CASES ON FORMATION OF A CONTRACT

CASES ON FORMATION OF A CONTRACT
OFFER
PAYNER V. CAVE (1789)
The defendant made the highest bid for the plaintiff’s goods at an action sale, but he withdrew his bid before the fall of the auctioneer’s hammer. It was held that the defendant was not bound to purchase the goods. His bid amounted to an offer which was entitled to withdraw at any time before the auctioneer signified by him king down the hummer. Note the common law rule laid down in the case has now been codified in section 57(2) of the Sale of Goods Act 1979.

FISHER V. BELL (1960) (INVITATION TO TREAT)
A shopkeeper displayed a flick knife with a price tag in the window. The Restriction of Offensive Weapons Act, 1959 made it an offence to offer for sale a flick knife. The shopkeeper was prosecuted in the magistrates’ court but the Justices declined to convict on the basis that the knife had not, in law been offered for sale.
The decision was upheld by the Queen’s Bench provisional court where Lord Parker CJ stated: it is perfectly clear that according to the ordinary law of contract the display of an article with a price on it in a shop window is merely an invitation to treat. It is in no sense on offer for sale the acceptance of which constitutes a contract”.

DISPLAY OF GOODS FOR SALE
In a shop. In Pharmaceutical Society of GB v Boots Cash  Chemists Ltd (1952), the Court of Appeal held that, in a self-service shop, the sale takes place when the assistant
accepts the customer’s offer to buy the goods. The display of goods is a mere invitation to treat.

In a shop window. In Fisher v Bell (1961), it was held that the display of a ‘flick knife’ in a shop window with a price attached was an invitation to treat. However, it was suggested by Lord Denning in Thornton v Shoe Lane Parking (1971) (see below) that vending machines and automatic ticket machines are making offers since, once the money has been inserted, the transaction is irrevocable.

In an advertisement. In Partridge v Crittenden (1968), an advertisement which said ‘Bramble finch cocks and hens –25s’ was held to be an invitation to treat. The court pointed out that, if the advertisement was treated as an offer, this could lead to many actions for breach of contract against the advertiser, as his stock of birds was limited. He could not have intended the advertisement to be an offer. However, if the advertisement is unilateral in nature, and there is no problem of limited stock, then it may be an offer. See Carlill v Carbolic Smoke Ball Co Ltd (above). Advertising a reward may also be a unilateral offer.

PARTRIDGE V. CRITTENDEN (1968)
It was an offence to offer for sale certain wild birds. The defendant had advertised in a periodical ‘Quality Bramblefinch cocks, Breamblefinch hens, 25s each’. His conviction was quashed by the High Court. Lord Parker CJ stated that when one is dealing with advertisements and circulars, unless they indeed come from manufacturers to treat and not offers for sale. In avery different context Lord Herschell in Grainger v Gough (Surveyor of Taxes) [1896] AC, said this in dealing with a price list:

“The transmission of such a price list does not amount to an offer to supply an unlimited quantity of the wine described at the price named, so that as soon as an order is given there is a binding contract to supply that quantity. If it were so, the merchant might find himself involved in any number of contractual obligations to supply wine of a particular description which he would be quite unable to carry out, his stock of wine of that description being necessarily limited”.

CARLILL V CARBOLIC SMOKE BALL COMPANY (1893)
An advert was placed for ‘smoke balls’ to prevent influenza. The advert offered to pay E100 if anyone contracted influenza after using the ball. The company deposited E1,000 with the Alliance Bank to show their sincerity in the matter. The plaintiff bought one of the balls but contracted influenza. It was held that she was entitled to recover the E100. the Court of Appeal held that;
The deposit of money showed an intention to be bound, therefore the advert was an offer.
It was possible to make an offer to the world at large, which is accepted by anyone who buys a smokeball.
The offer of protection would cover the period of use.
The buying of the smokeball amounted to acceptance.

