Contract Law – Offer & Acceptance

  • Last updated 21-Jul-2016 17:26:31
  • By Billy Sexton, Editor, AllAboutLaw.co.uk, using material from Sweet & Maxwell's Nutshells Contract Law

Any law student will be able to tell you that the law of contract is crazy significant in the running of society.

Cast your mind back to your first contract law lecture, where your tweed-blazer wearing professor told you about how buying a bus ticket is entering into a contract, and it will all come flooding back as to how there are three basic elements to a contract:

- The parties must have reached an agreement (offer and acceptance)

- The parties must intend to be bound legally

- The parties must have provided valuable consideration.

Of course, there are other considerations, such as express and implied terms, duress and undue influence, but we’ll deal with those another time.

Right now, let’s refresh our brains on offer and acceptance.

Elements of offer & acceptance

It all boils down to four main considerations:

- What constitutes an offer

- The difference between an offer and an invitation to treat

- What constitutes acceptance of an offer

- Where an offer can be terminated.

Offers & invitations to treat

*UPCOMING DEFINITION KLAXON*. According to Sweet & Maxwell’s Contract Law revision guide, “An offer may be defined as a statement of willingness to contract on specified terms made with the intention that, if accepted, there will arise a binding contract.

"An offer may be express or implied from conduct. It may be addressed to one particular person, a group of persons, or the world at large, as in an offer of a reward.”

Want an example? Of course you do. Let’s turn to your tweed-blazer wearing lecturer again for the bus ticket analogy.

A bus company may offer a single person with a journey in exchange for money (and usually some good behaviour, such as not distracting the driver).

There are differences between an offer and an invitation to treat. An invitation to treat is where offers are merely invited, and then those being offered something are free to accept or reject the offer.

“Like an advert?” Funny you should mention adverts, because they are a perfect example of an invitation to treat. Additionally, Grainger and Sons v Gough, 1896 ruled that catalogues and price lists are also akin to adverts.

If an advert were an offer, the advertiser would have to provide everyone who ‘accepted’ the offer with the product, regardless of stock. Uh-oh!

Auctions are another example of an invitation to treat. Payne v Cave, 1789, ruled that an auctioneer’s request for a bid is an invitation to treat and each bid is an offer. 

Just apply that to your eBay-ing behaviour and it makes perfect sense!

Acceptance

Here we go again, another *DEFINITION KLAXON*. “Acceptance may be defined as an unconditional assent, communicated by the offeree to the offeror, to all terms of the offer, made with the intention of accepting.

Whether an acceptance has in fact occurred is ascertained objectively from the behaviour of the parties, including any correspondence that has passed between them.”

An agreement must be reached fairly and without pressure – this is known as “expressions of reasonable certainty”. Offers must also be accepted unconditionally.

If the offeree proposes a counter offer, this makes the original offer irrelevant. Think about eBay again – you’re able to list an item with a fixed price (an offer) but can also sell it for a best offer (the offeree making a counter offer).

If the seller accepts a counter offer, this is a valid offer and acceptance.

It may seem obvious, but acceptance must be communicated. When the offeror receives the communication (it may not be instant and could be via post or email), the contract becomes effective.

Alternatively, the offeror may demand a particular method of communication of acceptance. So what about your lecturer’s bus ticket analogy? You rarely say that you “kindly accept the offer of a bus journey”.

Taylor v Allon, 1966 and Day Morris Associates v Voyce, 2003 rule that the offeror can waive the need of communication of acceptance. Rather, the acceptance takes place by conduct.

It needs to be clear that a particular conduct was performed with the absolute intention of accepting the offer. So when you take a bus ticket from the driver, or touch your Oyster Card on the reader, this conduct is the offeree accepting the offer.

Although post is not instant, it has been ruled that where post is an appropriate and reasonable means of communication between the parties, a contract becomes effective from when the post is sent.

The postal rule doesn’t apply when the letter hasn’t been posted properly; isn’t addressed correctly; where terms exclude post as a method of acceptance and where it is unreasonable to use the postal method.

As you may well be aware, we are living in the 21st century and who even sends letters anymore anyway?! Although an email bears some resemblance to a letter, because it is usually instant, the contract comes into being until acceptance has been received.

But when is an email received? When it’s transmitted to the server? To the offeror’s computer? Or when actually read? Tough one, right? It’s usually when the email is received by the offeror’s computer. (You’re welcome).

Termination

An offer can terminate in three different ways. Firstly, an offer may be revoked at any time before it is accepted.

But what happens if there’s a crossover? Let’s say an offer was sent out by letter on October 1 as it was in Byrne v Van Tienhoven. The offer was received and accepted immediately on October 11.

Meanwhile a revoking letter was sent on October 8 but wasn’t received until October 20, by which time, the offer had already been accepted.

It was held that the revocation was ineffective because the offer was received and accepted before the revocation was received.

An offer can also be terminated through lapse. A lapse can either be a fixed period, or after a reasonable length of time.

Reasonableness fluctuates, depending on the subject. A lapse can also occur if an offer is subject to conditions which then fail.

Finally, if the offeror dies before acceptance, a contract can still come to fruition if the contract does not involve a personal service or if the offeree has not been notified.

If the offeree dies before they accept the contract, it will terminate, as it cannot be accepted by representatives.

So there we have it! Offer and acceptance in just over 1000 words. Of course, this merely scratches the surface, but it should give you a good foundation for your more in-depth revision

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