Topic 2 – Agreement: offer and acceptance 30/11/2023, 17:30

Topic 2 – Agreement: offer and acceptance

Site: Undergraduate Laws VLE Printed by: ERTIZA MILON ORNILA

Module: Contract law 2023-24 Date: Thursday, 30 November 2023, 11:30 AM

Book: Topic 2 – Agreement: offer and acceptance

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Topic 2 – Agreement: offer and acceptance 30/11/2023, 17:30

Table of contents

Learning outcomes
Topic reading
Introduction
Mini lecture 1
2.1 The offer?
2.2 Communication of the offer
2.3 Acceptance of the offer
Mini lecture 2
2.4 Communication of the acceptance
Mini lecture 3
2.5 Exceptions to the need for communication of the acceptance
2.6 Method of acceptance
Mini lecture 4
2.7 The end of an unaccepted offer
Lecture plus
Learning activity 1
Discussion activity 1
Examination tips
Sample examination question 1
Sample examination question 2
Sample examination question 3
Quick quiz 1
Am I ready to move on?
Further reading

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Topic 2 – Agreement: offer and acceptance 30/11/2023, 17:30

Learning outcomes

This topic introduces the topic of contractual agreement to enable you to discuss and apply in problem analysis its key components (and supporting authority)
including:

The definition of a contractual offer.

The distinction between a unilateral and a bilateral offer.
The difference between an offer and other communications.
The moment of effective communication of an offer.
What is (and is not) a valid acceptance.
The requirement of communication of acceptance and its exceptions.

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Topic reading

Core text
McKendrick, Chapter 3 ‘Offer and acceptance’ – Section 3.1 ‘Offer and invitation to treat’ to Section 3.14 ‘Termination of the offer’.
Poole, Chapter 2 ‘Agreement’ – Section 2.1 ‘Judicial assessment of agreement: subjectivity versus objectivity’ to Section 2.5 ‘Revocation of an offer’.

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Introduction

The law of contract defines the circumstances when a promise or promises are enforceable. However, not all promises are enforced by courts. For a promise or
promises to be initially enforceable as a contract certain elements must be present. There must be:

agreement, constituted by a corresponding offer and acceptance, supported by

consideration, being the mutual exchange of something which the law recognises as having a value and
an intention to create legal relations.

These are cumulative requirements (i.e. each must be present for a contract to exist). However, the identification of a contract by reference to these elements is
sometimes a somewhat artificial process. Sometimes, courts will find that some agreements simply look like contracts and they then reason backward – and find the
elements necessary to form a contract.

The process of agreement begins with an offer. An offer may be addressed to a single person or to many people. For a contract to be formed, this offer must be
unconditionally accepted. The law imposes various requirements as to the communication of the offer and the acceptance. Once there has been a valid
communication of the acceptance, the law requires:

consideration (covered in Topic 3) and

an intention to create legal relations (covered, alongside other sometimes applicable requirements, in Topic 4).

If these elements are not present, a court will not find that a contract exists between the parties. In the absence of a contract, neither party will be bound to the
tentative promises or agreements they have made. It is thus of critical importance to determine whether or not a contract has been formed.

An important distinction is that between a ‘unilateral’ and a ‘bilateral’ contract. A unilateral contract is an exchange of a promise for an act. A typical unilateral contract
would be the offer of a reward for the return of lost property. It is a frequent, but not a necessary, feature of a unilateral contract that the offer, such as that of a
reward, is made to a large group of people. As a unilateral contract, by definition, involves a promise by one party only it follows that it generates an obligation for
one party only. The offer of a reward for the return of lost property does not oblige anyone to look for that property. The only obligation it creates is a contingent one
upon the offeror to pay the stipulated reward to any person who chooses to perform the stipulated act (i.e. return the lost property). In several respects the rules of
offer and acceptance discussed below are modified in the case of unilateral contracts (see especially Section 2.7.1).

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Mini lecture 1

15:25

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2.1 The offer?

Core text

McKendrick, Chapter 3 ‘Offer and acceptance’ – Section 3.1 ‘Offer and invitation to treat’ to Section 3.7 ‘Acceptance’.
Poole, Chapter 2 ‘Agreement’ – Section 2.1 ‘Judicial assessment of agreement: subjectivity versus objectivity’ to Section 2.4 ‘Acceptance’.

2.1.1 What offer?

It is important to remember that it is not the subjective intentions of the parties that determine the legal effect of their words or actions but the reasonable inference
that they would support. This is the so called ‘objective’ theory of agreement associated with Smith v Hughes (1871) and more recently summarised in the Supreme
Court by Lord Clarke (RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh & Co KG [2010] UKSC 14 at [45]).

Whether there is a binding contract between the parties and, if so, upon what terms depends… not upon their subjective state of mind, but upon a consideration of
what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they… had agreed upon all the terms which
they regarded…as essential.

This approach was applied in Centrovincial Estates v Merchant Investors Assurance Co [1983] Com LR 158 where the claimants had bought commercial premises
let to the defendants for a rent of £68,320 p.a. subject to review. When the claimants mistakenly proposed a new rent of £65k p.a. instead of the £126k p.a. they
intended to propose, the defendants predictably ‘accepted’ the mistaken offer. The claimants argued that no reasonable tenant would have expected the rent to be
reduced; the defendants responded that this was a reasonable expectation in light of their communicated dissatisfaction with the previous letting. The Court of
Appeal accepted the defendants’ arguments that it was at least arguable that an offer to let premises for £65k pa meant exactly that. Subsequent cases have made
explicit that in a so called B2B contract (i.e. between two businesses) the interpretation of an offer upon which the offeree is entitled to rely is that of a hypothetical
and reasonable businessman in the position of the offeree (Dhanani v Crasnianski [2011] All ER (Comm) 799).

It should be noted, however, that there is one circumstance when the courts will depart from the usual objective approach and take account of the actual subjective
knowledge of the offeree. Under this approach, sometimes known as the ‘snapping up’ doctrine, an offeree is not allowed to accept an offer which he knows is
mistaken as to its terms (Hartog v Collins and Shields [1939] 3 All ER 566). This last factor is important and is what limits the scope of this disapplication of the
usual objective approach. It is not enough to come within this exception that the offeree was aware that the offeror had made a mistake; the exception will only apply
where the offeree is aware that the offeror is mistaken as to the terms he intended to offer. The doctrine will apply where, as in Hartog, the offeree is aware of the
offeror’s mistake as to the terms he is offering but not according to the recent case of Longley v PPB Entertainments [2022] EWHC 977, where the offeree did not
know that the offeror was mistaken. Consequently, the fact that the offeree should have known that the offeror was mistaken is not alone sufficient to come within the
doctrine of ‘snapping up’. However, in circumstances where the offeree should have known that the offeror was mistaken such as in Scriven Bros v Hindley [1913] 3
KB 564, where the mistake was induced by the offeror’s own carelessness (in Scriven contrary to accepted trade custom the auctioneer offeror marked two distinct
commodities with the same shipping mark), the court may infer from the fact that the offeree should have known about the offeror’s mistake that the offeree was
aware of the mistake, thus bringing it within the ‘snapping up’ principle.

