]. [26]
Winston does have a binding contract with Energysave applying the strict postal rule,
unless they ousted the postal rule or required acceptance to be communicated, in which
case his revocation is acceptable when they can reasonably be expected to have received
it [The Brimnes [1975] REF10]. [42]
Finally, Winston does have a contract with Heatahome as he accepted their offer- the fact
that documentation did not arrive is irrelevant unless they specifically stated that
acceptance must be made by documentation, in which case, [Hyde v Wrench (1840)
REF12]
would apply and Winston is not bound to accept their new offer. [48] – What was
the document for if not to stipulate contractual terms? Where does that leave the status of
the online ‘contract’?
References:
1.
Edwards v Skyways (1964) 1 WLR 349 cited in Esso Petroleum Ltd v
Commissioners of Customs & Excise, House of Lords (1976) 1 W L R 1; (1976)
1 All E. R. 117, in Smith & Thomas/Smith J., A Casebook on Contract (2000)
pp.195 - 196, Sweet & Maxwell, London.
2.
Currie v Misa (1875) L. R. 10 Ex. at 162 cited in Pollock, Principles of Contract
(13th Edition) p. 133, cited in Smith & Thomas/Smith J., A Casebook on Contract
(2000) p.200, Sweet & Maxwell, London.
3.
Felthouse v Bindley 1862 11 CB 869 in Smith & Thomas/Smith J., A Casebook
on Contract (2000) pp. 50 - 51, Sweet & Maxwell, London.
4.
B: Acceptance – p. 86 Unit 3, Acceptance in W300: Law: Agreements, Rights &
Responsibilities Manual 1, The Open University, Milton Keynes
5.
Treitel, G. H. The Law of Contract 10th Edition p.8 – p.40 in A: What is an offer?
– p. 40 Unit 2, Offer in W300: Law: Agreements, Rights & Responsibilities
Manual 1, The Open University, Milton Keynes
Page 5 of 6
6.
Household Fire Insurance Co v Grant (1879) Court of Appeal 4 Ex.D 216 in
Smith & Thomas/Smith J., A Casebook on Contract (2000) pp. 53 - 57, Sweet &
Maxwell, London.
7.
Adams v Lindsell (1818) 1 B&A 681 considered in B: Acceptance – pp. 87 – 88
Unit 3, Acceptance in W300: Law: Agreements, Rights & Responsibilities
Manual 1, The Open University, Milton Keynes
8.
Branca v Cobarro 1947 2 All ER 101 cited in Unit 3, Acceptance p.84 in W300:
Law: Agreements, Rights & Responsibilities Manual 1, The Open University,
Milton Keynes
9.
Bradgate, R. Commercial Law (3rd Edition - 2000) p.41 Consideration and
commercial contracts, Butterworths, London/Edinburgh/Dublin.
10.
The Brimnes (1975) Q. B. 929; cited in Smith & Thomas/Smith J., A Casebook on
Contract (2000) p.65, Sweet & Maxwell, London.
11.
Shuey v United States (1875) 92 US 73 in Smith & Thomas/Smith J., A Casebook
on Contract (2000) pp. 82 - 83, Sweet & Maxwell, London.
12.
Hyde v Wrench (1840) 3 Beav. 334 in Smith & Thomas/Smith J., A Casebook on
Contract (2000) p.75, Sweet & Maxwell, London
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