Words: 3951
Offer and acceptance | Contract law| Part of the common law series| Contract formation| Offer and acceptance · Mailbox rule Mirror image rule · Invitation to treat Firm offer · Consideration| Defenses against formation| Lack of capacity Duress · Undue influence Illusory promise · Statute of frauds Non est factum| Contract interpretation| Parol evidence rule Contract of adhesion Integration clause Contra proferentem| Excuses for non-performance| Mistake · Misrepresentation Frustration of purpose · Impossibility Impracticability · Illegality Unclean hands · Unconscionability Accord and satisfaction| Rights of third parties| Privity of contract
Assignment · Delegation Novation · Third party beneficiary| Breach of contract| Anticipatory repudiation · Cover Exclusion clause · Efficient breach Deviation · Fundamental breach| Remedies| Specific performance Liquidated damages Penal damages · Rescission| Quasi-contractual obligations| Promissory estoppel Quantum meruit| Related areas of law| Conflict of laws · Commercial law| Other common law areas| Tort law · Property law Wills, trusts and estates Criminal law · Evidence| v · d · e| Offer and acceptance analysis is a traditional approach in contract law used to determine whether an agreement exists between two parties.
Agreement consists of an offer by an indication of one person (the “offeror”) to another (the “offeree”) of the offeror’s willingness to enter into a contract on certain terms without further negotiations. A contract is said to come into existence when acceptance of an offer (agreement to the terms in it) has been communicated to the offeror by the offeree and there has been consideration bargained-for induced by promises or a promise and performance. The offer and acceptance formula, developed in the 19th century, identifies a moment of formation when the parties are of one mind.
This classical approach to contract formation has been weakened by developments in the law of estoppel, misleading conduct, misrepresentation and unjust enrichment. Offer Treitel defines an offer 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”, the “offeree”. [1] An offer is a statement of the terms on which the offeror is willing to be bound. It is the present contractual intent to be bound by a contract with definite and certain terms communicated to the offeree.
The “expression” referred to in the definition may take different forms, such as a letter, newspaper, fax, email and even conduct, as long as it communicates the basis on which the offeror is prepared to contract. Whether two parties have an agreement or a valid offer is an issue which is determined by the court using the Objective test (Smith v. Hughes). Therefore the “intention” referred to in the definition is objectively judged by the courts. In the English case of Smith v. Hughes [2] the court emphasised that the important thing is not a party’s real intentions but how a reasonable person would view the situation.
This is due mainly to common sense as each party would not wish to breach his side of the contract if it would make him or her culpable to damages, it would especially be contrary to the principle of certainty and clarity in commercial contract and the topic of mistake and how it affects the contract. As a minimum requirement the conditions for an offer should include at least the following 4 conditions: Delivery date, price, terms of payment that includes the date of payment and detail description of the item on offer including a fair description of the condition or type of service.
Without one of the minimum requirements of condition an offer of sale is not seen as a legal offer but rather seen as an advertisement. Unilateral contract The contract in Carlill v Carbolic Smoke Ball Co[3] was of a kind known as a unilateral contract, one in which the offeree accepts the offer by performing an act which indicates their agreement with the bargain. This can be something as simple as raising an eyebrow or wearing a certain color t-shirt. It can be contrasted with a bilateral contract, where there is an exchange of promises between two parties.
In Australian Woollen Mills Pty Ltd v. The Commonwealth (1954), the High Court of Australia held that, for a unilateral contract to arise, the promise must be made “in return for” the doing of the act. The court distinguished between a unilateral contract and a conditional gift. The case is generally seen to demonstrate the connection between the requirements of offer and acceptance, consideration and intention to create legal relations. Invitations to treat An invitation to treat is not an offer, but an indication of a person’s willingness to negotiate a contract.
In Harvey v. Facey[4], an indication by the owner of property that he or she might be interested in selling at a certain price, for example, has been regarded as an invitation to treat. Similarly in Gibson v Manchester City Council[5] the words “may be prepared to sell” were held to be a notification of price and therefore not a distinct offer, though in another case concerning the same change of policy (Manchester City Council underwent a change of political control and stopped the sale of council houses to their tenants) Storer v.