2.1.2 Offers and invitations to treat

An offer is an expression of willingness to contract on certain terms. It must be made with the intention that it will become binding upon acceptance. There must be
no further negotiations or discussions required. The nature of an offer is illustrated and encapsulated by two cases involving the same defendant, Manchester City
Council. The Council decided to sell houses that it owned to sitting tenants. In two cases, the claimants entered into agreements with the Council. The Council then
resolved not to sell housing unless it was contractually bound to do so. In these two cases the question arose as to whether or not the Council had entered into a
contract.

In one case, Storer v Manchester City Council [1974] 3 All ER 824, the Court of Appeal found that there was a binding contract. The Council had sent Storer a
communication that they intended would be binding upon his acceptance. All Storer had to do to bind himself to the later sale was to sign the document and return it.

In contrast, however, in Gibson v Manchester City Council [1979] 1 All ER 972, the Council sent Gibson a document which asked him to make a formal invitation to
buy and stated that the Council ‘may be prepared to sell’ the house to him. Gibson signed the document and returned it. The House of Lords held that a contract had
not been concluded because the Council had not made an offer capable of being accepted. Lord Diplock stated:

The words ‘may be prepared to sell’ are fatal…so is the invitation, not, be it noted, to accept the offer, but ‘to make formal application to buy’ on the enclosed
application form. It is…a letter setting out the financial terms on which it may be the council would be prepared to consider a sale and purchase in due course.

A key distinction between the two cases is that in Storer’s case there was an agreement as to price, but in Gibson’s case there was not. In Gibson’s case, important
terms still needed to be determined.

It is very important to realise from the outset that not all communications will be offers. They will lack the requisite intention to be bound upon acceptance. If they are
not offers, what are they? At this point, we will distinguish an offer from other steps in the negotiation process. Other steps in the negotiation process might include a
statement of intention, a supply of information or an invitation to treat. We will examine these in turn.

A statement of intention

In this instance, one party states that he intends to do something. This differs from an offer in that he is not stating that he will do something. The case of Harris v
Nickerson [1873] 37 JP 536 illustrates this point. The auctioneer’s advertisement was a statement that he intended to sell certain items; it was not an offer that he
would sell the items.

2.1.3 A supply of information

In this instance, one party provides information to another party. He supplies the information to enlighten the other party. The statement is not intended to be acted
upon. See Harvey v Facey (1893) where one party telegraphed, in response to the query of the other, what the lowest price was that he would accept for his property
if he were to sell it. This alone did not imply an assurance that he would sell at this price.

2.1.4 An invitation to treat

This is a puzzling term. An invitation to treat is an indication of a willingness to do business. It is an invitation to make an offer or to commence negotiations. Courts
have considered whether or not a communication was an offer or an invitation to treat in a wide variety of circumstances.

You should examine the following instances where courts have found that the communication was not an offer but an invitation to treat.

a. A display of goods is generally an invitation to treat.

See Pharmaceutical Society v Boots [1953] 1 QB 401 (note the rationale behind treating the display as an invitation to treat rather than as an offer) and Fisher v
Bell [1961] 1 QB 394. In contrast, where the display is made by a machine, the display will probably be an offer (Thornton v Shoe Lane Parking [1971] 2 QB

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163).

Study task 1

Your local grocery shop places a leaflet through your letterbox. On the leaflet is printed ‘Tomorrow only, oranges are at a special low, low price of 9p/kilo’.

Has the grocery shop made you an offer? If you visit the shop, must they sell you oranges at this price?

Show feedback

The grocery shop has not made you an offer. They have made an invitation to treat. See Grainger & Son v Gough (1896) and Partridge v
Crittenden (1968). The reason that they have only made an invitation to treat and not an offer is because if the statement in the leaflet is construed as an
offer, then the shop would be bound to sell to everyone who presented themselves at the shop. Clearly, this is impractical and, indeed, may be
impossible. Consequently, if you visit the shop, they do not need to sell you oranges at this price. The offer can be made by action or by statement.
See Trentham Ltd v Archital Luxfer (1993).

b. An advertisement is an invitation to treat where a bilateral contract is anticipated.

See Partridge v Crittenden [1968] 2 All ER 421 – the advertisement of a bilateral contract. Where, as in Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256,
a unilateral contract is contemplated the advertisement may be an offer.
See the Introduction above for the distinction between unilateral and bilateral contracts.

Figure 2.1 Partridge advertised ‘Bramblefinch cocks, Bramblefinch hens, 25s each’

Study task 2

How were the facts of Carlill v Carbolic Smoke Ball Company different from the usual
situation involving an advertisement?

A request for tenders is an invitation to treat and the tender is the offer. See Harvela
Investments Ltd v Royal Trust Co of Canada Ltd [1985] Ch 103.

Note, however, that the invitation to treat may contain an implied undertaking to consider all
conforming tenders, as in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council
[1990] 3 All ER 25.

An auctioneer’s request for bids is an invitation to treat.

The bid is an offer; when the auctioneer brings his hammer down he has accepted the offer. In
the case of auctions without a reserve price, the auctioneer enters into a collateral (or separate)
contract. The nature of the collateral contract is that the auctioneer will accept the highest bid.
See Warlow v Harrison [1859] 1 E&E 309 and Barry v Davies [2000] 1 WLR 1962.

Figure 2.2 The advertisement for Carbolic Smoke Balls

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Show feedback

In Carlill’s case the advertiser was advertising the offer of a unilateral contract and not a bilateral contract. Only one party would be bound from the outset.

Study task 3

A store mistakenly advertised Sony televisions for sale on its website for £2.99 each rather than the £299 they intended. Has the store entered a contract to
supply the televisions at the mistaken price with customers who purported to ‘buy’ the TVs online?

Show feedback

This scenario is based upon a mistake made by the retailer Argos some years ago. Many trainee lawyers in London law firms placed orders before the
mistake was corrected! On general contractual principles Argos would have entered a contract to supply goods at the mistaken price if the website constituted
a contractual offer which was ‘accepted’ when the order was placed online. It will not surprise you to know that internet sellers now go to considerable lengths
to expressly provide that the virtual advertisement does not constitute an offer. The current Argos conditions provide:

2.3 Acceptance of your order and the completion of the contract between you and us will take place on dispatch to you of the products ordered
…

Argos Terms & Conditions

Even if the website advertisement had constituted a contractual offer, under the so called doctrine of ‘snapping up’ (Hartog v Collins and Shields (1939)) the
customers will not be able to accept an offer that they know is mistaken as to its terms. This principle was applied in the context of an internet site by the
Singapore Court of Appeal in Chwee Kin Keong v Digilandmall.com Pte Ltd (2005)).

Self-assessment questions
1. How does an invitation to treat differ from an offer?
2. Does a railway or airline timetable constitute an offer?
3. Do courts treat the display of goods in a shop window differently from a display in an automated machine and if so, how?

