BSM 743 2015/16

Lectures Notes Topic 4: Introduction to Contractual

Obligations

I. Introduction to Contract Law

1. Definition of a Contract

2. Formalities
2.1 Scotland
2.2 England and Wales
2.3 Electronic signatures and formal validity

II. Elements Required to Form a Contract

1. Intention to Create Legal Relations

2. Legal Capacity to Enter into a Contract

2.1 Children –Scotland
2.2 Children – England & Wales
2.3 Mentally Incapacitated
2.4 Incapacity caused by alcohol
2.5 Legal Capacity of Companies

3. Offer
3.1 Invitation to Treat versus an Offer
3.1.(a) Tenders
3.1.(b) Unilateral Offer
3.1.(c) Advertisements

3.2 Communication of an Offer

3.3 Revocation (or Retraction) of an Offer
3.4 Termination of offer

4. Acceptance
4.1. Communication of Acceptance
(a) The Postal Rule
4.2 Retraction of Acceptance
4.3 Silence as Acceptance
4.4 Acceptance must meet the Offer
4.5 Counter-offer (Qualified Acceptances)
4.6 Requests for Further Information
4.7 The ‘battle of the forms’
4.8 Conduct can Complete the Contract

5. Consideration in English Law

5.1 Consideration must be sufficient but it does not need to be adequate
5.2 Past consideration is not good consideration
5.3 Performance of contractual obligations can be good consideration for a new
promise

6. Promises in Scottish Law

7. Privity of Contract
7.1. Privity under the Common Law
7.2 Statutory Exceptions

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 I. Introduction to Contract Law

Contracts form the cornerstone of most commercial activities. Each

time a person or a commercial entity wishes to do business, a
contract will almost invariably be entered into. This allows the
parties to plan for potential future problems within the contract
terms themselves. For the most part, contract in Scots and English
law is but there are some differences, which will be highlighted in
these notes. The topics are accumulative and you need to master
each one in turn so that you understand contract law as a whole.

In this topic, our discussion begins with outlining a definition of

contract and some formalities that are required. We then turn to
consider the formation of a contract. There a number of elements
required to form a legally binding agreement: (i) the intention to
create legal relations, (ii) legal capacity, (iii) offer, (iv) acceptance,
and (v) consideration (in English law) or a legally binding promise
(Scotland). Each of these elements will be discussed in turn. These
course materials are intended to provide a very brief framework of
the most important points and to contrast the English and Scottish
approaches, where necessary. It is highly recommended that you
do read more about the formation of a contract in the relevant
textbooks.

1. Definition of a Contract

A contract is an agreement between two parties (individuals or

corporate entities or a mixture of both), which creates, for those
parties, legally binding rights and obligations. Contract is part of the
law of obligations and
“obligations are links or ties between persons under which
each may have rights and duties (or be bound) to do, or
abstain from doing something.” 1
In every contract there must be a meeting of minds (consensus in
idem) on all relevant points. In the formation of a contract the basic
formula is that there must be an offer, followed by an acceptance
meeting the offer. The offer and acceptance are the main ways of
discovering whether an agreement has been reached. Generally,
the courts in both England and Wales and Scotland do not require
contracts to be in writing, or to meet any particular formalities. The
law is more interested in giving life to the parties’ agreements, than
demanding the contract must take a specific form. Instead, the law
has a lot of rule on the formation of the contract and these rules
determine which agreements will be recognized as legally binding
contracts. The question the courts will ask is if a reasonable person

1
MacQueen, H.L, Thomson, J, Contract Law in Scotland Butterworths, Edinburgh, 2000,
p.3

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would think that a contract had been created given the
circumstances of the case and what the content of that contract
might be. 2

2. Formalities

Most contracts can be agreed in any form: orally, by formal deed,

exchange of faxes, e-mails, telexes, etc. Whilst the law does not
require many formalities there are some types of contracts that are
required to be in writing or evidenced in writing in order to be valid
and enforceable. Where such a contract is not agreed in writing or
in the correct form, it may be possible to have it set aside
(cancelled). The law in Scotland is different from that in England,
but the substance of the statutory provisions in both jurisdictions is
similar.

2.1. Scotland

Here, the main statutory provisions are found in Requirements of

Writing (Scotland) Act 1995. Section 1 establishes the general rule
that writing is not required for the constitution of a contract or
promise. However, there are two types of contract that must be
constituted in writing to be enforceable, these are:
(1) Contracts relating to land or buildings, (including, renting
property, selling and buying property) 3 and
(2) Non-business related promises.
Where such a contract or promise is not in writing, it will still be
valid, if (a) one of the parties has acted in reliance of the promise
or contract; (b) with the knowledge or acquiescence (implicit
consent) of the other party; (c) that the person so acting has been
affected to a material extent and (d) that person would be
adversely affected to a material extent if the promise or contract
was declared invalid. These provisions are designed to avoid a party
acting in reliance on an unwritten contract/promise, where the
other party does not object, and then losing out once the contact is
declared invalid. Contracts that must be constituted in writing need
to be signed by the parties. Any contract can be proven in any way:
the existence of a written contract can be proven by oral evidence,
for example where the contract has gone missing. This means
that if writing is required for the contract the party can still prove
that writing that complied with the Act existed, by, for example,
oral evidence, but this may be difficult.

2
Good recent cases on this point are: Fordell Estates Ltd v Deloitte [2014] CSOH 55
(Scotland); Bieber v Teathers Ltd (In Liquidation) [2014] EWHC 4205 (England and Wales)
3
Contracts or promises relating to land/ buildings, the contract can be contained in more
than one document.

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2.2 England and Wales

The main example of a contract that is required to be in writing is

one for the sale or disposition of an interest in land, i.e. buying or
selling a house. 4 A contract that does not comply with the section is
void and not simply unenforceable. Like the similar Scottish
provision, writing is required to constitute the obligation, not just to
evidence it. A promise may be constituted in a deed. If it is, then
consideration is not required. The deed must comply with s.1 of the
Law of Property (Miscellaneous Provisions) Act 1989.

2.3 Electronic signatures and formal validity

The question of whether a signature on a document will qualify as a

signature for the purpose of any formality requirement is answered
by s. 7 of the Electronic Communications Act 2000. The Act
envisages either the use of an electronic facsimile of a signature or
the use of certification of a signature. This Act allows electronic
signatures to be established by evidence in court. The use of
certification of a signature can involved the use of cryptology as a
method for encoding the signature so that the other party can be
sure that the signature is that of his contracting party and that the
document has not been interfered with en route. Such security
measures can be very important in large value at-distance contracts
where meeting in person for a contract signing session is either too
expensive and/or time consuming.

II. Elements Required to Form a Contract

1. Intention to Create Legal Relations

The agreement must have been intended by both parties to be

legally binding, and the courts will look for some must be evidence
of an intention to create legal relations. The parties are not asked
what they intended, instead, certain presumptions exist in certain
situations. In other words, in certain situations the law assumes
that an intention to create legal relations exists, in others the
presumption is that such an intention does not exist. In any of
these situations, the presumption can be rebutted (disproved,
challenged) and the court might be persuaded that the presumption
does not apply. In most construction situations this will not be
problematic as it is a commercial agreement. In commercial
agreements, there is a presumption in favour of an intention to
create legal relations. As long as one party is acting in a commercial
capacity it will be treated as a commercial agreement and be

4
The Law of Property (Miscellaneous Provisions) Act 1989, s. 2.

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presumed to have intended to create legal relations. The
presumption is very strong here, and will be difficult to successfully
challenge. 5 One case where the the presumption in favour of an
intention to create legal relations in a commercial context was
successfully rebutted was Rose and Frank Co v JR Cromton Ltd. 6,
where the agreement contained a clause referring to ‘mutual loyalty
and friendly co-operation’ and specifically excluded the jurisdiction
of the courts.

In contrast, agreements made in a domestic or social context, (for

example between family members or friends) will be presumed NOT
to have intended to create legal relations. 7 This presumption can be
fairly easily rebutted. 8

2. Legal Capacity

The parties must be legally capable of entering a contract. Certain

persons are regarded as being unable to legally contract. If it can
be established that one or both of the contracting parties fall into
any of these categories, the contract may be set aside (cancelled).
The categories are as follows:

2.1. Children – Scotland

Under the Age of Legal Capacity (Scotland) Act 1991 only people
over 18 have full capacity to enter contracts. Children between 16 &
18 have qualified capacity: if the transaction is ‘prejudicial’ courts
can set it aside. Children under 16 have no capacity to enter into a
binding contract, except if the transaction is reasonable and of a
kind commonly entered into by persons of his/her age and
circumstances.

2.2. Children - England and Wales

The situation is more complex. Under the Family Law reform act
1969 s1, those under 18 years are classed as minors. People under
18 can enter binding contracts for what is known as ‘necessaries’, a
concept broader similar to that in use in Scotland for children under

5
Most of the cases where there has been an attempt to this presumption have been
unsuccessful: see Esso Petroleum Ltd. v Commissioners of Customs and Excise [1976] 1
WLR 1 and Edwards v Skyways Ltd. [1964] 1 WLR 349.
6
[1925] AC 445
7
See Balfour v Balfour [1919] 2 KB 571 and Jones v Padavatton [1969] 1 WLR 328 for
examples of a presumption a presumption against the intention to create legal relations in
a domestic (marriage) agreement, and Simpkins v Pays [1955] 1 WLR 975 as an example
in a social agreement.
8
See Merritt v Merritt [1970] 1 WLR 1211 as an example where the court accepted the
rebuttal of the presumption in a domestic agreement and Robertson v Anderson 2003 SLT
235 as an example in a social agreement.

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16. 9

2.3. Mentally Incapacitated

If a person is mentally incapacitated he/she cannot enter into a

valid contract. In England and Wales, if the person can be shown to
have been incapable of understanding the nature of their actions
and the other contracting party knew, or ought to have known of
this incapacity at the relevant time, the contract may be set aside.10
There are no authorities in Scotland on this point, but it seems
likely that a similar approach to England and Wales would be taken,
except that the requirement of knowledge is unlikely to apply.

2.4. Incapacity Caused by Alcohol

In England and Wales, the test is whether the person is so drunk

that they are incapable of understanding, 11 coupled with the other
party’s actual knowledge of the intoxication or that they should
have known. 12 The fact that one of the contracting parties is
intoxicated by alcohol alone is insufficient to have the contract set
aside. In Scotland, proof of knowledge of the incapacity is not a
requirement to setting aside the contract. 13 In reality, in both
jurisdictions, it is difficult for a party to have a contract set aside on
this basis.

