The formation of a contract

In the scenario we need to find evidence of the formation of a contract between Mary and Harry, to establish if Mary has a case against Harry. Contracts are generally formed when two parties exchange promises and have reached an agreement. The exchange is formed when there is an 'offer' by one party and an 'acceptance' by the other party with the intention to form a legally binding contract. The newspaper advertisement by Harry is in the form of a unilateral contract. This means that the offer does not require any communicated acceptance.

A newspaper advertisement offering CD-Players to the first twelve replies that send i?? 75 cheque is known as a unilateral contract. This is a unilateral contract because no one has to buy the CD-Players and no one has to make a promise to buy the CD-Players. It is said 'to be an offer to the whole world' . The party that does not require negotiation makes the offer. Acceptance of a unilateral contract is done by the actual performance or the specified performance that is required by the advert; being among the first twelve replies.

See Errington v Errington [1952] 1 ALL ER 149 and Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. In Errington v Errington a father bought a house and gave it to his daughter and son in law, on the condition that they kept up the mortgage payments. The couple began to pay the mortgage instalments when they moved in, which means that it is a unilateral contract. Later the father died and it was held that the offer of the house could not be revoked because performance took place when the first mortgage payment was made.

In this case it is difficult to establish exactly when 'acceptance' takes place, but in Daulia v Four Millbank Nominees Ltd [1978] 2 ALL ER 557 Goff LJ, stated 'there must be an implied obligation on the part of the offeror not to prevent the position becoming satisfied, which obligation it seems to me must arise as soon the offeree starts to perform. Until then the offeror can revoke the whole thing, but once the offeree has imbarked on the performance it is too late for the offeror to revoke the offer…

' This statement supports what is held in Errington v Errington. Generally the courts do not construe advertisements in newspapers and magazines to be offers, they are thought to be 'invitations to treat' ie; seller wants to enter into negotiations but is not prepared to be bound. In Partridge v Crittenden [1968] an advertisement was placed in a magazine to sell birds contrary to the Protection of Birds Act1954. It was held that the advertisement was not an offer but an invitation to treat.

However in the contrasting case of Carlill v Carbolic Smoke Ball Co, where the defendant placed and advertisement offering for sale smoke balls, they also promised that anyone who used the smoke ball and caught flu would receive 100, a  1000 had been placed in a bank to show to their sincerity in the matter. The claimant, Mrs Carlill, bought the smoke ball and caught flu. She sued for her 100. It was held that the offer was made to the whole world and was not an invitation to treat.

Lindley LJ, stated in his judgement advertisements offering rewards are 'offers to anybody who performs the conditions named in the advertisement and anybody who perform the condition accepts the offer' . It was also recognised by Lindley LJ that the wording of the advertisement expressly showed a offer by the offeror. In Harry's advert '… will be sold to the first 12 replies received enclosing a cheque for i?? 75… ' it suggests that a performance or completion of a task is required, sending the cheque. Mary has fulfilled the criteria asked for in the advertisement and has therefore entered into a contract with Harry.

As it is a unilateral contract notice of the acceptance to Harry is not required Lindley LJ stated 'the person who makes the offer shows by his language and from the nature of the transaction the he does not expect and does not require notice of acceptance… ' therefore Mary has entered into the contract and completed her performance. Harry could argue that he had withdrawn the offer; by placing another advert in the same newspaper on the 6th January. The general rule regarding revocation is that it must reach before acceptance and be effectively communicated to the offeree.

In Byrne v Van Tierhoven on 1st October the defendant posted an offer in Cardiff to the claimants in New York. On 8th October the defendant posted revocation of the offer. then on the 11th October the claimants sent a telegram accepting the offer then later on the 15th sent confirmation in a letter. On 20th October the claimants received the letter dated the 8th. It was held that the defendants revocation was inoperative because it did not reach the claimants before they had accepted the offer. In unilateral contracts it is more difficult to revoke an offer because it has to be revoked from the 'whole world'.

In the American case Shuey v US 92 U. S. 73 (1873), which can be used as persuasive authority in the English courts. Mr Justice Strong said in his opinion 'it was withdrawn through the same channel in which it was made. The same notoriety was given to the revocation that was given to the offer' . He is saying revocation should be made in the same way the offer is made. Harry revoked the offer in the same way as he published it by placing an advert for both in the Bruddersfield Gazette. Therefore he generated the same notoriety or publicity to both offer and the revocation of the offer.