Summary
A contract begins with an offer. The offer is an expression of willingness to contract on certain terms. It allows the other party to accept the offer and provides the
basis of the agreement. An offer exists whenever the objective inference from the offeror’s words or conduct is that she intends to commit herself legally to the terms
she proposes. This commitment occurs without the necessity for further negotiations. The first step in finding a contract is to establish that there is an offer and who
is making it. Many communications will lack this necessary intention and thus will not be offers. They may be statements of intention, supplies of information or
invitations to treat. Although the distinction between an offer and other steps in the negotiating process is easy to state in theory, in practice, difficult cases arise.

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2.2 Communication of the offer

Core text

McKendrick, Chapter 3 ‘Offer and acceptance’ – Section 3.9 ‘Acceptance in ignorance of the offer’.
Poole, Chapter 2 ‘Agreement’ – Section 2.4.3 ‘Acceptance must be made in response to the offer’.

To be effective an offer must be communicated: there can be no acceptance of the offer without knowledge of the offer. The reason for this requirement is that if we
say that a contract is an agreed bargain, there can be no agreement without knowledge. There can be no ‘meeting of the minds’ if one mind is unaware of the other.
Stated another way, an acceptance cannot ‘mirror’ an offer if the acceptance is made in ignorance of the offer.

The authorities are, however, divided on the need to communicate the offer. In Gibbons v Proctor (1891) it seems as if a policeman was allowed to recover a reward
when he sent information in ignorance of the offer of reward. The better view is thought to be expressed in the Australian case of R v Clarke [1927] 40 CLR 227:

there cannot be assent without knowledge of the offer; and ignorance of the offer is the same thing whether it is due to never hearing of it or
forgetting it after hearing.

The case of Tinn v Hoffman [1873] 29 LT 271 deals with the problem of cross-offers, i.e. identical offers that are sent simultaneously from A to B and from B to A. No
contract results until they are accepted.

Study task 4

How might the decision have been different in R v Clarke if Clarke had been a poor but honest widow?

Show feedback

If Clarke had been a widow, the case would be different for two reasons. First, Clarke would appear to be a more ‘deserving’ claimant and the court might have
a harder time dismissing her claim. Such a consideration would not of itself be a sufficient reason to find in her favour. However, her claim might, as a result of
her position, have been viewed sympathetically and the law applied and interpreted in this light. Second, the case, on the facts of it, appears to be much more
similar to Williams v Carwardine. However, what is necessary for a contract to be formed, on the basis of the ratio of Clarke’s case, is that Clarke is assenting
to the offer – that there is a ‘meeting of minds’. It is not clear that the widow is aware of the offer and that she acts to form the requisite consensus.

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2.3 Acceptance of the offer

Core text

McKendrick, Chapter 3 ‘Offer and acceptance’ – Section 3.7 ‘Acceptance’.

Poole, Chapter 2 ‘Agreement’ – Section 2.4 ‘Acceptance’.

For a contract to be formed, there must be an acceptance of the offer. The acceptance must be an agreement to each of the terms of the offer. A communication
which falls short of this (e.g. by merely expressing gratitude for ‘instructions’) will not constitute acceptance (Arcadis Consulting v AMEC (BSC) [2016] EWHC 2509
(TCC)). It is sometimes said that the acceptance must be a ‘mirror image’ of the offer.

See also Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443 where it was held that a draft agreement was accepted by subsequent
conduct that sufficiently indicated assent to its terms even though the draft expressly stated that it was only binding when signed.

Contractual acceptance, like a contractual offer, is established objectively. So acceptance occurs when the offeree’s words or conduct give rise to the objective
inference that the offeree assents to the offeror’s terms. The acceptance can be by words or by conduct. See Brogden v Metropolitan Railway Company (1877),
where the offeree accepted the offer by performance and Claxton Engineering Services Ltd v TXM Olaj-ES Gazkutato KFT (2010) where the choice of a Hungarian
company to continue trading with its English counterpart after the latter had rejected a proposal for the arbitration in Hungary of any disputes was held to be an
acceptance of the English company’s counter offer that the resolution of disputes should be subject to English jurisdiction only.

If the offeree attempts to add new terms when accepting, this is a counteroffer and not an acceptance. A counteroffer implies a rejection of the original offer, which is
thereby destroyed and cannot subsequently be accepted. See Hyde v Wrench (1840) 49 ER 132.

Where the offeree queries the offer and seeks more information, this is neither an acceptance nor a rejection. It is merely an enquiry as to whether the offeror would
be prepared to vary the offer and the original offer stands. See Stevenson, Jacques & Co v McLean [1880] 5 QBD 346.

The majority of the Court of Appeal in Butler Machine Tool v Ex-Cell-o [1979] 1 All ER 965 held that the ‘last shot’ wins this ‘battle of the forms’. The minority
judgment of Lord Denning MR in Butler criticised the ‘all or nothing’ approach of the old ‘mirror image rule’ whereby a contract was concluded on either the buyer or
the seller’s terms. He preferred to look at the communications as a whole and hold there to be a contract when there is substantial agreement on all material points.
If the remaining differences are irreconcilable Lord Denning thought they should be replaced by ‘reasonable implication’. Lord Denning’s radical approach has not
been followed elsewhere and in Tekdata Interconnections Ltd v Amphenol Ltd [2009] EWCA Civ 1209 the Court of Appeal reasserted the traditional approach
emphasising the importance of certainty in commercial transactions. Although the so called ‘last shot’ will usually prevail, it has been confirmed in TRW Ltd v
Panasonic Industry Europe GmbH [2021] EWCA 1558 that this will not always be the case. Rather, by carefully drafting its initial standard form to prevent later terms
from superseding it and securing the agreement of the other party, the contractor firing the ‘first shot’ might instead prevail.

If it is found that there is no contract between the parties it does not follow that they will not have to pay for any benefits received. A different branch of the civil law of
obligation, known as the law of restitution, may impose on the recipient of a benefit an obligation to pay something to the party who conferred that benefit irrespective
of whether a contract comes into existence to bind the two parties (BSC v Cleveland Steel [1984] 1 All ER 504).

Note, also, that in some cases courts have held that particular relationships are not capable of contractual analysis. In The Eurymedon [1975] AC 154 Lord
Wilberforce noted that English law ‘having committed itself to a rather technical and schematic doctrine of contract’ nevertheless ‘takes a practical approach, often at
the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance…’ On rare occasions the traditional analysis is abandoned altogether. In
President of the Methodist Conference v Preston [2013] UKSC 29 the Supreme Court held that the manner in which a Methodist minister was engaged was
incapable of being analysed in terms of contractual formation.

Study task 5

A wrote to B offering 300 bags of cement at £10 per bag. B wrote in reply that she was very interested but needed to know whether it was Premium Quality
cement.

The following morning, soon after A read B’s letter, B heard a rumour that the price of cement was about to rise. She immediately sent a fax to A stating, ‘Accept
your price of £10 for Premium Quality’. Assuming that the cement actually is Premium Quality, is there a contract? If so, does the price include delivery? Explain
your reasoning.