Manchester City Council[6], the court held that an agreement was completed by the tenant’s signing and returning the agreement to purchase, as the language of the agreement had been sufficiently explicit and the signature on behalf of the council a mere formality to be completed. The courts have tended to take a consistent approach to the identification of invitations to treat, as compared with offer and acceptance, in common transactions. The display of goods for sale, whether in a shop window or on the shelves of a self-service store, is ordinarily treated as an invitation to treat and not an offer. 7] The holding of a public auction will also usually be regarded as an invitation to treat. Auctions are, however, a special case generally. The rule is that the bidder is making an offer to buy and the auctioneer accepts this in whatever manner is customary, usually the fall of the hammer. [8] A bidder may withdraw his or her bid at any time before the fall of the hammer, but any bid in any event lapses as an offer on the making of a higher bid, so that if a higher bid is made, then withdrawn before the fall of the hammer, the auctioneer cannot then purport to accept the previous highest bid.
If an auction is without reserve then whilst there is no contract of sale between the owner of the goods and the highest bidder (because the placing of goods in the auction is an invitation to treat) there is a collateral contract between the auctioneer and the highest bidder that the auction will be held without reserve (i. e. , that the highest bid, however low, will be accepted). [9] The U. S. Uniform Commercial Code provides that in an auction without reserve the goods may not be withdrawn once they have been put up. [10] Revocation of offer
An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror. If the offer was made to the entire world, such as in Carlill’s case, the revocation must take a form that is similar to the offer. However, an offer may not be revoked if it has been encapsulated in an option (see also option contract). If the offer is one that leads to a unilateral contract, then unless there was an ancillary contract entered into that guaranteed that the main contract would not be withdrawn, the contract may be revoked at any time.
Acceptance Test of acceptance For the Acceptance, the essential requirement is that the parties had each from a subjective[citation needed] perspective engaged in conduct manifesting their assent. Under this meeting of the minds theory of contract, a party could resist a claim of breach by proving that he had not intended to be bound by the agreement, only if it appeared subjectively that he had so intended. This is unsatisfactory, as one party has no way to know another’s undisclosed intentions. One party can only act upon what the other party reveals objectively to be his intent.
Hence, an actual meeting of the minds is not required. Indeed, it has been argued that the “meeting of the minds” idea is entirely a modern error: 19th century judges spoke of “consensus ad idem” which modern teachers have wrongly translated as “meeting of minds” but actually means “agreement to the [same] thing”. [11] The requirement of an objective perspective is important in cases where a party claims that an offer was not accepted and seeks to take advantage of the performance of the other party.
Here, we can apply the test of whether a reasonable bystander (a “fly on the wall”) would have perceived that the party has impliedly accepted the offer by conduct. Rules of acceptance Communication of acceptance There are several rules dealing with the communication of acceptance: * The acceptance must be communicated: see Powell v Lee (1908) 99 L. T. 284; Robophone Facilities Ltd v. Blank [1966] 3 All E. R. 128. Prior to acceptance, an offer may be withdrawn. * An exception exists in the case of unilateral contracts, in which the offeror makes an offer to the world which can be accepted by some act.
A classic instance of this is the case of Carlill v. Carbolic Smoke Ball Co. [1892] 2 Q. B. 484 in which an offer was made to pay ? 100 to anyone who having bought the offeror’s product and used it in accordance with the instructions nonetheless contracted influenza. The plaintiff did so and the court ordered payment of the ? 100. Her actions accepted the offer – there was no need to communicate acceptance. Typical cases of unilateral offers are advertisements of rewards (e. g. , for the return of a lost dog). * An offer can only be accepted by the offeree, that is, the person to whom the offer is made. An offeree is not usually bound if another person accepts the offer on his behalf without his authorisation, the exceptions to which are found in the law of agency, where an agent may have apparent or ostensible authority, or the usual authority of an agent in the particular market, even if the principal did not realise what the extent of this authority was, and someone on whose behalf an offer has been purportedly accepted it may also ratify the contract within a reasonable time, binding both parties: see agent (law). It may be implied from the construction of the contract that the offeror has dispensed with the requirement of communication of acceptance (called waiver of communication – which is generally implied in unilateral contracts): see also Re Selectmove Ltd [1994] BCC 349. * If the offer specifies a method of acceptance (such as by post or fax), acceptance must be by a method that is no less effective from the offeror’s point of view than the method specified.
The exact method prescribed may have to be used in some cases but probably only where the offeror has used very explicit words such as “by registered post, and by that method only”: see Yates Building Co. Ltd v. R. J. Pulleyn & Sons (York) Ltd (1975) 119 Sol. Jo. 370. * However, acceptance may be inferred from conduct, see, e. g. : Brogden v. Metropolitan Railway Company (1877) 2 App. Cas. 666; Rust v. Abbey Life Assurance Co. Ltd [1979] 2 Lloyd’s Rep. 334; Saint John Tugboat Co. v. Irving Refinery Ltd (1964) 46 DLR (2d) 1; Wettern Electric Ltd v.
