Agreement is one of the essential elements leading to the
formation of a contract. Traditionally, the courts have recognized an agreement
as being an offer made by one party and a valid acceptance being made, corresponding
to that offer, by the other party. Offer in this instance is an expression of
willingness to contract on specified terms, which are ascertained, or being
capable of being ascertained, which when accepted by the offeree, a contract is
formed. An example case to demonstrate an offer can be Storer v Manchester City Council where the Court of Appeal found
that there was a valid offer existing when the Council communicated with Storer
saying that they intended to sell him the house. All Storer needed to do was
bind himself to the agreement by signing and returning the document. Acceptance
on the other hand simply refers to the final and unqualified assent to the
terms of the offer. However, the question arises as to whether this concept of
agreement is artificial and inflexible, and whether the courts on certain occasions
have found agreement with the absence of an offer and a corresponding
acceptance.

It was of the view of Lord Denning that the idea on a whole
should be examined as to when exactly an agreement existed. In Butler Machine Tool Co. Ltd v Ex-Cell-O
Corporation (England) Ltd, he stated, “In many cases our traditional
analysis of offer, counter offer, rejection, acceptance and so forth is out of
date; The better way is to look at all the documents passing between the parties
and glean from them or from the conduct of the parties, whether they have
reached agreement on all material points.” Also in Gibson v Manchester City Council, he stated that one ought to “look
at the correspondence as a whole and at the conduct of the parties and see
therefrom whether the parties have come to an agreement on everything that was
material.” Although Lord Diplock considered it, his approach however was
rejected in favour to the traditional route which was to reduce the agreement
in terms of offers, counter offers, rejection, acceptance and revocations. This
method of finding whether an agreement existed was considered to be the more
predictable and the more certain option of assessment rather than one which was
artificial. However, for more complex cases, reducing agreement to these terms
may pose a problem and the courts may consider using Lord Denning’s Approach. The
legitimacy of this approach was affirmed in the case of G Percy Trentham Ltd v Archital Luxfer where the court discussed the
approach it should take in determining whether a contract had been made. In this
case, work on a complex building contract had been completed and paid for. A dispute
arose which led one party to deny that there was a contract, since there had
never been a clear acceptance by either side of the other’s terms. The Court of
Appeal concluded that the contract did exist. The agreement was confirmed as a
result of the objective approach which is discussed in the following paragraph.

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It could be considered that in some instances acceptance may
be implied. The only possibility for this is to rely on the idea of acceptance
by conduct as stated in the above in the statement made by Lord Denning. The
main difficulty determining whether there has been acceptance via conduct
usually arises where there have been protracted negotiations between the
parties or where the negotiations have been so tentative that it is difficult
to find when or if an agreement has been reached between the parties. An example
of this can be seen in the case of Brogden
v Metropolitan Railway. In this case, a written contract for the supply of
coal was never responded to by the buyer. Coal was nevertheless ordered and
delivered on the terms specified in the agreement for a period of time. The suppliers
then tried to argue that there was no contract, because they buyers had never
accepted their offer. The court, however, held that the buyers had, by ordering
and paying for coal on the basis of the agreement, accepted the terms. In this
way, it was possible for the bilateral contract to be accepted by conduct. However,
the test for this is an objective one. In the case of Smith v Hughs, the test was stated to be whether the person who
wishes to deny that there is a contract acted so that ‘a reasonable man’ would
believe that he was assenting to the terms proposed by the other party.

Another point that can be made in relation to acceptance by
conduct is that it is common in unilateral contracts. A unilateral contract is
one where a promise is offered in return for an act as opposed to a bilateral
contract where there is an exchange of promises by parties. For unilateral
contracts, performance of the required act constitutes acceptance of the offer
and further communication is not normally necessary. This can be seen in the
cases of Carlill v Carbolic Smoke Ball Co.
and also in O’Brien v Mgn Ltd. In the
first case, Ms Carlill accepted the company’s offer merely by using the smoke
balls in the prescribed manner and subsequently catching influenza. For the O’Brien case, again it is seen here that
the Advertisement in the newspaper was not an invitation to treat; it was in fact
an offer. The claimant subsequently performed as the offer instructed. The court
held that it was an offer, not an Advertisement; and that it had been accepted
when the performance was completed. Usually there will be some sort of
communication of the fact that acceptance has been performed in order, as in Ms
Carlill’s case, to claim the reward, but this is only notification of the fact
that acceptance has taken place. It does not amount to acceptance itself. The
act of acceptance must be completely performed for it to be valid. The
requirement of complete performance was acknowledged in the case of Daulia v Four Millbank Nominees Ltd. In
this case, Lord Justice Goff stated, “I think the true view of a unilateral
contract must in general be that the offeror is entitled to require full
performance of the condition he has imposed and short of that he is not bound.”
However, it must be noted that, acceptance by conduct would not be valid if the
offeror specifies a prescribed method by which the offeree is to make
acceptance. The offeree must use that prescribed method for valid acceptance.

Another instance by which the traditional criteria for
determining whether an agreement exists is when there is no coincidence of the
offer and acceptance. This is referred to as the absence of the ‘mirror image.’
The mirror image rule states that an offer by the offeror must be accepted
exactly and without any modifications by the offeree in order for there to be
an enforceable contract. Any efforts by the offeree to change the terms by which
the offeror stated will cause it to be unenforceable. It will therefore be
regarded as a counter offer and thus the original offer by the offeror would
have been terminated. Again, the case of G
Percy Trentham Ltd v Archital Luxfer can demonstrate this. From the facts, although
there was evidence of numerous exchanges of letters and phone calls, there was
no matching offer and acceptance. Therefore there was no clear agreement. As mentioned
above it was determined that an agreement existed by way of conduct.

Just as it was found that conduct and performance can be
considered to be acceptance in some cases, it can also be said that silence can
amount to acceptance. Acceptance usually needs to be communicated. This can be
seen in the case of Felthouse v Bindley
where it was held that there was no contract because a contract cannot be forced
upon someone, only an offeror can be bound by silence. Also in the case of Allied Marine Transport Ltd v Vale Do Rio
Doce Navegaçao SA, The Leonidas D, Lord Goff, in the Court of Appeal stated
that, “In the absence of special circumstances, silence and inaction by a party
to a reference are, objectively considered, just as consistent with his having
inadvertently forgotten about the matter; or with his simply hoping that the
matter will die a natural death. If so, there should, on ordinary principles,
be no basis for the inference of an offer. Exactly the same comment can be made
of silence and inaction of the other party, for the same reasons, there appears
to be no basis for drawing the inference of an acceptance in response to the
supposed offer, still less of the communication of that acceptance of the
offeror; it is difficult to imagine how silence and inaction can be anything
but equivocal.

There can however be an agreement without an offer and
acceptance. The rules applied by the courts to establish the existence of a
contract are based on the assumption that there is an agreement between the
parties. In certain cases, the court may go beyond what can be inferred from
the words and actions of the parties and construct a contract. This can be seen
in the case of Clarke v Dunraven where
the owners of two yachts entered them for a regatta. Each of them undertook in
a letter to the Club Secretary to obey the Club’s rules which included an
obligation to pay ‘all damages’ that were caused by fouling. While they were
manoeuvring before the start, the defendant’s yacht fouled the claimant’s yacht
and it subsequently sank. The claimant sued for damages. It was held by the
court that a contract had been created between the parties when they entered
their yachts for the regatta at which point they had accepted the Club’s rules
as being binding upon each other. The defendant was in fact liable for the
damages. In this case it is clear that there was not a traditional agreement
between the both parties but, however, the court established a contract based
on the events that took place.