HARVEY V. FACEY (1893)
The plaintiffs sent a telegram to the defendant, “Will you sell Bumper Hall Pen? Telegram lowest cash price”
The defendants reply was “Lowest price E900”
The plaintiff telegraphed “We agree to buy…for E900 asked by you”.
It was held by the Privy  Council the defendants telegram was not an offer but simply an indication of the minimum price the defendants would want, if they decided to sell. The plaintiff second telegram could not be an acceptance.

GIBSON V. MCC (1979)
The council sent to tenants details of a scheme for the sale of council houses. The plaintiff immediately replied paying the E3 administration fee. The council replied: “The corporation may be prepared to sell the house to you at the purchase price of E2,725 less 20 percent E2,180 (free hold)”. The letter gave details about a mortgage and went on “This letter should not be regarded as a firm offer of a mortgage. If you would like to make a formal application to buy your council house, please complete the enclosed application form and return it to make me as soon as possible” G filled in and returned the form. Labour toot control of the council from the Conservatives and instructed their officers not to sell council  houses unless they were legally bound to do so. The council declined to sell to G.

In the House of Lords, Lord Diplock stated that words italicised seem to make it quite impossible to construe this letter as a contractual offer capable of being converted into a legally enforceable open contract for the sale of land by G’s written acceptance of it. It was a letter setting out the financial terms on which it may be the council would be prepared to consider a sale and purchase in due course.

HARVELA V. ROYAL TRUST (1985)
Royal Trust invited offer by sealed tender of shares in a company and undertook to accept the highest offer. Harvela bid $2,175,000 and Sir Leonard Ouster bridge bid $2,100,000 of $100,000 in excess of any other offer. Royal Trust accepted Sir Leonard’s offer. The trial Judge gave judgment for or in favour of Harvela.
In the House of Lords, Lord Temple man stated; “To constitute a fixed bidding sale all that was necessary was that the vendors should invite confidential offers and should undertake to accept the highest offer. Such was the form of the invitation. It follows that the invitation upon its true construction created a fixed bidding sale and that Sir Leonard was not entitled to submit and the vendors were not entitled to accept a referential bid”.

BLACKPOOL AERO CLUB V. BLACKPOOL BOROUGH COUNCIL (1990)
BBC invited tenders to operate an airport, to be submitted by noon on a fixed date. The plaintiff tender was delivered by hand and put in the Town Hall letter box at 11am. However, the tender was recorded as having been received late and was not considered. The club sued for breach of an alleged warranty that a tender received by the deadline would be considered. The judge awarded damages for breach of contract and negligence. The council’s appeal was dismissed by the Court of Appeal.

ACCEPTANCE
BROGDEN V. MRS (1877)
B supplied coal to MRC for many years without an agreement. MRC sent a draft agreement to B who filled in the name of an arbitrator signed it and returned it to MRC’s agent who put it in his desk. Coal was ordered and supplied in accordance with the agreement but after a dispute arose B said there was no binding agreement.
It was held that B’s returning of the amended document was not acceptance but a counter-offer which could be regarded as accepted either when MRC ordered coal or when B actually supplied. By their conduct the parties had indicated their approval of the agreement.

CASES INTENTION TO CREATE LEGAL RELATION
SOCIAL & DOMESTICT AGREEMENT
LENS V. DEVONSHIRE CLUB [1914]
It was held that the winner of a competition held by a golf club could not sue for his prize where “no one concerned with that competition over intended that there should be any legal results flowing from the conditions posted and the acceptance by the competitor of those conditions”.

BALFOUR V. BALFOUR (1919)
The defendant, who worked in Ceylon, came to England with his wife on holiday. He later returned to Ceylon alone, the wife remaining in England for health reasons. The defendant promised to pay the plaintiff E30 per month as maintenance, but failed to keep up payments when the marriage broke up. The wife sued. It was held that the wife could not succeed because: (1) She had provided no consideration for the promise to pay E30; and (2) Agreements between husbands and wives are not contracts because the parties do not intend them to be legally binding.

MERIT V. MERIT (1970)
The husband left his wife. They met to make arrangements for the future. The husband agreed to pay E10 per month maintenance, out of which the wife would pay the mortgage. When the mortgage was paid off he would transfer the house from joint names to the wife’s name. He wrote this down and signed the paper, but later refused to transfer the house.
It was held that when the agreement was made, the husband and wife were no longer living together; therefore they must have intended the agreement to be binding, as they would base their future actions on it. This intention was evidenced by the writing. The husband had to transfer the house to the wife.

