Contract Law: Offer and Acceptance - Week 1

Introduction to Offer and Acceptance

• A binding contract requires offer, acceptance, intention to create legal relations, and consideration.
• A clear and certain offer from the offeror and an unequivocal acceptance from the offeree are needed for a contract to exist.
• Offeror is the person making the offer.
• Offeree is the person to whom the offer is made.
• Clear/certain offer + Unequivocal acceptance = Agreement.

The Objective Approach to Agreement

• Courts focus on what a reasonable person would perceive as the parties' intention, not their inner thoughts.
• In Storer v Manchester City Council, Lord Denning stated that contracts are based on outward appearances, not hidden intentions.
• Offer and acceptance demonstrates a 'meeting of minds' through an objective test.

Elements of Offer and Acceptance

• In relation to offers:
  • Requirements for a valid offer
  • Invitations to treat
  • Termination of an offer
• In relation to acceptance:
  • Acceptance must be in response to the offer, unqualified, and compliant with any required mode.
  • Acceptance must be communicated
• Clear/certain offer + Unequivocal acceptance = Offer and acceptance

Certainty of Offer

• An offer must be clear and certain to be valid.
• In Gibson v Manchester City Council, the council's letter stating it 'may be prepared to sell' was not a clear offer but an invitation to negotiate.

Intention to be Bound

• An offeror must demonstrate an intention to be legally bound.
• The phrasing ‘may be prepared to sell’ in Gibson v Manchester City Council lacked the necessary intention to be legally bound.
• In Storer v Manchester City Council, the words 'If you sign the agreement and return it to me I will send you the agreement signed on behalf of the corporation in exchange' showed an intention to be bound.
• The court objectively assesses whether a reasonable person would believe there was an intention to be bound.

Unilateral and Bilateral Contracts

• Bilateral contracts involve mutual promises, each party assumes an obligation to the other.
  • Example: Selling an item for payment
• Unilateral contracts involve one party making a promise in exchange for an act by another party.
  • Example: Offering a reward for lost property
• Only the party making the offer assumes an obligation in a unilateral contract.
• Acceptance occurs through the performance of the required act.

Bilateral Contract Example

• "In 10 days time, you will deliver a watch to me, and I will pay you £100."
• Both parties make a promise.
• Acceptance happens through a clear communication resulting in each party being bound to their promise.

Unilateral Contract Example

• "If you deliver a watch to me in the next 10 days, I will immediately pay you £100."
• Only one party makes a promise.
• Acceptance occurs by performing the act of delivering the watch.

Summary of Requirements for a Valid Offer

• Must be clear and certain.
• Offeror needs to show intention to be legally bound.
• There are two kinds of contracts: unilateral and bilateral.
• Bilateral contracts: Both parties make a promise.
• Unilateral contracts: One party makes an offer for an act by another; acceptance via performance.

Invitations to Treat

• An invitation to treat is a preliminary step in negotiations, not a firm offer.
• It invites the other party to make an offer.
• An offer is a commitment to be bound by the terms if accepted.
• An invitation to treat cannot be accepted to form a binding contract.
• Includes advertisements, display of goods, invitations to tender, and auction sales.

Invitations to Treat: Advertisements

• Generally considered invitations to treat (Partridge v Crittenden).
• Advertisers may have limited stock.
• If an advert was an offer, accepting parties would be greater than the available stock and result in breaches.

Advertisements: Exception (Unilateral Offers)

• This rule doesn't apply if the advertisement is a unilateral offer.
• In Carlill v Carbolic Smoke Ball Co., an ad promising £100 to anyone who used the smoke ball as directed but still got the flu was a unilateral offer.
• Depositing £1,000 in a bank showed their serious intention to be bound.

Carlill v Carbolic Smoke Ball Co. Requirements

• A clear prescribed act (using the smoke balls in a specific manner for a specified period but nevertheless contracting influenza)
• A clear intention to be bound.

Display of Goods for Sale

• Price-marked goods in a shop are generally invitations to treat (Fisher v Bell).
• This applies even to "special offers".
• In Pharmaceutical Society of GB v Boots Cash Chemists, displaying goods on shelves was an invitation to treat.

Invitations to Tender

• A request for tenders is an invitation to treat (Spencer v Harding).
• The requestor can reject any tender.
• Companies/public bodies use this when purchasing a major item or service.

Invitations to Tender: Exceptions

• If the invitation has a commitment to accept the highest/lowest bid (Harvela Investments Ltd v Royal Trust Co. of Canada (CI) Ltd), it's a unilateral offer.
• In Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council, a tender could create a binding obligation to consider tenders if:
  • Tenders were from specific parties known to the requesting party.
  • An absolute submission deadline existed.
  • Absolute, non-negotiable conditions for submission were in place.

Auction Sales

• An auctioneer's request for bids is an invitation to treat (Payne v Cave).
• The bidder makes an offer that the auctioneer can accept or reject, indicated by the fall of the hammer.
• The bidder can retract their offer before the hammer falls.
• Sale of Goods Act 1979 s 57 reflects this. Specifies that sales are complete when the auctioneer announces it by the fall of the hammer

Auction Sales: Auctions ‘Without Reserve’

• 'Without reserve' auctions promise to sell to the highest bidder, no matter how low the bid.
• If they refuse there is a breach of contract and the auctioneer can be sued (Warlow v Harrison).
• Barry v Davies approved this approach.
• In 'without reserve' sales there are 2 contracts
  • Normal auction contract
  • Unilateral contract

Summary of Invitations to Treat

• They are first negotiations steps.
• Offerors must show intent to be legally bound.
• Invitation to treat cannot form a binding contract.
• Advertisements/displays of goods are usually invitations to treat, except unilateral contracts.
• Invitations to tender are generally invitations to treat, unless highest/lowest bid acceptance is guaranteed.
• Auctions: bids are offers, accepted by the hammer; 'without reserve' can lead to lawsuits.

Termination of an Offer

• Rejected
• Lapse
• Revocation
• In each case, the offer becomes incapable of acceptance.

Termination by Rejection

• Once rejected, an offer cannot be accepted later (unless re-offered).
• Rejection is effective only upon communication to the offeror.
• A counter-offer rejects the original offer (Hyde v Wrench).
• Accepted counter-offers establish the contract terms.

Rejection: Counter-Offer vs. Request for Information

• Seek clarification of the extent and terms of the offer, or to ascertain if the offeror would consent to changing certain ancillary aspects of the offer, then the offeree’s request may be construed as a request for further information
• In Stevenson, Jacques & Co. v McLean, asking about credit terms was an inquiry, not a rejection.

Termination by Lapse

• Can occur by:
  • Passage of time
  • Death of a party

Lapse: Passage of Time

• An offer lapses if:
  • Acceptance isn't within the offeror's time period.
  • No period is specified, and acceptance isn't within a reasonable time.

Lapse: Death of a Party

• If the offeree knows the offeror is dead, the offer lapses.
• If the offeree is unaware of the offeror’s death, it probably will not lapse.
• The death of the offeree causes the offer to lapse.

Termination by Revocation

• The offeror can revoke their offer any time before acceptance (Payne v Cave).
• Revocation is effective when the offeree is actually notified.
• Postal revocation is effective upon receipt (Byrne v Van Tienhoven).

Revocation: Indirect Communication

• If the offeror shows a clear intent to revoke, and the offeree is notified, the revocation is effective, even via a third party (Dickinson v Dodds).

Revocation: Unilateral Offer

• Can revoke any time before complete act performance (Great Northern Railway Company v Witham).
• An exception exists if the offeree has partly performed, creating an implied obligation not to revoke.
• In Errington v Errington & Woods, the father could not revoke the offer because the couple had started to pay the mortgage.

Revocation: Communication in Unilateral Contracts

• If the offer is made to the whole world, those performance need not notify intent to accept (Carlill v Carbolic Smoke Ball Co.)
• Revocation requires reasonable steps to inform potential offerees.

Termination of an Offer: Summary

• Offers can end by rejection, lapse, or revocation making them unavailable for acceptance.
• Rejection is effective when communicated.
• Counter-offers reject the original offer.
• Death or a reasonable time after the offer can cause the offer to lapse
• Revocation is possible before acceptance.
• Revocation includes an obligation not to prevent completion once performance has started.

Acceptance: Four Aspects

• In Response to Offer
• Unqualified
• Prescribed Mode
• Communicated

Acceptance: Requires a Response to Offer

• Only offerees can accept.
• A general offer can be accepted by anyone aware of it (Carlill v Carbolic Smoke Ball Co.).

Acceptance: Must be Unqualified

• Mirror Image Rule
• Must correspond exactly with its terms: (Hyde v Wrench)

Acceptance: Prescribed Mode

• Offerors can require a specific acceptance mode, but it must be clearly mandatory (Manchester Diocesan Council for Education v Commercial and General Investments).
• Unless mandatory, another mode that’s equally advantageous to the offeror is valid (Tinn v Hoffman).

Prescribed Mode Example

• Offeror says: "Acceptance must be by email". Only email acceptance is valid.
• Offeror says: "Respond to my offer by email". Any mode no less advantageous can be used.

Acceptance: Summary

• Acceptance must be of offered terms.
• If a mode is prescribed, any equal or more advantageous mode to the offeror is allowed, unless the mode is specified as mandatory.

Acceptance: Must be Communicated

• Must be communicated to the offeror.
• Mere mental acceptance is insufficient.
• Silence cannot be stipulated as acceptance.

Acceptance: Third-Party Communication

• A contract can form through third party communication of acceptance if the third party is authorized.
• No contract forms if without authorization.

Acceptance: The Postal Rule

• Adams v Lindsell: acceptance is effective when the letter is properly posted.
• The letter should be put in an official letter box or handed to a Post Office employee.

Acceptance: Postal Rule Rationale

• Arbitrary rule trying to balance fairness when letters are delayed/lost.
• Places burden on the offeror.
• One of many factors considered.

Acceptance: Postal Rule Exceptions

• Even if delayed or lost applies
• If not contemplated post applies
• If incorrectly addressed does NOT apply
• If the offeror disapplied the postal rule, it does NOT apply
• it does not apply if you're revoking an offers

Acceptance: Incorrectly Addressed Letters

• The rule may be invalid if the address is incorrect as the offeree loses the benefit of the postal rule through carelessness.

Acceptance: Disapplied by Offeror

• Offerors can require actual communication.
• Holwell Securities v Hughes: offerors can ‘oust’ the postal rule,

Acceptance: Instantaneous Means

• Acceptance is when the offeror receives the communication (Entores v Miles Far East Corporation).
• The sender knows whether it was received.
• If non-receipt is the offeror's fault, acceptance is valid.
• E-mail acceptance happens when it arrives on the offeror’s email server (Thomas v BPE Solicitors).

Acceptance: Instantaneous Examples

• The Brimnes: messages received during office hours are effective then, even if unread until later.
• Mondial Shipping and Chartering BV v Astarte Shipping Ltd: a message sent outside of office hours is effective at the start of the next business day.

Acceptance: Unilateral Contracts Waive Communication

• Communication is waived (Carlill v Carbolic Smoke Ball Co.).
• Performance means acceptance.
• This applies to reward cases.

Acceptance: Summary on Communication

• Is effective when communicated.
• Silence is not acceptance.
• Authorized third parties can communicate acceptance.
• Postal rule: acceptance upon proper posting, unless certain exceptions apply.
• Instantaneous: effective upon receipt by the offeror, unless offeror is at fault.
• Unilateral contracts: communication is waived.

Introduction

• Enforceable contracts need sufficiently certain terms.
• Courts apply an objective test (RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Company KG (UK Production).
• The parties need to agree all terms.
• If not, the agreement cannot be enforced.

Agreement Example: Hire Purchase

• ‘Hire-purchase terms’ was held to be too uncertain to be enforced.
• There are a variety of different terms this agreement was too vague (Scammell v Ouston).

Agreement Example: 'Timber of Fair Specification’

• The words could be given a reasonable meaning (particularly in light of the parties previous dealings) and the agreement was binding (Hillas v Arcos).
• Demonstrates that the court will enforce the agreement reflecting the intentions of the parties within reason

Summary

• To determine whether the parties have reached an agreement on all material terms the court applies an objective test, asking whether, in all the circumstances of the case, the parties have agreed all the terms they considered to be a precondition to creating legal relations.
• If incomplete or uncertain, a court may not enforce it.