Offer and acceptance

Question 1

What are the elements required for there to be a binding contract?

Answer 1

1) Offer and acceptance
2) Intention to create legal relations
3) Consideration

Question 2

What is offer and acceptance?

Answer 2

One party (the offeror) has to make a clear and certain offer displaying an intention to be bound and the other party (the offeree) needs to communicate an unequivocal acceptance.

Question 3

Objective approach to agreement

Answer 3

The court is not concerned with the inward mental intent of the parties but rather what a reasonable man would say was the intention of the parties, having regard to all the circumstances. (Storer v Manchester City Council)

Question 4

Consideration

Answer 4

An act of forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought. (Dunlop v Selfridge)

Question 5

Requirements for a valid offer

Answer 5

• An offer must be clear and certain

- An offer must show an intention to be legally bound

Question 6

Clear and certain offer

Answer 6

Gibson v Manchester City Council: the city treasurer wrote to a tenant saying that the council ‘may be prepared to sell the house to you’ ‘if you would like to make a formal application’. ‘may be prepared to sell’ was not sufficiently clear and certain to be an offer.

Question 7

Offer must show an intention to be legally bound

Answer 7

Gibson: the wording ‘may be prepared to sell’ was deemed to lack the requisite intention to be legally bound.
Storer v Manchester City Council: ‘I will send you the agreement’ did demonstrate an intention to be bound.

Question 8

Unliateral and bilateral contracts

Answer 8

Bilateral: the most common. Each party assumes an obligation to the other party by making a promise to do something.
Unilateral: where one party makes an offer or proposal in terms which call for an act to be performed by one or more other parties. Only the party making the offer assumes an obligation. Only actual performance of the required act will constitute acceptance.

Question 9

Invitations to treat

Answer 9

An offer must be distinguished from an invitation to treat. An invitation to treat is the first step in negotiations. It usually takes the form of an invitation to make an offer.

Question 10

Examples of invitations to treat

Answer 10

• Advertisements
• Display of goods
• Invitations to tender
• Auctions
• Websites

Question 11

Advertisements

Answer 11

General rule is that they are regarded as statements inviting further negotiations or invitations to treat (Partridge v Crittenden)

Question 12

Advertisements - exceptions

Answer 12

Does not apply where the advertisements amount to a unilateral offer (Carlill v Carbolic Smoke Ball Co - there was a clear prescribed act, performance of which constituted acceptance. The claimant’s intention to be bound was demonstrated by their deposit of £1,000 and the certainty of the language used)

Question 13

Display of goods for sale

Answer 13

• General rule is that price-marked goods displayed in a shop window are not an offer for sale but an invitation to treat (Fisher v Bell)
• This is regardless of whether the shop expressly designates that the goods are on offer

Question 14

Invitations to tender

Answer 14

As a general rule, deemed an invitation to treat (Spencer v Harding) The requestor can accept or reject any tender.

Question 15

Invitations to tender - exceptions

Answer 15

• Where the invitation to tender expressly contains an undertaking to accept the highest or lowest bid (Harvela Instruments v Royal Trust Co of Canada). This is a form of unilateral contract
• An invitation to tender could give rise to a binding contractual obligation to consider tenders (Blackpool & Fylde Aero Club v Blackpool Borough Council)

Question 16

Auction sales

Answer 16

General rule that the auctioneer’s request for bids is an invitation to treat (Payne v Cave) The bidder makes an offer which the auctioneer is free to accept or reject.

Question 17

Auctions ‘without reserve’

Answer 17

• In an auction without reserve, the seller promises to sell to the highest bidder whatever that bid turns out to be.
• The auctioneer may be sued for breach of contract if he refuses to sell to the highest bona fide bidder (Warlow v Harrison)
• This is because there is actually two contracts, first a bilateral contract based on the usual analysis of an auction sale and then a unilateral contract based on the promise that the auction will be without reserve.