Show feedback

A has offered the goods for sale – the requisite intention to be bound is present. B’s initial correspondence could be taken as a rejection – but it is more likely
to be a request for information and the offer survives. B’s fax is good when it is communicated – probably instantly. The fax, however, adds a condition and the
communication is therefore not an unqualified consent to A’s offer. On balance, this probably operates as a conditional offer – which has the effect of
destroying the original offer. There is, thus, no contract. Even if there is a contract, the contract will not include the delivery price (unless such a term can be
implied by reason of the course of dealing between these parties or by reason of the custom of this industry).

Study task 6

What is the position under the ‘last shot rule’ if, after the exchange of forms, the seller fails to deliver the goods?

Show feedback

A contract has been formed. See, for example, Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd and Tekdata Interconnections Ltd v
Amphenol Ltd (2009). If the seller fails to deliver the goods, they are in breach of the contract.

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Mini lecture 2

20:30

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2.4 Communication of the acceptance

Core text

McKendrick, Chapter 3 ‘Offer and acceptance’ – Section 3.8 ‘Communication of the acceptance’ and Section 3.10 ‘Prescribed method of acceptance’ to
Section 3.14 ‘Termination of the offer’.
Poole, Chapter 2 ‘Agreement’ – Section 2.4.4 ‘Communication of the acceptance to the offeror’.

The general rule is that acceptance is not effective until it is communicated to the offeror. This is sometimes expressed by saying that the acceptance cannot be
made through silence and Felthouse v Bindley is often cited to support this proposition.

Such a statement is, however, too broad and the true rule of law is discoverable by reflection upon what is ‘wrong’ with saying that silence cannot amount to
acceptance. Most people would agree that is inconsistent with the view of a contract as a voluntarily assumed obligation to allow one party to ‘force’ a contract upon
a party that that party does not want at the time of contracting. If a lecturer and author was able to say to his contract class that he will assume that all his audience
want to buy a copy of his book unless they say not in the next five seconds it is perhaps obvious that she should not be able to rely upon those five seconds silence
as evidence of acceptance of an offer to sell a copy of her book. The so-called rule (i.e. that silence cannot constitute acceptance) should extend only as far as the
policy that justifies it (i.e. that the law should not allow an offeror to force a contract on an unwilling offeree). So qualified the proper rule becomes: silence will not
constitute acceptance when to so hold would involve forcing a contract on an unwilling party. It then follows that silence can constitute acceptance when this does not
involve forcing a contract upon an unwilling party. In Rust v Abbey Life [1979] 2 Lloyd’s Rep 334 the Court of Appeal, by way of obiter dicta, approved this more
limited statement of the ‘silence as acceptance’ rule.

Where the law of contract insists on communication either as here in relation to acceptance or in relation to the revocation of a contractual offer (Section 2.7.1) a
question can arise as to the timing of communication when it is received by a machine (e.g. a fax or email), maybe outside of usual office hours. By analogy with a
case, in Tenax Steamship Co v Owners of the Motor Vessel Brimnes (The Brimnes) [1975] QB 929, concerning the notice of the withdrawal of a ship under a ship
charter, it is suggested that communication to any ‘unmanned receptor’ is effective from the time at which it is reasonable to expect that machine to be checked.
Therefore, if it is not reasonable to expect a computer to be checked out of usual business hours a communication sent at this time may only be regarded as
communicated after the next opening of the office concerned.

Study task 7

You offer to buy a kilo of oranges from your local shop for 9p. Nothing further is said, nor do you receive any written correspondence. The next day, however, a
kilo of oranges arrives at your house from the local shop. Is there a valid acceptance of the contract? Has there been a communication of the acceptance?

See Brogden v Metropolitan Railway Company [1877] 2 App Cas 666.

Show feedback

If your ‘offer’ amounts to an offer in law according to the authorities set out in Section 2.1, there has been an acceptance of your offer. The acceptance has
been by act, rather than by writing or by discussion. Your offer has been accepted by conduct. The oranges have been despatched in response to your
request for them.

Self-assessment questions
1. What was the detriment to the offeree in Felthouse v Bindley?
2. Could an offeror use this case to avoid liability?

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Mini lecture 3

10:26

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2.5 Exceptions to the need for communication of the acceptance

Core text

McKendrick, Chapter 3 ‘Offer and acceptance’ – Section 3.12 ‘Exceptions to the rule requiring communication of acceptance’.
Poole, Chapter 2 ‘Agreement’ – Section 2.4.4 ‘Communication of the acceptance to the offeror’.

As we saw above, the general rule is that for an acceptance to be valid it must be communicated to the offeror. It must be brought to the offeror’s attention. To this
general rule there are certain exceptions – situations where the law does not require communication of the acceptance.

2.5.1 Where the offeror has waived the requirement of communication

As we have seen above, in certain circumstances the offeror may waive the necessity for communication. This is what occurred in Carlill v Carbolic Smoke Ball Co
which was a case involving a unilateral offer.

2.5.2 Unilateral offers

A unilateral contract is one where one party makes an offer to pay another if that other party performs some act or refrains from some act. The other party need
make no promise to do the act or refrain from the act. In these cases, acceptance of the offer occurs through performance and there is no need to communicate
acceptance in advance of performance. An example of the offer of a unilateral contract is an offer of a reward for the return of a lost cat.

In the case of Carlill v Carbolic Smoke Ball Company (1893) it was established that full performance is the acceptance of the offer and there is no need to
communicate the attempt to perform. Communication of the acceptance is waived because it would be unreasonable of the offeror to rely on the absence of a
communication which would have been superfluous or which no reasonable person would expect to be made.

The other principal exception is the postal acceptance rule.

2.5.3 The postal acceptance rule

Communication by post gives rise to special practical difficulties. An offer is posted. The offeree receives the offer and posts her acceptance. The letter of
acceptance will take several days to arrive. At what point is the acceptance good? If one waits until the offeror receives the letter, how will the offeree know when this
is? The offeree has known from the time she posted the letter that she has accepted the offer. There is also the occasional problem of the letter that never arrives at
its destination.

To overcome these problems, the courts devised an exception to the general requirement of communication (which would have been that the acceptance is only
good when the letter arrives). The exception was devised in the cases of Adams v Lindsell [1818] 106 ER 250 and Household Fire and Carriage Accident Insurance
Co Ltd v Grant [1879] 4 Ex D 216.

These decisions establish the ‘postal acceptance rule’, that is, that acceptance is complete when posted. This puts the risk of delay and loss on the offeror. It is
important to understand that the rule is an exception to the general rule requiring communication.

The postal acceptance rule will only prevail in certain circumstances. It will prevail where use of the post was reasonably contemplated by the parties or stipulated by
the offeror. See Household Fire Insurance v Grant (1879).

It may be that the post is the only reasonable form of communication available. See Henthorn v Fraser [1892] 2 Ch 27.

The postal acceptance rule will not allow a contract to be concluded by posting the acceptance where the letter is incorrectly addressed by the offeree. The offeror
may accept the risk of delay occasioned by the post but not the carelessness of the offeree: LJ Korbetis v Transgrain Shipping BV [2005] EWHC 1345.

The operation of the postal acceptance rules creates practical difficulties. The greatest problem is that contracts can be formed without the offeror being aware of the
contract. For example, an offeror makes an offer. Unbeknown to him, the offeree accepts. The offeror then revokes the offer before receiving the postal acceptance.
The offeror contracts with another party over the same matter – and then receives the postal acceptance from the original offeree. The offeror is now in breach of his
contract with the original offeree.

