Sunday, 16 December 2012

Offer & Acceptance

The typical analysis of English Contract Law is "Offer and Acceptance".  

An offer is an expression of willingness to be bound by the terms of that offer, if accepted. If the proposition is seeking to negotiate or invite offers then it is an invitation to treat. Acceptance is an unqualified assent to the offer.

How can offers be terminated after they have been made?

1. Contracts can state a specified time period under which they are valid, the offeror can also secure the right to revoke the offer at any time before.(Think of online sales and promotions, often you will see "offer valid till xx/xx/xx, we also have the right to revoke the promotion at anytime).  The key point here is that the revocation has to be effectively communicated to the offeree. 

Routledge v Grant 1828: The defendant's offered to buy the claimants house and gave six-weeks time for the claimant to think it over. Before the six weeks ended the defendant revoked the offer and shortly after the claimant accepted the offer. Has an offer been formed? The courts held that a contract had been formed as the revocation was not effectively communicated. 

  1. Contracts that set no time period, courts will apply the concept of a “reasonable time”

Ramsgate Victoria Hotel v Montefiore 1866 - The defendant offered to purchase shares in the claimant’s company and six month’s later the claimant accepted. The agreement could not be established as the courts held the offer has been made void as the time period involved was unreasonable for an offeror to wait. 

  1. Express withdrawal of the offer “revocation”. In these scenarios, the offeror must simply notify the offeree that the offer has been revoked before the offeree has accepted. 

  1. If counter-offers are made that terminates the original offer and after making the counter-offer the offeree cannot go back and accept the original offer. 
Hyde v Wrench 1840 - The defendant offered to sell his farm for £1000 to the claimant. The claimant offered £950, which the defendant went on to reject. The claimant then went on to accept the original offer which the courts ruled could not happen as the counter-offer made cancelled out the original offer. 

It is important to note that courts distinguish between “inquiries” and “counter-offers”. 

Stevenson v McLean 1880 - Defendant offered to sell the plaintiff some iron, stating a price and that the offer would be open till Monday. On Monday morning, the plaintiff responded asking what is the longest limit the defendant could give on delivery. Courts distinguished this from the counter-offer made in Hyde v Wrench 1840 and said the offer still has the potential to be accepted.

Acceptance needs to be communicated effectively, however, it is important to note that it can be accepted in the form of performance. 

This is key to understanding why offeror cannot revoke an offer if acceptance has come in the form of conduct. Examples include:

Pharmaceutical society of Great Britain v Boots Cash Chemist Ltd 1953 - Courts held that a product with the price tag is not an offer but rather an invitation to treat and so offer and acceptance in such a scenario is conducted by the act of taking the product to the till and the acceptance of money. 

Brogden v Metropolitan Railway 1877 -The claimant was in a long business relationship of supplying coal to the defendant. They decided to enter into a formal contract, the plaintiff sent a written contracts with the terms. The defendant simply filed it. After some time, disagreements happened and the plaintiff claimed that a contracted did not form in the first place as there was a lack of acceptance. However, the courts rule the conduct of continually supplying coal worked as an acceptance. 

Felthouse v Bindley 1862 - This is an important case because it highlights that although conduct is sufficient for acceptance, silence is not. In this case an uncle wanted to buy a horse off the nephew and in his offer stated that if I hear no response the horse would be considered his. However, his nephew did not intend to sell the horse to him and sold it to someone else. The courts rules silence is not sufficient for acceptance and thus the horse could not be the uncle’s. 

What about acceptance and revocation in Unilateral contracts?

The classic case to understand here is Carlill v Carbolic Smoke Ball Company 1983. Here just because offers are made to a large number of people they are still offers as the offeror is still looking to be bound in contact. There were three arguments put forward by the defendant for why an advertisement cannot be an offer: (i) there was no promise (ii) even if there was a promise it is not binding as it was not made to anyone in particular and (iii) if performance is acceptance it was not communicated to offeror. Courts held it was still an offer and the offeror cannot revoke an offer once the offeree has performed. Lindley LJ went on to say that communication of performance was not necessary in such contexts. 

In order to revoke an unilateral offer, two conditions need to be satisfield:

  1. The revocation must be communicated through adequate means 
  2. The revocation cannot happen after the performance has happened on behalf of the offeree. For example, in Errington v Errington (1852)  the offer could not be withdrawn once the couple had started making payments. 

There is a wider question here, when is communication effective? 

  • According to the postal rule, communication is effective when the letter has been posted, see Adams v Linsell

  • Although, is this really effective? Sometimes it can lead to absurd results. For example, in Household Fire Insurance v Grant 1879, a letter was lost in the post so can we really say in such a situation a contract has been formed?

  • So now postal rule can be dispelled by the offeror giving notice to the the offeree as seen in Holwell Securities v Hughes 1974.

  • Modern day communication centres around instantaneous means of communication such as e-mails, can we still apply the postal rule? Lord Denning makes an extremely important point in Entores v Miles Far East Corp 1955, he describes non-face-to-face communication as communicated between two banks of the river. He said that a contract can only be formed when bother parties can hear each other’s response loud and clear. MUST BE HEARD IS THE CRUCIAL THING ABOUT THE FORMATION OF CONTRACTS.