1.1.1 Offer and Acceptance - Formation

Question 1

What is the rule with variation of a contract?

Answer 1

Any variation to a contract requires fresh consideration. Part payment on the due date is not satisfaction.

Question 2

What is the rule with the value of consideration?

Answer 2

Consideration only has to be sufficient, not economically adequate.

Question 3

Describe ‘invitation to treat’.

Answer 3

Preliminary statements that merely invite negotiation. Advertisements are generally regarded as invitations to treat.

N.B: `An invitation to treat is not an offer capable of acceptance.

Question 4

What is an offer?

Answer 4

A definite promise and expression of willingness to be bound on certain terms.

Question 5

What is acceptance for a bilateral offer?

Answer 5

Acceptance is complete agreement to the terms of the offer.

Conditions:

1. [Knowledge] The offeree must know of the offer in order to accept.
2. [Communication] Acceptance must be communicated to be effective.
3. [No destruction of offer] The offeree cannot accept if the offer has come to an end by revocation, rejection or lapse of time.

Question 6

What is a legally binding contract?

Answer 6

Agreement (offer and acceptance), contractual intention and consideration.

Legally enforceable agreement giving rise to obligations which are enforced or recognised by law.

Question 7

How are advertisements of reward different?

Answer 7

Unilateral Offers

They are offers - intention to be bound as soon as the information is given.

Unilateral advertisements are an exception to the general rule that advertisements are invitations to treat

One-sided commitment - effectively a promise in return for an act.

Carbolic Smoke Ball: Offeree deemed to have waived his right to have acceptance communicated and the offeree’s conduct will amount to acceptance.

Question 8

Describe the situation with an auction?

Answer 8

A contract of sale is made when the auctioneer’s hammer falls. The auctioneer acts as agent of the owner in order to form the contract.

Calls for bids are an invitation to treat.

Bids are offers which can be withdrawn at any time before acceptance.

Question 9

Describe what is meant by revocation of an offer

Answer 9

An offer can be revoked at any time before acceptance.

Revocation must be communicated to the offeree and can be communicated by a reliable third party.

Question 10

What is a rejection of an offer?

Answer 10

An offeree may reject an offer either expressly or impliedly.

N.B: Mirror-image rule -an acceptance must match exactly the terms of an offer, otherwise there can be no contract.

Question 11

What is a counter offer?

Answer 11

A response to an offer that introduces new terms to what is offered. If the offeree introduces a new provision, it will be a counter offer which acts as an implied rejection of the original offer

Question 12

What is the rule with a request for information such as flexibility in payment terms?

Answer 12

A request for flexibility of payment terms is a response to an offer that enquires whether the amount required for the offered goods can be paid in instalments or later than set out in the offer.

It is not a counter-offer! This request leaves the original offer open for acceptance.

Question 13

What is the Postal Acceptance Rule?

Answer 13

A letter of acceptance which is posted is complete on posting - the contract is formed at that point. If the postal rule does not apply, a letter of acceptance will be effective only on receipt.

This is an exception to the general rule that acceptance of a bilateral contract must be communicated to be valid.

1) Only applies to acceptances, not to any other type of communication which may pass between potential contracting parties;

2) Only applies where it was reasonable for the acceptance to be sent by post;

3) Letter must be properly stamped, addressed and posted;

4) Rule only applies if it has not been excluded by the offeror

Question 14

What is Contractual Intention?

Answer 14

For the courts to treat an agreement as binding, the parties themselves must have intended it to be legally enforceable. No formalities are required.

Presumption of domestic and social agreements - there is no intention to create legal relations (evidence can prove that this is rebuttable.

Presumption of commercial agreements - parties intended the agreement to be legally binding.

Question 15

What are the provisions for third parties benefitting under the terms of a contract?

Answer 15

Contract (Rights of Third Parties) Act 1999:

A third party can acquire rights if:
- The contract expressly provides that he may acquire a benefit
- The term purports to confer a benefit on him

Question 16

What is the principle of Privity of Contract (Common Law requirement)?

Answer 16

Only parties to the contract can acquire rights and be subject to liabilities under it.

Note exception from Contracts (Right of Third Party) Act 1999.

Question 17

What is the difference between a bilateral offer and a unilateral offer?

Answer 17

Bilateral offer - An offer or promise in exchange for an offer or promise

Unilateral offer - an offer in exchange for a specified act, made either to a specific person or to a wider group of persons (e.g public)

Question 18

Provide some examples of invitations to treat?

Answer 18

Advertisements (not unilateral offers),
Display of goods,
Websites,
Auction sales,
Tenders (requests for quotes and bids)

Question 19

Provide some examples of offers?

Answer 19

Unilateral advertisements, auctions (‘without reserve’ - promise to sell to highest bidder),
Tenders with conditions (to accept the most competitive bid, confirm to bid conditions),
Automatic vending machines

Question 20

What is the ‘mirror-image rule’ when determining acceptance?

Answer 20

Helpful principle in working out whether an offer has been accepted.

The mirror-image rule means that an acceptance must be exactly the same as the offer to which it relates

If the response from the offeree is not the mirror image of the offer, (e.g because offeree introduced a new term), it is not a valid acceptance

Question 21

How can acceptance be communicated?

Answer 21

Acceptance can be made through words or by conduct (what the offeree does).

Conduct is a key issue because it means that where a person who receives an offer does not communicate a response in writing or orally but nonetheless starts to perform his obligations in accordance with the terms of the offer, this performance will amount to acceptance of the offer by conduct.

Question 22

What is the rule for acceptance to be valid in bilateral offers?

Answer 22

Receipt Rule - The rule that an offeror must actually receive an acceptance for the acceptance to be valid.

Acceptance must be communicated - silence cannot amount to acceptance.

Exception: Postal Acceptance Rule

Question 23

What is the rule for acceptance to be valid in unilateral offers?

Answer 23

Conduct - The offeree accepts a unilateral offer by conduct and this acceptance does not need to be communicated to the offeror in order to form a legally binding contract

Question 24

What is the rule with revocation of unilateral offers?

Answer 24

An offeror who makes a unilateral offer cannot revoke it once the offeree has started to perform the act specified in the offer. The offeror must let the offeree finish performing the specified act.

However, when communicating the revocation of unilateral offers, the offer can effectively revoke a unilateral offer without such revocation actually being communicated to the offeree.

Offeror must use the same means to revoke the offer as he used to make the offer in the first place.

Question 25

What are the limitations to the postal rule compared to the receipt rule when considering acceptance?

Answer 25

Limitations to postal acceptance rule:

• Letters that are not addressed / not properly posted;
• The offeror has specified that they require actual notice of acceptance

Question 26

How can a bilateral offer be terminated?

Answer 26

Revocation - note different rules with bilateral and unilateral offers

Counter-offers

Lapse of time

Offeror making a new offer

Question 27

What is acceptance for a unilateral offer?

Answer 27

Acceptance of a unilateral offer does not need to be communicated; the performance of the specified act is acceptance even if the offeree is not aware of this

Question 28

How can a unilateral offer be terminated?

Answer 28

By using the same method of communication that was used for the original offer