Contract Law – Offer and Acceptance

BASIC ELEMENTS FOR A SIMPLE BINDING CONTRACT

i. The parties must have reached to an agreement (offer and acceptance).

ii. Intention to contract (they must intend to be legally bound)

iii. Both parties must have provided valuable consideration or price

iv. The parties must have the legal capacity to contract.

v. A contract may be invalidated by a mistake, illegality, misrepresentation, duress or undue

influence.

 R. W Lee: “A contract is an agreement which creates or is intended to create a legal

obligation between the parties to it”.

• Justice Weeramantry: “A contract is a promise or promises mutually exchanged, setting up

against the promisor or promisors, duties of performance which the law will recognise or
enforce at the instance or for the benefit of the promisee/promisees, or of a third party
intended to be benefited.”

THE OFFER
• A statement of willingness to contract on specified terms made with the intention that, if
accepted, it shall become a binding contract.

• The person making the offer is the offeror and the person to whom the offer is made is called
the offeree.

• The offer may be express (in writing or oral) or implied from conduct.

• Offer should be definite in terms of price, quantity, date etc.

• Acceptance should be as it is –if alter material facts of the offer –no acceptance – (Mirror
Image rule)

COMMUNICATION OF AN OFFER

All offers must be communicated to the offeree before they can be accepted. The offeree
cannot accept an offer unless he knows of its existence, because he cannot accept it without
intending to do so, and he cannot intend to accept an offer of which he is ignorant.
COUNTER OFFER

• Rejection of the original offer and making a new offer. This new offer is a coounter offer.

• HYDE V WRENCH - Selling farm for 1000 Pounds- Counter offer 950 Pounds)

CROSS OFFER

• Where 2 parties make identical offers to each other, in ignorance of each other's offer,
those offers are Cross offers.

• Neither of the 2 can be called an acceptance of the other, therefore, there is no

contract.

HARVEY V. FACEY [1893] AC 552

• The plaintiffs sent a telegraph to the defendant, saying, ‘will you sell us Bumper Hall Pen?
Telegraph lowest cash price’. The defendant replied by telegraph stating: ‘Lowest cash price for
Bumper Hall Pen £900’. The plaintiffs in turn, replied by telegraph in which they stated: ‘we
agree to buy Bumper Hall Pen for £900 asked for by you’.

• The defendant did not reply to this last telegraph. It was held that no contract had been
concluded between the parties for the sale of Bumper Hall Pen.

(Reasoning - first telegraph was a mere inquiry and thus defendant's response was not an offer.
The final telegraph sent by plaintiff was an offer and not having been accepted by the plaintiff,
it won't be a contract.)

GENERAL OFFER

• Made to the public in general as a whole.

• They are unilateral contracts.

• Acceptance need not to be expressed, the performance of the offeree according to the
terms of the offer is sufficient.

SPECIFIC OFFER

• Made to one particular person or a group of persons.

• They are bilateral contracts.

 • The offeror must express his acceptance to enforce the contract.

Lord Denning, in GIBSON V. MANCHESTER CITY COUNCIL [1978] 1 WLR 520, 523

There is no need to look for a strict offer and acceptance. You should look at the
correspondence as a whole and at the conduct of the parties and see therefrom whether the
parties have come to an agreement on everything that was material.

INVITATION TO TREAT

 Offer should distinguish from invitation to treat.

 Price quotations are not usually offers.
 Advertisements are intended to lead in due course to binding contracts of sale after
enquiries and further bargaining and negotiations, and determining the customer’s
capability to pay.
 Over the Counter sales and displays of goods in shop windows or in the store itself are
invitations to treat.

 Invitation to treat is a mere invitation made to the public to make an offer to buy the goods
at a price stated. Therefore, if a customer enters the shop, tenders the price and demands
the article, the shopkeepers is not bound to sell it to him. The demand of the customer is
the offer which the shopkeeper is free to accept or reject as he pleases.
 Pharmaceutical Society of Great Britain v. Boots Cash Chemists (1953) - Boots Cash
Chemists had just instituted a new way for its customers to buy certain medicines.
Shoppers could now pick drugs off the shelves in the chemist and then pay for them at
the till. Before then, all medicines were stored behind a counter meaning a shop
employee would get what was requested. The Court of Appeal held that the defendant
was not in breach of the Act, as the contract was completed on payment under the
supervision of the pharmacist. The display of the goods on the shelves were not an offer
that was accepted when the customer selected the item.

SELF WINDOW DISPLAYS

• FISHER V. BELL [1961] 1 QB 394 the defendant was charged with the offence of offering for
sale a flick knife, contrary to section 1(1) of the Restriction of Offensive Weapons Act 1959.
• He had displayed the knife in his shop window with a price ticket behind it which stated
‘Ejector knife—4s’. It was held that the defendant had not committed the offence with which
he was charged because, in displaying the knife in his shop window, he had not offered it for
sale.
• Lord Parker CJ stated (at p. 400) that he found it ‘quite impossible to say that an exhibition of
goods in a shop window is itself an offer for sale’.
ADVERTISEMENT
• The advertisement will generally be regarded as an invitation to negotiate and not an offer
 PARTRIDGE V. CRITTENDEN [1968] 1 WLR 1204).
The defendant was charged with an offence of offering wild birds for sale contrary to the
Protection of Birds Act 1954. The advertisement placed by the defendant stated,
‘Quality British A.B.C.R . . . Bramblefinch cocks, Bramblefinch hens, 25s each’.
It was held that he had not committed the offence with which he was charged because he had
not offered the birds for sale; the advertisement was simply an invitation to negotiate.

• GRAINGER & SON V. GOUGH (SURVEYOR OF TAXES) [1896] AC 325, 334 Lord Herschell;
The defendant wine merchant circulated a catalogue that contained a price list for its products.
The claimant ordered a number of bottles of wine from the catalogue and, when the defendant
refused to deliver these at the stated price, alleged that a contract had been formed.
 CARBOLIC SMOKE BALL CASE

It was held that the terms of the advertisement constituted an offer, the terms of which were
accepted by the plaintiff with the result that she was entitled to recover the promised £100.

 SINGAPOREAN CASE OF CHWEE KIN KEONG V. DIGILANDMALL.COM PTE LTD [2004] SGHC
71, [2004] 2 SLR 594 when he stated (at [93])

“Website advertisement is in principle no different from a billboard outside a shop or an

advertisement in a newspaper or periodical.

TENDERS

• Generally, tenders are invitations to treat, not offer. However, sometimes, tenders can be
considered as offers.

• Tenders - called for potential contractors to submit their quotations so invitations may be
issued to the whole world or specific parties.

e.g., SPENCER V HARDING (1870) LR 5 CP 561 - Held: the issue of a circular ‘offering’ stock for
sale by tender was simply a ‘proclamation’ that the defendants were ready to negotiate for the
sale of goods….no obligation to sell to the highest bidder, or indeed to any bidder at all.

• If the tender indicates the highest bid or, as appropriate, the lowest quotation will definitely
be accepted, then be regarded as a unilateral offer –submitting the highest/lowest quotation,
as per the tender, constitute a binding contract.
• BLACKPOOL AND FYLDE AERO CLUB LTD V. BLACKPOOL BOROUGH COUNCIL [1990] 3 AER 25 -
They found that the invitation to submit a tender was usually no more than an offer to receive
bids but in this circumstance, examining the behaviour of the parties created clear intention to
create a contract and therefore the failure to consider the plaintiff’s application made them
liable.

AUCTION

• Auctions – an invitation to treat

• The auctioneer will accept the bid on the fall of the hammer (SGO)

• If there is a reserve price/ particular term with regard to the highest bid – it may constitute an
offer. (Unilateral contract) [(see, for example, BRITISH CAR AUCTIONS V. WRIGHT [1972] 1 WLR
1519].

BARRY V. DAVIES (TRADING AS HEATHCOTE BALL & CO) [2000] 1 WLR 1962 - The Court held
that the holding of an auction for sale without reserve is an offer by the auctioneer to sell to
the highest bidder, so the defendant was contractually obliged to sell to the claimant.

HARRIS V NICKERSON (1873) LR 8 QB 286

• The claimant attended an auction hoping to buy some furniture that was advertised in the
auction catalogue. The auctioneer withdrew the items from sale and the claimant sued
unsuccessfully for the cost of travel and lodgings.

• The court held that the presence of the goods in the catalogue was no more than an
invitation to treat, and that there was no contract since this could only be formed on the fall of
the auctioneer’s hammer

Sales of Goods Ordinance NO. 11 OF 1896, SEC 57

1. Where goods are put up for sale by auction in lots, each lot is prima facie deemed to be the
subject of a separate contract of sale.

2. A sale by auction is complete when the auctioneer announces its completion by the fall of
the hammer or in other customary manner. Until such announcement is made any bidder may
retract his bid.

3. Where a sale by auction is not notified to be subject to a right to bid on behalf of the seller,
it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale, or
for the auctioneer knowingly to take any bid from the seller or any such person. Any sale
contravening this rule may be treated as fraudulent by the buyer.

4. A sale by auction may be notified to be subject to a reserved or upset price, and a right to bid
may also be reserved expressly by or on behalf of the seller.

ACCEPTANCE
• The offer into a promise and then there is a binding contract. After that, it is too late to
revoke the offer. Acceptance like an offer can be made either by words or by conduct.

• Treitel - “a final and unqualified expression of assent to the terms of an offer”.

‘FACT OF ACCEPTANCE’ (WHAT IS REQUIRED FOR IT TO BE VALID)

1. Complete agreement to the terms of the offer;

2. Compliance with any requirements regarding the method of acceptance;

3. The acceptance to have been made in response to the offer.

1. COMPLETE AGREEMENT TO THE TERMS OF THE OFFER;

• Essentially, for acceptance to be valid, the offeree has to agree to the terms of the offer. The
offeree cannot change the terms or add to them.

• If the offeree responds with new terms, it might be treated as a counter offer.

• Likewise, a response that says ‘I accept’ but then includes a change to the terms could also be
considered to be a counter offer. (Northland Airlines Ltd v Dennis Ferranti Meters Ltd [1970]
114 Sol Jo 845).

• Valid acceptance – Not precisely the same terms as the offer.

• The offeree has to show an intention to agree to all of the terms. It means that if an
acceptance simply expresses a term that was implied by the offer anyway, then acceptance will
be valid and the communication will not be held to have been a counter-offer.

WHERE A METHOD OF ACCEPTANCE IS SPECIFIED

• If a method of acceptance is specified, it will only be compulsory if it clearly indicates that

only that method is valid.

• If this is not the case, an alternative can be used as long as it is no less advantageous to the
offeror.
• Offer terms - the relevant goods or services and the price

• However, the terms of an offer will often go further and specify how acceptance should take
place.

• It is not necessary for an offer to specify a method for acceptance. But if a method is
specified, then in principle, such a requirement should be followed for acceptance to be valid.

MANCHESTER DIOCESAN COUNCIL OF EDUCATION V COMMERCIAL & GENERAL INVESTMENTS

[1970] 1 WLR 241

• Condition 4 of the terms stated that the seller should send its letter of acceptance to the
address in the buyer’s tender (meaning that in every tender, each of which was an offer, it was
a stipulation that communication of acceptance should be performed in this way).

Held that the first letter of acceptance was valid and so a contract existed when that letter was
received by the offeror. The specified method of acceptance was not followed, but it did not
matter because the wording did not make the method ‘the sole permitted method of
communicating an acceptance’

TINN V. HOFFMAN & CO. (1873) 29 L.T. 271

• Where acceptance was requested by return of post, judges held that, that does not mean
exclusively a reply by letter by return of post, but you may reply by telegram or by verbal
message or by any means not later than a letter written by return of post.

YATES BUILDING COMPANY LTD V R J PULLEYN & SONS (YORK) LTD [1976] 1 EGLR 157

• The reasoning of Buckley J in Manchester Diocesan Council of Education v Commercial &

General Investments was applied by the Court of Appeal in Yates Building Company Ltd v R J
Pulleyn & Sons (York) Ltd [1976] 1 EGLR 157

SIEMANS HEARING INSTRUMENTS LTD V FRIENDS LIFE LTD [2014] EWCA CIV 382

• A lease contract referred to a right that could be exercised by giving notice, which ‘must’ take
a very specific form. The use of the word ‘must’ was enough for the Court of Appeal to treat the
specified method as compulsory.

• This is because it is difficult to construe the word ‘must’ as meaning anything other than that
only the specified method could be used.

