ACCA F4 - Corp and Business Law (ENG)

Part B The law of obligations  3: Formation of contract I 47

Brogden v Metropolitan Railway Co 1877

The facts: For many years the claimant supplied coal to the defendant. He suggested that they should enter

into a written agreement and the defendant's agent sent a draft to him for consideration. The parties applied

to their dealings the terms of the draft agreement, but they never signed a final version. The claimant later

denied that there was any agreement between him and the defendant.

Decision: The conduct of the parties was only explicable on the assumption that they both agreed to the

terms of the draft.

7.1 Silence

There must be some act on the part of the offeree to indicate their acceptance.

Felthouse v Bindley 1862

The facts: The claimant wrote to his nephew offering to buy the nephew's horse, adding 'If I hear no more

about him, I consider the horse mine'. The nephew intended to accept his uncle's offer but did not reply.

He instructed the defendant, an auctioneer, not to sell the horse. Owing to a misunderstanding the horse

was sold to someone else. The uncle sued the auctioneer.

Decision: The action failed. The claimant had no title to the horse.

Goods which are sent or services which are rendered to a person who did not request them are not

'accepted' merely because they do not return them to the sender: Unsolicited Goods and Services Act

1971. The recipient may treat them as an unsolicited gift.

7.2 Acceptance 'subject to contract'

Acceptance 'subject to contract' means that the offeree is agreeable to the terms of the offer but proposes

that the parties should negotiate a formal contract. Neither party is bound until the formal contract is

signed. Agreements for the sale of land in England are usually made 'subject to contract'.

Acceptance 'subject to contract' must be distinguished from outright acceptance made on the

understanding that the parties wish to replace the preliminary contract with another at a later stage. Even

if the immediate contract is described as 'provisional', it takes effect at once.

Branca v Cobarro 1947

The facts: A vendor agreed to sell a mushroom farm under a contract which was declared to be 'a

provisional agreement until a fully legalised agreement is signed'.

Decision: By the use of the word 'provisional', the parties had intended their agreement to be binding until,

by mutual agreement, they made another to replace it.

7.3 Letters of intent

Letters of intent are an indication by one party to another that they may place a contract with them.

Thus a building contractor tendering for a large construction contract may need to sub-contract certain

(specialist) aspects of the work. The sub-contractor will be asked to provide an estimate so that the main

contractor can finalise their own tender.

Usually, a letter of intent is worded so as not to create any legal obligation. However, in some cases it

may be phrased so that it includes an invitation to commence preliminary work. In such circumstances, it

creates an obligation to pay for that work.

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