Partly because of these problems and partly because of technological advances (the post is no longer a such crucial method of communication), courts seem to be
confining the scope of the postal acceptance rule. This is a rationale behind the decision in Holwell Securities v Hughes [1974] 1 WLR 155. In this case, the postal
acceptance rule did not apply because the offeror did not intend that it would apply. While this case is authority for the proposition that the terms of an offer must be
met for acceptance to be valid, it also illustrates the reservations modern courts have over the postal acceptance rule.

In cases involving telexes (a now unused mode of communication where text was sent over a telephone line and printed by the recipient’s automatic typewriter – in
essence a forerunner of SMS communication), the courts refused to extend the application of the postal acceptance rules. See Entores v Miles Far East Corp [1955]
2 QB 327 and Brinkibon Ltd v Stahag Stahl [1982] 2 WLR 264. As modern forms of communication such as fax and email have become almost instantaneous, courts
have shown a marked reluctance to extend the postal acceptance rule to these new forms of communication. In JSC Zestafoni Nikoladze Ferroalloy Plant v Romly
Holdings [2004] EWHC 245 (Comm) an acceptance by fax was held to be an instantaneous communication. In Thomas v BPE Solicitors [2010] EWHC 306 Blair J
said obiter that the postal rule should not apply to contracts concluded through the exchange of emails and this is supported by the Singapore decision of Chwee Kin
Keong v Digilandmall. com Pte Ltd [2004] 2 SLR 594. Regulations governing internet trading (i.e. the purchase of goods or services from websites), principally the
Electronic Commerce (EC Directive) Regulations (2002) do not identify at what stage acceptance is effected. However, Regulation 11(2) provides that in contracts
with a consumer the order and acknowledgment of the order are deemed to be received when the addressee is able to access them. This reference to receipt in the
Regulations would appear to indicate that the default rule that acceptance is effective upon receipt, rather than as with the postal rule on sending, should apply to all
internet sales.

English contract law awaits a definitive case involving an almost instantaneous communication – such as a fax or an email. It is clear that a contract can be formed
through such mediums (see, for example, Athena Brands Ltd v Superdrug Stores plc [2019] EWHC 3503 (Comm)). Because of the technology involved in both these
forms of communication they are not entirely instantaneous. An email, in particular, may take some time to arrive at its destination, depending upon the route it takes
to its recipient. There are two possible approaches to the email communication of the acceptance: postal analogy or receipt rule but, from the above case, it seems
that the receipt rule will be preferred.

Study task 8

What rules do you think courts should adopt for communication by fax or email?

Show feedback

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Contrast the merits of a ‘receipt’ rule with those of a rule which, like the postal rule, stipulates an earlier time when acceptance is effective. Refer to the
following matters.

Does the sender know, or have the means of knowing, if the communication has not been received?
How quickly will the sender know if the communication has not been received?
Which party, if any, accepted the risk of using this form of communication?
Has the communication been sent to arrive during normal business hours?

Self-assessment questions
1. What reasons have been given by the courts for the postal acceptance rule?
2. A posts a letter offering to clean B’s house. B posts a letter accepting A’s offer. Later in the day, B’s house burns down and B now no longer needs a house
cleaner. B immediately posts a letter to A rejecting A’s offer. Both of B’s letters arrive at the same time. Is there a contract or not? See Countess of Dunmore v
Alexander (1830).
3. In what circumstances will the postal acceptance rules not operate?
4. When, if ever, can an offeror waive the need for communication?

Summary
For a contract to be formed, the acceptance of an offer must be communicated. There are exceptions to this general rule. The most significant of these exceptions is
the postal acceptance rule. The postal acceptance rule is, however, something of an anachronism in the modern world and is unlikely to be extended in future cases.

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2.6 Method of acceptance

Core text

McKendrick, Chapter 3 ‘Offer and acceptance’ – Section 3.10 ‘Prescribed method of acceptance’.
Poole, Chapter 2 ‘Agreement’ – Section 2.4.2 ‘Offeror prescribes the method of acceptance’.

Sometimes an offeror may stipulate that acceptance is to be made using a specific method. See Manchester Diocesan Council for Education v Commercial and
General Investments [1970] 1 WLR 241.

In other cases the required method for communicating acceptance may also be inferred from the making of the offer. See Quenerduaine v Cole [1883] 32 WR 185.

The problem that arises is this: if the offeree uses another method of acceptance, does this acceptance create a contract? The answer is that if the other method
used is no less advantageous to the offeror, the acceptance is good and a contract is formed. This is the result unless the offeror stipulates a certain method of
acceptance and further stipulates that only this method of acceptance is good. See Manchester Diocesan Council for Education v Commercial and General
Investments (1970).

Self-assessment questions
1. Where a method of acceptance has been prescribed by the offeror:
a. May the offeree choose to use another (equally effective) method of communicating his acceptance?
b. What does equally effective mean?
c. Whose interest should prevail?
2. Can an offer made by fax be accepted by letter?

Summary
If an offeror intends that a certain method of acceptance is to be used, he must stipulate this method and that only an acceptance using this method is to be used. If
he only stipulates a method, an offeree can use another method provided that the other method is no less advantageous than the method stipulated.

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Mini lecture 4

15:08

Download slides | Download Transcript | Download Video

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2.7 The end of an unaccepted offer

Core text

McKendrick, Chapter 3 ‘Offer and acceptance’ – Section 3.14 ‘Termination of the offer’.
Poole, Chapter 2 ‘Agreement’ – Section 2.5 ‘Revocation of an offer’.

Offers do not exist indefinitely, open for an indeterminate time awaiting acceptance. Indeed, some offers may never be accepted. What we will consider at the
conclusion of this topic is what happens to an offer before it has been accepted. There is no legal commitment until a contract has been concluded by the
acceptance of an offer.

2.7.1 Change of mind

Because there is no legal commitment until a contract has been formed, either party may change their mind and withdraw from negotiations any time before there is
acceptance (Payne v Cave [1789] 100 ER 502).

In situations where an offeror has stipulated that the offer will be open for a certain time period, he or she can nevertheless withdraw the offer within this time period.
This will not be the case, however, where the offeror is obliged (by a separate binding collateral contract) to keep the offer open for a specified period of time:
Routledge v Grant [1828] 172 ER 415. If a time has been set by which to accept then the offer will automatically lapse at the end of that period.

For the revocation of an offer to be effective, there must be actual communication of the revocation. See Byrne v van Tienhoven [1880] 5 CPD 344. It is not
necessary for revocation to be communicated by the offeror. Communication to the offeree through a reliable source is sufficient. See Dickinson v Dodds [1876] 2 Ch
D 463.

