Offer and acceptance analysis is a
traditional approach in contract law used to
determine whether an agreement exists between two
parties. An offer is an indication by one person
to another of their willingness to contract on
certain terms without further negotiations. A
contract is then formed if there is express or
implied agreement. A contract is said to come
into existence when acceptance of an offer has
been communicated to the offeror by the offeree.
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
The nature of an offer
An offer is an expression of
willingness to contract on certain terms, made
with the the intention that it shall become
binding as soon as it is accepted by the person
to whom it is addressed, the "offeree"
[G.H. Tretel, The Law of Contract, 10th edn,
p.8].
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 it communicates the basis on which
the offeror is prepared to contract.
The "intention" referred to in the
definition is objectively judged by the courts.
The English case of Smith v. Hughes (1871) LR 6
QB 597 emphasises 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 affect the
contract.
The classical principles are illustrated in the
well-known case of Carlill v. Carbolic Smoke Ball
Company.
Unilateral contract
The contract in Carlill v. Carbolic Smoke Ball Co
was of a kind known as a unilateral contract, one
in which the offeree accepts the offer by
performing his or her side of the bargain. 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 from
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.
[edit]
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, 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. The courts have tended to take a
consistent approach to the identification of
invitiations to treat, as compared with offer and
acceptance, in common transacions. 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. The holding of a public auction
will also usually be regarded as an invitation to
treat.
[edit]
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 a unilateral offer, 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: see Mobil Oil Australia Ltd v. Wellcome
International Pty Ltd (1998) 81 FCR 475.
Acceptance
Test of acceptance
Acceptance is a final and
unqualified expression of assent to the terms of
an offer [G.H. Treitel, The Law of Contract, 10th
edn, p.16]. It is no defense to an action based
on a contract for the defendant to claim that he
never intended to be bound by the agreement if
under all the circumstances it is shown at trial
that his conduct was such that it communicated to
the other party or parties that the defendant had
in fact agreed. Signing of a contract is one way
a party may show his assent. Alternatively, an
offer consisting of a promise to pay someone if
the latter performs certain acts which the latter
would not otherwise do (such as paint a house)
may be accepted by the requested conduct instead
of a promise to do the act. The performance of
the requested act indicates objectively the
party's assent to the terms of the offer.
The essential requirement is that there be
evidence that the parties had each from an
objective perspective engaged in conduct
manifesting their assent. This manifestation of
assent theory of contract formation may be
contrasted with older theories, in which it was
sometimes argued that a contract required the
parties to have a true meeting of the minds
between the parties. Under the "meeting of
the minds" theory of contract, a party could
resist a claim of breach by proving that although
it may have appeared objectively that he intended
to be bound by the agreement, he had never truly
intended to be bound. This is unsatisfactory, as
the other parties have no means of knowing their
counterparts' undisclosed intentions or
understandings. They can only act upon what a
party reveals objectively to be his intent.
Hence, an actual meeting of the minds is not
required.
This requirement of an objective perspective is
important in cases where a party claims that an
offer was not accepted, taking 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: Depending
on the construction of the contract, the
acceptance may not have to come until the
notification of the performance of the conditions
in the offer as in Carlill's case, but
nonetheless the acceptance must be communicated.
Prior to acceptance, an offer may be withdrawn.
* An offer can only be accepted by the offeree,
that is, the person to whom the offer is made.
* An offer is not bound if another person accepts
the offer on his behalf without his
authorisation: 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.
* If the offer specifies a method of acceptance
(such as by post or fax), you must accept it
using a method that is no less effective than the
method specified.
* Silence cannot be construed as acceptance: see
Felthouse v. Bindley (1862) 142 ER 1037.
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.
However, a mere request for information is not a
counter-offer. It may be possible to draft an
enquiry such that is adds to the terms of the
contract while keeping the original offer alive.
Battle of the forms
Often when two companies deal with each other in
the course of business, they will use standard
form contracts. In Butler Machine Tool Co Ltd v.
Ex-Cell-O Corporation (England) Ltd [1979] WLR
401, the question was raised as to which of the
standard form contracts prevailed in the
transaction. 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 killed all preceding offers.
Postal acceptance 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. 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.
See main article: Mailbox rule.
Knowledge of the offer
In Australian law, there is a requirement that an
acceptance is made in reliance or persuance of an
offer: see R v. Clarke.
Rejection, death or lapse of time
If the offeree rejects the offer, the offer has
been killed and cannot be accepted at a further
date. The offer also cannot be accepted after the
time period specified in the offer, or if no time
was specified, after a reasonable period of time.
If the offeror dies, the offeree may accept only
if the acceptance is done without the knowledge
of the death; conversely, the estate of a
deceased offeree may not accept an offer.
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. The acceptance of
an offer may be either a statement of agreement,
or, if the offer invites acceptance in this way,
a performance of an act requested in the terms of
the offer. For instance, if one tells a neighbor
kid that if the kid mows the offeror's lawn, the
offeror will pay $20.00, and the kid does mow the
lawn, the act of mowing constitutes the
manifestation of the kid's assent. For a contract
based on offer and acceptance to be enforced, the
terms must be capable of determination in a way
that it is clear that the parties assent was
given to the same terms. The terms, like the
manifestation of assent itself, are determined
objectively. They may be written, or sometimes
oral, although some kinds of contracts require a
writing as evidence of the agreement to be
enforced. For information on the written
requirements of contracts, see the main contract
article.
Criticisms
Criticisms of offer-acceptance analysis lie in
that this tool was created by legal academics and
can be rather arbitrary at time, and bears little
resemblance to how lay-people perceive the
formation of a contract.
|