1 - Offer & Acceptance

Question 1

What are the requirements for parties to reach a valid contractual agreement?

Answer 1

1. Offer (i.e., a definite promise to be bound by specified terms).
2. Acceptance.
3. Intention to create legal relations.
4. Consideration.

The person who makes the offer is called the offeror and the person to whom the offer is made is called the offeree.

Question 2

What is the definition of an offer in contract law, and how does it differ from an invitation to treat?

Answer 2

• An offer has been defined as ‘an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed’

An ‘expression’ may take many different forms eg a letter, newspaper advertisement, email, text message and even conduct, as long as it communicates the basis on which the offeror is prepared to contract

For example, when Faheem texts John offering to sell his motorcycle for £5,000 despite being given advice to sell it for £6,000, this constitutes an offer for the lower amount.
In contrast, if Faheem states he is “thinking of selling, are you interesed in buying” his car for £7,000, this is an invitation to treat, as it does not commit him to a specific price or sale

Question 3

How does the concept of intention influence the validity of an offer?

Answer 3

• The intention in the offer definition does not necessarily reflect the actual intention of the offeror but is evaluated objectively.
• Courts look at what a reasonable person would interpret from the communications between parties.

In Faheem’s case, although he intended to sell for £6,000, John’s belief that the offer was for £5,000 is crucial; hence, Faheem would be bound to sell at that price.

Question 4

What role do goods on display in a supermarket play in contract formation

Answer 4

• Goods on display are considered invitations to treat; the contract is formed when a customer offers to buy at the checkout.
• For instance, when a customer selects items and presents them to the cashier, they are making an offer to purchase.
• If the customer changes their mind, they can return the items without obligation, further demonstrating that the display does not constitute an offer.

Question 5

How are advertisements treated in relation to offers and invitations to treat?

Answer 5

• Advertisements are generally regarded as invitations to treat to prevent automatic binding contracts when responding to stock advertisements.
• For example, an advertisement for a product simply invites potential customers to make an offer to purchase.
• Conversely, an advertisement of a reward, such as offering £100 for information leading to an arrest, is treated as an offer since it forms a unilateral contract payable upon fulfilling the specified condition.

Question 6

What is the distinction between unilateral and bilateral contracts?

Answer 6

• Most contracts are bilateral, involving mutual promises (i.e., a promise in return for a promise); unilateral contracts feature only one party making a promise (If you do X, I promise to do Y).

E.g., In the case of Carlill v Carbolic Smoke Ball Company, the company offered £100 to anyone who used their product and contracted flu.
Mrs Carlill accepted this unilateral offer by using the product and contracting flu, thus binding the company to pay the reward upon her fulfilling the specified act.

Question 7

At what point is a sale concluded at an auction, and how does this relate to offers and invitations to treat?

Answer 7

• A sale at an auction is concluded when the auctioneer’s gavel goes down, signifying acceptance of the highest bid, which is the offer.
• The auctioneer inviting bids is simply making an invitation to treat, not an offer.

For example, if a house is being auctioned, there may be a reserve price (minimum price it must be sold at) that potential bidders are informed about, indicating that the property will not be sold unless bids meet this minimum threshold.

Question 8

What is a reserve price in an auction, and what are the implications if it is not met?

Answer 8

• A reserve price is a minimum price agreed upon between the owner and auctioneer that must be met for the sale to occur.
• If the bidding does not reach the reserve price, the property will be withdrawn from sale.

In the case of Barry v Davies, where machines were sold ‘without reserve’, Mr Barry’s bid was accepted based on the auctioneer’s promise, leading to a successful breach of contract claim when the auctioneer refused to honour it.

Question 9

How are tenders treated in contract law, and what happens when a specific promise is made regarding tenders?

Answer 9

• Generally, an invitation to tender is considered an invitation to treat, meaning the business does not have to accept any specific tender submitted.
• If a company explicitly promises to accept the lowest tender or to consider all conforming tenders, it creates a unilateral contract.
• In Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council, the Aero Club successfully sued when their timely tender was not considered due to the council’s oversight, demonstrating a breach of an implied unilateral contract to consider conforming tenders.

Question 10

What are the consequences of a breach of contract regarding tenders, as seen in legal cases?

Answer 10

• In the case of tenders, if a company fails to honour a promise to accept a particular tender, it may be liable for breach of contract.
• The damages awarded typically reflect the loss of opportunity or expectation, calculated based on the difference between the promised tender amount and the value lost due to the breach.

For instance, in Barry v Davies, Mr Barry claimed damages based on the significant difference between his bid and the machines’ market value, highlighting the importance of adhering to tender agreements.

Question 11

What is acceptance (of an offer)?

Answer 11

Acceptance has been defined as an unqualified expression of assent to the terms of an offer.

So to be acceptance there must be:
(a) An expression of assent,
(b) Which is ‘unqualified’.

For instance, if someone says, “I agree to buy your car, but can only pay half now,” this is a counter-offer, not acceptance.

Question 12

What is the mirror-image rule in relation to acceptance?

Answer 12

Acceptance must be unqualified

• Acceptance must be unqualified and must correspond exactly with the terms of the offer: Hyde v Wrench (1840) 3 Beav 334.
• This is sometimes called ‘the mirror image rule’. Not all transactions lend themselves to an easy analysis in terms of ‘offer’ and ‘acceptance’. Yet the court will always examine the communication between the parties to discover whether, at any one time, one party may be deemed to have assented to all the terms, express and implied, of a firm offer by the other party.
• An assent which is qualified in any way does not take effect as an acceptance.

Question 13

How must acceptance be communicated, and what are the implications of silence?

Answer 13

• Acceptance must be communicated by the offeree or their authorised agent, which can be through words or conduct .
• Silence does not generally constitute acceptance; however, if accompanied by conduct that signifies acceptance, it may be considered valid.
• For example, if someone nods in response to an offer, this could indicate acceptance, but mere silence without such conduct does not bind the offeree.

Question 14

What is the ‘battle of the forms’ in contract negotiations?

Answer 14

• A ‘battle of the forms’ occurs when both parties exchange documents containing their own standard terms and conditions (Ts & Cs).
• Each exchange can be viewed as a counter-offer; the last terms presented typically prevail.

In Butler Machine Tool v Ex-Cell-O Corp, the seller’s acceptance of the buyer’s Ts & Cs was deemed effective due to the acknowledgment slip at the end of the contract, demonstrating that the last shot wins.

Question 15

What is the postal rule regarding acceptance, and what conditions must be met for it to apply?

Answer 15

The postal rule is that when an offer is accepted by post, the parties to the agreement are legally bound as soon as the letter accepting the offer is posted, regardless of whether the letter is later received by the offeror or not.

For the postal rule to apply, the following conditions must be met:
- It must be reasonable to use post for acceptance.
- The letter must be properly addressed, stamped, and posted.
- The offeror must not have excluded the postal rule.

For example, in Holwell Securities Ltd v Hughes, the court ruled that acceptance was only effective when received, as the offer specified that notice must be given in writing.

Question 16

What happens if the postal rule is excluded by the offeror?

Answer 16

• If the offer specifies that acceptance must be communicated in a certain way (e.g., in writing), the postal rule does not apply.
• Acceptance must then reach the offeror to be valid.

In the Holwell Securities Ltd v Hughes case, the use of “notice in writing” implied that the postal rule was excluded, leading to no contract when the letter was not received.

Question 17

When does an offer terminate and what are the consequences of this?

Answer 17

An offer cannot be accepted once it has terminated. An offer may be terminated in the following ways:
(a) Rejection by the offeree.
(b) Revocation (ie withdrawal) of the offer by the offeror.
(c) Lapse of time.

Question 18

What is rejection and why does it terminate an offer?

Answer 18

An offer may be rejected by the offeree either expressly or impliedly.

NOTE: It will be rejected by implication if the offeree makes a counter- offer

Question 19

What is the general rule regarding the revocation of an offer?

Answer 19

• An offer can be revoked at any time before acceptance.
• This applies even if the offeror has promised to keep it open for a certain period.
• Exception: If the offeree provides consideration (e.g., payment) to keep the offer open, it must remain valid for the agreed duration.

Example: In Mountford v Scott [1975] 1 All ER 198, the claimant paid £1 for an option to buy a house for £10,000. The court held that this payment made the offer irrevocable for the specified six-month period.

Question 20

When does acceptance occur in unilateral contracts?

Answer 20

Acceptance in unilateral contracts is considered to occur upon the completion of the specified act.
This means the offer can be revoked until the act is fully performed.

Example: If someone offers £100 for walking from London to York, the offer remains open for revocation until the individual arrives at York.

Judicial authorities suggest that partial performance may prevent revocation, implying a promise not to revoke if the act is initiated within a reasonable timeframe.

Question 21

How must revocation be communicated to be effective?

Answer 21

• Revocation must be clearly communicated to the offeree to be effective.
• In electronic communications, revocation is effective when it should have been read, not necessarily when it is sent or read.

Example: In The Brimnes [1975] QB 929, notice sent via telex was deemed communicated when received during business hours, even if it was read later.

Question 22

How can revocation of a public offer be communicated?

Answer 22

For public offers, such as in Carlill v Carbolic Smoke Ball Co, the offeror can publish a notice of revocation in the same place and with the same prominence as the original offer.

Notice of revocation can be given by the offeror or a reliable third party, unlike acceptance, which must be communicated by the offeree or their agent.

Question 23

What happens to an offer after a specified time or a reasonable time?

Answer 23

• An offer will lapse after a specified time or after a reasonable time, depending on the circumstances surrounding the offer.
• What constitutes a reasonable time varies significantly based on factors such as the nature of the goods or services involved:

For example, a reasonable time for accepting an offer to purchase perishable goods, such as fruit or vegetables, is generally much shorter—possibly just hours or days—compared to the time allowed for non-perishable goods, like furniture or electronics, which might be several weeks.

The context of the transaction and the expectations of the parties also influence what is deemed reasonable.

Question 24

How is the determination of whether parties have reached complete agreement on the material terms of a deal assessed, and what contextual factors are considered?

Answer 24

Whether, or not, parties have reached complete agreement in relation to the material terms of the deal is generally judged objectively, but the facts have to be judged in context, eg:
(a) Whether the parties are in the same trade;
(b) Trade usage;
(c) Whether the arrangement has been acted on for any length of time; and
(d) Whether there is an objective mechanism for resolving any uncertainty such as an arbitration clause

Question 25

Examples of reaching a complete agreement.

Answer 25

(a) Whether the parties are in the same trade;
Example: In Scammell v Ouston [1941] AC 251 (HL), a buyer interested in a car priced at £10,500 agreed to buy it on ‘hire purchase terms’. However, the lack of details regarding the hire purchase agreement (e.g., duration, number, and amount of repayments) made the contract too vague to be enforceable.

(b) Relevant trade usage;
Example: An agreement to buy ‘timber of fair specification’ may seem vague, but a court held there was a binding contract due to the parties’ past dealings, familiarity with the timber trade, and partial performance, indicating there was no uncertainty as far as the parties were concerned.

(c) Whether the arrangement has been acted upon for a significant period;
Example: An agreement between a petrol company and a filling station to supply petrol at the market price prevailing at the delivery date was valid. Even though the exact price was not agreed upon, the presence of a mechanism to resolve this uncertainty meant there was a binding contract.

(d) The presence of an objective mechanism for resolving uncertainties, such as an arbitration clause;
Example: A ‘provisional agreement’ may be drawn up to operate until a fully legalised agreement is created by a solicitor. The absence of a formalised agreement is irrelevant, as contracts do not need to be in a specific form, and the parties are clearly in agreement, resulting in a binding contract.