Unilateral contracts pose particular problems here. As the act stipulated as acceptance of a unilateral offer may take some time to complete, the situation may arise
where the offeror tries to revoke the unilateral offer after the offeree has begun, but before he has completed, performance of the stipulated act. Intuitively it might
seem unjust if revocation was allowed in these circumstances and in most cases it is not (see Errington v Errington [1952] 1 KB 290 and Soulsbury v Soulsbury
[2007] EWCA Civ 969). However, the way in which such revocation is usually prevented means that revocation is not always impossible. In Luxor (Eastbourne) Ltd v
Cooper [1941] AC 108 the House of Lords explained that the revocation of a unilateral offer after the offeree has begun performance of the act stipulated would not
be possible in most cases because a term would be implied into the contract that the offeree would not seek to revoke his offer (or otherwise prevent the completion
of performance) once that performance had begun (see also Daulia v Four Millbank Nominees [1978] Ch 231). Such a term will be implied where it is necessary to
make the agreement commercially effective (‘to give it business efficacy’). It follows that where it is not necessary to imply any such term, as Luxor – the offeror – is
free to revoke the offer after performance has begun. In Luxor the House of Lords said that it would not be appropriate to imply such a term where a very large
consideration was being offered for a small amount of work. The Court of Appeal in Schweppe v Harper [2008] EWCA Civ 442 emphasised that cases such as Luxor
where the offeror is able to revoke after performance has begun will be rare. Unfortunately, when the Supreme Court in Wells v Devani [2020] AC 129 discussed
other aspects of the decision in Luxor v Cooper they did not review this aspect.

Study task 9

Your neighbour offers to sell you her car for £10,000. She tells you to ‘think about it and let me know by Monday’. On Saturday, she puts a note under your door
to say, ‘forget it – I want to keep my car’. Can she do this? Explain.

Show feedback

Your neighbour is free to withdraw her offer. The offer is not a contract and there is nothing which binds her to keep the offer open until Monday. Authority for
this proposition can be seen in the case of Offord v Davies (1862). In this case, the defendant undertook to guarantee certain debts of another party for a
period of a year. Before any bills were due, and within the year, the defendant cancelled the guarantee. The Court held that as the offer was not binding, it
could be revoked at any time prior to the other party acting upon it. The time limit created no extra liabilities but merely stipulated a period at which liabilities
will definitely come to an end.

Special problems arise where the offeror has made an offer of a unilateral contract which is accepted through performance. Here, the revocation is more
difficult. The English authorities appear divided as to whether or not this is possible. In Luxor (Eastbourne) Ltd v Cooper (1940) the House of Lords allowed an
offeror to revoke its offer once the offeree had performed the act stipulated, whereas in Errington v Errington (1952) the Court of Appeal did not allow
revocation. The proper reconciliation of the cases is that such revocation will only be allowed where, as in Luxor, no extra undertaking can be implied into the
contract whereby the offeror can be considered to have impliedly promised not to revoke the unilateral offer after performance has started.

By what process must the offeror of a unilateral contract revoke his offer? The problem of an appropriate process exists when the offer is made to the world. In this
situation, what must the offeror do to alert ‘the world’? English law provides no answer to this question, but it is thought that the principle of Shuey v USA [1875] 92
US 73 would also apply in the UK (i.e. that revocation may be effected by giving the same prominence to the revocation as was given to the original offer). If this is
done then revocation, contrary to the usual rule, may be effective even if it does not actually come to the attention of the offeree.

If the offeree rejects an offer, it is at an end. A counter offer (i.e. an offer substantially at variance with an earlier offer) is simultaneously a rejection of the original offer
and also a new offer (see Section 2.3).

Study task 10

Analyse all the communications in Hyde v Wrench (1840) and state whether they are: an invitation to treat, a contractual offer, a counter offer, a rejection or an
acceptance.

Show feedback

June 6 – Defendant’s letter to the plaintiff offering to sell property for £1,000 satisfies the definition of an offer (i.e. it is a definite offer to be bound if
certain conditions are met). It specifies exactly the key price term being proposed.
June 6 – Plaintiff’s response (via an agent) offering to purchase the property for £950 is a counter offer because it is substantially different to the original
offer. This has two effects: it acts as a rejection of the offer to sell for £1,000 and stands as a new offer to buy the property for £950.
June 27 – The defendant’s letter saying he could not accept the plaintiff’s offer was simply a rejection.
June 29 – The defendant’s purported acceptance of the original offer to sell the property for £1k cannot be an acceptance. An acceptance can only take
effect in response to a prior and subsisting offer. The defendant’s original offer to sell for £1,000 came to an end (was ‘terminated’) when it was rejected.
It is sometimes said that the law looks to the ‘substance’ not the ‘form’ of communications. The analysis of the June 29 communication illustrates this. It

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cannot be the acceptance it purports to be because there is no prior offer. However, it could be interpreted as an offer to purchase the property for
£1,000.

However, no contract is concluded as there is no evidence of a subsequent acceptance by the defendant of the claimant’s offer to purchase the property for
£1,000.

Different problems arise when it is the offeree who changes his or her mind. For example, if after posting a letter of acceptance, the offeree informs the offeror by
telephone, before the letter arrives, that they reject the offer, should the act of posting an acceptance prevail over the information actually conveyed to the offeror? In
the absence of English cases the books refer to a number of cases from other jurisdictions – see Dunmore v Alexander [1830] 9 S 190 (Scotland) and Wenkheim v
Arndt [1873] 1 JR 73 (New Zealand) – but when citing them, it is important to emphasise that they are not binding, and indeed have very little persuasive authority.
The question must therefore be answered primarily as a matter of principle. Treitel suggests that ‘the issue is whether the offeror would be unjustly prejudiced by
allowing the offeree to rely on the subsequent revocation’.

2.7.2 If a condition in the offer is not fulfilled, the offer terminates

Where the offer is made subject to a condition which is not fulfilled, the offer terminates. The condition may be implied. See Financings Ltd v Stimson (1962). In this
case, the offeror purported to accept an offer to purchase a car after the car had been badly damaged.

2.7.3 Death: if the offeror dies, the offer may lapse

This is a point on which the cases divide. On the one hand, Bradbury v Morgan (1862) 158 ER 877 (Ex) held that the deceased offeror’s estate was liable on the
offer of a guarantee after the death of the offeror. However, obiter dicta in Dickinson v Dodds (1876) state that death of either party terminated the offer because
there could be no agreement. The best view is probably that a party cannot accept an offer once notified of the death of the offeror but that in certain circumstances
the offer could be accepted in ignorance of death. The death of an offeree probably terminates the offer in that the offeree’s personal representatives could not
purport to accept the offer.

2.7.4 Lapse of an offer

The offeror may set a time limit for acceptance; once this time has passed the offer lapses. In many cases, the offeror can revoke the offer before the time period
lapses provided that the offer has not been accepted. See Offord v Davies (1862).

In cases in which no time period is stipulated for the offer, an offeree cannot make an offeror wait forever. The offeror is entitled to assume that acceptance will be
made within a reasonable time period or not at all. What a reasonable time period is will depend upon the circumstances of the case. See Ramsgate Victoria Hotel v
Montefiore [1866] LR 1 Ex 109.