Question 18

Websites

Answer 18

Regarded as equivalent to a display of goods or advertisement, and so, an invitation to treat.

Question 19

Ways an offer can come to an end

Answer 19

(1) Rejection
(2) Lapse
(3) Revocation

Question 20

Rejection

Answer 20

• An offer is terminated by rejection.
• Once rejected, an offer cannot then be accepted
• A rejection does not take place until it is actually communicated to the offeror

Question 21

Rejection and counter-offers

Answer 21

• Where an offeree makes a counter-offer, the original offer is deemed to have been rejected and cannot be subsequently accepted (Hyde v Wrench)
• Difficulties can arise when an offer is made on the standard terms of the offeror and the purported acceptance is made on the standard terms of the offeree. If these terms are different in any way, the offeree has in fact made a counter-offer

Question 22

Distinguishing a counter-offer from a request for further information

Answer 22

If an offeree responds seeking clarification of the extent and terms of an offer, or to ascertain if the offeror would consent to changing certain aspects, this is a RFI

Question 23

Lapse

Answer 23

An offer may lapse and thus become incapable of acceptance:

(1) by passage of time;
(2) by the death of one of the parties; or
(3) by the non-fulfilment of a condition precedent.

Question 24

Lapse - passage of time

Answer 24

An offer will lapse through passage of time:

(1) Where the acceptance is not made within the period prescribed by the offeror;
(2) where no period is prescribed and acceptance is not made within a reasonable time.

Question 25

Lapse - death of a party

Answer 25

• If the offeree knows that the the offeror has died, the offer will lapse.
• If the offerree is unaware of the offeror’s death, it probably will not.
• Death of the offeree will cause the offer to lapse and so the offer cannot be accepted after the offeree’s death by the offeree’s representatives.

Question 26

Non-fulfilment of a condition

Answer 26

Where the offeror makes his offer subject to the fulfilment of a condition, failure on the part of the offeree to fulfil the condition will prevent acceptance from taking place.

Question 27

Revocation

Answer 27

The offeror may withdraw his offer at any time before acceptance (Payne v Cave)
However, once a valid acceptance has been made, an offer cannot be revoked.

Question 28

Revocation - Options

Answer 28

• Where the offeror gives an undertaking to keep the offer open for a stipulated period, he is not bound by his undertaking unless the offeree has given consideration in return for it.
• If that is the case, then there is a separate binding contract known as an option and revocation within the period will be in breach of that contract. (Dickinson v Dodds)

Question 29

Revocation - communication is essential

Answer 29

Revocation of an offer is effective only upon actual notice of it reaching the offeree.

Question 30

Revocation - the postal rule

Answer 30

Where revocation is communicated by post, it takes effect from the moment is received by the offeree and not from the time of posting it (Byrne v Van Tienhoven)

Question 31

Revocation - indirect communication

Answer 31

Provided the offeror has shown, by words or conduct, a clear intention to revoke his offer and notice has reached the offeree, the revocation is effective. The means of communication do not matter, so revocation will be effective even if communicated by a third party (Dickinson v Dodds)

Question 32

Revocation of a unilateral offer

Answer 32

It remains possible to revoke the offer at any time prior to the completion of the required act (Great Northern Railway v Witham)
An exception is where the offeree has partly performed the obligation and is willing and able to complete (Errington v Errington & Woods)

Question 33

Communication of revocation in unilateral contracts made to the whole world

Answer 33

Communication of revocation in this case is almost impossible and it is likely that revocation will be effective if the offeror takes reasonable steps to bring the revocation to the attention of all those who may have read the offer. There is no English authority on this but support may be drawn from the US case Shuey v United States.

