What happens if the terms of a contract are broken?
Once you make a contract you will be committing a breach of contract if you do not comply
fully with the terms, or if you change your mind and decide not to perform your side of the
contract. If a party breaches a contract, the following remedies are available:
• Damages – monetary compensation payable by the party who broke the contract to
the other party who suffers the breach of contract,
• Specific performance – a court order demanding that the party keeps to the contract,
• Injunction – a court order preventing a party from breaking the contract.
The Offer In Preston Corporation Sdn Bhd v Edward Leong (1982), an offer was defined as:
“An offer is an intimation of willingness by an offeror to enter into a legally binding
contract. Its terms either expressly or impliedly must indicate that it is to be binding on
the offeror as soon as it has been accepted by the offeree.”
The party making the offer is the offeror, and the party receiving the offer is the offeree.
An offer must be a definite promise to be bound by specific terms, and ascertainable.
An offer cannot be vague. In Gunthing v Lynn (1831), the offeror offered to buy a horse “if
it was lucky”. The court held that such as offer was too vague.
When an offer is made to a party (the offeree) and no one else, only that party can accept the
offer.
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Offers may also be made to the world at large or to a certain group of persons. For example,
if an advertisement is placed in the newspapers offering a reward for the finding and returning
of a lost dog, this is said to amount to an offer made to the world at large. It can be accepted,
and the reward claimed by the person who finds this lost dog. This principle was established
in:
Carlill v Carbolic Smoke Ball Co (1893).
FACTS: Mrs Carlill saw a newspaper ad stating that the manufacturers of a smoke ball
would pay £100 to anybody who bought the smoke ball, used it correctly and still got
the flu. Mrs Carlill bought a smoke ball, used it correctly and still got the flu. Mrs Carlill
wanted to claim the £100, but the company refused to pay claiming the advertisement
was not an offer.
HELD: The court held the wording of the advertisement did amount to an offer, and
that by buying and using the smoke ball, Mrs Carlill had accepted that offer. The
company was made to pay the reward to Mrs Carlill.
Offers must be distinguished from the following:
1) An Invitation to Treat. An offer must be distinguished from an invitation to treat (i.e.
an invitation to make an offer). An invitation to treat is not an offer which is capable of
being turned into a contract by acceptance. An invitation to treat is a mere invitation by
one party to another to make an offer.
Some examples of invitation to treat
• Placing goods in a shop window
• Goods displayed in a catalogue.
• Goods displayed on shelves.
In these situations, it is the customer who must make the offer to buy. The following
cases illustrate the point that an advertisement is not considered an offer.
Pharmaceutical Society of Great Britain v Boots Cash Chemicals (1952)
FACTS: When Boots became a self-service pharmacy, problems arose because of
the need for certain drugs to be sold under a pharmacists’ supervision. If customers
were serving themselves, the question that arose was whether the sale of goods was
unsupervised. The court had to decide at what stage the contract was formed.
HELD: The court held that goods placed on shop shelves constituted an invitation to
treat. The customer was offering to buy the medicine at the checkout at which point
the assistant would accept or reject the customers offer. In this case, there was always
a pharmacist at the checkout, and thereby the pharmacy was not selling medicines
and drugs without a pharmacists’ supervision.
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Similarly, the display of goods with a price tag on the shop window is only an invitation
to treat, or an invitation to make an offer. It is not an offer. In the case of Fisher v Bell
(1961) it was held that a display of an offensive weapon (flick knife) for sale did not
constitute an offer for sale but was merely an invitation to treat.
2) Declaration of Intention. In Harris v Nickerson (1873) it was established that an
advertisement that goods will be put up for auction does not constitute an offer to any
person that the goods will actually be put up, and that the advertiser is, therefore, free
to withdraw the goods from the auction at any time prior to the auction. The court held
that a declaration of intention does not create a binding contract with those who acted
upon it.
So the use of the word ‘offer’ is not conclusive. For example, a prospectus offering to
sell cars or shares in a company is merely an invitation to treat. This would be the
same for auctions (in which the auctioneer is making an invitation to treat, and the
bidder making the offer), as well as tenders (in which companies invite tenders for a
project – the tender is the offer).
3) Provision of Information. In some cases, a communication may not be an offer but
a mere response to a request for information. This principle was established in the
case of Harvey v Facey (1893).
FACTS: Facey (D) was in negotiations with the Mayor and Council of Kingston
regarding the sale of his store. Harvey (P) sent Facey a telegram stating: “Will you sell
us Bumper Hall Pen? Telegraph lowest cash price-answer paid.” On the same day,
Facey sent Harvey a reply by telegram stating: “Lowest price for Bumper Hall Pen
£900.” Harvey sent Facey another telegram agreeing to purchase the property at the
asking price. D refused to sell, and P sued for specific performance and an injunction
to prevent Kingston from taking the property.
HELD: A mere statement of the minimum selling price is an invitation to treat and not
an offer to sell.
Termination of an Offer
An offer may be accepted as long as it is still being made.
The general principle is that an offer cannot be terminated once it has been accepted.
The offer may be terminated in the following manners:
• Lapse of time: An offer may state a specific time for acceptance. Example: “Offer valid
for one month only” and “Offer expires 31 December 2020.” If there is no specific time
mentioned, the law will presume an offer to have lapsed after a reasonable time.
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In Ramsgate Victoria Hotel v Montefiore (1866), the defendant applied for hotel
shares, but the acceptance came only after 5 months. By then the defendant had
already lost interest in the shares. Taken to court by the sellers in question, the court
held that 5 months was not a reasonable time, and therefore the defendant’s offer had
lapsed.
• Counteroffer: Where an offeree makes an alternative offer to the offer made to him,
this amounts to a counter-offer which effectively destroys the original offer. When this
happens, it is now the offeree who is making the offer. (In a sense, counteroffer could
be taken as bargaining, and in most cases, for a lower price.)
In Hyde v Wrench (1840), where in response to an offer to sell a farm at a certain
price, the plaintiff made an offer to buy at a lower price. This offer was refused and
subsequently, the plaintiffs sought to accept the initial offer. The seller refused and the
matter was brought to court. The court held that the seller was not bound to sell the
farm to the plaintiff as the plaintiff’s counteroffer destroyed the seller’s original offer to
sell the farm.
• Death of Offeror: An offer terminates upon the death of the offeror if the offeree has
notice of the offeror’s death. If the offeree has no notice of the offeror’s death, then
whether or not the offer can be accepted would likely depend on the nature of the offer.
If the offer was for a personal service, then the offer “dies” with the offeror; if the offer
related to something tangible, then it is likely that the offer could still be capable of
acceptance.
• Revocation of the Offer by Offeror: An offer may be revoked by the offeror at any
time before acceptance.
In Routledge v Grant (1828) there was an offer made to buy the house, giving the
offeree 6 weeks to accept. However, the offeror withdrew his offer before the 6 weeks.
The court held that the offeror had a right to do so, declaring that an offer was revocable
at any time before acceptance.
However, for revocation to be effective, the following requirements must be met:
o Revocation must be communicated
In Byrne v Van Tienhoven (1880), the defendants made an offer to the plaintiffs
by post. Following this on the 8th of October, they posted a letter revoking the offer.
This letter reached the plaintiffs on the 20th of October. Meanwhile, the plaintiffs
accepted the defendants’ offer on the 11th of October in ignorance of the
revocation.
The court held that revocation was effective only on the 20th of October and, since
by then the plaintiffs had accepted the defendants’ offer, there was a binding
contract.
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o Notice of revocation need not come from the offeror himself
In Dickinson v Dodds (1876), the defendant gave the plaintiff an offer to sell his
house and the offer was to be left open until 9 am on Friday, the 12th of June. On
Thursday, the defendant sold the house to someone else and another person
informed the plaintiff of this sale. Despite this, the plaintiff tried to hand over a
formal letter of acceptance before 9 am on the 12th of June.
The court held that since the plaintiff knew that the defendant had sold the property
to someone else, the offer was withdrawn and could not be accepted.
The Acceptance An agreement comes into existence when the offer is accepted. However, the acceptance
must be made while the offer is still in force, i.e. before it has lapsed, been revoked or
rejected. And this acceptance must be communicated.
Once acceptance is complete, the offer cannot be revoked; to do so would constitute a breach
of contract.
Principles of Acceptance
• An acceptance of an offer may be express (orally or in writing), or implied by
conduct.
• Acceptance must be positive and not passive. The party accepting the contract must
actively accept an offer. He cannot be deemed to have accepted the offer by his doing
nothing.
In Felthouse v Bindley (1862), the plaintiff offered to buy his nephew’s horse and
stated, “If I hear no more about him, I consider the horse mine” at a certain price. The
nephew made no reply, and the horse was sold to someone else. The plaintiff sued.
The court held the offeror cannot impose silence on the offeree and so there was no
contract. If the rule were otherwise, that could lead to abuse. For instance, a business
could send goods to a person’s home and state in an accompanying document that if
it did not hear from that person in by a specific time, it would take it that the person has
accepted the goods. This is, of course, unacceptable. Therefore, silence can never
be taken to be acceptance.
• Acceptance must be unqualified. An introduction of new terms to the offer amounts
to a counteroffer and consequently a revocation of the original offer.
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In Neale v Merrett (1930), A offered land to B for $280 cash. B paid $80 and offered
to pay the remaining $200 in $50 instalments. When the matter was brought before
the court, the court held that there was no acceptance. The normal terms are that the
entire price is payable as a single sum. Unilaterally deciding to pay by instalments
amounts to a variation of the terms of the original offer, and therefore a
revocation of the offer.
• Acceptance must be communicated. The general rule is that acceptance must
actually be received by the offeror. Generally, to avoid complications, offerors specify
the mode of communications of acceptance required. For example, he may specify
that “written acceptance must be received at his office by 3pm and no later”. This
means that the acceptance must be made in writing, and it must physically reach the
offeror’s office by 3pm; any other form of acceptance or delay would render the
acceptance invalid.
If the acceptance us to be in writing, it must be received by the offeror; if it is to be
orally, it must be heard by the offeror: Entores Ltd v Miles Far East Corp. (1955).
If the offer specifies a method of acceptance (such as by WhatsApp or email),
acceptance must be by that method specified by the offeror. The failure to keep to the
specified method of acceptance would result in no acceptance being offered: Yates
Building Co. Ltd v R.J. Pulleyn & Sons (York) Ltd (1975)
Exceptions to Communication of Acceptance
There are three situations in which acceptance need not be communicated to or
received by the offeror:
o Waiver of Communication
(As seen above) in Carlill v Carbolic Smokeball, the offer was made to the
world at large. Here, communication of acceptance was dispensed with. So
long as someone bought the smokeball, used it according to the directions, he
is deemed to have accepted the offer.
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o Silence
This can only apply where parties have agreed that the offeree’s silence is to
be construed as his acceptance. For this to be effective, both parties must
agree to it. For example, if both parties agree that the offeree will have a
positive obligation to communicate only if he wishes to reject the offer, then
silence would amount to acceptance: Southern Ocean Shipbuilding v
Deutsche Bank AG (1993). Contrast this with Felthouse v Bindley
(discussed earlier). If the offeror, without the consent of the offeree, imposes a
condition that the offeree’s silence would be taken as acceptance, then, such
a condition would not be enforceable.
o The Postal Rule
The Postal Rule (also known as the “mailbox rule” or “deposited acceptance
rule”) provides that the contract is formed when a properly prepaid and properly
addressed letter of acceptance is posted: Adams v Lindsell (1818).
However, care must be taken when applying The Postal Rule. It should be
applied only in circumstances where it is clear that the parties agreed that the
acceptance be sent by post.
In Quenerduaine v Cole (1893) it was held that an offer made by telegram
gives rise to the presumption that a speedy reply is expected, so posting in
such a situation does not attract the application of The Postal Rule.
Electronic Communications of Acceptance
Here we consider acceptance by e-mails or online acceptances. In relation to e-mails or online
acceptances, the question is whether the general rule should apply (i.e. that acceptance must
be received) or the postal rule (i.e. once notification of acceptance is properly posted) should
apply, assuming such issues have not been addressed in the contract. The matter is yet to be
authoritatively settled, and there are arguments going both ways.
In the event that it is held that acceptance is effective upon receipt, the question might also
arise as to what is meant by receipt. In this regard, reference must be made to the Electronic
Transactions Act (Cap 88, 2011 Rev Ed). Under section 13 of the said Act, if the message
is sent to an electronic address that was designated by the addressee, receipt occurs when
the message is capable of being retrieved by that addressee; and where message is sent to
a non-designated electronic address, receipt occurs when the message becomes capable of
being retrieved by the addressee and that addressee becomes aware that the message has
been sent to that address.
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Subject to Contract
It is possible for an agreement to be made “subject to contract”. This phrase simply means
that the offeree is agreeable to the terms of the offer but proposes that the parties negotiate a
formal contract on the basis of the offer.
In Yap Eng Thong v Faber Union (1973), the court found the agreement to sell a house
“subject to contract” was not binding.
And in Chillingworth v Esche (1924), C and D signed an agreement for the purchase of a
house by D “subject to a proper contract” to be prepared by C’s solicitors. A contract was
prepared by C’s solicitors and approved by D’s solicitors, but D refused to sign it. The court
held that there was no contract as the agreement was conditional.
Making negotiations “subject to contract” is a very useful tool to ensure that everyone is only
bound to the contract when they sign the contract and not before.