Offer & Acceptance
Requirements of a Contract: Offer and Acceptance
- Intention to create legal relations
An offer is a clear expression of an unequivocal willingness to be bound upon the offeree’s acceptance. Meaning, one party must intend or appear to intend to make an offer that is capable of being accepted. In order for a contract to be valid, there must be a consensus ad idem—a meeting of the minds. When the courts look at an agreement, they apply an objective test to determine whether or not the reasonable man, looking from the outside, could conclude that the two parties have in fact reached an agreement. On occasion, the courts use a subjective test (i.e. looking form the inside) to determine what was actually in the minds of both parties when coming to the agreement. However, the objective test is most often used by the courts when determining whether or not the parties came to an agreement.
INVITATION TO TREAT:
An invitation to treat falls short of being an offer because it is not capable of being accepted. The difference between an offer and an invitation to treat is that an invitation to treat is not capable of being accepted because there is no intention to be legally bound. For example, look at the following situations:
Advertisements are considered invitations to treat because if they were offers, everyone who showed interest and accepted the advertisement would create a binding contract with the owner of the store, even when the supplies have run out. It is not practical for the person who issued the statement to become contractually bound to all those that accept. It is commercially unviable.
Cases: Partridge v Crittenden, Fisher v Bell
Like advertisements, displays are also invitations to treat under British law. This is due to the fact that the customer could easily return the item to the shelf before deciding whether or not to purchase it. Thus, the contract is only formed when they make an offer to purchase at the till
Cases: Pharmaceutical Society of Great Britain v Boots Chemist, Fisher v Bell
- Supply of information:
Cases: Harvey v Facey
COMMUNICATION OF THE OFFER AND RESPONSES TO AN OFFER:
Rejection of an offer is simply when the offeree rejects the offer. “Thanks, but no thanks".
In a counter-offer, the offeree changes the terms of the offer and bounces it back for the original offeror to accept. In other words, the offeree is killing the original offer and creating a new one for the original offeror to accept.
Cases: Hyde v Wrench
An inquiry is not an acceptance. It is simply when someone intends to find out more about the offer in question.
Cases: Stevenson v Mclean
An acceptance of the original offer brings the offer to an end and creates an agreement between the parties. The acceptance must be a mirror image of the original offer. This is known as the “Mirror Image” Rule. The offer must be unequivocal and unconditional for there to be a valid acceptance thus creating a contract that is legally binding.
The Rules for Communication of Acceptance:
- Instantaneous Communication:
a.Face to Face Acceptance
i.Acceptance occurs at the point it is received by the offeror
b.Electronic Acceptance (email, text, fax)
i.Acceptance communicated when telex is received at the other end—if line goes dead or it is clear that message has not gone through it will have to be sent again
Cases: Entores Ltd. v Miles Far East Corp, The Brimnes
- Non-Instantaneous Communication:
THE POSTAL RULE:
The contract is formed as soon as the offeree posts his acceptance. This is a form of non – instantaneous communication between the offeror and the offeree as it relies on the Postal service. The Postal Rule is an exception to the general rule of contract in common law as acceptance of an offer takes place on communication from the offeree to the offeror.
When acceptance has been posted, it is considered to be communicated to the offeror, although it hasn’t reached the offeror (the letter of acceptance needs to be properly stamped and addressed for the rule to apply).
Cases: Adams v Lindsell
There are exceptions to using the Postal Rule:
1)The postal rule is to be disregarded if it leads to manifest inconvenience and absurdity.
If an offer stated that it had to be accepted by notice in writing for example, the postal rule is thus excluded as the word “notice” implied that acceptance had to be received.
Cases: Howlell Securities v Hughes
2)The Postal Rule does not apply to revocations of offers.
Cases: Henthorn v Fraser, Dickinson v Dodds
3)If the Postal Rule applies, the fact that acceptance does not arrive does not matter.
As long as it can be shown that the offeree posted the acceptance in the correct manner then it does not matter whether the offeror receives the acceptance or not. (I.e. due to loss or delay) This is an obvious consequence of the Postal Rule, however, the offeror bears the risk. Note: When the delay or loss of an acceptance letter is due to the offeree’s fault, the contract is only formed when the offeror has received that acceptance. The offeree has lost the benefit of the Postal Rule through misaddressing the letter. The Postal Rule is an important component to English Contract law—however, it can be argued that it is outdated due to modern day technology as there are more efficient ways of communicating. Further, the fact that acceptance is valid once it is posted is ambiguous because it leaves the offeror in the dark until the letter is received.
Cases: Household Fire & Carriage Accident Insurance v Grant, Getreide – Import – Gesellschaft mbh v Contimar SA, Brinkibon
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