Welsh Development Agency [1983] Q. B. 796. “ Correspondence with offer The “mirror image rule” states that if you are to accept an offer, you must accept an offer exactly, without modifications; if you change the offer in any way, this is a counter-offer that kills the original offer: Hyde v. Wrench (1840) 3 Beav 334. However, a mere request for information is not a counter-offer: Stevenson v. McLean (1880) 5 Q. B. D. 346. It may be possible to draft an enquiry such that it adds to the terms of the contract while keeping the original offer alive.
An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror: Dickinson v. Dodds (1876) 2 Ch. D. 463. If the offer was made to the entire world, such as in Carlill’s case, the revocation must take a form that is similar to the offer. However, an offer may not be revoked if it has been encapsulated in an option (see also option contract). Battle of the forms Often when two companies deal with each other in the course of business, they will use standard form contracts.
Often these terms conflict (e. g. both parties include a liability waiver in their form) and yet offer and acceptance are achieved forming a binding contract. The battle of the forms refers to the resulting legal dispute of these circumstances, wherein both parties recognize that an enforceable contract exists, however they are divided as to whose terms govern that contract. Under English law, the question was raised in Butler Machine Tool Co Ltd v. Ex-Cell-O Corporation (England) Ltd [1979] WLR 401, as to which of the standard form contracts prevailed in the transaction.
Lord Denning MR preferred the view that the documents were to be considered as a whole, and the important factor was finding the decisive document; on the other hand, Lawton and Bridge LJJ preferred traditional offer-acceptance analysis, and considered that the last counter-offer prior to the beginning of performance voided all preceding offers. The absence of any additional counter-offer or refusal by the other party is understood as an implied acceptance. In U. S. law, this principle is referred to as the last shot rule. Under the Uniform Commercial Code (UCC) Sec. -207(1), A definite expression of acceptance or a written confirmation of an informal agreement may constitute a valid acceptance even if it states terms additional to or different from the offer or informal agreement. The additional or different terms are treated as proposals for addition into the contract under UCC Sec. 2-207(2). Between merchants, such terms become part of the contract unless: * a) the offer expressly limits acceptance to the terms of the offer, * b) material alteration of the contract results, * c) notification of objection to the additional/different terms are given n a reasonable time after notice of them is received. Material is defined as anything that may cause undue hardship/surprise, or is a significant element of the contract. If there is no contract under 2-207(1), then under UCC Sec. 2-207(3), conduct by the parties that recognize there is a contract may be sufficient to establish a contract. The terms for this contract include only those that the parties agree on and the rest via gap fillers. Postal acceptance rule Main article: Mailbox rule As a rule of convenience, if the offer is accepted by post, the contract comes into existence at the moment that the acceptance was posted (Adams v.
Lindsell (1818) 106 ER 250). This rule only applies when, impliedly or explicitly, the parties have in contemplation post as a means of acceptance. It excludes contracts involving land, letters incorrectly addressed and instantaneous modes of communication. The relevance of this early 19th century rule to modern conditions, when many quicker means of communication are available has been questioned, but the rule remains for the time being. Knowledge of the offer In Australian law, there is a requirement that an acceptance is made in reliance or pursuance of an offer: see R v.
Clarke (1927) 40 C. L. R. 227. Rejection, death or lapse of time An offer can be terminated on the grounds of rejection on the part of the offeree, that is if the offeree does not accept the terms of the offer. Also, upon making an offer, an offeror may include as a condition to the contract the duration in which the offer will be available. If the offeree fails to accept the offer within this specific period, then the offer will be deemed as terminated. Death of offeror Generally death (or incapacity) of the offeror terminates the offer. This does not apply to option contracts.
The offer cannot be accepted if the offeree knows of the death of the offeror. In cases where the offeree accepts in ignorance of the death, the contract may still be valid, although this proposition depends on the nature of the offer. If the contract involves some characteristic personal to the offeror, the offer is destroyed by the death. Death of offeree An offer is rendered invalid upon the death of the offeree: see Re Irvine. Counter Offers If the offeree rejects the offer, the offer has been destroyed and cannot be accepted at a future time. A case illustrative of this is Hyde v. Wrench (1840) 49 E.