MATCH THE OFFER:

• Requesting more information or counter-offer? Hyde v Wrench (1840) 3 Beav 334: offer to
sell farm for 1000, reply that they would offer 950 which was then refused;

• Stevenson, Jacques and Co. v McLean (1880) 5 QBD 346 - ‘please wire whether you would
accept forty for delivery over 2 months or if not, longest limit you could give’

3. ACCEPTANCE MUST BE IN RESPONSE TO THE OFFER

 In ordinary bilateral situations (where both parties have obligations), the accepting party
would be responding to an offer. Unilateral contracts- ?? You will recall that such offers are
accepted by another party performing the act of acceptance specified in the offer. But what
if a person completes the required act without being aware of the offer?

R V CLARKE - There can be no acceptance of an offer without the knowledge of the offer,
hence communication is necessary for an offer to be effective.
WILLIAMS V CARWADINE - Held in favor of plaintiff. The plaintiff’s motives were irrelevant
to whether she had accepted the offer in the advert.

2. COMMUNICATION OF ACCEPTANCE

• Exactly when the acceptance is effective?

• This is important because it is the point in time when a contract is formed.
• At that stage, it is not possible to withdraw the offer because it no longer exists—the
contract takes over and of course, the obligations under the contract are enforceable.
• An example would be an offer that states that acceptance must be by email and is only
effective once the message is received in the offeror’s inbox.
• Offers do not always contain this.

THE GENERAL RULE ON COMMUNICATION OF ACCEPTANCE

• On the issue of when acceptance takes place, there is a general rule that acceptance is
effective once it is ‘communicated’.
• This requires the acceptance to be received and means that the offeror ought to know
when a contract is formed.
• Without this general rule, the offeror could end up having a contract without knowing,
and it is assumed that no offeror would intend this.
 ENTORES LTD V MILES FAR EAST CORPORATION [1955] 2 QB 327 - Held that, an acceptance,
took effect where it was received, not where it was sent. The issue in that case was where
rather than when, but of course the two go together, so that the rule is established.

ACCEPTANCE (5)
• Instantaneous methods of communication: The postal rule will not be applied to
acceptance made by some instantaneous modes of communication like telephone or telex.

The receipt rule ENTORES LTD V MILES FAR EAST CORPORATION [1955] 2 QB 327 - Where
the offeror without any fault on his part does not receive the message of acceptance - yet the
sender of it reasonably believes it has got home when it has not – then, there is no contract.

BRINKIBON LTD V STAHAG STAHL UND STAHLWARENHANDELSGESELLSCHAFT GMBH [1983]

2 AC 34
• Within business hours: THE BRIMNES [1975] QB 929 - Neglected to pay attention to the
Telex machine in the way which they claimed it was their ordinary practice to do. He
therefore concluded that the withdrawal Telex must be regarded as having been "received"

• Outside business hours: MONDIAL SHIPPING AND CHARTERING BV V ASTARTE SHIPPING

LTD [1995] CLC 1011 - The telex only counted as being ‘received’ by the charterers during
business hours. Since the telex was sent outside of business hours, the charterers technically
received the notice at 9:00am on Monday. By then, the obligation to pay was overdue.

• Meaning of ‘business hours’: the context: THOMAS V BPE SOLICITORS (A FIRM) [2010]
EWHC 306 (CH); LEHMAN BROTHERS INTERNATIONAL (EUROPE) (IN ADMINISTRATION) V
EXXONMOBIL FINANCIAL SERVICES BV [2016] EWHC 2699 (COMM)

EXCEPTION TO THE RULE

• Since the general rule is that acceptance is effective once it is communicated (i.e.
received), any exception to the rule would mean that a contract is formed without
acceptance being received by the offeror.
1. The ‘postal rule’. When this applies, the letter of acceptance is valid at the time it is
posted (the time it is sent).
2. The offeror waives the need for acceptance to be communicated. When that happens, a
contract can be formed without any communication of acceptance.
3. Acceptance by conduct.

ACCEPTANCE BY EXPRESSION/CONDUCT
• An offer can be accepted either by expressed communication - Entores v. Miles Far East
Corps [1985] 2 QB 327 – or by conduct - BROGDEN V. METROPOLITAN RAILWAY CO [1877] 2
APP. CAS. 666.
FELTHOUSE V BINDLEY – Informed nephew that he wants to buy his horse. But, the nephew
didn’t reply even though he had the intention to give it to him. Bindley( Auctioneer) who
had the horse sold it at an auction. However, courts held that, silence cannot amount to an
acceptance, hence no contract was taken place there. (An offeror cannot impose a
condition that silence shall consider acceptance without the offeror’s consent).

