Contract Lecture Week 1 Notes

Week 1 Lecture 1:
·     Introduction of contract Law.

·     We enter contracts all the time and contracts take various forms.

·     Contracts can be very informal or even oral by conduct.

·     What matters is that there is an agreement one that the parties agree to be legally
binding/ legally enforceable

·     We’ll be looking at formation of contracts and terms like where they are coming from and
also regulation of certain terms before turning to enforcement of contracts such as breach
then what remedies you can have/damages/compensation/equity

·     Pre contract wrong doings so ways to end the contract such as misrepresentation 

·     Or how contracts can end threw no fault parties this is called frustration

·     The starting has to be the appreciation of what we mean by the law of contract – in all
contract law modules what we look at can only be described as the foundations of all
contracts.

·     The notes also include the law of tort and the law of unjust enrichment the notes tell you
that these three areas form a larger area of Law which is the Private Law of Obligations. It is
important to outline this because there is overlap so in the Law of contract some law of tort
will also be included/relevant eg- Law of negligence.

·     Likewise, when we deal with remedies when the contracts come to an end the law of
unjust enrichment can be relevant.

·      Private Law of obligations – The Law that relates to private relationships.

·     Compensation of loss – distinguishing between contract and tort, both areas are aimed at
regulating relationships between private parties and both areas as a remedy involves
compensation. But can a more precise distinction be made to separate contract and tort
law- the aim of the compensation so following a breach of a contract compensation is to put
the innocent party forward in the position they would’ve been in had the contract been
performed.

·      In contrast, in tort following an act of negligence compensation is aimed at financially

putting the innocent party back in the position they were in before the harm was
done/before the negligent act.
·     So, contract compensation puts you forward to reflect your disappointed
expectations/lost deal or bargain and compensation in tort puts you back in your position
the one you’re in before the act of negligence/harm was done.

·     Common Law relates to Law made from cases, so judge made law.

·     Contract Law is based on common Law whereas Criminal Law is based more on
statute/legislation so acts of law that apply to everyone.

·      A lot of contract law only applies because the parties haven’t been clear about
something. So, if two parties were really clear about the terms of the contract very little
contract law would apply but where there is something left out that is where the rules come
in. unlike legislative law contract law isn’t applied to everyone instead it’s a body of law
when parties haven’t been clear enough about what they intend.

·     Certain cases represent a theory/concept and using that you would be able to predict
how other cases would turn out. Theory/concepts allow you to apply the law with more
accuracy.

·     Theories and concepts that are more generally favoured are by Professors Adam and
Brownsword who identified some traditional approaches and ideologies of contract.

·     Judicial approaches- Formalism/Realism 

·     Formalism – This is about judges interpreting and applying contract Law In a formal way
and by that we mean ‘a strictly rule book-based way’. The advantage of this is legal certainty
and predictability. Parties will know what their rights are and whether they should even
dispute something or not because the rules are applied regardless of the outcome. The
disadvantage is that it could lead to very harsh or even an unfair result because the rules are
being applied without regards of the outcome. The rule is underpinned by the a 19 thcentury
position and notion that Parties are free to enter and reject contracts as they please and
because of that freedom if a party does enter a contract, they can’t complain about it
because they could’ve just refused to enter it in the first place even if it’s one sided.
However, It is severely criticised because it only makes sense that the two parties entering
the contract have the same ability to negotiate but sometimes there is isn’t always fair
‘bargaining power’ between parties so it means freedom of contract can lead to unfairness
because larger more informed parties can take advantage of smaller weaker parties.

·     Realism – This is to do with Judges focusing on the outcome so rather than rule driven
they are result driven. They do this to reflect justice and get the right outcome. Judges will
look at established rules but looking further in realise it’s not an absolute rule and some
discretion and freedom for judges and use it and by this get the right outcome. The
disadvantage is that such an approach can result in uncertainty because the judge has
introduced flexibility in the law which makes the law less predictable.

·     Judges never announce their approach they just give a judgement making it seem like by
applying the Law as its always been applied. However, we can now observe those
judgements which approach it is.
·     Most of contract Law was developed in the 19thcentury.

·     In the mid 20thcentury Parliament has introduced more legislation to restrict freedom of
contract.

·     Ideologies of contract Law – Professors Adam and Brownsword identified two main
ideologies of contract Law

·     Market individualism – The market side of it is contract law being used to encourage
competitive trading between parties to do that it’s got to reflect certainty and allow more
security within the transaction it should reflect rules based on what parties do in
commercial practice it is also consistent with freedom of contract. The individualism side of
it is about parties looking after themselves not relying on the law to be protective.

·     Consumer-Welfarism – This is opposite to Market individualism this emerged in the mid

20thcentury onwards this is about the Law developing to protect weaker parties it is
underpinned by fairness and reasonableness judges will allow the loss to be put on the party
that is in best position to handle the loss. 

Lecture 2:
 
·     Formation of contract- What is needed for a contract to be formed?

·     Treitel gives a definition- is one of the biggest name in contract Law but there are no real
definitions within legislation or cases – A contract is a legally enforceable agreement so an
agreement that parties can take to court and ask judges to enforce it by giving the innocent
party following a breach compensation for their loss. 

·     For an agreement to be classed as a contract there are certain factors that must be
present.

·     A contract is a legally enforceable agreement so therefore to have a contract we must

have what appears to be an agreement between two parties. Along with an agreement
there must also be an intention for a legal relationship in addition, there must also be
consideration which is simply an exchange of value in other words when you look at the
agreement both parties are either giving or promising each other something of value.

·      Agreement – How courts approach an agreement? And why an existence of one could be
a problem? 
·        The courts are always faced with one party that argues ‘we had a deal’ and the other
party says, ‘we didn’t have a contract in the first place’.

·     That’s how the issue of agreement can happen. So, two parties enter/appear to have a
transaction one party doesn’t follow their obligations, so the other party calls them out for
breaching their side of the contract only to be met with the argument that there was no
contract in the first place. So, the legal dispute that goes to court is ‘Was there a contract?’
because if there was then one party was in breach of it.

·      The way that the courts works out whether there was or was not a contract is as follows:

·     The courts adopt an objective approach – This is where the courts view the circumstances
and work out whether there appears to be an agreement, does it appear that the parties
had a contract? If it does then they have one then they break it down further, does it appear
they had an agreement? If it does, then the agreement is in place. 

·     We can contrast the objective approach with the opposite a subjective approach – This is
about what the parties actually have in their minds and what they’re thinking so where they
actually intending to create an agreement? The courts do not adopt a subjective approach
they follow an objective approach. The courts only care about what the parties appeared to
have intended. It doesn’t matter whether the parties intended it or not.

·     The authority for the objective approach one of the cases showing this being used is –
Storer V Manchester City Council (Lord Denning MR)- Developed a lot of contract Law.

·     In contract you do not look into the actual intent in a man’s mind, you look at what he
says and did. A contract is formed when there is to all outward appearances a contract. A
man cannot get out of a contract by saying ‘I did not intend to contract’ if by his words he
has done so.

·      The same point was made by Lord Clarke in RTS Flexible Systems v Molkerei Alois Muller
Gmbh[2010] UKSC 14. – A supreme court case. Also see the comments by Steyn LJ in G
Percy Trentham Ltd v Archital Luxfer Ltd.

·      Lord Justice Steyn – LJ Steyn highlighted the commercial advantage of certainty and
predictability that results from the objective approach.

·      The objective approach fits and creates an apparent intention and framework such as
what the intention of the party appears to be and everything that is determined by within
that framework.

·      The courts as a general rule looks for an offer which has been accepted in order to
identify if an agreement exists, but they do that using an objective approach. E.g. –
Objectively was there an offer?

·      So, the courts are not concerned with actual intention instead it’s about ‘Apparent’
intention.
·      There are three types of objectivity:

·      Promisor (someone who makes a promise) objectivity – An objective approach from the
perspective of a promisor. It’s an objective approach where the courts put themselves in the
shoes of the promisor, they look at it from the perspective of the reasonable person in the
promisor’s position.

·      Promisee (person to whom the promise is made) objectivity – An objective approach

from the romise’s position. The courts will put the reasonable person in the position of the
Promisee and how the reasonable person would perceive the conduct/wording.

·      Detached Observer – This is a separate third party so the reasonable person looking at
both parties and the reasonable person would either agree or disagree if there was a
contract was formed or an agreement would’ve been formed.

·      While a contract essentially consists of a range of promises most tend to have promises
from one party and promises by the other. So how do you identify a Promisor and a
Promisee when both parties are making promises? 

·      When parties have a dispute it’s because out of all the obligations in a contract one party
believes one obligation hasn’t been carried out. Which then creates a dispute on a specific
promise not being fulfilled. So, if you freeze frame on the promise that we can identify the
person who made the promise and to whom the promise was made.

·      The courts can use any perspective when dealing with cases and never make an issue but
generally the courts tend to reflect Promisee objectivity but sometimes it can be promisor
and, in some cases, it can be the Detached observer. 

 
 Lecture 3:
 

·      Offer is part of the wider area of agreement. 

·      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 whom it is addressed. Essentially, we are looking for a proposal whereby
it appears the proposer intended to make an offer.

·      The courts have put in place rules to determine if an offer has been made.

·      An offer can be made to:

·      An individual – To one person (then only he/she may accept).

·      A defined group or class of people – e.g. – all students at DMU then only those
within that class/group can accept.

·      To the world – The general public at large – in particular the cases of rewards
and some other public advertisements. This is shown by the case of Carlill V
Carbolic Smoke Ball Co (1893)

·      An offer can be:

·      Expressed – either oral or written e.g.- a document or something presented

online. A lot of offers are oral and result in oral contracts.

·      Implied – from conduct/circumstances – so nothing is said or written but just

from the conduct it is obvious that an offer has been intended.

·       Is the proposal an offer or a mere invitation to treat?

·      Proposal (for a sale) – There are a lot of proposals for sale such as
advertisements as we see them online and on T.V.

·      A proposal can be an offer, if a proposal amounts to an offer then that is

something that we can accept and that results into an agreement and usually a
contract.

·      However, with invitation to treat – If a proposal simply amounts to an

invitation to treat then there is nothing to accept, so an invitation to treat is an
invitation inviting others to make an offer. 

·      When the court have had to determine the status of the proposal, they’ve
based it on the apparent intention of the parties.  So, does it appear that an offer
would be intended in such a case? Does it appear that a proposer simply would
be making an invitation to treat?

·      Display of goods – Goods accompanied by a price label of some sorts. 

·      Timothy V Simpson (1834) – According to this case displays of goods are

classed as simply invitation to treat rather than an offer. One of the leading
professors at the time Prof. Winfield explained the case and stated ‘ a shop is a
place for bargaining and not for compulsory sales’ and says ‘If a display was on
offer then the shop keeper may be forced to contract with his worst enemy’ – If a
display amounts to an offer it would then mean anyone could accept whether
the shop keeper likes it or not. According to Winfield this is a Risk/Danger of
compulsory sales and shops don’t want to be forced into contracts. Because of
this risk it is assumed that no offer would be intended at that stage. So, it would
be assumed no offer was intended by simply displaying goods. Shops want to
have the right to refuse.

·      In modern self-serve shops

·      The leading case is Pharmaceutical Society of GB V Boots (1953) – Its
significant because it concerned the status of displays in the kind of shops that
we know today where we help ourselves and then take the goods to the till. It
concerned the Pharmacy Poisons act 1933 and this act required for the sale of
certain products there had to be a registered pharmacist supervising to the point
of sale. The point of sale is where the contract would be formed between the
shop and the customer and the Pharmaceutical society argued that the display of
goods on shelfs in self-serve shops are offers that would be accepted the
customer takes the item and places it in their basket at that point a contract is
formed and according to the society that therefore boots were in breach of this
legislation because boots had its pharmacists at the till rather than every shelf
and the reason they argued this was if they were successful then it would mean
that there would need to be a pharmacist at every shelf and that would of course
increase the demand for pharmacists. This got to the court of appeal and the
decision – no offence had been committed. The rule – That a display of goods is
not an offer it is an invitation to treat. The reasoning – This was delivered in the
main judgement by Somervell LJ and he gave the example that a customer goes
to a book shop and doesn’t want to buy the book straight away but pick it up and
have a look at it first and have the freedom to put it back on the shelf if the
Pharmaceutical argument was agreed upon then customers wouldn’t be able to
put it back on the shelf. Their argument was rejected on the basis of customer
convenience the judgement reasoning was also underpinned by shops being able
to have the rights to refuse.

·      When do you think a contract should exist when buying goods in a shop?

·      One possibility could be when the payment takes place. The problem here is
that contracts can be formed without payments existing. A contract can exist just
with the promise of payment.

·      Is the price being displayed at a supermarket a form of acceptance?

·      There is no real answer to this because all it is the shop accepting the
customers offer to purchase.

·      If an ordinary display of priced goods is not an offer, what are the obvious
consequences for consumers?

·      What is the status of the proposal? It’s an invitation to treat. And you offer to
purchase the shoes at £25 which the shop is free to accept or reject.

·      If the shop is deliberately misleading consumers with incorrect pricing etc then
it could face liability under the Consumer Protection from Unfair Trading
Regulations 2008. But you have to establish that it wasn’t a basic mistake by the
shop.
 ·      The Equality Act 2010 prohibits discrimination on protected grounds of gender;
gender reassignment; sexual orientation, pregnancy and maternity, religion or belief;
race, disability and age. This was an issue in the case of Gareth Lee V Ashers Baking Co
(2016) – Gareth Lee a gay rights activist approached a Christian bakery and ordered a cake
supporting the slogan ‘support gay marriage’. The bakery refused to make the cake and so
Gareth bought in action using the equality act on the grounds of sexual orientation. He was
awarded £500 in damages which was upheld on appeal but was overturned by the Supreme
Court on the basis that there was no discrimination. There was no contract as Gareth made
the offer and the shop then refused.

Week 2 Lecture 1:
 As a general rule an advert is not an offer instead it is an invitation to treat.
Its inviting buyers to make an offer.
 Partridge v Crittenden [1968] – The Protection of Wild Birds Act 1954 made
“offering for sale” certain wild birds a criminal offence. P had placed an
advert in a journal “Quality British ABCR … Bramblefinch cocks, Bramblefinch
hens, 25s each”. The CA had to decide of the advert was a criminal offence
i.e. was it “offering for sale”?
 The court of appeal held that no offence had been committed.
 The reasoning behind this was because the court of appeal focused on
contract law principles to determine whether an offence had been
committed or not. The reasoning was from Lord Parker CJ and he rightly
focused on the words ‘offer for sale’ and posed the question ‘has there been
an offer for sale here?’ and he made it clear as a general rule that adverts are
not offers instead, they are invitations to treat and on that basis no offence
had been committed.
 In the reason by Lord Parker CJ it cites a comment from Lord Herschell from
an earlier case called (Granger v Gough [1896] ) and the point being made
that there are practical consequences of sellers having limited stock as they
do not have an infinite supply of stock. Lord Herschell explained that if
adverts were always classed as offers then sellers would have a contract with
all buyers that have communicated their acceptance so that is the danger of
limited stock. This would make the seller liable of breach for none delivery
where there is not enough stock to meet the orders contracted for.
 The point then from the case overall was that because of this danger of
limited stock the reasonable person would assume that an advertiser did not
intend to make an offer and does not show an apparent intention to make an
offer and instead they show an intention to simply invite offers.
 Grainger v Gough [1896] AC 325 - one of the points addressed by the House
of Lords was the status of circulars (flyers) containing a wine list with prices.
 The status of the wine list as Lord Herschell explained that such an advert
cannot be classed as an offer because the supplier would have a limited
supply of wine. So, such circulars would be classed as invitations to treat.
 Will the reasoning behind the rule on adverts is really well established it is
easy to question if it is really necessary?
 If adverts were all presumed to be offers it wouldn’t be completely
unworkable it could just simply be implied that those offers expire when the
stock has ran out. Such an approach would protect the seller from the limited
stock problem.
 Right to refuse (choose) customers? – It is presumed that sellers/shops would
want to pick and choose their customers and that could only be achieved if
their displays are classed as invitations to treat. Arguably the same would
also be applied to adverts as they would want to pick and choose their
customers. While the courts have not referred to the right to refuse as a basis
for adverts it is certainly consistent with the rule on adverts.
 There are also additional practical reasons to justify these general rules:
 Adverts are often vague – When you see an advert, they normally refer to key
facts like what the product being sold is and a picture of it but there are a lot
of things that are not said and still need to be discussed before you can be
complete about what needs to be sold. Normally when there are facts that
do need to be discussed then we say there is room for negotiations. When
there is room for negotiation then surely it is not intended to be an offer it’s
not clear enough to be accepted.
 Ability to assess the buyer’s ability to pay – If adverts were offers that means
someone can just accept and have a contract with the seller but what if they
do not pay? You can’t demand your goods back which then means you will
have to go to court and sue them for none payment. That can be seen as a
hassle. Whereas as adverts following the general rule are invitations to treat
it means that sellers can assess the buyer’s ability to pay.
 Adverts sometimes can be classed as an offer which would be a departure
from the general rule that adverts are invitations to treat as seen in the case
of Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. In this case, the defendant
(the CSBC) placed an advert in a number of journals for their carbolic smoke
ball. They claimed that the product would cure the flu, colds and various
other diseases. The advert also promised £100 as a reward to anyone that
contracted the flu having used the smoke ball as directed. It even stated that
£1000 had been deposited in the Alliance Bank to show their sincerity. Mrs
Carlill had used the smoke ball as directed and contracted the flu. She then
claimed £100 but the CSBC refused. The CSBC put forward a range of
defences and these are the subject of a tutorial. The relevant point here is
the status of the advert. The CSBC argued that the advert was simply an
invitation to treat rather than an offer.
 The company had no intention to pay but Mrs Carlill’s husband was a lawyer
and they perused the case. At first instance the judge Mr Justice Hawkins was
in favour of Mrs Carlill and the decision was made on the basis that a contract
 had been formed between Mrs Carlill and the company and as a result had a
contractual obligation to pay her. Then the company appealed to the court of
appeal. And put down various arguments that there was no offer.
 The COA agreed with the trial judge and held that the advertisement was an
offer and an offer for a unilateral contract.
 A bilateral contract is for example, the advert has a clear promise so an offer
and that could be Marshmallow promising to do the music for Stormzy and
the Stormzy in return says ‘great I will do the lyrics’ In this situation both
parties have an agreement and within that agreement they’ve both agreed to
perform an obligation. This is a typical agreement and they have both
promised to do something for each other. This type of contract is known as a
bilateral contract.
 With a unilateral contract one party makes a promise in a form of an offer
and in this case was the Smoke Ball Co and that offer was accepted by Mrs
Carlill simply performing the required act, so it was acceptance by
performance. Only one party is under an obligation at the point in which the
contract was formed when Mrs Carlill completed the act of acceptance once
that contract was formed, we can see only the Smoke Ball company was
under an obligation which means it is a unilateral contract.
 A typical example of a unilateral contract would be the reward for a lost dog.
If you see the advert you are under no obligation to look for the dog, you are
even under no obligation to return the dog even if you see the dog. However,
if you do pick up the dog and return it you have performed the act of
acceptance and at that point there is a contract and at no point were you
under any obligation to look for the dog, only the offeror is under obligation
to pay. This is why the resulting contract is unilateral.
 Mrs Carlill was under no obligation to use the smoke ball but her act of using
the smoke ball as prescribed and contracting the flu meant she had accepted
the offer and a contract was formed which created an obligation on the
smoke ball company to pay Mrs Carlill.
 The reasoning for the court of appeal deciding that the advert was an offer
rather than an invitation to treat was because the court referred to the firm
and precise wording of the advert because it showed there was no room for
negotiation and that’s a point in favour of the advert showing intention to be
an offer.
 In addition, it was the fact that the advert said £1000 had been deposited
into the alliance bank to show their sincerity.
 Based on these factors the court felt that the advert showed an intention to
be an offer Promisee objectively.
 The reasonable person in the promisee’s position would assume that the
advert was an offer.
 Lefkewitz v Great Minniapolis Stores (1957) 86 NW 2d 689 (Supreme Court of
Minnesota, US). Here the defendant advertised three fur coats worth $100
that had been reduced to $1 adding “First come first served”. Mr L was the
first into the shop and tried to by a coat for $1. The shop refused to sell. The
case turned on the status of the advert. If it was an offer then Mr L would
 have accepted and so there would be contract. If it was not an offer then Mr
L would have made the offer which the shop rejected.
 The decision it was held that the advert was in fact an offer that was
accepted and so there was a contract for the purchase of the coat for a $1.
According to the court the wording was firm and precise, and the shop
keeper intended to sell the coat for a $1 to the first 3 people arriving and the
claimant was one of thos people. In addition, there was no limited stock
problem as the advert made it clear that there were only three items so the
reasoning behind the general rule wouldn’t have to apply.
 In terms of a judicial approach it is a formalistic approach and ‘rule book’
based irrespective of the expectations of ordinary consumers and the courts
adopt this rule book approach ‘adverts are invitations to treat and displays
are invitations to treat’.
 In terms of contract ideology, it is market individualism because in the
market side of things these rules promote efficient trading and protect the
seller from compulsory sales as sellers can see the buyers ablility to pay.
These rules make transactions far more workable. They also require buyers to
look after themselves and protect themselves. A lot of contract law reflect a
formalistic approach and market individualism.

