LAW EXTENSION COMMITTEE
WINTER COURSE 2005
CONTRACTS
LECTURE NOTES
WEEK TWO
THE FACT OF AGREEMENT – OFFER & TERMINATION OF OFFERS
1.
THE OFFER
(a)
Bilateral & Unilateral Contracts
An important classification of contracts for the purposes of the principles to be studies in
this topic is that which divides contracts into two groups: bilateral contracts and unilateral
contracts.
Bilateral Contracts
A bilateral contract is one that is constituted by an exchange of promises, ie. the contract
is one which, at the time of its formation, consists of ‘A’ having made a promise to ‘B’
and in exchange, ‘B’ having made a promise to ‘A’. A simple illustration is a contract in
which ‘A’ agrees to sell his/her car to ‘B’. At the time the contract is formed ‘A’ has
promised to transfer title to the car to ‘B’, and ‘B’ has promised to pay the agreed
purchase price to ‘A’. Neither party has yet carried out their contractual obligations. It is
often said that their obligations are thus, executory.
The great majority of contracts are bilateral.
Unilateral Contracts
A unilateral contract is one that is constituted by an exchange of a promise for an act, ie.
the contract is one which, at the time of its formation, consists of ‘A’ having promised
something to ‘B’ and in return ‘B’ has already performed some act in favour of ‘A’. The
classic illustration of a unilateral contract is that which arises pursuant to an offer for a
reward, eg. ‘A’ offers a reward of $ 100 to anybody who finds his/her lost dog. In that
case, a contract arises when ‘B’ satisfies the terms of the reward, ie. he/she finds the dog.
At that point of time the contract exists and ‘A’ still has to perform his/her obligation, but
‘B’ already has performed his/her obligation. It is said that ‘B’s’ obligation is executed.
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In Mobil Oil v Lyndell Nominees (1998) 153 ALR 198 at 222, the Full Court of the
Federal Court said:
A unilateral contract is one which the act of acceptance of the offer is also
executed consideration for the promise offered. The act of acceptance
called by the offeree, leaves the contract executory only on the part of the
offeror.
(b)
The Use of Offer & Acceptance Analysis
The traditional method of ascertaining whether an agreement has been reached by parties
is by the device of offer and acceptance. One looks at negotiations and seeks to establish
that ‘A’ has made and offer and that ‘B’ has subsequently accepted that offer. In this
simple illustration ‘A’ is the offeror and ‘B’ is the offeree.
The rules of offer and acceptance tell us a number of important things about any contract
that results:
(a)
(b)
(c)
when the contract has been entered into – this can be a very important matter
because, in cases where stamp duty is payable on the contract, it has to be paid
within a certain time from the date the contract was entered into. Furthermore,
often the time that the parties have to perform their obligations is often tied to the
date of the contract.
where the contract was entered into – this is important in cases where a contract is
entered into between parties in different legal jurisdictions and it has to be
established which jurisdiction’s courts will resolve the dispute. Note: in Australia
each of the states and territories is a different legal jurisdiction.
the express terms of the contract.
Whether an agreement has been reached will often not be an issue. For example if ‘A’
and ‘B’ execute a detailed contract prepared by their respective legal advisers, the fact of
agreement will not be a matter in dispute between ‘A’ and ‘B’. Nor will it be realistic to
talk of the agreement being entered into as the result of one of them making an offer
which the other accepted.
The offer and acceptance analysis will work reasonably well in situations where there
have been negotiations between ‘A’ and ‘B’ which involve communications back and
forth between them that have reached a point where one of them claims an agreement has
been reached and the other disputes that claim. In such cases one simply goes through the
communications in chronological order in search, firstly, of an offer, and then an
acceptance of that offer. If both an offer and acceptance are not found to be present then
there is no agreement.
In the offer-acceptance process it must be noted that an offer can be made:
(i)
to a specified person or persons, or
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(ii)
(iii)
to a class of persons; or
to the world at large.
In Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484, one of the parties argued that an
offer could not be made so that it was open to be accepted by anybody in the in the world.
This argument was rejected by the Court. See Bowen LJ at 268.
Furthermore, for a valid offer to exist it must be communicated to the offeree, by the
offeror or his/her agent. If the offeree learns of the offer from an unauthorised person
there is no offer for that offeree to accept: Banks v Williams (1912) 12 SR (NSW) 382.
However, offer and acceptance analysis will not always work well. The courts have
recognised that it works well in most cases where the issue of the existence of an
agreement is in question. However, the courts have also stated that in some cases it is
inappropriate or meaningless to try to conclude that an agreement resulted from one party
making an offer and the other accepting that offer.
In this respect one can refer to the decision of the NSW Court of Appeal in Brambles
Holdings Ltd v Bathurst City Council (2000-2001) 53 NSWLR 153, a case concerned
with an arrangement between a company and a local council over rights to a waste
disposal depot. The Court found that a contract did arise as the result of an offer and
acceptance. However, at 176-179, Heydon JA made the following comments in relation
to the applicability of offer and acceptance analysis:
While the process by which many contracts are arrived at is reducible to
an analysis turning on the making of an offer, the rejection of the offer by
a counter-offer and so on until the last counter-offer is accepted, that
analysis is neither sufficient to explain all cases nor necessary to explain
all cases. Offer and acceptance analysis does not work well in various
circumstances. One example is a contract for the transportation of
passengers on mass public transport. … Another example concerns the
exchanges of contracts to sell land, which are hard to analyse in offer and
acceptance terms. … Another is where the contract is made through a
single broker acting for both parties. Another is where the parties are
deadlocked and they agree to submit to a solution reached by a third party.
…
Heydon JA, at 178-179, then referred to a passage from an American textbook on
contracts – Williston on Contracts - that read as follows:
It is not necessary to insist that assent must always be manifested by
means of offer and acceptance, but cases where offer and acceptance are
lacking are so rare that for purposes of general discussion they may be
disregarded. When they arise, they can be easily reduced to fundamental
principles, … that so long as a manifestation of mutual assent is present, a
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contract can be found to exist though no offer or acceptance can be
identified.
In Toyota Motor Corporation Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106, at
178, Tadgell J said:
If a contract is to be discerned in the absence of offer and acceptance I
venture the suggestion that ... it is to be discovered by inferring from the
relevant facts the conclusion that the parties have agreed to incur
reciprocal promissory obligations ... [T]he necessity or opportunity so to
infer in the absence of offer and acceptance is likely to be rare.
In Brambles Holdings Heydon JA, at 179, concluded that the relevant question to ask
was:
[I]n all the circumstances can an agreement be inferred? Has mutual assent
been manifested? What would a reasonable person in the position of the
[plaintiff] and a reasonable person in the position of the defendant think as
to whether there was a concluded bargain?
(c)
Definition of Offer
See Carter & Harland, at 28, for their definition of offer as well as that of the American
Restatement (2d) Contracts.
(d)
What Distinguishes an Offer from an Invitation to Treat
What is central to an offer is the will or intent of the offeror to be legally bound by the
terms of the offer. An important consequence of the offer is that the offeree has the power
to transform the offer into a contract by accepting the offer. There cannot be a contract
unless there is an offer. A purported acceptance of a statement that is not an offer, is not
an acceptance in law, and does not lead to a contract. Such a statement is more than likely
going to amount to the offer. The statement that preceded it is often called an invitation to
treat.
See definition of an invitation to treat by Carter and Harland, at 29.
In many cases the issue that will resolve a dispute between persons involved in litigation
before the courts is whether a statement made by one to the other is an offer or an
invitation to treat.
Read Gibson v Manchester City Council [1979] 1 All ER 972. From this case set out:



The facts
The issue that had to be determined by the House of Lords
The decision and reasoning of the House of Lords.