THE LAST SHOT APPROACH

• The last terms stated will be the terms that bind - BUTLER MACHINE TOOL V. EX CEL-O
CORP [1979] 1 ALL ER 965 - the last shot approach

ACCEPTANCE BY POST - POSTAL RULE

Expedition theory
• The basic rule is that manner of offer implies manner of acceptance. Consequently written
offer should unless stated otherwise be followed by a written acceptance.
• Acceptance is effected at the time of posting i.e. it becomes a contract on posting. A letter
through the post is subject to many misfortunes like (It may get lost, It may be delayed and
A dishonest offeror may say he never received the letter of acceptance)
• Notwithstanding all this the law still says the contract is created because offeror elected
acceptance be by post, he assumed all the risks associated or attached to the post.
• The act of posting a letter of acceptance is sufficient for acceptance to be effective. Once
posted, the letter is then in the control and authority of the post office.
• The rule also applies to offer and acceptance by telegram but not by telephone and telex.
In the case of instantaneous communications telephone and telex which are distinct from
mailed communication, the contract is only completed when acceptance is received by the
offeror.

Postal rule: Adams v Lindsell (1818) 1 B & Ald 681

Misdirected a letter. Due to the delay occurred, defendants had sold the wool to someone
else. Held that, a contract came into existence on Sep. 5th, when the plaintiffs posted their
letter of acceptance.

This case established the postal rule. This applies where the post is the agreed form of
communication between the parties and the letter of acceptance is correctly addressed and
carries the right postage stamp. The acceptance then becomes effective when the letter is
posted.
 HOUSEHOLD FIRE INSURANCE V GRANT (1879) 4 EX D 216
• The case of Household Fire Insurance v Grant (1879) 4 Ex D 216 shows that even if the
letter of acceptance never arrives (through no fault of the offeree), it is still effective from
the time of posting.

TERMINATION OF OFFER
Ways which an offer could be terminated;
 Revocation
 A refusal/ Counter offer
 Lapse of time
 Failure of a condition subject to which the offer was made
 Death

REVOCATION:

 An offer can be revoked/ withdrawn at any time before it is accepted.

 Revocation must be effective and it must be communicated to the offeree.

BYRNE V VAN TIENHOVEN- Held that, the revocation was inoperative until the revocation letter
reached the plaintiffs.

 The legal position would be different, if the offeree knew that the offer has been
revoked, even if he obtained this information through a third party.

DICKINSON V DODDS – A third party told the plaintiff about the sale made after revoked his
offer. It was held to be valid!

A REFUSAL/ COUNTER OFFER

HYDE V WRENCH – A counter offer terminated the offer, thus no contract was formed.

STEVENSON V MCCLEAN – Offered to sell iron for cash. Was asked whether they could have 4
months credit. Held that, it was not a counter offer, but only a request for information. Thus,
there was a binding contract.

LAPSE OF TIME

 An offer will be terminated at the (It depends on the means of the offer & the subject
matter of the offer.) end of the period stated in the offer/ if no period is fixed, it will be
terminated after a reasonable time.
RAMSGATE VICTORIA HOTEL V MONTEFIORE – A refusal of was justified since the plaintiff’s
delay had caused defendant’s offer to lapse.

FAILURE OF A CONDITION SUBJECT TO WHICH THE OFFER WAS MADE

 An offer which is expressly or impliedly subject to some condition cannot be accepted if

the condition fails.

FINANCINGS LTD V STIMSON – Held that defendant is not bound to take that damaged car,
because the offer to buy goods is subject to an implied condition that they continue until
acceptance, in substantially the same state as they were in at the time of the offer.

DEATH OF EITHER PARTIES BEFORE ACCEPTANCE

 But, after the death of the offeror, are his personal representatives bound to perform
the contract???
 Offers which are independent of the offeror’s personality – Will be terminated
 Offers such as an offer to write a book which involve some personality to him – Will not
be terminated (his representatives can perform the contract)