2.5. Legal Capacity of Companies

A company can enter a legally binding contract. A company

incorporated under the Companies Act 1996 is regarded as a
separate legal entity from its members (shareholders and officers).
Companies will enter contracts through its officers, usually
directors. The rules on who may contract on behalf of the company
will be found in the constitution of the company (which consists of
two documents known as the ‘articles of association’ and
‘memorandum of association’ of the company). A director is
regarded as an agent for the company, and so will bind the
company in contracts with third parties.

3. Offer

9
Necessaries have been defined in the context of the sale of goods as “..goods suitable to
the condition in life of the minor…and as to his actual requirements at the time of the
sale”, Sale of Goods Act 1979, s.3(2)). See also Nash v Imman [1908] 2 KB 1, as an
example where a contract with a minor for extravagant clothing was set aside.
10
Hart v O’Connor [1985] AC 1000.
11
Matthews v Baxter (1873) LR Ex132
12
Imperial Loan Co. v stone [1892] 1 QB 599
13
Erskine’s Institutions of the Law of Scotland, I.iii.16.For an example of a Scottish case in
this area see Taylor v Provan (1864) 2M 1226.

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Offer is a central part of a contract. It is the expression by words or
conduct of a willingness to enter into a legally binding contract and
it must specify the terms of the contract which will be formed,
should the offer be accepted. For a statement to be treated as an
offer, the terms of the offer must be sufficiently clear so that the
offeree (the person receiving the offer) can be said to know the
essential terms such as price, quantity, time of delivery, time of
payment etc. Not every aspect of the contract needs to be stated in
detail but the central and fundamental elements must be. If the
offer is not sufficiently clear, it could be argued that there is not a
‘meeting of minds’ between the parties because the offeree is not
clear about the terms of the offer.

Offers do not need to be in writing: they can be verbal. The offer

can be made to an individual, to a group or class of people or the
world generally. 14 However, there are often a number of exchanges
that take place between parties prior to entering a contract and not
all of these will be an offer. In most cases, it will be clear that an
offer has been made but communications that are not sufficiently
robust or clear do not amount to an offer. How do you tell the
difference?

3.1. Invitation to Treat versus an Offer

An offer is an expression of willingness to contract on the specified

terms without further negotiation, so tha tis requires only
acceptance for a binding agreement to be formed. An invitation to
treat is a communication that is part of the pre-contractual
negotiations but falls short of an offer, “any negotiating statement
falling short of an offer, which furthers the bargaining process.” 15
The party making the communication did not intend that it be
accepted nor to be bound by that acceptance. Thus, whether an act
is construed as an offer or an invitation to treat is dependent on the
intention of the parties. This difference is significant because an
invitation to treat is not an offer and cannot be legally accepted: it
cannot form a contract. It is an invitation for the other party to
make an offer. Disputes can arise because one party believed that
they had agreed a contract and the other party is either trying to
deny it or genuinely believes that they were still in negotiations. 16
The use of the word ‘offer’ is not conclusive on the question of
whether there has been an offer or an invitation to treat. The most
important element is intent. There will always be exceptions but the
following types of situations are normally dealt with in the following

14
This latter example would be a unilateral offer.
15
Poole, J, Textbook on Contract Law, 8th ed. Oxford University Press, Oxford, para 2.4.1.
16
For examples of this please see the leading cases of Harvey v Facey [1893] AC 552 and
Phillp & Co. v Knoblauch 1907 S.C. 994 (a Scottish case)

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ways.

3.1.(a) Tenders

Putting something out to tender is common where a company

wishes services or goods to be provided on a large scale, usually for
a fixed project (e.g. a construction project) or for a fixed period of
time. A request for tenders is normally an invitation to treat and the
person/organization requesting tenders can choose which tender to
accept, if any. Usually, the tender is an offer. 17 There are two
exceptions in which the request to submit a tender can also
constitute an offer, which is accepted will form a binding contract.
(1)Where the request for bids commits the
person/organization issuing the invitation to tender to accept the
most competitive bid, (either highest or lowest depending on the
contract), that promise will result in a contractual obligation to do
so. 18
(2) Similarly, if the invitation to treat expresses a contractual
obligation to consider all tenders that conform to the bid conditions,
then then there will be a contractual obligation to consider the
compliant bids. 19

3.1.(b) Unilateral Offer

The most famous case in the UK that deals with the question of
invitation to treat versus offer is Carlill v Carbolic Smoke Ball
Company. 20 This case involved an advertisement in a newspaper in
offered a £100 reward to anyone who caught one of a number of
specified diseases despite using one of their smoke balls for a
certain period and according to the instructions. It was held that the
advertisement constituted a unilateral offer. This sort of offer is
open for anyone to accept, but it must be very prescriptive about
how the offeree may accept the contract. Once the offeree has
accepted a valid contract is formed.

3.1.(c) Advertisement

Where goods or services are offered to the public, this will usually
be treated as an invitation to treat, not an offer to sell to all who
reply. Occasionally an advertisement can amount to a unilateral

17
Spencer v Harding (1870) LR 5 CP 561
18
Harvela Investments Ltd v Royal Trust of Co. of Canada [1986] AC 207
19
The leading case on this is Blackpool and Fylde Aero Club Ltd. v Blackpool Borough
Council [1990] 1 WLR 119. This case held that all tenders complying with the conditions
set our in the invitation (as to form of tender and time limit for submission etc) must be
considered by the body inviting the tenders. was upheld in Fairclough Building Ltd v Port
Talbot Borough Council (1992) 62 BLR 82.
20
[1893] 1 QB 256.

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offer.

3.2 Communication of Offer

An offer must be communicated to the potential offeree(s). The

offer may be communicated verbally or by letter, fax, text, e-mail,
on the internet, or as offer to the public at large, for example in a
newspaper. There are certain contracts that must comply with
statutory provisions as to their form, (dealt with earlier) but other
than that, there are usually no limitations on the mode of
communication of an offer. There a couple of special rules that
affect communication of offer and acceptance, these are best
discussed in the context of acceptances (see below). Usually the
communication of an offer does not give rise to any problems,
where problems do arise it is usually in connection with a revocation
(retraction) of an offer and/or acceptance.

3.3 Revocation (or Retraction) of Offer

If an offer is withdrawn before it is accepted, it ceases to be open

for acceptance. It does not matter how far advanced the
negotiations are, as long as a final deal has not been reached, the
offeror may withdraw his offer, and no contract will exist.
Revocation must be communicated to the offeree in order for it to
be effective: the revocation will not be effective until it has been
received by the offeree.21 The revocation must have been, ‘brought
to the mind of the person to whom the offer is made’ 22. Although
there is some academic questions over the coherence of the
position, it seems that revocation of an offer made through
electronic communications is effective upon delivery. If the
revocation is not read until later, this will not matter; the
withdrawal will have taken effect upon delivery. 23 This position was
adopted in the Scottish case of Burnley v Alford 1919 2 SLT 123.24
Of course, the best guidance is the offeror will have to act quickly
and withdraw his offer using the quickest mode of communication at
the earliest time. An offer may be revoked either expressly by the
offeror, it can come via a third party or revoked by implication.
Revocation by implication can either come through a counter-offer
or a second offer from the original offeree.

3.4. Termination of an Offer

21
Byrne v Tienhoven (1880) 5 CPD 344.
22
Henthorn v Fraser [1892] 2 Ch 27 at 32 per Lord Herschell.
23
The Brimnes [1975] QB 929 and Brinkibon Ltd. v Stahag Stahl [1983] 2 AC 34.
24
This case was a decision in the Outer House of the Court of Session. In this case Lord
Ormidale, referred to the question of whether the acceptor “would have known in the
ordinary course of dealing” about the withdrawal. It is clear that the position on this is the
same in both jurisdictions.

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An offer does not remain open indefinitely. At some point in time it
will automatically lapse, unless accepted. The test in both Scotland
and in England and Wales is that the offer will remain open for
acceptance for a reasonable period of time. What constitutes a
reasonable period will vary from case to case. Much will depend
upon the type of contract and upon what would be expected in the
particular trade involved. 25 In Scotland if an offeror specifies a fixed
time limit within which the offeree must accept their offer, the offer
will remain open to be accepted until that time but will lapse after
the end of that period. In England & Wales the position is more
complex. A statement by the offeror that the offer will remain open
for a specified time is treated as a separate promise from the offer,
and therefore requires its own consideration to make it a legally
binding obligation. If consideration for this separate promise does
not exist, the time stipulation is unenforceable and the offer can be
withdrawn at any time. 26 If there is consideration for this promise,
then the promise to keep the offer open and capable of acceptance
for a specified period of time can be enforced. 27

4. Acceptance

Unless the offer stipulates otherwise, an acceptance can be in any

form. Generally, acceptance can be verbally or in writing
(remember there are a number of contracts that are required by the
law to be in writing, so the acceptance must also be in writing). 28
The offer and acceptance do not need to be in the same form: a
verbal offer could be met with a written response, or vice versa. It
is perfectly possible for an offeror to insist upon a particular form of
acceptance. In order to be effective, the clause in the offer must
indicate explicitly and clearly that the particular form of
communication and only that form of communication will suffice. If
the stipulated form is not sufficiently clear, the court will determine
whether the form of acceptance used was ‘in keeping’ with the
purpose of the original inadequate stipulation, if it is, the

25
See Ramsgate Victoria Hotel Co. Ltd. v Montefiore (1866) LR 1 Ex 109. In this case an
offer to buy shares in early June 1864 was deemed by the court to have lapsed by the
time the company allotted the shares to the offeror in late November. This time period was
deemed too long and the offer had lapsed. In the Scottish case of Wylie and Lochead v
McElroy (1873) 1 R. 41, a delay of 5 weeks was too long. The contract would have
involved the provision of ironwork and the price of iron was fluctuating on a daily basis.
See also Flaws v International Oil Pollution Compensation Fund 2001 S.L.T. 897.
26
Routledge v Grant (1828) 4 Bing 653.
27
Holwell Securities Ltd. v Hughes [1974] 1 WLR 155.
28
The versatility of the format for offers and acceptance can be demonstrated in the case
of Bear Stearns Bank pld. v Forum Global Equity Ltd. [2007] EWHC 1576 where it was held
that an oral agreement (reached over the telephone) for the sale of shares at around 2.7
million Euros was binding. Even in such high value contracts, a simple conversation is
sufficient.