Question 34

Four aspects of unequivocal acceptance

Answer 34

(a) Acceptance must be in response to the offer
(b) Acceptance must be unqualified
(c) It may be necessary to follow a prescribed mode of acceptance
(d) Acceptance must be communicated

Question 35

Acceptance - must be in response to the offer

Answer 35

• Only the person to whom an offer is made can accept the offer.
• Where an offer is made generally to the world at large, everyone with notice of the offer is an ‘offeree’ and a valid acceptance may be made by any person with notice of the offer (Carlill v Carbolic Smoke Ball Co)
• An offer is not accepted by doing the required act in ignorance of the offer (R v Clarke)
• As long as there is evidence of requisite knowledge of the offer, it does not matter that the act was performed for an entirely different motive (Williams v Cawardine)

Question 36

Acceptance must be unqualified

Answer 36

• It must correspond exactly with the terms of the offer, the ‘mirror image rule’ (Hyde v Wrench)

Question 37

Acceptance - prescribed mode

Answer 37

• It is open to the offeror to prescribe a mode of acceptance ‘in terms insisting that only acceptance in that mode shall be binding.’ (Manchester Diocesan)
• If the offeror makes it clear that he will not be bound unless acceptance is communicated in that precise way, then only acceptance by that mode will suffice.
• However, unless the prescribed mode of acceptance is made mandatory, another mode of acceptance which is no less advantageous to the offeror will bind him (Tinn v Hoffman)
• If the method was prescribed for the benefit of the offeree, the offeree can waive this and use an alternative mode (Yates Building Co v Pulleyn)

Question 38

Communication of acceptance

Answer 38

• General rule is that acceptance must be communicated to the offeror.
• Acceptance applies from the moment it is communicated.
• The offeror may not stipulate that he will take silence to be acceptance and thus bind the offeree. (Felthouse v Bindley)

Question 39

Third party communication of acceptance

Answer 39

It is possible for a contract to come into existence where a person other than the offeree informs the offeror of acceptance.
However, no contract will arise if this is done without the authority of the offeree (Powell v Lee)

Question 40

Acceptance - the postal rule

Answer 40

Where post is deemed to be a proper means of communication, acceptance takes effect from the moment the letter of acceptance is properly posted - not from the moment it is received. A letter is properly posted when it is put into an official letter box or into the hands of an employee of the Post Office who is authorised to receive letters (not of a postman who is only authorised to deliver letters - Re London and Northern Bank)

Question 41

The rationale behind the acceptance postal rule

Answer 41

It places a greater burden on the offeror than the offeree. It is easier to prove posting than it is to prove receipt.

Question 42

When does the acceptance postal rule apply

Answer 42

It applies even where acceptance is delayed or lost in the post. (Household Fire and Carriage Accident Insurance v Grant)

Question 43

When does the acceptance postal rule not apply

Answer 43

• if it was not contemplated that post would be used
• if it is manifestly inconvenient/absurd (Holwell Securities v Hughes)
• doesn’t apply to letters revoking offers
• if it is incorrectly addressed (Gretreide-Import Gesellschaft v Contimar)
• if disapplied by the offeror (Household Fire and Carriage Accident)

Question 44

Acceptance postal rule does not apply if not contemplated that post would be used

Answer 44

• It is applicable only where it is reasonable in all the circumstances to accept the offer by post (Henthorn v Fraser)
• It has been held to be unreasonable when there is an implied condition that prompt acceptance is required (Quenerduaine v Cole)

Question 45

Communication by instantaneous means

Answer 45

• the general rule is that acceptance takes place at the moment the acceptance is received by the offeror (Entores v Miles Far East)
• however, if the acceptor reasonably believes that he has communicated his acceptance but that is not so because of the fault of the offeror, then the offeror may be estopped from saying that he did not receive the acceptance (Entores)
• Office hours will depend on the context of the communications (Thomas v BPE Solicitors)
• The postal rule is inapplicable to emails, therefore an email is effective not when sent, but only when received on the offeror’s server (Thomas v BPE Solicitors)

Question 46

Communication waived for unilateral contracts

Answer 46

No need for separate notification of acceptance to be given to the offeror where acceptance is made by the performance of an act.