Self-assessment questions
1. Why can the offeror break his or her promise to keep the offer open for a stated time?
2. In a unilateral contract which is accepted by performance, when has the offeree started to perform the act (so as to prevent revocation by the offeror)? Does
the offeror need to know of the performance?
3. How can the offeror inform all potential claimants that the offer of a reward has been cancelled?
4. Will there be a contract if the offeree posts a letter rejecting the offer but then informs the offeror by telephone, before the letter arrives, that he accepts the
offer?
5. What is the purpose of implying that the offer is subject to a condition?

Summary
Until an offer is accepted, there is no legal commitment upon either party. Up until acceptance, either party may change their mind subject to the next sentence. An
offeror may not revoke a unilateral offer after performance has begun whenever the offeror has undertaken, perhaps impliedly, not to do so. An offeree may reject an
offer prior to acceptance and may do so by making a counteroffer.

An unaccepted offer expires either:

at the end of any time period stipulated, or
within a reasonable time period where no time period is stipulated.
An offer will lapse where it is made on an unfulfilled condition.
An offer may lapse when the offeror dies.

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Lecture plus

34:44

Download Lecture | Download Transcript | Download Slides | Discussion forum feedback

Note: This video lecture was part of the Lecture plus activity and was recorded in October 2022.

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Learning activity 1

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Discussion activity 1

Do you recognise the elements of contractual formation as relevant to your experience of entering contracts? Does this stylised version of negotiating reflect
how modern contracts are made?

Post your answers in the Topic 2 – Discussion activity 1.

Topic 2 – Discussion activity 1

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Examination tips

The detailed rules of offer and acceptance provide a ready source of problems and difficulties on which examiners can draw. Here are some examples.

Is a particular statement an offer or an invitation to treat?

Is there a counteroffer or is it merely an enquiry?
When does a posted acceptance fall outside the postal rule?
Was the offeror or offeree free to have second thoughts?
When is a telephone call recorded on an answering machine actually received?
When is an email received?

There are also several everyday transactions where the precise contractual analysis is not immediately apparent – the motorist filling up with petrol (gas), the
passenger riding on a bus, the tourist buying a ticket for the Underground (subway) from a machine and so on. The fact that some of these problems are not covered
by authority does not make them any less attractive to examiners – indeed, the opposite might well be the case. The key to most problems of offer and acceptance is
the idea that the law should give effect to actual communication wherever possible.

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Sample examination question 1

Question
Alice wrote to Bill offering to sell him a block of shares in Utopia Ltd. In her letter, which arrived on Tuesday, Alice asked Bill to ‘let me know by next
Saturday’. On Thursday Bill posted a reply accepting the offer. At 6pm on Friday he changed his mind and telephoned Alice. Alice was not there but her
telephone answering machine recorded Bill’s message stating that he wished to withdraw his acceptance.

On Monday Alice opened Bill’s letter, which arrived that morning, and then played back the message on the machine.

Advise Alice.

Tutor guidance
Using the guidance below, think about how you would answer the question. When you are ready, read the feedback.

It’s important to break the question down into its constituent issues. You are considering each of these issues with a view to determining whether or not a contract
has been formed. Before looking at the feedback try to determine the response to the issues in this problem. These questions will help to focus your answer.

a. What is the effect of Alice writing to Bill to offer to sell him shares?
b. What is the effect of Alice’s stipulation as to the time the offer is open?
c. What is the effect of Bill’s posting a reply?
d. What is the effect of Bill’s change of mind? Is there effective communication when a message is left on an answering machine?
e. Which of Bill’s two communications is determinative?

Feedback
When the issues are listed in this form it is apparent that the biggest issue is whether or not a contract has been formed. This is dependent upon whether
Alice’s offer has been accepted. This, in turn, depends upon whether Bill has communicated his acceptance or his rejection.

We will examine these issues in turn.

a. Alice’s letter appears to be an offer within the criteria of Gibson v Manchester City Council and Storer v Manchester City Council. You should outline these
criteria and apply them to the facts – sometimes the designation of an ‘offer’ in a problem question or in everyday life turns out not to be an offer in the legal
sense.
b. Alice’s stipulation that the offer is open for one week is not binding (apply the criteria in Offord v Davies) unless there is a separate binding contract to hold
the offer open. There does not appear to be such a separate binding agreement.
c. Because Bill posts his letter of acceptance, we need to consider whether or not the postal acceptance rules apply. Consider the criteria in Household Fire
Insurance v Grant. Does the case apply here? In the circumstances, it probably does. Alice has initiated communications by post and thus probably
contemplates that Bill will respond by post. In these circumstances, the acceptance is good when Bill posts the letter – it is at this point that a contract is
formed. It does not matter that the letter does not arrive until Monday (at which point the offer will have expired, given Alice’s stipulation as to the time
period).
A possible counter argument to this is that Alice asked Bill to let her know by Saturday – and this ‘let me know’ means that there must be actual knowledge
of his acceptance – that it must really be communicated. This necessity for actual communication means that Bill’s acceptance is not good until Monday
when Alice actually opens the letter. To apply this counter argument, one needs to consider the criteria set out in Holwell Securities v Hughes. One might
also note that since that decision, courts are reluctant to extend the ambit of the postal acceptance rule.
d. Bill changes his mind. Here there is no authority as to the effect of his change of mind. In addition, given the two possible positions in point (c) above, two
possible outcomes exist. If the postal acceptance rules apply, then a contract has been formed and Bill’s later change of mind cannot upset this
arrangement. However, this seems a somewhat absurd result since Alice learns almost simultaneously of the acceptance and the rejection. Bill has
attempted to reject the offer by a quicker form of communication than the post. In these circumstances, you could apply the reasoning of Dunmore v
Alexander and state that no contract has been formed between the parties. In addition, given the reservations of the court in Holwell Securities v Hughes, it
seems improbable that a court would rely upon the postal acceptance rule, an unpopular exception to the necessity for communication, to produce an
absurd result. The second possible outcome here is that the postal acceptance rules never applied and no contract could be formed until Alice opened the
letter. Since she received the rejection at almost the same time, she is no worse off (see reasoning above) by not having a contract. You might also wish to
consider the application of the rules for instantaneous communications in Entores v Miles Far East Corp and Brinkibon v Stahag Stahl [1983] 2 AC 34.
Should the communication made by telephone be deemed to have been the first received? If so, there is no contract.
e. This is really the answer to the question. For the reasons stated above, the rejection should be determinative. Accordingly, no contract arises in this
situation and Bill is not obliged to buy the shares in Utopia Ltd.

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Sample examination question 2

Question
Cyril, a stamp dealer, had a rare Peruvian 5 cent blue for sale. He wrote to Devi, a collector who specialises in Peruvian stamps, asking whether she
would be interested in purchasing it. Devi wrote in reply, ‘I am willing to pay £500 for the “blue”; I will consider it mine at that price unless I hear to the
contrary from you and will collect it from your shop on Friday next week.’

Advise Devi as to the legal position:

a. if Cyril disregarded Devi’s letter and sold the stamp to Eric for £600
b. if Cyril put the stamp on one side in an envelope marked ‘Sold to Devi’ but Devi decided that she no longer wished to buy it.

Tutor guidance
Using the guidance below, think about how you would answer the question. When you are ready, read the feedback.

It’s important to break the question down into its constituent issues. You are considering each of these issues with a view to determining whether or not a contract
has been formed. Before looking at the feedback try to determine the response to the issues in this problem :

The effect of Cyril’s letter – is it an offer or an invitation to treat?

The effect of Devi’s letter – is it an acceptance? Does the postal acceptance rule apply? Is Devi’s letter a statement of intention?
Is Devi’s letter an offer? Can she waive the necessity for the communication of the acceptance

Feedback
Note at the outset that in two-part questions such as this you must answer both parts (unless clearly instructed that candidates are to answer either a or b).

Again, your approach should be to break down the question into its constituent parts:

The effect of Cyril’s letter – is it an offer or an invitation to treat?

The effect of Devi’s letter – is it an acceptance? Does the postal acceptance rule apply? Is Devi’s letter a statement of intention?
Is Devi’s letter an offer? Can she waive the necessity for the communication of the acceptance?

By considering these issues, you can determine whether a contract has been formed or not. With respect to part (a), if a contract has been formed, then Cyril is in
breach of this contract when he sells the stamp to Eric. You need to consider whether Cyril has made an offer – has he exhibited a willingness to commit on
certain terms within Storer v Manchester City Council (1974)? Or is his communication an invitation to treat or a step in the negotiation of a contract? If his letter is
an offer, it seems reasonable that he expects an acceptance by post and the postal acceptance rules will apply: Household Fire Insurance v Grant (1879).

On balance, it seems unlikely that his letter is an offer – it is phrased in terms that seek to elicit information and not to be binding upon further correspondence
from Devi. Devi may have made an offer and waived the necessity for further communication – see Felthouse v Bindley (1862). It is, however, possible that either
Devi never made an offer to buy the stamp (she was merely giving an indication of her top price) or that Cyril never accepted the offer. In these circumstances, no
contract has been formed with Devi and Cyril is free to sell the stamp.

With regard to part (b), if Devi has (and can, given the law in this area – see Felthouse v Bindley (1862) and Rust v Abbey Life (1979)) made an offer, then Cyril
has (if possible) accepted the offer when he takes the step of setting aside the stamp. In these circumstances, a contract has been formed and Devi is obliged to
buy the stamp. There are, however, significant weaknesses in reaching this conclusion – primarily that she seems to be indicating the top price she would pay for
the stamp and that if a broad interpretation is taken of Felthouse v Bindley (1862) (but this would be contrary to the obiter dicta in Rust v Abbey Life) she cannot
waive the necessity for communication of the acceptance.

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Sample examination question 3

Question
a. On 1 January A writes to B saying, ‘I am considering selling my horse, Shadowfax, and I wonder whether you would like to buy him. I would expect
to receive about £500 for him’. On 2 January B writes back, ‘I accept your offer and will send you the money in a few days’. On 3 January A writes to
B: ‘Don’t be ridiculous, I wasn’t offering the horse for sale, and anyway I want £750 for him. To avoid misunderstanding, do not write back unless
you do not want the horse at this price’. B was so annoyed on reading the first sentence that he tore up the letter without reading further and did
not reply. Three weeks later A came round and demanded £750, offering to deliver the horse.
Advise B.
b. Would your answer be any different if upon reading A’s second letter B decided to purchase the horse for £750 and A now refuses to deliver it?

Tutor guidance
Using the guidance below, think about how you would answer the question. When you are ready, read the feedback.

It’s important to break the question down into its constituent issues. You are considering each of these issues with a view to determining whether or not a contract
has been formed.

Before looking at the feedback you should consider the communications chronologically because the proper legal analysis of a later communication will often depend
upon that of a prior one.

Feedback
Communications must be considered chronologically because the proper legal analysis of a later communication will often depend upon that of a prior one.
A communication from A to B cannot be an acceptance unless there has been a prior communication from B to A that constitutes an offer; a communication
from A to B cannot be a counter offer unless B has previously made an offer to A. Sometimes it may not be possible to come to a firm conclusion as to the
proper analysis of a communication, in which case two alternatives may need to be considered, of the type: if A’s letter to B is an offer then B’s reply may be
an acceptance, but if A’s letter to B is only an invitation to treat (negotiate) then B’s reply may be a contractual offer, etc.

A–B Jan 1 Is this an offer or an invitation to treat? You should define each and consider Gibson v Manchester City Council and Storer v Manchester City Council.
On the authority of Gibson words such as ‘considering’, ’wonder’, ’expect’ are likely to be considered too equivocal to support the existence of an offer so this
communication will be an invitation to treat.

B–A Jan 2 This is phrased as acceptance but the law looks to the substance not the form of communications. For example, in Hyde v Wrench a purported
acceptance was held to amount to an offer only and in Pickford v Celestica [2003] EWCA Civ 1741 a purported acceptance was held to be a counter offer. Here
the purported acceptance must be an offer to buy.

A–B Jan 3 This is a counter offer as it is substantially different to the previous offer, see Hyde v Wrench; it cannot be a ‘mere enquiry’ as in Stevenson v McLean.

Was this offer accepted? B’s silence cannot constitute acceptance: Felthouse v Bindley. If B’s silence amounted to acceptance then this would involve forcing a
contract on an unwilling party. This is the wrong which the rule that silence should not amount to acceptance aims to avoid.

What if? In this variation the offeree B wants to waive the protection usually offered by the Felthouse v Bindley rule, so here B’s silence could constitute
acceptance on the authority of Rust v Abbey Life.

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Quick quiz 1

Why was the advertisement in Carlill v Carbolic Smoke Ball an offer and not an invitation to treat?

Because the required performance was clear, there was no possibility of more people accepting than there were smoke balls and
they had an intention to make an offer as clear from the money in the bank.

Because they had placed money in the bank to guarantee the promise.

Because the advert was clear and precise and the act could be performed without the assistance of the offeror.

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Am I ready to move on?

You are ready to move on to the next topic if, without referring to the module guide or textbook, you can answer the following questions:

1. What is a contractual offer?

2. What is the difference between a unilateral and a bilateral offer?
3. What is the difference between an offer and other communications?
4. How do you know when an offer has been communicated?
5. What is (and what is not) a valid acceptance?
6. What is the necessity of communicating the acceptance?
7. What are the exceptions to the necessity of communicating the acceptance?
8. What occurs when the offeror stipulates a certain method of acceptance?
9. What happens to an offer which is not accepted?
10. When does an offer expire?

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Further reading

Winfield, P.H. ‘Some aspects of offer and acceptance’ (1939) 55 LQR 499.
Gardner, S. ‘Trashing with Trollope: a deconstruction of the postal rules’ (1992) 12 OJLS 170.
Nolan, D. ‘Offer and acceptance in the electronic age’ in Burrow, A. and E. Peel (eds) Contract formation and parties. (Oxford: Oxford University Press, 2010)
[ISBN 9780199583706].
Macdonald, E. ‘Dispatching the dispatch rule? The postal rule, e-mail, revocation and implied terms’ (2013) 19(2) Web JCLI.
Halson, Chapter 3 ‘Agreement: offer and acceptance’.

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