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acceptance will be valid. 29 Where the particular mode was chosen in
order to benefit the offeree, the offeree may waive the requirement
and choose to accept in another form. 30

4.1. Communication of Acceptance

The acceptance must be actually communicated: the contract is

concluded as soon as the acceptance is received (effective).
Normally, this will not pose a problem. Acceptance to a business
address, will be treated in the same way (for timing purposes) as
an offer to a business address. Electronic forms of communications
can, however, create difficulties. Electronic communications are
generally treated as being effective on receipt, rather than on being
sent. 31

4.1.(a). The Postal Rule

The main problem concerns the ‘postal rule’. This rule provides
states that an acceptance is effective at the time of posting,
irrespective the time of delivery of the letter. 32 This can lead to an
awkward situation where postal acceptance overlaps with an
attempted revocation of an offer. The postal rule has some odd
effects:
1. If a postal acceptance is posted after the date of a revocation
of an offer but before it is delivered, the acceptance is still
effective.
2. A deadline for receipt of an acceptance could be met by
posting on that date although actual receipt occurs only
later. 33
3. Even where the posted acceptance is never delivered, a
contract has still been formed, since the contract was
concluded upon posting. This is certainly the case in
England, 34 but it has been doubted in Scotland. 35

4.2. Retraction of Acceptance

29
This was the position adopted by the court in Manchester Diocesan Council of Education
v Commercial & General Investments Ltd. [1970] 1 WLR 241.
30
For an example of this, see Yates Building Co. v Pulleyn & Sons (York) Ltd. (1975) 119
SJ 370.
31
See Entores Ltd. v Miles Far East Corporation [1955] 2 QB 327, see also Brinkibon Ltd. v
Stahag Stahl and Stahlwarenhandelgesellschaft mbH [1982] 1 All ER 293, another telex
case.
32
Adams v Lindsell (1818) 1 B & Ald 681. The rule was expressed as applicable in Scotland
in Dunlop v Higgins (1848) 6 Bell’s App 195.
33
See the Scottish case of Jacobsen Sons & Co. v Underwood and Son (1894) 21 R. 654
34
Household Fire and Carriage Accident Insurance Co. Ltd. v Grant (1879) 4 Ex D 216
35
Mason v Benhar Coal Co. (1882) 9 R. 883 and the obiter comments of Mr Justice
Toulson in L.J. Korbetis v Transgrain Shipping BV [2005] EHWC 1345.

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Where the acceptance is not delivered instantaneously, the
acceptance could be retracted before it is effectively communicated.
For this to be possible the retraction be actually communicated
before or at the same time as the acceptance. An example would be
an acceptance is being hand delivered by hand and where the
acceptor changes his mind while his messenger is en route, and
phones the offeror to retract his acceptance. As long as the
retraction is communicated before or at the same time as the
acceptance, the acceptance would be validly withdrawn. If the
acceptance is posted, or where the communication of the
acceptance is instantaneous, retracting is not possible.

4.3. Silence as Acceptance

Normally, silence will not suffice as acceptance of an offer. This

prevents someone from making an offer and demanding a reply by
a certain date, and stipulating that silence will be taken to be
acceptance. 36 However, there are two circumstances in which the
courts will permit silence to operate as acceptance.

Firstly, where the acceptor agrees that silence can be treated as

acceptance. One Scottish textbook cites the following example as
where silence would be binding,
“...if A offers to sell his car to B and B replies: ‘I’m not sure;
let me think it over and if I don’t telephone you by midday
tomorrow, you can assume that I’ve bought it.” 37
There is some judicial support for this in England in the judgment of
Lord Justice Gibson in Re Selectmove Ltd. 38

Secondly, where there has been a course of dealing between the

parties, silence can amount to acceptance. Poole presents the
common example of renewal of an existing insurance policy. 39 The
offer by the company to renew on the same terms is often left not
replied to and often states that if nothing is heard to the contrary,
the same arrangement (perhaps with direct debit payments) will
continue. Although there are no UK authorities directly on this
point, it is probable that the courts would hold that acceptance has
been tendered in these circumstances.

4.4. Acceptance must meet the Offer

The essence of a contract is a meeting of the minds (consensus ad

idem) and this means that the offer and acceptance must come

36
See Felthouse v Bindley (1862) 11 CBNS 869 in England and, in Scotland, Wylie &
Lochead v McElroy & Sons (1873) 1 R. 41
37
Huntley et al, Contract Cases and Materials, 2nd Ed., 2003 at p.141.
38
[1995] 1 WLR 474
39
Poole, J, Textbook on Contract Law, 8th Ed. at p. 65

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together: if the offer and acceptance do not match completely,
there is no contract at all. For example, in Mathieson Gee (Ayrshire)
Ltd. v Quigley 40 the House of Lords decided that no contract had
been concluded since the offer was to supply machinery to remove
silt from the pond of the defender and the defender’s reply
requested the removal of silt and deposit from the pond. A valid
contract was never concluded because the offer did not match the
acceptance (one referred to the supply of machinery, the other the
removal of silt).

4.5. Counter-Offers (Qualified Acceptances)

The acceptance needs to agree to the offer in its entirety. If not, it

is a rejection of the offer and terminates the original offer. If the
offeree accepts the vast majority of the offer but seeks a minor
change this is a counter-offer (sometimes called a qualified
acceptance), since it is not an outright rejection. The effect of a
counter-offer is to ‘kill-off’ the original offer and replace it. If the
counter-offer is accepted by the other party, these new terms form
the contract. If the other party does not accept the counter-offer,
the original offeree cannot go back to the original offer and accept
it: that original offer has been rejected by the counter-offer and is
no longer capable of acceptance. Indeed, where an offer is rejected
by a counter-offer the offeror is under no obligation to re-offer,
even if other party indicates that he is willing to agree to the
original proposed terms. 41

This strict approach can be seen in the Scottish case of Wolf and
Wolf v Forfar Potato Co. 42 Following an exchange of correspondence
(offer and counter offer) and a fruitless telephone call to resolve
differences, the prospective buyers of the potatoes stated in a
further telegram ‘we confirm that we have accepted your offer…we
would highly appreciate if you could take into consideration the
points we have raised’. The Inner House of the Court of Session
decided that there was no contract. 43

4.6. Requests for Further Information

These should be distinguished from a counter-offer. Sometimes the

information sought will be simply to clarify a point in the offer.
Alternatively, the approach might be seen as an inquiry about
whether better terms might be available. The difference between

40
1952 SC 38
41
See Hyde v Wrech (1840) 3 Beav 334 and the more recent case of Pickfords Ltd. v
Celestica Ltd. [2003] EWCA Civ 1741.
42
1984 SLT 100
43
Another, rather complex, example is the Scottish case of Findlater v Maan 1990 SLT
465.

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the latter enquiry and a counter-offer proposing better terms should
usually be clear. 44

4.7. The ‘battle of the forms’

In such cases, the offer/acceptance analysis is strained to breaking

point. A typical example of this situation might help illustrate the
problem. Company A orders goods/services from Company B. An
order is placed using the standard order form of Company A, which
is sent to Company B. On the reverse of that order form, there are
pre-printed standard terms and conditions covering a range of
matters such as delivery, price, right to withdraw, timing of
payment, standard of goods, etc. Company B delivers the goods,
and with the goods is a delivery note, which is signed by the person
receiving the goods. On the back of the delivery note is an
equivalent set of conditions for Company B. A dispute arises
regarding (for example) the quality of the goods delivered. On that
matter, the standard term on Company A’s order form conflicts with
the equivalent term in Company B’s delivery note. The question for
the court is: which term (if either) applies?

There are two leading cases in this area. In Continental Tyre and
Rubber Co. Ltd. v Trunk Trailer Co. Ltd. 45 Company A ordered some
tyres from Company B and the order form incorporated printed
conditions. No written acceptance was given, but the tyres were
supplied, in a number of batches, by Company B. With each batch
was a delivery note, seeking to incorporate the conditions of
Company B. Later, an invoice was sent by Company B, again
incorporating its conditions. A dispute arose regarding quality and
the terms of the companies were different. The First Division of the
Court of Session decided that the buyer’s terms would prevail. In
doing so, they applied a strict offer and acceptance scenario: the
offer was made by the purchaser when the order was placed and
that offer was impliedly accepted by the seller upon delivery of the
first consignment. The delivery notes and invoices had, accordingly,
come too late and were discounted.

A more complex situation arose in Butler Machine Tool Co. Ltd. v

Ex-Cell-O Corporation (England) Ltd. [1979] 1 WLR 401, although
the analysis was no different. There, the sellers sent a quotation for
the supply of a machine to the buyers. One of the clauses in the
quotation indicated that the seller’s conditions were to ‘prevail over
any terms and conditions in the buyer’s order’. This was a clear
attempt to pre-empt conflicting conditions from the buyer and to
exclude them. The buyer ordered the machine and his order

44
See Stevenson, Jaques & Co. v McLean [1880] 5 QBD 346.
45
1987 SCLR 58

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contained conflicting conditions. At the foot of the order, there was
a tear off confirmation slip, which stated that the order was
expressly subject to the buyer’s terms. The sellers signed that slip
and returned it to the buyers. When the dispute arose (over price
variation) each party sought to rely upon their own clauses.

A handy recent case setting out various legal principles in the ‘battle
of the forms’ is Transformers & Rectifiers Ltd v Needs Ltd 46. In this
case the court decided that neither party's terms and conditions
were incorporated into the relevant purchase orders!

4.8. Conduct can complete the contract

An offer and acceptance can, generally, be in any form including

action, as opposed to words. For example, you might offer someone
a job and they could accept, unless acceptance is stipulated have to
be in a certain form within the offer, by simply turning up to work
on the start date. An issue can arise over whether a contract
actually exists, i.e. is there the necessary agreement in the terms of
the contract, in such situations. It can be relatively straightforward
to determine whether a contract has been formed where that
contract has not yet been performed but where some performance
of the contract has taken place this can, obviously, complicate the
question.

It seems that the English courts are willing to act pragmatically in

this sort of situation. Where the decision is reached that, on a
simple and strict offer/qualified acceptance analysis there is no
contract, the courts are willing to imply a valid acceptance as a
result of the subsequent conduct of the parties. This occurred in
Brogden v Metropolitan Railway Co. 47. Here, the acceptance by one
party of delivery of the coal in conformity with the alleged
agreement was sufficient to ‘cure’ the otherwise fatal defect in the
(perfectly understandable) failure by the buyer to agree to certain
additions made by the seller to the draft contract, once it was
returned to the buyer. However, it must be clear that the conduct in
question relates to the contract. If the conduct would have occurred
anyway, whether the contract was concluded or not, it does not
count; in other words, the conduct must be ‘only referable’ to the
contract. In Jayaar Impex Ltd. v Toaken Group Ltd. 48it was held
that the conduct could be attributed to the initial unamended

46
[2015] EWHC 269 (TCC)
47
(1877) 2 App Cas 666
48
[1996] 2 Lloyd’s Report 437

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contract and not necessarily to the imperfectly agreed amendment
to it. The imperfection could not, then, be cured by the conduct. 49

There are no equivalent authorities in Scotland, so it is unclear what

the position would be. There is a developed notion of personal bar,
however, which would provide a similar answer to that adopted in
the English courts. Also, it could be argued that conduct of one
party can perfect an otherwise imperfect agreement in the context
of an agreement imperfect in form, the Requirements of Writing
(Scotland) Act 1995, sections 1(2) and 1(3), so there should be an
equivalency in relation to actings. Having said that, there is at least
one case, decided in the Outer House of the Court of Session, in
which there were later actions by the parties, clearly referable only
to the contract, and those actions were not taken into account and
there was no argument that they should be. 50 In Continental Tyre
and Rubber Co. Ltd. v Trunk Trailer Co. Ltd. 51, however, the Inner
House seemed to accept the possibility of an implied acceptance by
conduct on the part of one party. The Scottish position remains,
then, open to some doubt.

5. Consideration in English Law

At the heart of a contract is a promise to do something. Essentially,

a promise is made when someone indicates that he will do
something for someone else, and where the recipient of the promise
does not do anything in return. In England and Wales a gratuitous
promise is not usually legally enforceable, unless it is contained in a
formal deed then it will be legally binding. 52 In order to convert that
promise into a legally enforceable obligation, something must be
given by the promisee (the receiver of the promise) in return for the
original promise. This is called consideration. For example, A offers
to give something to B. If B does not have to do or promise to do
anything in order to receive the benefit of the original promise,
there is no legally binding obligation on A to actually complete the
promise. In contrast, if A offers to do something for B and B says
that s/he will do something for A in return, than there is
consideration for A’s promise and it become legally enforceable
under contract law. In Scots law, the position is quite different. As
long as the promise can be proven, it will be enforceable (please
see following discussion).

49
See also The Society of Lloyd’s v Twinn (2000) 97 (15) LSG 40 where subsequent
actings were taken into account and Pickfords Ltd. v Celestica Ltd. [2003] EWCA Civ 1741
where conduct was held to have constituted acceptance.
50
See Rutterford Ltd. v Allied Breweries Ltd. 1990 SLT 249.
51
1987 SCLR 58
52
The formalities are set out in the Law of Property (Miscellaneous Provisions) Act 1989,
s.1 and this section is dealt with later under validity of contract, when discussing
formalities. As long as the deed meets the s.1 formalities, it will be a binding promise.

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The next question is what sort of thing/promise/action must
consideration be, in order to be acceptable to the law?
Consideration usually takes the form of money but it can also be an
exchange of goods, labour or work, a promise to do something 53 or
to refrain from doing something. Non-monetary attempts at
consideration are much more difficult for the court to resolve. Often
the courts look at whether the person giving the consideration is
suffering a detriment or giving an advantage to the promisor. If
they are then it is likely the courts will uphold consideration.
Indeed, you may be surprised how easy it is in English law to prove
consideration., “…the doctrine of consideration requires the
existence of a bargain but it does not demand that the bargain be a
good one.” 54 There are a few basic rules that you need to know and
there is much more detail in the textbooks.

5.1 Consideration must be sufficient but it does not need to

be adequate

Consideration does not need to represent the full monetary value of

the offer but it must have some economic value. 55 In Currie v Misa
the court held that, “A valuable consideration, in the sense of the
law, may consist either in some right, interest, profit or benefit
accruing to the one party or some forbearance, detriment, loss or
responsibility, given, suffered or undertaken by the other.” 56 Where
the consideration is a sum of money, a minimal amount will do.
Consideration does not need to be money or have a financial value,
as long as it has a value to the offeror. 57

5.2. Past consideration is not good consideration

Consideration must be provided at the time the contract is made or

very shortly afterwards. A person cannot rely on an act that has
happened prior to the contract being made, as consideration for
the promise. 58

5.3. Performance of contractual obligations can be good

consideration for a new promise

Problems can arise with the application of the past consideration

rule. If the parties to an existing contract seek to vary the terms

53
A promise to act can be consideration, see Dunlop Pneumatic Tyre Co Ltd v Selfridge &
Co Ltd [1915] AC 847
54
McKendrick, Contract Law, Text & materials 2003
55
Thomas v Thomas (1842) 2 QB 851
56
Currie v Misa (1875) LR 10 Ex 153, per Justice Lush at 162.
57
Chappell & Co. Ltd. v The Nestle Co Ltd [1960] AC 87.
58
Roscorla v Thomas (1842) 3 QB 234.

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during its performance or after it has been agreed, any new
promises would need new consideration. Under the past
consideration rule without new consideration any new promise
would be unenforceable. However, the case of Williams v Roffey59
established a modification to the law, whereby past performance of
a pre-existing contractual obligation could be treated as
consideration for a new promise under the contract, if that promise
led to a mutual benefit and no detriment to the parties. In this
important case the Court of Appeal held that where a party is paid
an additional sum to complete an already agreed contractual
obligation, consideration of some kind is still required, otherwise the
new promise is unenforceable. In this case it there was
consideration for the new promise because the new promise
contained a mutual benefit to both parties (the sub-contractor was
paid more and the main contractor avoided the penalty clause that
would have otherwise been applied). In England, normally
consideration is necessary, although this is a weak requirement
since in most cases it can be found. Although law on consideration
in England and Wales contrasts starkly with the law in Scotland but
I would argue that, despite the processes being different, the
outcomes are not.

6. Promises in Scottish Law

The law in Scotland on the legal enforceability of a promise is quite

different from English law’s consideration. Instead, Scots law makes
a distinction between an offer and a promise. The Scottish
Institutional Writer, Erskine, explained it in the following way:
“Agreement implies the intervention of two different parties
who come under mutual obligations to one another. Where
nothing is to be given or performed by the one part, it is
properly called a promise, which, as it is gratuitous, does
not require the acceptance of him to whom the promise is
made. An offer, which must be distinguished from a promise
implies something to be done by the other party; and
consequently is not binding on the offeror till it be accepted
with its limitations or conditions by him to whom the offer
was made; after which it becomes a proper agreement.”
If under Scots law a promise is binding, it might be wondered why
the Scottish courts have bothered to make a distinction between a
promise and an offer? However, as we will see later when dealing
with the formalities of contract, in Scotland in order to prove the
existence of a promise (at least one in a non-commercial situation)
something in writing must be produced.

There are two main Scottish cases in this area. The first is Smith v

59
[1991] 1 QB 1.

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Oliver. 60 Here, the trustees of a church in Edinburgh claimed that
Mrs. Oliver had made certain oral promises to leave money in her
Will to the trustees for the completion of building alterations to the
church. However, in her will, no bequest was made at all in favour
of the church trustees. They raised a court action against those in
charge of distributing Mrs. Oliver’s estate following her death
(known as ‘executors’ in Scotland) claiming that they were legally
entitled to the money promised by Mrs. Smith. The executors
refused to pay. In fact, on the basis of the oral promises, the
trustees had gone ahead and had the alterations completed, so they
were seeking to recover their outlay. The First Division of the Court
of Session rejected the claim. The oral statements by Mrs. Oliver
were, the court held, promises to pay. As such, the rules of
evidence at the time required that the existence of the promises be
evidenced (proven) in writing. Since Mrs. Oliver had only ever
indicated her intention orally, the trustees could not prove that the
promise had been made. One can see that the distinction between
promise and offer there was, therefore, of crucial importance, given
the oral nature of Mrs. Oliver’s statements.

The opposite conclusion was reached in Morton’s Trustees v The

Aged Christian Friend Society of Scotland 61, a case decided again in
the First Division of the Court of Session. There, Morton wrote a
letter to the defenders, a charity, offering to make ten annual
payments, each of £100, in order to allow the charity to be able to
supply pensions. Certain conditions relating to the establishment of
the pensions scheme were attached to this statement by Mr.
Morton. There was some correspondence between Mr. Morton and
the charity during which the charity accepted these conditions and
set up the scheme. Mr Morton proceeded to begin payments, and
made eight of the ten annual payments before he died. The charity
sought payment of the remaining two from the executors of Mr.
Morton’s estate. They refused to pay and a court action was raised.
The First Division of the Court of Session decided that the payments
should be made, since there existed a contract, not a promise. An
offer was made, which was accepted.

This case, then, differed from the previous one in that an

acceptance was invited in the offer and was tendered. Not only that,
but payments were made in honour of the agreement. It should be
noted, though, that the fact that Morton had attached certain
conditions to his offer, made no difference to the reasoning
employed by the court. The crucial factor was the fact that the
approach was framed in such a way that it required to be accepted,
making it an offer.

60
1911 SC 103
61
(1899) 2 F. 82

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Another possible practical application of the promise concept is in
the law relating to ‘letters of intent’ used frequently in the
construction industry. Such a letter typically creates an obligation
by a main contractor to employ a specified sub-contractor if the
main contractor secures a construction contract that he has
tendered for. Under Scottish law, if there is evidence of this promise
then it would be enforceable. In Scotland, a promise is an
enforceable obligation, whether or not made gratuitously;
consideration is not required to make it enforceable. The different
systems for converting otherwise gratuitous promises into legally
binding obligations have each their own merits and
disadvantageous, which I hope that you will consider and discuss in
your seminar forums.

7. Privity of Contract

7.1. Privity under the Common Law

As a general rule of the common law, only the parties to a contract

can enforce the contract in a court of law. This is the doctrine of the
privity of contract:
“My Lords, in the law of England certain principles are
fundamental. One is that only a person who is party to a contract
can sue on it.” 62
Third parties to a contract were unable to enforce that contract
unless they had acquired a right to enforce it by providing
consideration (in England & Wales). This is true even if the contract
was concluded in order to confer a benefit on a third party. 63

There are some exceptions to this rule in the common law. Most
specifically under:
i. Tort/delict if a duty of care extends to a third party to the
contract 64
ii. A collateral contract which creates a third party interest in
the contract. 65

7.2 Statutory Exceptions

62
Per Lord Haldane, LC, Dunlop Pneumatic Tyre Co. Ltd v Selfridge & Co Ltd.
[1915] AC 847
63
Tweddle v Atkinson (1861) 1 Best and Smith 393 and Beswick v Beswick [1968]
AC 58
64
Donoghue v Stevenson [1932] AC 562. This case established the modern concept
of negligence and will be discussed in some detail later in the course
65
In Shanklin Pier Ltd v Detel Product Ltd [1951] 2 KB 854.
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There are a number of exceptions the main ones that is of relevance
to you in your professional lives is that established in the Contracts
(Rights of Third parties) Act 1999. This is an important exception to
the common law doctrine of privity contract. Under s1(1) a third
party to a contract can enforce a term in a contract in their own
right, if the terms confers a benefit on the third party. The third
party must be “expressly identified in the contract by name, as a
member of a class or as answering a particularly description but
need not be in existence when the contract is entered into. 66 The
third party will have the same remedy for breach of that term as if
s/he were party to the contract. 67 The party to the contract who is
defending the claim will have the same defences as if the third
party were party to the contract. 68 The Act can also be expressly
excluded from a contract. 69

66
s1(2)
67
s1(5)
68
s3
69
s2(3)
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