Acceptance

Question 1

Introduction to acceptance

Answer 1

The second stage of discovering whether or not an agreement has been reached, under classical contract theory, is to look for acceptance that matches the offer that has been made. No particular form of words is required for a valid acceptance. Therefore an offer may be through words, or through conduct as in Brogden. The acceptance must be unqualified / unconditional (Wrench).

Question 2

Counter-offer

Answer 2

When parties are in negotiation, the response to an offer may be for the offeree to suggest slightly / substantially different terms. Such a response will not be acceptance but will be a counter-offer. The counter-offer effectively terminates the original offer

Question 3

Case counter offer

Answer 3

Wrench

Question 4

Wrench

Answer 4

shows that the counter-offer effectively terminates the original offer.

Question 5

Who says what about counter-offer

Answer 5

The way to determine whether an offer has been made is to ask:

“whether a person in the position of B (the offeree) (having the knowledge of the relevant circumstances which B had), acting reasonably, would understand that A (the offeror) was making a proposal to which he intended to be bound in the event of an unequivocal acceptance.” – Chadwick Crest Nicholson Ltd.

Question 6

Request for more info

Answer 6

In some situations, however, might be difficult to determine whether a particular communication is in fact a counter offer. It may be merely a request for more information

Question 7

Request for more info case

Answer 7

Mclean

Question 8

Mclean

Answer 8

Mclean, the defendant, offered to sell iron to the complainant company for the price of 40s per ton. Offer was to remain open until Monday. The company sent a telegram to the defendant asking whether he would accept payment of 40s over a 2-month period, or what his longest limit would be for the payment. McLean did not respond and sold the iron to another party without informing the company of this action. On Monday the complainant sent a telegram to accept the offer, unaware it was sold. Question was whether the telegram was an inquiry for information or a counter-offer. Court held the company was only inquiring for more information about whether the terms of the offer could be changed; there was no wording to indicate it was a counter-offer or rejection. This meant the offer was still valid and the second telegram by the company formed a binding contract.

Question 9

Battle of the forms

Answer 9

A situation whereby it becomes vital to decide whether a particular communication is a counter-offer or not is what is referred to as the battle of the forms. This arises where two companies are in negotiation and, as part of their exchange, they send each other standard contract forms. The question arises as to how the courts decide whose terms prevail. The traditional view is that the ‘last show wins the battle’ – each new form is treated as a counter offer.

Question 10

Battle of the forms case and facts

Answer 10

Butler Machine Tool Co Ltd – The buyers wished to purchase a machine for their business. Sellers offered to sell them one for £75,000 with delivery in 10 months. Offer incorporated a copy of their standard terms of sale which included a price variation clause. The defendant put in an order for the machine and sent a set of their terms which did not include a price variation clause. This order contained an acknowledgement slip which the sellers signed and returned. The machines were delivered and Butler sought to enforce the price variation clause demanding an extra £3000. Defendant refused to pay. The court found that the defendant’s order was not an acceptance of the initial offer from the seller, but a counter-offer which the sellers had accepted by returning the signature on the acknowledgment slip. Contract was completed without the price variation clause.

Question 11

Methods of acceptance and cases

Answer 11

Conduct (Brogden)
Silence does not amount to acceptance (Felthouse v Bindley, confirmed in Entores)

Question 12

Conduct case and facts

Answer 12

Brogden

In this case the plaintiffs sent the defendants a draft agreement for the supply of coal per week for a price. Defendant completed the draft by adding the name of an arbitrator signed and returned to the plaintiffs. This constituted an offer. Plaintiff’s manager put the signed agreement in the drawer and there was not communication of acceptance. Coal was ordered and delivered on the terms specified until there was a dispute. Defendants argued there was no contract because the plaintiffs had never accepted their offer. House of lords confirmed that it was not enough that the plaintiffs had decided there has to be some external manifestation of acceptance of which the defendants were aware. It was found in this case that this was supplied by the fact that the plaintiffs had subsequently placed orders and the defendants should be taken as bound by its terms.

Question 13

Silence case and facts

Answer 13

Felthouse v Bindley. An uncle was negotiating to buy a horse from his nephew. The uncle wrote to his nephew offering a sum stating ‘if I hear no more about him, I consider the horse mine’. The nephew did not respond but told an auctioneer to remove the horse from an upcoming auction. The auctioneer failed to do so and the horse was sold to a third party. Uncle sued the auctioneer. It was held there was no contract because the nephew had never communicated accepting of the uncles offer.

Question 14

Who said what where about silence

Answer 14

Lord Denning reinforced this rule in Entores:

“Let me first consider a case where two people make a contract by word of mouth in the presence of one another. Suppose, for instance, that I shout an offer to a man across a river or a courtyard but I do not hear his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment. If he wishes to make a contract, he must wait till the aircraft is gone and then shout back his acceptance so that I can hear what he says. Not until I have his answer am I bound.”

Question 15

Exception to silence

Answer 15

Unilateral contracts - Carlill, shows that in relation to some types of unilateral contract, the offeror may waive the need for communication of acceptance. Here the acceptance occurred when Mrs Carlill used the smoke ball. She did not have to expressly communicate to the company that she was accepting the offer.

Question 16

Postal rule main case and facts

Answer 16

Adams v Lindsell. In this case, the defendants sent a letter to the plaintiffs offering wool for sale and asking for a reply ‘in course of post’. The letter was misdirected and arrived later than it should have been. Plaintiffs immediately replied accepting, but the defendants, having decided the plaintiffs were not going to accept due to delay, sold the wool elsewhere. Plaintiff’s sued for breach of contract. Held that there was an enforceable contract as soon as the plaintiff had put their acceptance into the post. Therefore, acceptance occurs even if the letter is delayed through the fault of the post office, or the acceptance never reaches the offeror at all.

Question 17

Case confirming postal rule

Answer 17

Grant- The defendant applied for shares in the plaintiff’s company. The shares were allotted to him, but the letter of allotment was never received. The company went into liquidation and the liquidator claimed the balance of the purchase monies from the defendant and the defendant argued he had not received an acceptance. It was held that the contract had been entered into when the letter of allotment was posted, despite the fact it had never arrived.

Question 18

Limitations to the postal rule

Answer 18

• incorrectly addressed or not properly posted
• ousted by words requiring actual communication

Question 19

Case for incorrect address

Answer 19

Korbetis. An acceptance fax had been sent to the wrong fax number. Toulson J found: “if the letter is wrongly addressed, very different considerations apply. Common sense dictates that it is unfair to the intended recipient that he should be bound by something which he is unlikely to receive because of the fault of the sender.”

Question 20

Case for ousted by actual communication

Answer 20

In Hughes, the offer contained a clause stating that there must be notice in writing within 6 months to accept. The acceptance letter was lost in the mail and never arrived, but because there had been no notice (actual communication) of acceptance, there was no contract.

Question 21

Justifications for postal rule

Answer 21

Business convenience of the offeree and the fair allocation of risk as it establishes a finite date for the contract and avoids circular communication. Any delay which occurs between sending and receiving post letters create potential risk for both parties due to the uncertainty as to precisely when the message is deemed to have been received. This justification may be considered as the corner stone for application of the portal rule. Relying on contract formation in posting or dispatch, established a definite time for confirmation between parties without need for further communication. Courts aim to bring a rationale of necessity and predict that if the contract were to come into force it can best be achieved on sending the acceptance.

At the time of posting the letter, there would be a greater chance of a meeting of the minds occurring than at the later time when the letter was delivered

Question 22

Critique of postal rule

Answer 22

In an age where communication is much faster and sometimes instantaneous, the postal rule may be outdated. Many contracts are made using other forms therefore it seems unnecessary due to the uncertainty to continue this method.

There is a period of time where persons are in the dark as to whether a contract is in existence or not. Therefore, the party making the offer has a period whereby they are unaware of the acceptance, because they do not know when the acceptance has been posted. One party is aware of the entire knowledge of the contract – acceptee, however, the offeror is unaware of its existence entirety.

Question 23

Critique of strict offer / acceptance

Answer 23

It was proposed by Lord Denning MR in the Court of Appeal that you should look at the correspondence as a whole and the conduct of the parties to see whether there was an agreement for everything that was material. However this was rejected by the House of Lords. Lord Denning is perhaps more appropriate. This would rid of the difficulties in establishing a clear offer and acceptance analysis in cases whereby there are lots of correspondence, perhaps through telephone, email, letter and in person conversations, whereby there may be lots of negotiations with several counter-offers and requests for more information. Simplify the analysis of contract formation to simply take everything into consideration to determine whether a contract has formed

Question 24

Strict offer acceptance and battle of the forms

Answer 24

Arguably, this does not create the most just outcome for parties. This battle of the forms, simply means that those who provide their terms last, are on the upper hand and these are the ones which are adhered to. The, does not suggest consensus in idem which is the very basis of a contract, but seems to be a technical advantage. In this case, Lord Denning MR would have liked to have decided for the buyers on the basis that the overall negotiations between the parties indicated there was a contract, even if it was not possible to identify a clear matching offer and acceptance. However it was fairly decisively rejected in the House of Lords yet again. There has been some case law to support this view, which is difficult to reconcile with Gibson and Butler.

Question 25

Case law for relaxing offer / acceptance

Answer 25

Trentham Ltd
RTS Flexible Systems

Question 26

Facts Trentham

Answer 26

The plaintiffs were the main contractors in a building contract. They entered into negotiations with the defendants for sub-contracts to supply and install doors, windows etc. The work was done and paid for, but when the plaintiffs tried to recover a contribution from the defendants towards a penalty that the plaintiffs were required to pay under the main contract, the defendants denied a binding contract had ever been formed. There had been an exchange of letters and various telephone conversation but there was not clear matching offer and acceptance. Steyn LJ found a contract was formed and stated “in this fully executed transaction, a contract came into existence during performance even if it cannot be precisely analysed in terms of offer and acceptance”

This shows finding contracts does not necessarily rely on strict offer and acceptance. This unanimous finding in the Court of Appeal was difficult to reconcile with the House of Lords in Gibson whereby Lord Denning’s similar attempt to weaken the dominance of offer acceptance analysis.

Question 27

RTS Flexible Systems

Answer 27

A similar situation arose where much work had been done on the project in hand before the dispute as to whether there was a binding contract arose. Lord Clarke found the behaviour of the parties objectively viewed indicated that they had intended to make an agreement on the terms referred in their draft contract. The approach taken was very similar to the approach Lord Denning had advocated in Gibson and reiterated in Butler Machine Tool. Seems it is now sometimes permissible to use this approach, specifically in situations where the parties have started work without coming to a complete agreement. The extent to which it has a wider application is open to question.