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Another case is that of Harvey v Facey [1893] AC 552. In that case ‘A’ telegraphed to
‘B’ saying: ‘Will you sell us Bumper Hall Pen?’ ‘B’ replied: ‘Lowest price for Bumper
Hall Pen, £ 900.’ ‘A’ replied that he agreed to buy the property for £ 900 and asked that
the title deeds be forwarded to him. ‘B’ refused, claiming there was no contract of sale.
The House of Lords had to ascertain whether ‘B’s’ reply to the initial telegram from ‘A’
an offer or an invitation to treat. The Court ruled in ‘B’s’ favour, saying the reply was
only an invitation to treat. Lord Morris said, at 556, that ‘the mere statement of the lowest
price at which the vendor would sell contains no implied contract to sell at the lowest
price’.
The issue of offer versus invitation to treat needs to be further explored in more detail in
four specific contexts:
(i)
(ii)
(iii)
(iv)
circulars and catalogues
displays of goods
Auctions
Tenders.
(e)
Are Circulars, Catalogues and Advertisements Offers?
Generally, circulars, catalogues and the like are seen as invitations to treat by the sellers
of such goods. The consequence of this is that it is the potential buyer that makes the
offer which the seller accepts or rejects.
The rationale for this approach is that if the seller was seen as making the offer, the
number of acceptances by means of orders for the goods might well exceed the total
stock held by the seller. The consequence would be that the seller would be in breach of
contract to all those buyers who accepted the offer after stocks ran out: Grainger & Son v
Gough [1896] AC 325 at 333-334.
However, the general rule here will not apply if it is clear from the circular that the seller
is limiting his/her liability to the amount of stock in hand. Thus, in Lefkowitz v Great
Minneapolis Surplus Store 86 NW 2d 689 (1957), a store placed a newspaper
advertisements which read: ‘1 Black Lapin Stole … Beautiful, worth $ 139-50 … $ 1-00
FIRST COME FIRST SERVED’. Lefkowitz was the first to present himself in response
to the advertisement, but the store refused to sell the fur, on the basis of a house-rule in
the store that the offer was intended for women only. Lefkowitz sued the store for
damages of breach of contract. The Court had to determine whether the advertisement
was an offer.
The court found in favour of Lefkowitz, saying the advertisement was an offer which
Lefkowitz had accepted and that the store could not impose new conditions, in the form
of the house rule, on the offer after it had been accepted. Murphy J said:
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[W]here the offer is clear, definite and explicit, and leaves nothing open
for negotiation, it constitutes and offer … [O]n the facts before us the offer
by the defendant was clear, definite and explicit, and left nothing open for
negotiation.
Read Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. From this case set out:



(f)
The facts
The issue that had to be determined by the Court of Appeal
The decision and reasoning of the Court of Appeal.
Is a Displays of Goods an Offer?
Generally, a display of priced goods in a shop, or in a shop window, is an invitation to
treat and not an offer. The customer makes an offer for the goods which the seller accepts
or rejects.
Read Pharmaceutical Society of Great Britain v Boots Cash Chemist (Southern) Ltd
[1953] 1 QB 401. From this case set out:



The facts
The issue to be determined by the Court of Appeal
The decision and reasoning of the Court of Appeal.
The reasoning in Boots Case has been criticised insofar as it suggest that, if the display
was an offer the acceptance occurred when the customer selected an item and put in
his/her trolley or carry bag. A more common sense approach would regard the acceptance
as taking place when the customer presented at the check-out ready to pay for the goods.
Furthermore, as we shall see acceptance requires, as a general rule, communication of
acceptance to the offeror. If the display was an offer, such communication would have
taken place at the check-out when the customer presented as ready to buy the goods.
There was no communication of acceptance at the point of time when the customer
selected the goods from the shelf. If this is accepted as a valid critique of the Boots Case,
it follows that irrespective of whether one saw the display as an invitation to treat or an
offer, the system of selling drugs in that case would not have been a breach of the
legislation. Thus, the Court really did not have to determine whether the display was an
offer or not.
Nevertheless, the rule in Boots Case is well established. See Carter and Harland, at 37,
for an alternative justification for the decision.
However, it can be argued that in modern large department stores the Boots Case rule is
not realistic. If Boots Case is correct, it follows that ‘the customer brings the goods to the
shopkeeper to see whether he will sell or not’. These were the words of the judge at first
instance in Boots Case ([1952] 2 QB 795 at 801) and whose judgment was approved by
the Court of Appeal. Thus, there needs to be a person, the shopkeeper or some duly
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appointed agent, who has the authority to decide to sell the goods to the customer. In a
small shop where the owner works in the shop and deals with customers that may be
realistic. But in large department stores or supermarkets, it may well be that the store
manager has such authority but it is certainly not the case that the shop-assistants or
check-out operators would be said to have such authority, because such authority would
also include the right to change the price from that marked on the goods. Logically, then
there could not be a contract entered into in such stores unless the person handling the
sale was the owner or manager of the store. That is not what happens in reality. Reality
can best be explained by stating that the display is an offer which contemplates
acceptance by only one means, namely by taking the goods to the checkout and paying
the stipulated price. A shop-assistant or check-out operator can handle the matter as
he/she is not making the offer and is merely the agent appointed by the owner to receive
acceptances of offers by customers. This view is supported in the judgment of Clement
JA in the Alberta Court of Appeal (Canada) in R v Dawood [1976] 1 WWR 262.
(g)
At an Auction Who Makes an Offer?
The holding of an auction is regarded as an invitation to treat. The consequence of this is
that offers are made by bidders which in turn can be accepted or rejected by the
auctioneer. Acceptance of an offer made by a bidder is by the fall of the hammer: Payne v
Cave (1789) 100 ER 502. This means that a bidder can withdraw an offer any time before
it is accepted, on the principle that an offer can be withdrawn before it is accepted. This
principle will be analysed in more detail later. It also means that the auctioneer does not
have to accept any particular bid that is made and, furthermore, is not bound to accept the
highest bid: AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454. However, if the
auction is conducted on the basis that the auctioneer has stated that the highest bid will be
accepted, then the highest bidder will get the contract: Harvela Investments Ltd v Royal
Trust Co of Canada (CI) [1986] 1 AC 207.
If an auction is advertised as being one without a reserve price, the view of AGC
(Advances) v McWhirter is that the above principles still apply and that there is no
obligation on the auctioneer to accept the highest bid. However, in Barry v Davies [2000]
1 WLR 1962, the English Court of Appeal held that an auction stated as being a without
reserve auction meant that if there was no acceptance of the highest bid by the auctioneer,
the auctioneer was in breach of contract with the highest bidder. The contract in such a
case arises by the offer made by the auctioneer which is made when he/she says the
auction is without reserve which is interpreted to mean that the auction is one where the
contract will go to the highest bidder. The acceptance is made by the person who is the
highest bidder.
(h)
With a tender Who Makes the Offer?
Tenders have similarities to auctions, but a key difference is that in a tendering process
each bidder makes only one bid and without knowledge of the details of any other
person’s bid by tender. In the tendering process it is the tenderer who makes the offer,
and not the person calling for tenders. The party calling for tenders can accept or reject
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any tender: Meudell v Mayor of Bendigo (1900) 26 VLR 158. If however, the party
calling for tenders states that he/she will accept the best tender, then he/she must do so
and a contract arises with the best tenderer: Harvela Investments Ltd v Royal Trust Co of
Canada (CI) [1986] 1 AC 207. In fact, it is the usual practice that parties calling for
tenders usually expressly reserve the right to accept any tender at all, although strictly
speaking such an express reservation is unnecessary.
In recent times, at least in cases involving governments or government instrumentalities
calling for tenders, courts have found that a call for tenders can create an offer in special
circumstances, with the result that the submission of a tender amounts to an acceptance of
that offer.
Read Blackpool & Fylde Aero Club v Blackpool Borough Council [1990] 1 WLR 1195.
From this case set out:



The facts
The issue to be determined by the Court of Appeal
The decision and reasoning of the Court of Appeal.
The decision in Blackpool & Fylde was cited with approval by the Canadian Supreme
Court in MJB Enterprises v Defence Construction (1951) Ltd (1999) 170 DLR (4th) 577.
In that case it was held that in that case’s complex tendering situation, a call for tenders
contained an implied term to consider tenders that were in prescribed form.
2.
TERMINATION OF OFFERS
An offer, once made does not last forever. An offer can come to an end in a variety of
ways.
(a)
Lapse of Time
An offer stated to be open for a set time, lapses if not accepted within that time. If no set
time for acceptance is stipulated in the offer, it lapses after the expiration of a reasonable
time. What is reasonable is determined by the facts and circumstances of each individual
case, including any stipulations in the offer which might affect its acceptance: Ballas v
Theophilus (No 2) (1957) 98 CLR 193 at 197, 199.
(b)
Rejection
An offer once rejected is terminated. It cannot be subsequently accepted. A counter-offer
is an implied rejected of an offer. This is confirmed by the case of Hyde v Wrench (1840)
49 ER 132, where one party offered to sell land to another for £1,000. The second party
responded by offering to buy the property for £950. The first party refused to accept the
counter-offer, whereupon the second party purported to accept the first party’s original
offer to sell for £1,000. The court held that no contract arose because the original offer
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came to an end once the counter-offer had been made. There was thus, no offer for the
second party to accept.
However, care must be taken because the response may not be a counter-offer. It may be
merely a request for further information or clarification of the offer. If so, such a response
does not terminate the offer and the offer remains open to be subsequently accepted.
Read Stevenson Jacques & Co v McLean (1880) 5 QBD 346. From this case set out:



(c)
The facts
The issues that had to be determined by the Court
The decision and reasoning of the Court on the rejection v request for further
information issue. (Other issues in this case will be dealt with later.)
Revocation Before Acceptance
The rule here is that, except in cases where an option has been entered into, an offer can
be withdrawn by the offeror at any time before the offer is accepted. This is so even if the
offeror has stated that the offer is to remain open for a specified period of time. Even in
this case the offeror can withdraw the offer before that time elapses. This is because the
statement or promise to keep the offer open is unenforceable because the offeree has not
given consideration for it: Dickinson v Dodds (1876) 2 Ch D 463 at 472. However, if
consideration is given for the promise to keep the offer open, an option is created. On
options see Carter & Harland at pp. 69-70.
It should also be noted that even if the promise to keep the offer open for a set time is not
supported by consideration from the offeree, it may be that relief based upon principles of
promissory estoppel will be available to the offeree. (Promissory estoppel will be
discussed in the lecture on the doctrine of consideration.)
In relation to situations not involving options or promissory estoppel it can be noted that,
for the revocation to be effective, it must be communicated to the offeree (or someone
authorised by the offeree to receive such communications): Financings Ltd v Stimson
[1962] 3 All ER 386. We shall see that in some circumstances, pursuant to the postal
acceptance rule, a letter or telegram that is used to accept an offer is effective to accept
that offer when posted or sent and not when it is received by the offeror. This is the
famous postal acceptance rule. With revocation of an offer there is no postal rule. If a
letter or telegram is used to revoke an offer, it must be received by the offeree before the
revocation is effective, that is, communication of the revocation is required.
The rationale for the communication rule is set out in Byrne v Van Tienhoven (1880) 5
CPD 344. Read relevant passage from this case as set out in Carter & Harland at 67.
In Byrne, an offeree had posted his acceptance of the offer before the offeror posted his
letter withdrawing the offer. The offer was one to sell goods. The offeree, assuming he
had a contract re-sold the goods to a third party. The offeror claimed there was no
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contract. The offeree sued the offeror for damages for non-delivery of goods. The
offeree’s case depended upon there being a contract with the offeror. The court held that
there was because the letter withdrawing the offer was ineffective, even though posted
before the letter of acceptance was posted, because it had not been received by the offeree
before he sent his letter of acceptance.
Although communication of revocation is require, it need not be communicated by the
offeror. It does not matter who communicated the revocation to the offeree, so long as the
information given to the offeree is reliable: Dickinson v Dodds (1876) 2 Ch D 463. In this
case A made an offer to sell land to B, but before B accepted A sold the property to C. A
did not tell B of the sale, but B discovered it from D who was not connected in any way
with A. B purported to accept A’s offer. The court rejected this claim, stating that B knew
the offer was revoked, because of the sale of the land to C, and therefore there was no
offer to accept.
If the situation had been that B did not know of A’s sale to C, then A’s acceptance would
have been valid and A would have been liable to B for damages for breach of contract:
Patterson v Dolman [1908] VLR 354. To avoid liability in such situations where in effect
there is an offer made to a number of offerees, the offeror should make it clear that it is
open for acceptance only by the fist person to notify acceptance.
A particular problem with the revocation rule is with offers to the world at large, eg. the
reward offer in cases such as Carlill v Carbolic Smoke Ball. How do you communicate
revocation of the offer when you do not know exactly who has seen the offer? The case
of Shuey v United States 92 US 73 (1875) provides the answer. In that case America’s
Secretary of State issued a reward offer in relation to one of the accomplices of the
assassin who killed President Abraham Lincoln. The offer was subsequently revoked by
publication of a notice to that effect. The principle that emerges from this case is that if
the publication of the revocation notice is as broad and given the same notoriety as the
offer, the offer will be regarded as effectively withdrawn. This is so even if a person who
was aware of the offer did not actually know of the notice withdrawing the offer.
A further problem in relation to offers to the world arises in circumstances where a
person has started to perform the terms of the offer, but has not fully completed
performance of them, and the offeror revokes the offer before performance, ie. before
acceptance, takes place. The state of this controversial area of the law appears to be as set
out in the recent Federal Court decision in Mobil Oil Australia Ltd v Lyndell Nominees
(1998) 153 ALR 198. Prior to this case it was widely thought that the offeror could not
revoke the offer once the offeree had started performance of the terms of the offer, and
that the offeree would have a reasonable time to complete performance of the terms of
the offer and thereby accept the offer. Mobil Oil rejects such an absolute rule. Read pages
222-228 of the decision.
(d)
Failure of a Condition
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An offer may be made subject to an express or implied condition that a certain state of
affairs remain the same until acceptance. For example, an offer to buy a property or
goods would usually be conditional upon the property or goods remaining in the same
condition up to acceptance: Financings Ltd v Stimson [1962] 3 All ER 386. If that were
not the case the offer would lapse and no acceptance could take place.
(e)
Death of Offeror or Offeree
It is assumed that generally, if the offeror dies and the offeree knows of the death, the
offeree cannot accept the offer: Dickinson v Dodds at 475. However, this could be subject
to an established contrary intention. If the offeree does not know of the offeror’s death
the situation is more complex. Much would depend upon the circumstances and nature of
the offer. If the offer was one which related to personal services being performed by the
offeror, once a contract arose, presumably the death of the offeror would terminate the
offer. However, if the contract could be performed by the deceased offeror’s estate, it
could be that the offer can be accepted notwithstanding the offeror’s death. An example
could be an offer to sell land.
The death of the offeree will generally terminate the offer: Reynolds v Atherton (1921)
125 LT 690 at 695. However, intention and circumstances could change that situation.
Thus, an offer to sell property could perhaps be accepted by the deceased offeree’s estate.