Formation: Offer and Acceptance

Question 1

what 6 things are necessary to form a valid contract?

Answer 1

(1) offer
(2) acceptance
(3) intention to create legal relations
(4) consideration
(5) capacity
(6) certainty

Question 2

what approach does the court take to determine if there is a valid agreement?

Answer 2

a objective approach based on what a reasonable person would determine as the intention of parties having regard to all the circumstances

not the inward mental intent of the parties

Question 3

what is an offer?

Answer 3

a communication from one party in which they agree to be legally bound to a contract with another party on the specified terms of that offer

Question 4

what are the requirements of a valid offer? (2)

Answer 4

(1) the offer must be clear and certain (enough to answer yes to form a valid contract)

(2) the offeror must show an intention to be legally bound (objectively a reasonable person would say the offeror intended to be bound)

Question 5

what is a bilateral contract?

Answer 5

each party assumes an obligation to the other party by each promising to do something

the offer can only be accepted by unequivocal communication of acceptance at which point each party is bound

Question 6

what is a unilateral contract? how is a unilateral contract accepted and at what point are the parties bound?

Answer 6

a unilateral contract involves only one party making an offer and assuming an obligation by calling for a prescribed act to be performed and showing clear intention to be bound

there are no mutual promises - the promisee is not bound to perform the prescribed act

the offer is only accepted by actual performance of the required act - the promisor becomes bound by its promise when the other party performs the prescribed act

the promisee does not have to communicate acceptance - but it must be aware of the offer when performing the act to constitute valid acceptance

Question 7

what is an invitation to treat? is it a valid offer?

Answer 7

an invitation to treat is a communication that someone would like to enter negotiations which may or may not lead to a firm offer by one of the parties

it cannot be accepted to form a valid contract as it lacks a clear intention to be legally bound

(indications of ITT: ‘may’, a conditional statement)

Question 8

what are 5 examples of invitations to treat?

Answer 8

(1) advertisements (but not unilateral advertisements)

(2) display of goods

(3) invitations to tender

(4) auctions (but not without reserve auctions)

(5) websites

Question 9

when are advertisements not invitations to treat but rather valid offers?

Answer 9

an advertisement which constitutes a valid unilateral offer can be accepted to form a valid contract if it contains a prescribed act and a clear intention to be bound

example: an ad offering a reward for the return of a lost property - returning the lost property constitutes acceptance

Question 10

when will invitations to tender constitute a valid offer?

Answer 10

where the invitation to tender expressly contains an undertaking to accept the highest or lowest bid, the requesting party has made an offer to enter into a contract with the party submitting the highest or lowest big

this is a form of unilateral contract - accepted when a party submits a tender satisfying the condition

conditions:
(1) tenders were asked from specified parties known to the requesting party
(2) there was a deadline for submitting tenders
(3) the requesting party stated non-negotiable conditions for submissions

Question 11

when will auctions constitute a valid offer?

Answer 11

auction without reserve (where seller promises to sell to the highest bidder)

there are 2 contracts:
1) bilateral contract where bidder makes an offer which is capable of being accepted or rejected by the auctioneer - this contract determines who is entitled to the goods
2) unilateral contract based on the promise that the auction is without reserve and the goods will be sold to the highest bidder
–> if goods are withdrawn, there is a breach of the unilateral contract entitling the promisee to damages, but they are not entitled to the goods as this is dictated by the bilateral contract which was not formed

Question 12

how can an offer be terminated? (4)

Answer 12

(1) rejection by offeree

(2) counteroffer by offeree

(3) lapse of an offer

(4) revocation by offeror

Question 13

if an offeree rejects an offer, can they later accept the same offer to form a valid contract?

Answer 13

no

Question 14

when is a rejection of an offer deemed to take effect?

Answer 14

when the rejection is actually communicated to the offeree

if the offeree later accepts the offer and the acceptance is deemed communicated before the rejection is actually communicated then a contract is formed

Question 15

if the offeree responds to an offer with a counteroffer, can they later accept the original offer?

Answer 15

no - a counteroffer is a rejection of the original offer which cannot later be accepted

Question 16

where an offer is made on the offeror’s standard terms, and the offeree purports to accept the offer on its own different standard terms, is there a contract?

Answer 16

no - the offeree has made a counteroffer on its own standard terms

Question 17

what is a request for information? does this extinguish the original offer?

Answer 17

if the offeree responds to an offer seeking clarification on the extent and terms of the offer, or to ascertain if the offeror would content to changing ancillary aspects of the offer, then the offeree’s request may be construed as a request for further information

this is not a counteroffer:
- this does not extinguish the original offer
- the purported terms of the request for information cannot then be accepted to form a contract

Question 18

how can an offer be terminated by lapsing? (2)

Answer 18

(1) passage of time (either no acceptance within a reasonable time or within a period prescribed by the offeror)

(2) death:
- death of offeror lapses an offer only if offeree knows of offeror’s death
- death of offeree always lapses the offer

Question 19

how can an offeror revoke an offer so that it cannot be validly accepted?

Answer 19

offeror must communicate the revocation

the offer is revoked only when the offeree has actual notice of the revocation

Question 20

if a revocation is communicated by post, when is the revocation actually communicated?

Answer 20

revocation takes effect from the moment it is received by the offeree and not from the time of posting

Question 21

when can an offeror revoke a unilateral offer? and how can they revoke the offer?

Answer 21

only if the offeree has not performed the prescribed act (i.e., accepted the offer)

the offeror must communicate revocation, but if the unilateral offer is made to the world at large then this is difficult so they must take reasonable steps to bring the revocation to the attention of those who may have read the offer (e.g., using same method of communication used for the offer)

Question 22

if an offeree partly performs the prescribed act in a unilateral offer, can the offeror revoke the offer?

Answer 22

if the offeree is willing and able to complete it, the offeror is under an implied obligation not to revoke the offer once performance has commenced

the offeree’s acceptance and consideration for this implied promise is starting to perform the required act

Question 23

what are the requirements for a valid acceptance? (4)

Answer 23

acceptance must be UNEQUIVOCAL - this means:

(1) acceptance must be in response to the offer

(2) acceptance must be unqualified

(3) acceptance must be communicated

(4) acceptance must follow a prescribed mode if required by the offer

Question 24

what does it mean that acceptance must be in response to the offer? (3)

Answer 24

(1) only the person to whom the offer is made can accept the offer (you cannot accept an offer that was not addressed to you)

(2) the acceptance must be made to the person who makes the offer

(3) an offer cannot be accepted in ignorance of an offer

Question 25

A makes a unilateral offer to pay a reward to anyone that returns his lost cat. B returns the lost cat but was unaware of A’s offer. Is a contract formed?

Answer 25

No - an offer cannot be accepted in ignorance of the offer

A is not obliged to pay B the reward

Question 26

what does it mean that the acceptance must be unqualified?

Answer 26

the acceptance must correspond exactly with the terms of the offer (mirror image rule)

a qualified or conditional acceptance is not a valid acceptance (but may be a counteroffer or a request for further information)

Question 27

how can the offeree communicate acceptance if the offeror does not specify a mode of acceptance?

Answer 27

in any manner

Question 28

how can the offeree communicate acceptance if the offeror specifies a mode of acceptance? (2 cases)

Answer 28

(1) if the offeror specifies a mandatory prescribed mode of acceptance to the exclusion of all other modes, then only this mode can be used to validly accept

(2) if the offeror does not make the prescribed mode of acceptance mandatory, then the offeree can use any mode of acceptance that is not less advantageous to the offeror (e.g., ‘respond by email’ - cannot then accept by post)

Question 29

if an offer states that they will take silence to be acceptance, does this bind the offeree?

Answer 29

no - silence cannot amount to acceptance, acceptance must be communicated

Question 30

is it possible for a third party to communicate the acceptance of the offeree?

Answer 30

yes - only where:

1) the third party had the authority of the offeree or
2) where the offeree’s acceptance was irrevocable to the third party

Question 31

what is the postal acceptance rule, and when does it apply? when does it not apply?

Answer 31

postal acceptance rule = where post is deemed a proper means of acceptance, acceptance of the offer takes effect from the moment the letter is properly posted and not from when it is received by the offeror

properly posted = put into an official letter box or in the hands of a postal operative authorised to receive letters (not only to deliver letters)

this applies even if the letter is lost or delayed in the post

postal acceptance rule does not apply where =
- postal acceptance is not contemplated to be used or where offeror prescribes a mode of acceptance
- the letter is incorrectly addressed
- offeror disapplies the rule by stating explicitly that acceptance is effective on receipt of the letter or ‘actual communication’
- the letter is to revoke the offer (effective only on receipt)

Question 32

if the offer states that acceptance must be given in ‘notice in writing’, and the offeree posts his acceptance, when is the contract formed?

Answer 32

postal acceptance rule is disapplied - contract is formed when the offeror actually receives the letter of acceptance

Question 33

if the offeree communicates acceptance via an instantaneous method of communication (email, phone, fax), when is acceptance deemed communicated?

Answer 33

acceptance via instantaneous methods of communication takes place at the moment the acceptance is actually received by the offeror - not when the acceptance is sent by the offeree

‘actually received’ = email is received on the offeror’s server during business hours - but acceptance is effective even if offeror did not read the email

Question 34

when is acceptance effective if it is communicated via email during vs outside business hours?

Answer 34

acceptance is effective only when received on the offeror’s email server during business hours (no need for him to read it) - not when it is sent by offeree

if received outside of business hours, acceptance is effective the next working day

(instantaneous method - postal rule does not apply)

Question 35

if the offeree communicates acceptance via instantaneous methods (email, fax, phone) but the acceptance is not received, will a contract be formed?

(3 cases - no one is at fault vs offeree is at fault vs offeror is at fault)

Answer 35

if no one is at fault = no contract formed

if offeree is at fault (e.g., did not correctly address the email) = no contract is formed

if offeror is at fault (e.g., fax out of ink, phone cutting but offeror does not ask for repetition) = contract likely formed

Question 36

does the offeree have to communicate acceptance to a unilateral offer for a valid contract to be formed?

Answer 36

no communication required - acceptance is upon performance of the prescribed act