Contract 1 Tutorial 2: Offer and Acceptance

McKendrick Text and Materials, pp.21-38 & Chapter 3.

Agreement: Objective or Subjective?
UK law has decided to take an objective approach when considering whether or
not two parties have reached an agreement. The courts will not adopt the view of
a neutral and reasonable person. Even in cases where one party seems to have
taken up an offer that was not intended to be an offer, the law continues to
adopt the objective approach.
In order to prove that a legally binding contract has been created a number of
things must be proved:
-

That the parties have reached an agreement (offer and acceptance)

That the agreement has been expressed in certain terms that are
enforceable by the courts
That the agreement is supported by consideration (exception: promissory
estoppel)
That the agreement has been entered into in the appropriate form (e.g. in
writing)
That there is an intention to create legal relations

A lot of contract law is based upon perceptions of the intentions of the

parties. In trying to decide what these intentions are, the courts look at outward
objective manifestations of these intentions, rather than trying to ascertain the
actual, subjective state of mind of each party.
Issues raised by adopting an objective approach:
-

Why does the law not place more emphasis on the subjective state of
mind of each of the parties as the law of contract concerns promises
voluntarily made?
o Because this promotes certainty and predictability. With this method
we can also avoid the difficulties of trying to ascertain what a party
was thinking at a certain point in time.
What is the scope of this objective approach? Do we adopt the objective
position of the promisor, promisee or a neutral third party?
Does the adoption of the objective approach mean that subjective views
are completely irrelevant?
o When it is apparent that one party has sought to take an unfair
advantage by snapping up an offer, which was not intended by the
other party do the courts adopt a more subjective approach? This is
discussed below in Smith v. Hughes (1871) LR 6 QB 597

The Objective Theory Illustrated

Smith v. Hughes (1871) LR 6 QB 597

The oats case. A farmer offers to sell oats to a racehorse owner. They agree on a
price, but after the oats are delivered the defendant refuses to pay as he claims
that he wanted old oats and the farmer has given him new oats.
This is going to take too long, therefore just read and then answer discussion
questions:
Discussion
1. Do you think that, if an offeror promises to keep an offer open for
a stated period, then that offeror should be held to that promise
and not allowed to retract the offer within that period? Is it
possible for an offeror to incur liability pending the acceptance of
the offer?
The general rule is that an offer may be revoked at any time before it has been
accepted. In the case of Dickinson v Dodds (1876) 2 Ch D 463, James LJ ruled
that the promise to keep an offer open for a certain period may be withdrawn at
any point up to the acceptance. As there is no consideration for the promise to
keep the offer open, then it is not binding. James states that the offer must
remain open until the time of acceptance for a contract to be formed, therefore
the offeror cannot incur liability if they withdraw their offer before an acceptance
is made. James also adds that the withdrawal must not be made expressly. I
agree with this judgment.
Dickinson is therefore regarded as authority for the proposition that a promise to
keep an offer open for a particular period of time is not binding unless the oferee
has provided consideration to keep that offer open.
This seems logical in line with UK law, however it does make things less certain.
A promise to keep an offer open for a certain period of time is now almost
completely redundant as without consideration it means nothing. Does the law
regarding such offers take into account promissory estoppel?
2. What is the postal rule of acceptance? Does it have any merit?
Does it apply in respect of contracts concluded over the internet?
How do the rules of offer and acceptance apply in the case of
internet contracts? How far do you think the rules of Offer &
Acceptance are adequate for regulating transactions in a modern,
technologically developed society?
-

The postal rule states that an acceptance becomes effective as soon as

the letter of acceptance is posted. There are exceptions to the rule.
- It has some merit: If this rule did not exist then it may be that no contract
would ever be completed by post (this point has less impact now than it
did in the 19th century, due to technological advances). The post office is a
common agent to both parties and therefore upon communication to
them, it is in effect a communication to the other party. It is easier to
prove that a letter has been posted than to prove it has been received.
However, each of these arguments has fairly strong counter-arguments.
- The postal rule does not apply to contracts concluded over the internet.
There are issues surrounding the use of the internet and emails to conclude
contracts that are as yet cloudy. One proposed principle is that the party that
chooses the means of communication should bear the burden of any mishaps.

As, email is far quicker than post, it may be more sensible to use the recipient
rule rather than the postal rule. In the case regarding the telex, the postal rule
did not apply. Example: [Entores v Miles Far Eastern Corporation] The contract is
not valid until the acceptance has been received by the oferor. If the oferor
doesnt receive the information, the oferee must keep trying. The exception
occurs when it is obvious to the oferor that there is a problem in this case the
onus shifts to the oferor to resolve the issue. This is now precedent. An email
acceptance becomes valid upon receipt, although the recipient does not have to
have read it (this runs contrary to the ususal line that an acceptance must be
communicated).
Read this: 2008 EWCA Civ 442 Schweppe v. Harper esp paras 26-45
3. Is there a difference between silence and conduct when it comes
to acceptance? If so, what is the significance of the distinction?
Yes. Silence can never amount to an acceptance whereas conduct can. An offeror
cannot say: We will assume that you have accepted the offer if we do not hear
from you in the next seven days. Conduct must be a positive action on the part
of the oferee that shows a clear intention to accept the offer. The oferee may
begin to fulfil the terms of the contract (as in Errington v Errington) or expressly
accept it. Conduct is an accepted form of acceptance, silence is not.

4. What is a unilateral contract? How does it differ from a bilateral

contract and how does it work? Could the Carbolic Smoke Ball
Company have revoked its offer if so, when and how?

In a unilateral contract there is only one party making an offer. In

unilateral contracts, the promisee is not required to make a counter
promise, only to carry out an act in accordance with the promise
made by the promisor. This is different from a bilateral contract,
where two promises are required. In a bilateral contract there will be
two parties, whereas a unilateral offer usually involves one party
making an offer to the world at large.
Carbolic Smoke Ball company could have revoked the offer, however
there are limitations on this. Once another party has began to
complete what has been asked by the offeror the offer can no
longer be revoked. Once performance of the task has started it
would be unfair if the offeror was allowed to then revoke the offer.
i.e. once Carlyle bought the Carbolic Smoke Ball/Started to use it,
this constituted the beginning of performing the task and therefore
the offer cannot be revoked after this point. The payment does not
have to be made until the performance has been completed, but the
offer cannot be revoked, once performance has started. Case:
Daulia ltd. V. Four Millbank Nominees Ltd (1978).

Problem:

Try to work out which legal issues are raised by the facts and then apply the relevant legal rules to
them. There will be some areas of uncertainty because the information you have is limited and some
because there is uncertainty about what the law is on the basis of the case law.

On 2nd October Galvatron PLC sends identical letters to three local firms asking if
they wish to buy an unused widget making machine that they have acquired.
The letters state that the best offer received by 9.30am on 10 th October will
secure the machine.
The following day Prime PLC sends a fax saying: Is it a 5XL model? If so we will
offer $5000, if not, $3000. Unfortunately due to a transmission fault, the final 0
is missing so that the last figure appears to be $300. The machine is not a 5XL.
Optimus PLC sends a letter offering $2500 or $100 more than your highest offer
you receive under $3500.
Megatron PLC sends a telex on the evening of the 9 th October offering $3500.
The offer is received on Galvatrons telex machine at 6pm on 9 th October, but not
read until 10.30am on 10th October.
Advise Galvatron whether it is obliged to sell the widget making machine and if
so, to whom.
This is an invitation to tender from Galvatron PLC not an offer. The three
responses from the local firms are each offers. However, Galvatron PLC has
bound themselves to accept the highest offer received by a certain time.
Prime PLC: The party who selects the means of communication should bear the
consequences of any unexpected events As Prime PLC have chosen to submit
their offer via fax (as each party has chosen a different method of
communicating the offer) they have to bear the consequences and therefore
their offer stands at 300.
Optimus PLC: Although in Harbella it can be seen that offering a certain amount
of money above every other bid is too vague, if there is on a cap on this it may
be considered an offer.