Agreement

1. The test of whether the parties have agreed and what they have agreed to is objective and not subjective: the question is what each party appears to have agreed to from the reasonable perspective of the other party, not what each genuinely agreed to.

2. The cases traditionally interpreted as exceptions to the objective test (under the heading of ‘mistake as to terms’) can be understood as applications of contextual objectivity.

4. An offer is a manifestation by one party (the offeror) of a willingness to be bound by the terms proposed as soon as the party to whom the offer is addressed (the offeree) signifies acceptance of these terms.

5. An offer must be distinguished from non-offers, such as an invitation to treat or a request for or supply of information, which do not convey a commitment to be bound on the other’s acceptance; assent to them does not create enforceable contracts.

6. In general:

  • displays and advertisements are regarded as invitations to treat (but this ‘presumption’ may be rebutted as in Carlill v Carbolic Smoke Ball and Chapelton v Barry);
  • timetables and automatic vending machines are regarded as offers (subject to express statements to the contrary); and
  • putting goods up for auction and inviting tenders are regarded as invitations to treat, leaving the bidder or tenderer to make the offer. If the auction is stipulated to be ‘without reserve’, then an offer will be implied that the auctioneer will sell to the highest bidder.

7. An acceptance is an unequivocal expression of consent to the proposal contained in the offer, and has the effect of immediately binding both parties into a contract.

8. A valid acceptance must:

  1. correspond to the offer (otherwise it may be a counter-offer which kills off the original offer; the offeree cannot thereafter accept it); this requirement generates the problem of the ‘battle of forms’ (where each party in turn insists on their own terms and performance commences before any express consensus is reached), which the courts resolve by reference to who fired the ‘last shot’;
  2. be made in response to the offer (identical cross-offers do not make a contract);
  3. comply with any stipulated mandatory mode of acceptance (although where it is permissive, another mode will suffice if the offeror is not disadvantaged); normally acceptance cannot be inferred from the offeree’s silence; and
  4. be communicated to the offeror (fixing the time of contract formation when the terms are crystallised and  withdrawal from the binding contract becomes impossible):
    • where the appropriate mode of communication is by post and the postal acceptance rule applies (it may not), acceptance takes place when it is posted even if the letter is delayed, never reaches the addressee or is overtaken by speedier communication of rejection;
    • where the mode of communication is two-way instantaneous, such as face-to-face conversations or telephone, acceptance takes effect when and where it is brought to the offeror’s attention; and
    • where the mode of communication is one-way instantaneous, such as emails or answerphone messages, there is no set rule and the courts are likely to apply a standard of reasonableness.

9. Contract formation involving email, websites, or instantaneous messaging have largely superseded previous methods of contract formation, including facsimile and telex communications.  Existing common law principles apply but traders must comply with the requirements of the Electronic Commerce (EC Directive) Regulations 2002, and the dominant view is that acceptance takes effect when an email or electronic message arrives in the server folder.

10. Where the contract is unilateral (a promise in exchange for  a completed act) rather than bilateral (a promise for a promise), the promisee’s reliance by commencing the stipulated act is protected by: (i) waiving communication of acceptance (the contract is formed on completion of the stipulated act); and (ii) perhaps, barring revocation of the offer once the offeree has commenced ­performance.

11. An offer cannot be transformed into a contract by acceptance once it is terminated. An offer may be terminated by the offeror’s revocation (which must actually be communicated to the offeree before communication of acceptance), the offeree’s rejection, lapse of time and death of the offeror or the offeree.

12. Lord Denning’s alternative approach to formation has been rejected by the House of Lords, although its essence is reflected in the UNIDROIT Principles of International Commercial Contracts and the European Draft Common Frame of Reference. It directs the search towards conduct which evinces sufficient intention to be bound and agreement on material terms, leaving the courts to reach fair compromises on other terms.

13. An offer which is accepted must be sufficiently certain to be enforceable as a contract. It will not be if it expressly (eg the agreement is ‘subject to contract’ or to further agreement) or impliedly (because of vagueness or silence on material terms) anticipates the need for further agreement.

14. The courts are particularly keen to cure uncertainty where the parties have commenced performance of the contract. They can do so by reference to previous dealing, custom of the trade, the standard of reasonableness and substituting for the parties’ broken down but non-essential machinery.

15. An agreement to negotiate in good faith ( a ‘lock-in’ agreement) is unenforceable while an agreement not to negotiate with third parties ( a ‘lock-out’ agreement) is enforceable if time limited.

16. There must be an intention to create legal relations for a sufficiently certain agreement to be enforceable. The requirement is based on public policy and translates into strong presumptions that parties do not intend to create legal relations in family and social agreements, but do intend to create legal relations in commercial contracts. These presumptions are rebuttable by clear evidence to the contrary.