Contractual agreement - offer and acceptance

Contractual agreement - offer and acceptance

Introduction:

Contractual agreement has traditionally been analysed in terms of offer and acceptance. One party, the offeror, makes an offer which once accepted by another party, the offeree, creates a binding contract. Key concepts that you need to familiarise yourself with in relation to offer and acceptance include the distinction between an offer and an invitation to treat - you need to be able to identify specific examples of where an offer or an invitation to treat exists. Also it is important to know the difference between bilateral and unilateral contracts. The case of Carlill v Carbolic Smoke ball co. is the leading case in both these areas so it worth concentrating your efforts in obtaining a good understanding of this case.

Offer

In order to amount to an offer it must be shown that the offeror had the intention to be bound:

Harvey v Facey [1893] UKPC 1

Carlill v Carbolic Smoke Ball co [1893] 1 QB 256

Invitation to treat

An offer needs to be distinguished from an invitation to treat. Whereas an offer will lead to a binding contract on acceptance, an invitation to treat can not be accepted it is merely an invitation for offers.

Goods on display in shops

Goods on display in shops are generally not offers but an invitation to treat. The customer makes an offer to purchase the goods. The trader will decide whether to accept the offer:

Pharmaceutical Society of Great Britain v Boots [1953] 1 QB 401

Fisher v Bell [1961] 1 QB 394

Advertisements

Advertisements are also generally invitations to treat:

Partridge v Critenden (1968) 2 All ER 425

However, in some instances an advert can amount to an offer:

Carlill v Carbolic Smoke Ball co [1893] 1 QB 256

Contract by Tender

The request for tenders represents an invitation to treat and each tender submitted amounts to an offer unless the request specifies that it will accept the lowest or highest tender or other condition. If the request contains such a condition this will amount to an offer of a unilateral contract where acceptance takes place on performing the condition:

Spencer v. Harding Law Rep. 5 C. P. 561

Auctions

Where an auction takes place with reserve, each bid is an offer which is then accepted by the auctioneer. Where the auction takes place without reserve, the auctioneer makes a unilateral offer which is accepted by the placing of the highest bid:

Heathcote Ball v Barry [2000] EWCA Civ 235

Machines

The machine represents the offer, the acceptance is inserting the money:

Thornton v Shoe Lane Parking [1971] 2 WLR 585

Termination of offers

An offer may be terminated by:

1. Death of offeror or offeree

2. Lapse of time

An offer will terminate after a reasonable lapse of time. What amounts to a reasonable period will depend on the circumstances.

Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Ex 109

3. Revocation

An offeror may revoke an offer at any time before acceptance takes place:

Dickinson v Dodds (1876) 2 Ch. D. 463

This may not apply in unilateral offers where acceptance requires full performance:

Errington v Errington Wood [1952] 1 KB 290

Dahlia v Four Millbank [1978] Ch 231

4. Counter offer

A counter offer is where an offeree responds to an offer by making an offer on different terms. This has the affect of destroying the original offer so that it is no longer open for the offeree to accept.

Hyde v Wrench (1840) 49 ER 132

Acceptance

Once valid acceptance takes place a binding contract is formed. It is therefore important to know what constitutes a valid acceptance in order to establish if the parties are bound by the agreement. There are three main rules relating to acceptance:

1. The acceptance must be communicated to the offeree.
2. The terms of the acceptance must exactly match the terms of the offer.
3. The agreement must be certain.

1. Communication

The general rule is that the offeror must receive the acceptance before it is effective:

Entorres v Miles Far East [1955] 2 QB 327

Silence will not amount to acceptance:

Felthouse v Bindley [1862] EWHC CP J35

Acceptance can be through conduct:

Brogden v. Metropolitan Railway Co. (1877) 2 App. Cas. 666

Butler Machine Tool v Ex-cell-o Corporation [1979] 1 WLR 401

The postal rule

Where it is agreed that the parties will use the post as a means of communication the postal rule will apply. The postal rule states that where a letter is properly addressed and stamped the acceptance takes place when the letter is placed in the post box:

Adams v Lindsell (1818) 106 ER 250

It is relatively easy for the parties to exclude the postal rule:

Holwell Securities v Hughes [1974] 1 WLR 155

2. The terms of the acceptance must exactly match the terms of the offer.

If the terms differ this will amount to a counter offer and no contract will exist:

Hyde v Wrench (1840) 49 ER 132

3. The agreement must be certain

When viewed objectively it must be possible to determine exactly what the parties have agreed to. Compare the following two cases:

Scammell & Nephew v. Ouston [1941] AC 251

Sudbrook Trading Estate v. Eggleton [1983] AC AC 444