Week 2 Lecture 2:
 Traditional auctions remain very significant especially for the sale of antiques
and artwork etc.
 In auctions buyers submits bids and the person with the successful bid will
end up with a contract for the relevant goods.
 To establish how such contracts are formed the courts have analysed the
traditional auction process in terms of offer and acceptance.
 With online auctions a lot of contract law does not apply because the terms
of the auction often state precisely when an offer takes place and precisely
when the acceptance takes place and therefore when a contract is formed.
 Adverts to host an auction - Harris v Nickerson (1873) LR 8 QB 286 -This
concerned an advert for an auction to be held for furniture and building
materials. H went to the auction, but the goods referred to in the advert
were withdrawn. H then sued for his wasted time and expense in attending
the auction. He argued that by attending, there was a contract to hold the
auction for items advertised.
 The court decided that the advert to host the auction is just an invitation to
treat it’s not an offer you accept by turning up. The reasoning is quite simple
because imagine the liability an auction house would face if they couldn’t
host the auction or if a number of goods had been withdrawn. They would be
sued by everyone who has turned up so because of that danger of such
 serious liability the courts say in such circumstances surely, it’s obvious that
no offer was intended for placing such an advert so there is an apparent
intention to not make an offer at that stage.
 Auctioneer’s request for bids – So when an auction starts the auctioneer
would request bids – Payne v Cave (1789) – The court made it clear the
auctioneers request for bids is just an invitation to treat and the bids that
follows would be offers that the auctioneer could either accept or reject and
they don’t even have to accept the highest one it can be whichever one they
like.
 The acceptance takes place when the auctioneer’s hammer falls then this is
the customary way of showing acceptance of a particular offer.
 The status of an auction without reserve – Warlow v Harrison (1873) - The
case was about an advert for an auction without reserve (without minimum
price). The advert referred to a range of horses including one the claimant
was interested in. The claimant attended the auction and submitted the
highest bona fide (in good faith / genuine) bid for the particular horse.
However, the auctioneer sold the horse to its owner who had submitted a bid
that was higher than the claimant’s (but hardly a bona fide bid). The court
stated (obiter) that the advertisement of an auction “without reserve” is
regarded as an offer to sell to the highest bona fide bidder.
 The claimant actually lost the case because he sued the owner of the horse
whereas he should’ve sued the auctioneer and that meant that the case was
decided on the basis of not suing the right person. So, the reasoning about
the status of such auctions and when contracts are formed was not essential
to the decision which meant it was merely obiter (persuasive). Key authority
even though it was obiter.
 A Leicester case which followed the Warlow principle is Barry v Davies (t/a
Heathcote Ball & Co [2000] 1 WLR 1962. This case concerned an advert for an
auction without reserve for two engine analyser machines (worth £14000
each). The claimant submitted a bid of £200 for each item. There were no
further bids so the auctioneer withdrew the goods and they were later sold
to another buyer. The claimant then brought a damages claim on the basis
that he had a contract for the machines.
 This argument was based on the obiter comment from Warlow v Harrison
that hosting an auction without reserve is really an offer to contract with the
highest genuine bidder.
 The COA decided that the claimant would be successful and did indeed have
a contract with the auctioneer who had breached the contract by selling the
goods to somebody else in which case the claimant was entitled to
damages/compensation for his loss.
 The reasoning was delivered by Stuart-Smith LJ and the judge relied heavily
on Warlow v Harrison he cited extracts from the judgements of this case
points where it was stated that when you host an auction without reserve it
is really an offer to enter a contract with the the highest genuine bidder. So
having cited this obiter and also views of professors supporting the approach
in Warlow v Harrison Stuart-Smith LJ concluded that such an approach should
apply in this case and essentially his judgement takes the obiter comments
 from Warlow v Harrison and turns them into an actual binding precedent a
rule that should be followed by equivalent and lower courts. So to conclude
the reasoning was based on and supported the case of Warlow v Harrison
and that resulted in the principle in Warlow v Harrison
 The way that the contracts were actually formed in an auction without
reserve is explained by Stuart-smith LJ. Accoring to Stuart-Smith LJ an auction
without reserve is essentially an (implied) offer ro contract with the highest
bidder. The offer is then accepted when the highest bid is submitted. That
acceptance results in a unilateral contract because only the auctioneer is
under an obligation to enter a contract of sale with the highest bidder. The
submition of the highest bid is also an offer to buy. If there is an offer
(promise) to buy then the auction must accept it as it their obligation in an
unilateral contract then there will be acceptance (promise to sell).
 By failing to pay would also be a breach by the highest bidder as it’s the
breach of the main contract of sale.
 In an auction without reserve there are two contracts a collateral (secondary)
contract which is unilateral and the main contract of sale which is a bilateral
contract because both parties have an obligation the auctioneer has to sell to
the highest bidder and the highest bidder must pay.
 In the ordinary auction one where there is a minimum price then the bids
themselves are offers which the auctioneer can accept or reject.