R. 132, where in response to an offer to sell an estate at a certain price, the plaintiff made an offer to buy at a lower price. This offer was refused and subsequently, the plaintiffs sought to accept the initial offer. It was held that no contract was made as the initial offer did not exist at the time that the plaintiff tried to accept it, the offer having been terminated by the counter offer. It should be noted that a mere inquiry (about terms of an offer) is not a counter offer and leaves the offer intact. The case Stevenson v. McLean (1880) 28 W. R. 916 is analogous to this situation. Formation
A contract will be formed (assuming the other requirements are met) when the parties give objective manifestation of an intent to form the contract. Of course, the assent must be given to terms of the agreement. Usually this involves the making by one party of an offer to be bound upon certain terms, and the other parties’ acceptance of the offer on the same terms. Because offer and acceptance are necessarily intertwined, in California, offer and acceptance are analyzed together as subelements of a single element, known either as consent of the parties or mutual assent. [12] Offer and Acceptance A contract is an agreement which gives rise to obligations which are enforced or recognized by law. The factor which distinguishes contractual [relations] from other obligations is that they are based on the agreement of the contracting parties. ‘1 To enter a legally binding bilateral contract there must be an offer and an acceptance. An offer is defined by Paul Richards in the Law of Contract as: ‘An expression of a willingness to contract on certain terms made with the intention that a binding agreement will exist once the offer is accepted. ‘ For an offer to be valid it must be communicated.
This might seem rather obvious, however circumstances in real life may be more blurred as illustrated by the case of Taylor v Laird (1856) 1H & N 266; 25 LJ Ex 329. The captain of a ship, employed for a trading and exploring voyage, refused to go any further and resigned his command. He subsequently helped to work the ship home and wanted to claim his wage for this work. It was held however that he could not do so as his offer to help bring the ship home was not communicated, therefore there had been no opportunity to accept or reject his offer. A distinction must be noted between an offer and a request for information.
This distinction can be shown by the case of Harvey v Facey [1893] AC 552 in which a telegraph was sent stating: ‘Will you sell us Bumper Hall Pen? Telegraph lowest cash price’ the responded replied: ‘Lowest price Bumper Hall Pen for 900’ they then replied with: ‘We agree to buy Bumper Hall Pen for 900’ It was held that the reply to the lowest cash price was not an offer, it was simply a statement as to the minimum price he would sell the Bumper Hall Pen, it was just a response to a request for information. The final telegraph was an offer which was not accepted. The offer might be confused further with invitation to treat.
There is a clear distinction between the two however as an invitation to treat shows a willingness to enter into negotiations rather than a willingness to enter into a legally binding contract. This can be illustrated by the case of Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2All ER 456 in which it was held that the goods on the shelves are an invitation to treat and the offer occurs at the checkpoint, at which point the customer offers to buy a certain good for a certain price and then Boots either accepts or rejects the offer.
Rather than vice versa whereby it is Boots making an offer by putting the goods on a shelve and the customer accepting this offer by moving the goods into the basket. Acceptance of an Offer The second part of a contract is the acceptance of an offer. Acceptance was defined by Treitel as ‘a final unqualified expression of assent to all the terms of an offer’. As with offer, acceptance has to be communicated in order for it to be valid as illustrated by Lord Denning in Entores v Miles Far East Corporation [1955] 2 QB 327 The communication of acceptance can be n writing, orally or inferred from conduct. There can be an acceptance only when there is an offer however. In the absence of such offer there can be no acceptance, therefore no legally binding contract can be formed. The manner in which an acceptance is communicated is important as it might make it invalid. Unless requested by the offeror for a certain mode of communication to be used, in Tinn v Hoffman and Co. (1873) 29 LT 271 it was stated that an equally expeditious mode or more expeditious as the mode used to communicate the offer can be used.
In Manchester Dioceasan Council for Education v Commercial and General Investment Ltd [1969] 3All ER 159 Buckay J states: ‘I am of the opinion that acceptance communicated to the offeror by any other mode which is no less advantageous to him will conclude the contract. ‘ In Adams v Lindsell (1818) 1 B & Ald 681 the postal rule was established, the validity of which still stands as shown in modern times by the case of Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellscaft GmbH [1983] 2 AC 34.
The postal rule states that an offer is accepted as soon as the letter of acceptance has been posted. Hence, although a letter might be received on the 18th of November, if it was sent on the 17th of November, the acceptance of the offer occurs on the 17th rather than the 18th. It is not clear whether the postal rule applies to emails as such a case has no precedent. However, there are reason to believe that the postal rule may apply to emails. In the case of Entores it was stated that instantaneous forms of communication are as if they were in each others presence.
This was developed further in the Brimmes case whereby it was decided that instantaneous forms of communication are as if they were in the presence of each other as far as it is within a business day. It can be argued therefore that an e-mail is an instantaneous form of communication as it is received within seconds of being sent. As such it may be suggested that the principles of the Entores and Brimmes might be applied to email communications as well.