CITY UNIVERSITY OF HONG KONG
Agreement – Offer and Acceptance
Refer to Richards Law of Contract 9th Edition Chapter 2
What is a Contract ?
A contract is an agreement between two or more than two parties (individuals or
organizations) to perform or not to perform certain acts. This agreement must also be
enforceable by law.
A contract can be a ‘simple contract’ or a specialty contract’. Specialty contracts are also
commonly referred to as ‘contracts under seal’.
Offer
Offer and acceptance are the components of agreement which is the basis of the contract.
In practice they are performed one step after another and no binding contract will come
into effect until the formal contract has been agreed.
An offer is addressed to an identified party or opened to the whole world (Carlill v
Carbolic Smoke Ball Company 1893) and it must be distinguished from a mere attempt to
negotiate. The form of the offer is immaterial from the legal viewpoint. It may be done
by letter or by telegram, or it may be oral. A binding contract is established if the offer is
accepted.
Offeror and offeree
The party that makes the offer to do or not to do something is called the ‘offeror’ and the
party to which the offer is made is called the ‘offeree’. Upon counter offering, the
positions of the two can reverse.
Invitation to treat (Pharmaceutical Society of Great Britain v Boots 1953)
An invitation to treat is similar to offer and that we need to distinguish their difference.
An invitation to treat is an expression of willingness to enter into a negotiation. An
invitation for contractors to submit tenders is inviting firms to submit offers for doing the
work. In the invitation, it is often stated that the employer is not bound to accept the
lowest or any tender or to be responsible for the cost incurred.
Before an offer is accepted, it may be withdrawn revoked by the one who made it. Thus,
a contractor may submit a successful tender in terms to winning the contract. However,
the contractor may choose to revoke this offer prior to formal acceptance. Moreover, an
offer may also cease to exist due to the other reasons, such as the passing of a
“reasonable” period of time or the death of the offeror. Tenders for building works do not
remain on offer indefinitely. If they are not accepted within a reasonable time, the offer
may lapse, or be subject to some monetary adjustment should it later be accepted. The
building owner may stipulate in the invitation to the tenderers that offer should remain
open for a prescribed period time, say 90 days.
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Counter Offer
Such counter-offer will replace and cease the original offer. This fresh offer made is
known as a counter-offer (Hyde v Wrench 1840), and is subject to the conditions now
applied.
Acceptance
After an agreeable offer has been made, there must be an acceptance of it before a
contract can be established.
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So what is a contract?
A contract is a legally enforceable agreement. The conventional view is, to make an
agreement enforceable in court it must be supported by consideration. The parties to the
agreement must show their intention to enter into a legal relationship. Therefore the basis
of every contract is an unreserved agreement of some basic terms.
I stress the words ENFORCEABLE IN COURTS, an agreement to borrow $20,000
between a triad loan shark and a casino gambler is still to be enforced by the Court,
except when violence ensues. Contracts illegal in nature will be abandoned by the court.
How is a contract formed?
An agreement is the result of a mutual assent of two parties (party A and party B) to
make a transaction, a usual contract formation would consist of two aspects:
(1) A person (offeror) communicates his or her definite proposal of a contract (offer)
to another person (offeree) and in this proposal this person shows his or her
intention to enforce the purported agreement once it is agreed.
(2) The offeree communicates an unconditional assent on the offer (acceptance) to
the offeror.
Definition of an OFFER
An offer requires an unequivocal (having only one possible meaning) statement of
willingness to contract on certain specified terms. These terms will become binding upon
their acceptance by the offeree.
Stone (2002, p.13) defines an offer as an indication by one person that he or she is
prepared to contract with one or more others, on certain terms, which are fixed, or
capable of being fixed, at the time the offer is made.
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Gibson v Manchester City Council [1979] 1 WLR 294 (HL)
No contract was formed because the phrasing of the council’s letter was too equivocal for
it to constitute an offer.
Storer v Manchester City Council [1974] 3 All ER 824 (CA)
The Court of Appeal held that the letter was suitably unequivocal and amounted to an
offer which he had accepted by signing and returning the document.
Hillas v Arcos [1932] 147 LT 503
A “requirements contract” for timber of a “fair specification”. Both parties were in a
position to understand exactly what the term meant. There was therefore a contract.
Offers can be made orally or by conduct.
Hart v Mills [1846] 15 L. J. Ex. 200
Alternative goods sent, an offer, and accepted.
Offer Versus Invitation to Treat/Tender
A positive response to an offer is an acceptance.
A positive response to an invitation to treat or a tender usually amounts to an initial offer.
Advertisements
Partridge v Crittenden [1968] 2 All ER 421
An advert was placed in a magazine stating: ‘Bramblefinch cocks and hens, 25s each’.
This was not an offer simply an invitation to treat.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
The language used in the advert showed that it was an offer as opposed to an invitation to
treat. Acceptance leads to a ‘unilateral contract’.
Tenders
Spencer v Harding [1870] LR 5 CP 561
An invitation to submit a tender does not amount to an offer.
Displays
Fisher v Bell [1961] 1 QB 394
The display of an article with a price on it is merely an invitation to treat.
Pharmaceutical Society of GB v Boots [1953] 1 All ER 482
In a self-service shop the customers offer to buy goods at the checkout counter. That offer
is then accepted by the shopkeeper.
Vending Machines
Thornton v Shoe Lane Parking [1971] 1 All ER 686
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An automatic machine ready to take coins (or cards) constitutes an offer, the customer
accepts that offer by paying coins (or pressing octopus cards).
Communication of Offer
Adams v Lindsell [1818] 1 B& Ald. 681
An offer is operative up to the point when it arrives at the offeree’s premises.
Termination of offer
The general rule is that a revocation is permissible up to the point at which acceptance
takes place, but the revocation must be communicated to the offeree.
Byrne v Van Tienhoven [1880] 5 CPD 344
A contract was nevertheless formed after the revocation was posted, as the revocation had
not yet been communicated to the offeree.
Reliable Evidence of Revocation is Sufficient
Dickinson v Dodds [1876] 2 Ch 463 (B 223)
A revocation heard via a third party was sufficient.
Effect of Firm Offers?
Routledge v Grant [1826] 4 Bing 653
A firm offer can be extinguished, before the time limit has expired, by a revocation.
Lapse of Time
An offer is limited in life span, and may come to an end through the lapse of a reasonable
period of time.
Ramsgate Victoria Hotel v Montefiore [1886] 1 Ex 109
An offer made in June could not be accepted in November due to the lapse of time.
Survival of Offer Dependent on State of Affairs
Financings Ltd v Stimson [1962] 3 All Er 368
An offer to buy a car could not be accepted once it had been stolen and damaged.
Definition of ACCEPTANCE – an unconditional assent to the terms of an offer.
A valid acceptance must be actual communicated with the offeror. On the other hand,
revocation or termination of an offer should also be actual communicated. The
acceptance must be equally definite, unqualified, and unconditional. The unconditional
terms of acceptance must correspond precisely with the terms of offer. Besides, the most
important point is that the acceptance should be made under the actual communication of
both parties (Entores v. Miles Far East Corp. 1995) except for the Postal Rule (Adams v.
Lindsell 1818). It means an acceptance creates an agreement the instant it is dropped in
the mailbox (communicated to the agent), and it is immaterial whether the letter of
acceptance ever actually reaches the offeror. Besides, we used to clarify the difference of
the Postal rule and silence since silence is not equal to acceptance because it hasn’t got
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the communication agent (Felthouse v. Bindley 1862).
However, nowadays, the communication technologies are well developed. It has more
alternative ways for communication and those are more efficient and reliable, such as by
phone, e-mail, fax or even mail. So the Postal Rule is an exceptional case nowadays.
Example
In the case of construction contracts, the contractor makes the offer through the ‘form of
tender’ and the client (owner, employer) issues the formal acceptance by way of a letter.
Is there an acceptance? (by correspondence)
Is the acceptance effective? (through communication)
Acceptance may be given expressly, or by conduct
Brogden v Metropolitan Railway Co [1877] 2 App Cas 666
Ordering supplies of coal was acceptance through conduct.
Cross offers
Tinn v Hoffman [1873] 29 LT 271
Two offers, containing the same terms, which cross in the post do not form a contract.
Rejection, Counter Offers and the Battle of the Forms
Hyde v Wrench [1840] 3 Beav. 334
A counter offer is in effect a rejection. Once rejected the original offer cannot be
accepted.
Stevenson v McLean [1880] 5 QBD 346
A request for information does not act as a rejection, the original offer is still open for
acceptance.
Butler Machine Tools v Ex-Cell-O [1979] 1 All ER 965
Lord Denning:
‘In many of these cases our traditional analysis of offer, counter-offer, rejection,
acceptance and so forth is out of date. … The better way is to look at all the documents
passing between the parties and glean from them, or from the conduct of the parties,
whether they have reached agreement on all material points, even though there may be
differences between the forms and conditions printed on the back of them.’
THIS RADICAL APPROACH WAS NOT ACCEPTED! An obiter.
Battle of forms – the ‘last-shot approach’
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In the course of negotiation, several standard letters or forms might have been exchanged.
The last form will ‘kill’ the unamended order form by what amounted to be the counteroffer.
Manohar Chugh t/a Electric & Electronic Industries v Oka Electronics Ltd [1991] 2 HKC
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Communication of Acceptance
General Rule
Holwell Securities v Hughes [1974] 1 All ER 161
An acceptance must be communicated to the offeror.
Silence?
Felthouse v Bindley [1862] 11 CB (NS) 869
Silence will not constitute an acceptance.
Effect of Waiver of Communication
Carlill v Carbolic Smoke Ball Co [1863] 1 QB 256
The need for communication was waived in the advertisement.
Effect of a Prescribed Method of Acceptance
Manchester Diocesan Case [1969] 3 All ER 1593
Where a method of communication is prescribed any method no less advantageous will
usually suffice.
Different Types of Communication
Postal rule – by letters
Adams v Lindsell [1818] 1 B & Ald 681
A postal acceptance is effective when it is posted, not when it reaches the recipient.
Instantaneous Methods
Entores v Miles Far East [1955] 2 All ER 493
Telex is an instantaneous method of communication. A contract is concluded when the
acceptance comes through on the recipient’s telex machine.
Communication via a third party
Unilateral contracts
Errington v Errington [1952] 1 All ER 149
A promise could not be revoked after performance had started.
Dr Eric Cheng
City University of Hong Kong
25 January, 2015
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