PARKER V. CLARKER (1960)
Mrs. Parker was the niece of Mrs. Clarker. An agreement was made that the Parkers would sell their house and lives with the Clarkers. They would share the bills and the Clarkers would then leave the house to the Parkers. Mrs. Clarke wrote to the Parkers giving them the details of expenses and confirming the agreement. The Parkers sold their house and moved in. Mr. Clarke changed his will leaving the house to the Parkers. Later the couples fell out and the Parkers were asked to leave. They claimed damages for breach of contract.
It was held that exchange of letters showed the two couples were serious and the agreement was intended to be legally binding because (1) the Parkers had sold their own home and (2) Mr. Clarke his will. Therefore the Parkers were entitled to damage.

TANNER V. TANNER (1975)
A man promised a woman that the house in which they had lived together (without being married) should be available for her and the couple’s children. It was held that the promise and contractual force because, in reliance on it, the woman had moved out of her rent-controlled flat.

JONES V. PADAVATTON (1969)
In 1962, Mrs. Jones offered a monthly allowance to her daughter if she would give up her job in America and come to England and study to become a barrister. Because of accommodation problems Mrs. Jones bought a house in London where the daughter lived and received rents from other tenants. In 1967 they fell out and Mrs. Jones claimed the house even though the daughter had not even passed half of her exams.
It was held that the first agreement to study was a family arrangement and not intended to be binding. Even if it was, it could only be deemed to be for a reasonable time, in this case five years. The second agreement was only a family agreement and there was no intention to create legal relations. Therefore, the mother was not liable on the maintenance agreement and could also claim the house.

SIMPKINS V. PAYS (1955)
The defendant, her granddaughter, and the plaintiff, a paying lodge shared a house. They all contributed one-third of the stake in entering a completion in the defendant’s name. one week a prize of E750 was won but on the defendant’s refusal to share the prize, the plaintiff sued for a third.
It was held that the presence of the outsider rebutted the presumption that it was a family agreement and not intended to be binding. The mutual arrangement was a joint enterprises to which cash was contributed in the expectation of sharing any prize.


BUSINESS & COMMERCIAL AGREEMENTS
ROSE V. CROMPTON BROS (1925)
The defendants were paper manufacturer and entered into an agreement with the plaintiffs where by the plaintiffs were to act as sole agents for the sale of the defendant’s paper in US. The written agreement contained a clause that it was not entered into as a formal or legal agreement and would not be subject to legal justification in the courts but was a record of the purpose and intention of the parties to which they honourably pledged themselves that it would be carried through with mutual loyalty and friendly co-operation. The plaintiffs place orders for paper which were accepted by the defendants. Before the orders were sent, the defendants terminated the agency agreement and refused to send the paper.
It was held that the sole agency agreement was not binding owing to the inclusion of the “honourably pledge clause”. Regarding the orders which had been placed and accepted, however, contracts had been created and the defendants, in failing to execute them , were in breach of contract.

JONES V. VERNON POOLS (1938)
The plaintiff claimed to have won the football pools. The coupon stated that the transaction was “binding in honor only” it was held that the plaintiff was not entitled to recover because the agreement was based on the honour of the parties (and thus not legally binding).

EDWARD V. SKYWAYS (1964)
The plaintiff pilot was made redundant by the defendant. He has been informed by his pilots association that he would be given an ex gratia payment (i.e., a gift). The defendant failed to pay and the pilot sued. The defendant argued that the use of words “ex gratia” showed that there was no intention to create legal relations. It was held that this agreement related to business matters and was presumed to be binding. The defendants had failed to rebut this presumption.

