Offer And Acceptance

Offer and Acceptance in Contract Law – A Critical Overview

The formation of a valid contract requires an agreement between the parties, which is
typically achieved through the process of offer and acceptance. These fundamental
concepts establish when and how parties become legally bound to one another. Offer
and acceptance are governed by well-established rules in English contract law,
developed through centuries of judicial interpretation. While the framework seems
straightforward, the application of these rules in practice can be complex, particularly
in the context of modern communications and commercial dealings. This essay
provides a critical analysis of offer and acceptance, incorporating key case law that
illustrates the development and application of the doctrine.

An offer is a definite and unambiguous expression of willingness to be bound on

specific terms, made with the intention that it will become binding upon acceptance.
This distinguishes an offer from an invitation to treat, which is merely a preliminary
communication indicating a willingness to negotiate. The leading authority on this
distinction is Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern)
Ltd [1953] 1 QB 401, where the display of goods on shelves in a self-service store was
held to be an invitation to treat, not an offer. The offer was made by the customer at
the checkout, and acceptance occurred when the cashier processed the sale. This
principle was similarly affirmed in Fisher v Bell [1961] 1 QB 394, where the display of a
flick knife in a shop window was deemed an invitation to treat, not a contractual offer.

In contrast, a true offer was identified in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256,
a foundational case in unilateral contracts. The defendants had advertised that they
would pay £100 to anyone who used their smoke ball product and still contracted
influenza. The court held this was a unilateral offer to the world, accepted by anyone
who performed the specified act. This case confirmed that offers need not be directed
at a specific individual and that acceptance in unilateral contracts occurs through
performance, not communication.

Acceptance is the unqualified assent to the terms of the offer. It must mirror the offer
exactly; any deviation amounts to a counter-offer, which terminates the original offer.
The classic authority here is Hyde v Wrench (1840) 3 Beav 334, where a counter-offer
was made in response to a proposed sale of land. The court held that the counter-offer
had effectively rejected the original offer, which could no longer be accepted. This
case illustrates the importance of clarity and precision in contractual negotiations, as
well as the principle that acceptance must be unequivocal.
A counter-offer must also be distinguished from a mere inquiry. In Stevenson, Jacques
& Co v McLean (1880) 5 QBD 346, an inquiry about the terms of an offer was held not to
constitute a rejection. The buyer asked whether the seller would accept delivery over a
two-month period rather than making a counter-proposal. The court ruled that the
original offer remained open and could still be accepted. This distinction is crucial
because it determines whether the original offer is still capable of acceptance.

For acceptance to be effective, it must be communicated to the offeror, unless the

contract is unilateral or the offeror has waived the need for communication. The
general rule was stated in Entores Ltd v Miles Far East Corporation [1955] 2 QB 327,
where Denning LJ explained that in instantaneous forms of communication such as
telex, acceptance is only effective when received by the offeror. This rule has been
extended to emails and other modern communication methods, although the precise
moment of acceptance in electronic communications continues to evolve. In Brinkibon
Ltd v Stahag Stahl [1983] 2 AC 34, the House of Lords confirmed that in
non-instantaneous communications, such as telex sent outside business hours,
acceptance takes effect when received and read in the ordinary course of business.

One of the key exceptions to the communication rule is the postal rule, which states
that acceptance takes effect upon posting, not upon receipt. This rule was established
in Adams v Lindsell (1818) 1 B & Ald 681, where a contract was formed when the
acceptance letter was posted, even though the offeror had not yet received it. The
rationale was to provide certainty and finality to the acceptance process. However, the
postal rule has been criticised for being outdated in the age of instantaneous
communication, and it does not apply where the use of post is unreasonable, or where
the offer specifies that acceptance must be received to be valid.

Another important aspect of the law of offer and acceptance is the revocation of
offers. An offer can be withdrawn at any time before it is accepted, provided that the
revocation is communicated to the offeree. In Byrne v Van Tienhoven (1880) 5 CPD 344,
a revocation sent by post was held to be ineffective because it had not been received
before acceptance was posted. Therefore, the contract was validly formed despite the
offeror’s intention to revoke. This case illustrates the potential injustice created by the
postal rule, where an offeror may be bound by a contract despite having attempted to
withdraw the offer.

In unilateral contracts, the ability to revoke an offer is more limited once performance
has begun. This was confirmed in Errington v Errington [1952] 1 KB 290, where a father
promised to transfer ownership of a house to his son and daughter-in-law if they
continued to pay the mortgage. The court held that the offer could not be revoked
once the couple had started performing the required act, even though no formal
acceptance had been communicated. This principle promotes fairness by preventing
the offeror from revoking an offer after inducing reliance on the promise.

Offers may also lapse after a specified time or after a reasonable period. In Ramsgate
Victoria Hotel v Montefiore (1866) LR 1 Ex 109, a six-month delay in accepting an offer to
purchase shares rendered the offer invalid. The court held that the offer had lapsed
due to the passage of time. Similarly, if the offeree dies before acceptance, the offer
generally lapses, as held in Bradbury v Morgan (1862) 1 H & C 249.

In modern contract law, especially in commercial settings, the traditional rules of

offer and acceptance have sometimes struggled to keep pace with real-world
practices. In Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1
WLR 401, the Court of Appeal was confronted with a classic “battle of the forms” case,
where both parties attempted to contract on their own standard terms. Lord Denning
suggested that courts should adopt a more flexible approach, looking at the totality of
the correspondence and conduct to determine whether a contract had been formed.
This approach reflects a recognition that rigid application of offer and acceptance
principles may not always reflect commercial realities.

In conclusion, the doctrine of offer and acceptance remains a foundational element of

English contract law, providing a structured framework to determine when an
agreement has been reached. Through case law, the courts have developed nuanced
rules governing what constitutes an offer, how it may be accepted, and when
acceptance becomes legally effective. Although the traditional principles continue to
apply, courts have recognised the need for flexibility in light of commercial practice
and technological change. While the framework is conceptually simple, its practical
application can be complex and context-dependent. The ongoing challenge for courts
is to balance legal certainty with fairness and commercial practicality, ensuring that
the doctrine of offer and acceptance remains both relevant and effective in a modern
legal landscape.