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Offer and Acceptance
INGREDIENTS MUST BE PRESENT FOR A CONTRACT
TO BE BINDING.
In order to form a contract, there are four elements that have to be present in order for the contract to actually be binding:
1. An Offer
2. An Acceptance
3. An intention to create legal relations
4. And a consideration.
The offer and the acceptance form the agreement and the intention to create legal relations and the consideration define whether it's a binding contract in court. If any of these elements are missing, then it cannot be a valid contract.
What is an offer?
An offer is a statement of terms by which the offeror is willing to be bound if someone should accept the terms.
This puts the offeror on risk - once the offer is unequivocally accepted this shall become a binding (bilateral) contract.
An offer can be made to one person or the world at large (as in Carlill).
In other words, the court is trying to find a willingness from a party (e.g. a communication in writing or orally) to contract on specific terms. Contractual obligations = voluntarily undertaken.
⇒ Chen-Wishart defined an offer as "a manifestation (whether orally, in writing,
or by conduct) by the offeror of a willingness to be bound by the terms proposed to the offeree (the addressee), as soon as the offeree signifies acceptance of the terms".
So it is an expression of willingness to be bound on stated terms if accepted by the other party.
⇒ An offer can be expressed (either in writing or orally) or implied e.g.
see the case of Datec Electronic Holdings Ltd v United Parcels Service Ltd .
The courts use an objective test to ascertain whether an offer/contract has been made- Questions of objective intention of parties: What would a reasonable and honest person in the position of the offeree have thought that they were agreeing to in these circumstances?
Justification for this= certainty in commercial transactions + desire to avoid the evidential difficulties. Lord Steyn: ''The commercial advantage of the English approach is that it promotes certainty and predictability in the resolution of contract disputes…it is not unfair.''
⇒ The court does not always use the same type of objectivity. ⇒ Types of objectivity (as argued by Howarth):
Promisor objectivity: the intention of a reasonable promisor.
Promissee objectivity: the intention of a reasonable promisee.
Detached objectivity: the 3rd party view of a situation.
⇒ For example, in Smith v Hughes (1871), there was a contractual dispute about the type of oats contracted for. Promisee objectivity was used by the court: what would the reasonable person, receiving the promise, intended to have agreed to?
⇒ Vorster criticised Howarth's approach because there is little distinction between promisor and promisee. In a bilateral contract, each party is both a promisor and a promisee eg. Scriven Bros v Hindley. Howarth himself= advocate of detached objectivity.
- Also = makes the contract ambiguous.
⇒ This could be counter-argued by stating that the main essence is to look at it from claimant/ defendant perspectives.
⇒ 'If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms'- Smith v Hughes (1871) LR 6 QB
597 (CA), Lord Blackburn (607).
⇒ Only the person to who the offer was made to can accept that offer (Lambert v Lewis ).
OFFER HAS TO BE COMMUNICATED
⇒ For there to be a valid offer there needs to be a communication of promise from the offeror to the offeree.
See, for example, Forman & Co. Proprietary. Ltd v Ship Liddesdale .
In order to be valid, offer must be communicated to the offeree, no party can be bound by an offer of which they were unaware= Taylor v Laird.
However, see the exception to this in Gibbons v Proctor (1891).
Invitation to treat (ITT)
An ITT is an expression of willingness to receive offers. An ITT has no legal importance - it simply precedes an offer.
An advertisement of goods for sale/goods in a shop window are normally construed as an ITT because this protects sellers of goods from being bound to supply limitless amounts of products.
This was established in Boots v Pharmaceutical Society of
Great Britain where it was held that in self-service shops (a new type of shop at the time) goods on the shelf are an ITT, not an offer.
Similarly, in Fisher v Bell, the shop keeper was not liable for 'offering to sale' an offensive weapon (a flick knife in this instance) because goods in the window constitute an ITT.
In Harvey v Facey it was established that a statement of the lowest cash price acceptable for goods is an ITT, not an offer. There was therefore not a contract in this case.
The same principle is applied to goods in a catalogue/ price lists as was held in Grainger and Sons v Gough.
Gibson v Manchester City Council : council wrote saying that it 'may be prepared to sell'. Tenant completed application form but court this was an offer to buy in response to the council's initial letter which was an ITT.
Even if the word "offer" is used the court may still say it's an invitation to treat because the word is not used in its legal sense (Spencer v Harding), so the customer is generally regarded as making the offer when they present goods at the cash desk (and the trader can accept or reject).
However, an advertisement for a reward is in fact an offer to enter into a unilateral contract if the specified conduct is completed (Williams v
Equally, an offer of a unilateral contract shall not be construed as an ITT or
'mere puff' if the company does something which implies intention to be bound. As was the case in Carlill v Carbolic Smoke Ball Company where the offer of £100 for contracting flu whilst using the smoke ball was binding because 1) a unilateral offer can be to one person or the world and 2) they had set aside £1000 in anticipation of this. Acceptance need not be communicated; person gets notice with the performance of the condition. Question is how the ordinary person would understand the advert.
i.e. Offer for a reward for a lost dog= unilateral contract as person promises to give reward for action but person who carries out action never promised to carry out action. Vs. Bilateral contracts.
Acceptance of unilateral contracts:
Requires performance of stipulated act
Not require communication of acceptance (usually, unless stated i.e. call me before attempting search of the dog to let me know that you are doing it.)
Contract by Tender
⇒ A tender is an open offer "to make an offer".
For example, if you want ten laptops you can send a tender notice to the newspaper listing your requirements you want from the laptops.
Manufacturers can then make you offers/bids, and the highest offer/bid will win the tender (i.e. deal/contract).
The request for tenders represents an invitation to treat and each tender submitted amounts to an offer unless the request specifies that it will accept the lowest or highest tender or other condition. If the request contains such a condition this will amount to an offer of a unilateral contract where acceptance takes place on performing the condition. ⇒ In Spencer v Harding (1870) it was held that advertising a sale by tender was seen as the defendant showing readiness to negotiate; it does not prove he was ready to sell. Thus, the advert was an invitation to treat.⇒ Also see the case of Harvela Investments Ltd v Royal Trust Co. of Canada
Where an auction takes place with reserve, each bid is an offer which is then accepted by the auctioneer. Where the auction takes place without reserve, the auctioneer makes a unilateral offer which is accepted by the placing of the highest bid: Heathcote Ball v Barry .
- Bilateral contract as highest bidder has contractual right based on the unilateral contract, once sold, seller has fulfilled their unilateral contract through the bilateral contract.
⇒ The Sale of Goods Act 1979, section 57, essentially states that bids in auctions are offers. When the hammer falls at the ends of an auction that is acceptance of the offer (i.e. accepting the bid).
So, it is up to the auctioneer whether to sell an item or not (with limited exceptions).
The auctioneer is simply inviting offers, so is making an invitation to treat.
⇒ However, where there is an auction 'without reserve' the auctioneer is making an offer to sell to the highest bona fide bidder.
See, for example, Warlow v Harrison (1859).
⇒ If this auction is 'without reserve', the auctioneer is bound by the highest bid irrespective of the amount: Heathcote Ball & Co. (Commercial Auctions) Ltd 2000- The claimant had submitted the highest (and only) bids at an auction stated to be without reserve. The items were two Alan Smart engine analysers which were worth £14,000. The claimant had submitted bids of £200 each. The auctioneer refused to sell them at that price. The claimant brought an action for breach of contract claiming damages of £27,600.) Held: The claimant was entitled to damages. Where an auction takes place without reserve the auctioneer makes a unilateral offer which is accepted by submitting the highest bid. There was thus a binding contract and the claimant entitled to damages covering the loss of bargain
⇒ In automated transactions (such as with vending machines) the seller
(the machine) is making the offer and the customer accepts that offer by paying for the good: Thornton v Shoe Lane Parking Ltd .
When a company announces they have shares available to purchase that is an invitation to treat.
But if they send out applications for people to buy shares then that is an offer: National Westminster Bank Plc v IRC .
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