The court also stated that the words “ex gratia” or “without admission of liability” are used simply to indicate that the party agreeing to pay does not admit any pre-existing liability on his part; but he is certainly not seeking to preclude the legal enforceability of the settlement itself by describing the payment as “ex gratia”

JH MILNER V. PERCY BILTON (1966)
A property developer reached an “understanding” with a firm of solicitors to employ them in condition with a proposed development, but neither side entered into a definite commitment. The use of deliberately vague language was held to negative contractual intention.

WEEKS V. TYBALD (1605)
The defendant “affirmed and published that he would give E100 to him that should marry his daughter with his consent”. The court held that “It is not reasonable that the defendant should be bound by such general words spoken to excite suitors”.

HEILBUT, SYMONS & CO V. BUCKLETON (1913)
The plaintiff said to the defendant’s manager that he understood the defendants to be “bringing out a rubber company”. The manager replied that they were, on the strength of which statement the plaintiff applied for, and was allotted, shares in the company. It returned out not to be a rubber company and the plaintiff claimed damages, alleging that the defendants had warranted that it was a rubber company. The claim failed as nothing said by the defendants’ manager was intended to have contractual effect.

KLEINWORT BENSON V. MALAYSIA MINING CORP (1989)
The plaintiff back agreed with the defendants to lend money to a subsidiary of the defendants. As part of the arrangement, the defendants give the plaintiffs a letter of comfort which stated that it was the company’s policy to ensure that the business of its subsidiary is at all times in a position to meet its liabilities. The subsidiary went into liquidation and the plaintiffs claimed payment from the defendants.
It was held that the letters of comfort were statements of the company’s present policy, and not contractual promises as for future conduct. They were not intended to create legal relations and gave rise to more than a moral responsibility on the part of the defendants to meet the subsidiary’s debt.

ESSO PETROLEUM LTD V. COMMISSIONERS OF CUSTOMS AND EXCISE [1976] 1 ALL ER 117
In 1970 the taxpayer (Esso) devised a petrol sale promotion scheme. The scheme involved the distribution of millions of coins to petrol station which sold Esso petrol. Each of the coins bore the likeness of one of the members of the English soccer team which went to Mexico in 1970 to play in the World Cup competition. The object of scheme was that petrol station proprietors should encourage motorists to buy Esso petrol by offering to give away a coins for every four gallons of Esso petrol which the motorists bought. The coins were of little intrinsic value but it was hoped that motorists would persist in buying Esso petrol in order to collect the full set of 30 coins. The scheme was extensively advertised by Esso in the press and on television with phrases such as: “Going free at your Esso Action Station now”, and “We are giving you a coin with every four gallons of Esso petrol you buy”. Folders were also circulated by Esso to petrol stations which stated, interalia: ‘One coin should be given to every motorist who buys four gallons of petrol-two coins for eight gallons and so on’. 4,900 petrol stations joined the scheme. Large posters were delivered by Esso to those stations, the most prominent lettering on the posters stating: ‘The World Cup coins’, ‘one coin given with every four gallons of petrol’. The customs and Excise Commissioners claimed that the coins were changeable to purchase tax under section 2(1) of the Purchase Tax Act of 1963 on the ground that they had been produced in quantity for general sale and therefore fell within Group 25 of Sch 1 to the 1963 Act.

Held (Lord Fraser of Tullybelton dissenting)-The coins had not been produced…for…sale, within Group of Sch 1, and were not therefore changeable   for the following reasons-
On the basis that the posters and other advertising material constituted an offer by the garage proprietors to enter into a contract with each customer to supply a coin with every four gallons of petrol sold, the contract envisaged was not a contract of ‘sale’, since the consideration for the transfer of the coins was not a money payment but the undertaking by the customer to enter into collateral contract to purchase the appropriate quantity of Esso petrol.

(per Viscount Dilhorne Lord Russell of Killowen, Lord Wilberforce and Lord Simon of Glaisdale dissenting) Futhermore, in the circumstances, and in particular in view of the fact that the coins were of little intrinsic value to customers, it could not be inferred that either Esso or the petrol station proprietors on the one hand, or the customers on the other, intended that there should be a legally binding contract to supply the coins to customers who bought the appropriate quantity of petrol. It followed that the coins had been produced for distribution by way of gift and not by way of sale.