English Law/Contract/Agreement

How is an Agreement Defined?
In most cases, an agreement is created when the terms of an offer by one party are mirrored by unequivocal acceptance by a second party. When looking for evidence that parties to a contract have reached an agreement however, it is important to remember that the courts do not normally consider what the parties subjectively think they have agreed to. Instead, the courts look for what is known as the 'phenomenon' of agreement–the appearance of agreement as viewed from the perspective of the objective observer. For this reason, many of the leading cases in this field involve one or more of the parties to a contract believing that they have not agreed to enter into a binding agreement, yet the courts have held that their words and conduct objectively indicate that they did agree to be bound, and therefore a valid contract has been formed.

The Objective Test
Whether an offer has been made, or it has been accepted, is therefore decided by asking what a reasonable person would have thought was intended. The key case to understand this is Smith v Hughes. In this case, a trainer of racehorses, Hughes, contracted with Smith, a dealer of oats, to buy oats to feed his horses. Hughes needed 'old' oats rather than 'new' oats, as only old oats would be suitable for the horses. Smith provided a sample of the oats to Hughes who then agreed to place an order for oats. Upon delivery, Hughes discovered that the oats were new rather than old and refused to pay for them. Smith then sued Hughes for breach of contract.

The court held that Hughes' conduct was indicative to a reasonable outside observer that he did intend to buy oats which matched the sample provided. Since there was no finding that Smith had in any way misrepresented the quality of the oats, there was a binding contract and Hughes was bound to pay for them.

“If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.” per Blackburn J at p 607

Offers are different from "invitations to treat", which cannot be simply accepted by the other party. For example, the display of goods in a shop, even with a price tag, is an invitation to treat, so that an offer is only made when a customer takes a product to the counter and the shopkeeper can decide whether to accept the offer. Similarly, and as a very general rule, an advertisement, the invitation to bid at an auction with a reserve price, or the invitation to submit a tender bid are not considered offers. On the other hand, a person inviting tenders may fall under a duty to consider the submissions if they arrive before the deadline, so the bidder (even though there is no contract) could sue for damages if their bid is never considered. An auctioneer who publicises an auction as being without a reserve price falls under a duty to accept the highest bid. An automated vending machine constitutes a standing offer, and a court may construe an advertisement, or something on display like a deckchair, to be a serious offer if a customer would be led to believe they were accepting its terms by performing an action. Statute imposes criminal penalties for businesses that engage in misleading advertising, or not selling products at the prices they display in store, or unlawfully discriminating against customers on grounds of race, gender, sexuality, disability, belief or age. The article 2:201 suggests that most EU member states count a proposal to supply any good or service by a professional as an offer.

Once an offer is made, the general rule is the offeree must communicate her acceptance in order to have a binding agreement. Notification of acceptance must actually reach a point where the offeror could reasonably be expected to know, although if the recipient is at fault, for instance, by not putting enough ink in their fax machine for a message arriving in office hours to be printed, the recipient will still be bound. This goes for all methods of communication, whether oral, by phone, through telex, fax or email, except for the post. Acceptance by letter takes place when the letter is put in the postbox. The is a product of history, and does not exist in most countries. It only exists in English law so long as it is reasonable to use the post for a reply (e.g. not in response to an email), and its operation would not create manifest inconvenience and absurdity (e.g. the letter goes missing). In all cases it is possible for the negotiating parties to stipulate a prescribed mode of acceptance. It is not possible for an offeror to impose an obligation on the offeree to reject the offer without her consent. However, it is clear that people can accept through silence, firstly, by demonstrating through their conduct that they accept. In , although the had never returned a letter from Mr Brogden formalising a long term supply arrangement for Mr Brogden's coal, they had conducted themselves for two years as if it were in effect, and Mr Brogden was bound. Secondly, the offeror may waive the need for communication of acceptance, either expressly, or implicitly, as in . Here a quack medicine company advertised its "smoke ball", stating that if a customer found it did not cure them of the after using it thrice daily for two weeks, they would get £100. After noting the advertisement was serious enough to be an offer, not or an, the Court of Appeal held the accepting party only needed to use the smokeball as prescribed to get the £100. Although the general rule was to require communication of acceptance, the advertisement had tacitly waived the need for Mrs Carlill, or anyone else, to report her acceptance first. In other cases, such as where a reward is advertised for information, the only requirement of the English courts appears to be knowledge of the offer. Where someone makes such a unilateral offer, they fall under a duty to not revoke it once someone has begun to act on the offer. Otherwise an offer may always be revoked before it is accepted. The general rule is that revocation must be communicated, even if by post, although if the offerree hears about the withdrawal from a third party, this is as good as a withdrawal from the offeror himself. Finally, an offer can be "killed off" if, rather than a mere inquiry for information, someone makes a counter offer. So in , when Wrench offered to sell his farm for £1000, and Hyde replied that he would buy it for £950 and Wrench refused, Hyde could not then change his mind and accept the original £1000 offer.

While the model of an offer mirroring acceptance makes sense to analyse almost all agreements, it does not fit in some cases. In  the rules of a yacht race stipulated that the yachtsmen would be liable, beyond limits set in statute, to pay for all damage to other boats. The Court of Appeal held that there was a contract to pay arising from the rules of the competition between The Satanita's owner and the owner of Valkyrie II, which he sank, even though there was no clear offer mirrored by a clear acceptance between the parties at any point. Along with a number of other critics, in a series of cases proposed that English law ought to abandon its rigid attachment to offer and acceptance in favour of a broader rule, that the parties need to be in substantial agreement on the material points in the contract. In  this would have meant that during a "battle of forms" two parties were construed as having material agreement on the buyer's standard terms, and excluding a price variation clause, although the other court members reached the same view on ordinary analysis. In  he would have come to a different result to the House of Lords, by allowing Mr Gibson to buy his house from the council, even though the council's letter stated it "should not be regarded as a firm offer". This approach would potentially give greater discretion to a court to do what appears appropriate at the time, without being tied to what the parties may have subjectively intended, particularly where those intentions obviously conflicted.

In a number of instances, the courts avoid enforcement of contracts where, although there is a formal offer and acceptance, little objective agreement exists otherwise. In , where the seller of some Argentine hare skins quoted his prices far below what previous negotiations had suggested, the buyer could not enforce the agreement because any reasonable person would have known the offer was not serious, but a mistake. Moreover, if two parties think they reach an agreement, but their offer and acceptance concerns two entirely different things, the court will not enforce a contract. In ', Raffles thought he was selling cotton aboard one ship called ', which would arrive from in Liverpool in December, but Wichelhaus thought he was buying cotton aboard another ship called The Peerless that would arrive in September. The court held there was never  (Latin: "agreement to the [same] thing"). Where agreements totally fail, but one party has performed work at another's request, relying on the idea that there will be a contract, that party may make a claim for the value of the work done, or . Such a claim allows recovery for the expense the claimant goes to, but will not cover her expectation of potential profits, because there is no agreement to be enforced.