 A request for tenders is a common negotiating device. A company

purchasing a major item or service, such as a piece of machinery or some
construction work, will invite tenders in for example, a magazine, trade
journal, or a circular to interested parties. Mostly used by businesses,
Government bodies and local authorities and results in a contract. For
example a business will publicise the needs of the business perhaps putting
together a document stating precisely what kind of building is needed,
precisely decour and what facilities that building should have then simply
publicise that document inviting builders to submit tenders. The tendering
process is seen as a fair way to find a party to contract with and the idea is
parties compete for the contract and they are given a equal chance of
succeeding and it’s for these reasons that the tendering process is used so
much by public sector bodies contracting with private sector business.
 Normally, such a request is treated as an invitation to treat rather than an
offer – the tenders themselves being offers (Spencer v Harding (1870) LR 5 CP
561). However, difficulties arise in cases where the request for tenders is
coupled with an indication (eg lowest tender secures’) that the person issuing
the request is willing to be bound by the most competitive tender. In
Spencer v Harding it was stated (obiter) that in such situations the request
amounted to an offer to trade with the most competitive tenderer.
 There can be problems in cases where offers such as this are met by so called
‘referential bids’, i.e. bids stated to be ‘£X or £1 above any other bid.’
 Harvela Investments v Royal Trust Co of Canada [1986] AC 207
 In this case the RTC invited tenders for the purchase of a bundle of shares.
The invitation was sent to both H and Sir Leonard Outerbridge and stated
that the RTC would “accept the highest offer”. H submitted a tender of
$2,175,000. LO tendered $2,100,000 or $101,000 above the highest tender –
referential bid as the highest amount is based on reference to the fixed
figure. RTC then confirmed the sale with LO. H brought an action arguing that
his was the highest (fixed) tender and that the referential bid by LO was not
valid.
 The HOL held that the highest tender submitted was by Harvela as it was the
most competitive tender and in which case by contracting with Sir Leonard
the RTC were in breach and liable to pay damage to Harvela for their losses.
 The reasoning used to explain how contracts are formed in tenders was from
Lord Diplock. Lord Diplock confirmed that RTC’s request for tenders was an
offer to contract with the most competitive tender. This request was sent to
Sir LO and Harvela and their responses of sending a tender the act of doing so
according to Lord Diplock each response in the form of a tender was actually
an act of acceptance and also an offer to buy and both have a contract with
the RTC. That contract is a unilateral contract. The offer to buy is something
from the requesting party to accept and they are under a contractual
obligation to accept the highest offer. Acceptance then takes place required
under the unilateral contract.
 The contract being a unilateral contract allowed Harvela to sue.
 The status of referential bids – Harvela submitted the highest tender who’s
bid was a fixed bid in contrast to Sir LO who submitted a fixed bid but then
backed it up with a referential bid. The lead judgement on this point was by
Lord Templeman who identified that there were problems with referential
bids:
 1. A referential bid can only be quantified if there is a fixed bid to base it on.
What if there is no fixed bid?
 2. The use of referential bids means that one party never has the chance of
winning yet the whole purpose of the tendering process with competitive
bids is that all parties have an equal chance of winning.
 3. The purpose of the process was for each party submit their best bid/tender
that is the whole point yet with referential bids the best tender will not come
to light. We will never know how much money Sir LO was really willing to pay
(his best bid). The whole point of the process is for the parties to submit their
best tenders.
 4. Lord Templeman observe that if two parties submit referential bids it
would lead to bizarre results and depending on the figures it could result in
the highest bid being lower than Harvela’s fixed bid.
 The significance of these is that because of these problems it meant that
surely there was an apparent intention to exclude referential bids unless it is
expressed to be included.
 The result was that the referential bid was therefore excluded leaving the
fixed amount that Harvela put forward and the fixed amount that Sir LO put
forward which was lower and on that basis is why Harvela was the one who
should’ve won the contract for the shares.
  If referential bids are welcomed and expressed in the terms, then they are
allowed. They should provide detail how the successful bid would be
accepted.

Week 3 Lecture 1:
