Contractual agreement has traditionally been analysed in terms of offer and acceptance. One party, the offeror, makes an offer which once accepted by another party, the offeree, creates a binding contract. Key concepts that you need to familiarise yourself with in relation to offer and acceptance include the distinction between an offer and an invitation to treat - you need to be able to identify specific examples of where an offer or an invitation to treat exists. Also it is important to know the difference between bilateral and unilateral contracts. The case of Carlill v Carbolic Smoke ball co. is the leading case in both these areas so it worth concentrating your efforts in obtaining a good understanding of this case.
Offer
In order to amount to an offer it must be shown that the offeror had the intention to be bound:
An offer needs to be distinguished from an invitation to treat. Whereas an offer will lead to a binding contract on acceptance, an invitation to treat can not be accepted it is merely an invitation for offers.
Goods on display in shops
Goods on display in shops are generally not offers but an invitation to treat. The customer makes an offer to purchase the goods. The trader will decide whether to accept the offer:
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:
Spencer v. Harding Law Rep. 5 C. P. 561 Case summary
Auctions
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:
A counter offer is where an offeree responds to an offer by making an offer on different terms. This has the affect of destroying the original offer so that it is no longer open for the offeree to accept.
Once valid acceptance takes place a binding contract is formed. It is therefore important to know what constitutes a valid acceptance in order to establish if the parties are bound by the agreement. There are three main rules relating to acceptance:
1. The acceptance must be communicated to the offeree.
2. The terms of the acceptance must exactly match the terms of the offer.
3. The agreement must be certain.
1. Communication
The general rule is that the offeror must receive the acceptance before it is effective:
Brogden v. Metropolitan Railway Co. (1877) 2 App. Cas. 666 Case summary
Butler Machine Tool v Ex-cell-o Corporation[1979] 1 WLR 401 Case summary
The postal rule
Where it is agreed that the parties will use the post as a means of communication the postal rule will apply. The postal rule states that where a letter is properly addressed and stamped the acceptance takes place when the letter is placed in the post box:
