OFFER
An offer endows the offeree with the capacity to accept, simultaneously imposing a potential obligation on the offeror. To qualify as an offer, the communication must engender a reasonable belief in the offeree that the offeror is prepared to forge a contract based on the essential terms proposed.
1.1 Expression of Willingness
For a communication to be recognised as an offer, it must manifest a willingness in the form of a promise, undertaking, or commitment to engage in a contract, distinguishing it from a mere invitation to initiate negotiations. It should reflect a clear intent to enter into a contractual agreement. Not every statement in the negotiation phases constitutes an offer.
For instance, if Clara says to David, “I intend to sell my laptop to you for £400,” this statement qualifies as a definitive offer.
1.2 SPECIFICITY AND EXACTITUDE OF TERMS
The terms of an offer must be articulated with specificity and exactitude. This means that the terms cannot be nebulous or partial.
The essential point is whether the key terms are detailed enough to render a contract enforceable if they were to be included. The particulars of the agreement, especially the subject matter, need to be distinctly specified, as enforceability hinges on a court's ability to determine the specifics of the promise.
For instance, if Emma tells Jack, “I agree to sell you this particular bicycle for £250,” it clearly and precisely outlines the intent, identifying both the item and its price. On the other hand, if Emma says to Jack, “I might sell a bicycle for something like £250,” it lacks clear commitment, specificity regarding which bicycle is being offered, and a fixed price.
1.3 OFFER NOTIFICATION TO THE OFFEREE
For an offeree to possess the capacity to accept, they must be aware of the offer's existence. Consequently, the offer must be effectively communicated to them. An offer can be directed towards a specific individual or group or be made universally, addressing the general public.
1.4 COMMUNICATIONS NOT CONSTITUTING AN OFFER
Responses to Requests for Information. Replying to a request for specific information only sometimes qualifies as an offer.
Consider a situation where a potential buyer emails a car dealer asking, “What is the best price you can offer for the 2020 Model X car?” The dealer responds, “The best price for the 2020 Model X is £15,000.” This response by the dealer does not amount to an offer. It merely provides information in response to the enquiry and does not represent a binding commitment to sell the car at that price.
Invitations to Treat
An invitation to treat is a preliminary step in contractual negotiations, distinct from an actual offer. It typically signifies an invitation for the other party to submit an offer.
In a scenario where Clara asks Emma if she would be interested in buying Clara’s bike for £300, Clara's query represents an invitation to treat. Emma can respond with an offer to buy the bike, which may lead to further negotiations or an acceptance.
Advertisements as Invitations to Treat
Typically, advertisements are treated as invitations to treat rather than definitive offers. This approach mitigates the risk of contractual breaches due to the limited availability of products.
For example, if a retailer advertises only five computers in a newspaper, treating the advertisement as an offer could lead to contractual liabilities with every respondent after the fifth, exceeding the available stock.
Therefore, an advertisement invites potential buyers to make their offers, leaving the seller with the discretion to accept or reject them based on availability and other factors.
The Nature of Shop Displays
Products displayed in a shop window or on store shelves constitute invitations to treat, not direct offers to sell. Taking an item to the cashier is the customer's offer to purchase. The transaction is completed, and the offer is accepted when the cashier processes the payment. This system ensures store owners retain control over sales, allowing them to manage situations like stock shortages or incorrect pricing.
Retail Display as Invitation to Treat
Items showcased in retail store windows or on shelves represent invitations to treat, not direct sales offers. The customer's action of taking the goods to the checkout constitutes an offer to buy. This offer is accepted when the retailer processes the sale at the till.
Price Lists as Preliminary Engagements
Price lists are generally regarded in the same vein as advertisements, serving as preliminary engagements rather than firm offers. If a price list were treated as an offer, the issuer would be bound to sell to anyone who accepts by placing an order, potentially exceeding their available stock.
Imagine a car accessories distributor issues a price catalogue for various Volkswagen parts. This catalogue is an invitation to treat, not a concrete offer. Should a garage place an order for Volkswagen brake pads based on this catalogue, their order constitutes an offer. The distributor can accept or decline this offer due to potential difficulties in sourcing sufficient brake pads.
Invitations to Tender. An invitation to tender calls interested entities to present bids detailing their readiness to undertake a specific task. It is not an offer, as agreeing to every tender would result in contractual breaches. The bids tendered are the offers.
A bookstore chain requires an upgraded point-of-sale system. It invites bids from software companies, where they detail the services and terms they can provide. This request is an invitation to treat, not an outright offer. The proposals made by the software companies are the offers, allowing the bookstore chain to select the most suitable one to accept.
Auction Procedures as Preliminary Invitations
In auctions, a catalogue serves not as a definitive offer but as an invitation to treat. This status permits the owner or auctioneer to retract items from the sale before the auction begins.
Similarly, when an auctioneer calls for bids, this is an invitation to treat. The auction attendees propose offers through their bids, which they can revoke before the auctioneer finalises the sale with the hammer's fall. The hammer's descent indicates the auctioneer's acceptance of the highest valid bid, assuming it meets any set reserve price.
Interpreting Price Quotations
Classifying a price quotation as either an offer or an invitation to treat depends significantly on the intentions of the involved parties, often discerned from their preceding interactions. In an academic or exam setting, it's less common to be tasked with making intricate judgments regarding the nature of price quotations.
The Special Case of Unilateral Contracts
Unilateral contracts represent a unique category where the usual rules are altered. Specifically, advertisements in these instances do constitute offers. A unilateral contract is established when the offeror pledges to perform a particular action if the offeree performs a specified task and the offeree completes that task. These contracts are termed 'unilateral' because only the offeror has an obligation (such as a promise of payment) when making the offer. The offeree can accept and become bound to the contract solely through performance. Often, these offers are made to the public, typically via advertisements, like promising a reward for specific actions. These advertisements are considered offers, as the offeror's intent to be legally bound is evident.
Consider a situation where a fitness company advertises a challenge: “Complete our 30-day fitness program without missing a day and receive £500.” The company also announces that it has set aside £20,000 to pay out these rewards, showing its commitment to the offer. A participant enrols in the program and diligently follows the regimen every day, but the company then refuses to pay the £500 upon completion.
In this case, a court will likely determine that the advertisement was an offer for a unilateral contract, which the participant accepted by fully adhering to the program’s terms. Completing the challenge, as specified in the advertisement, would constitute a valid acceptance.
DISCONTINUATION OF AN OFFER
An offer loses its validity for acceptance once it has been terminated. Termination can arise from actions by either the offeror or the offeree or due to legal stipulations.
2.1 Withdrawal by the Offeror
The offeror has the prerogative to withdraw an offer, a process known as revocation. Revocation involves the offeror retracting their offer.
This can be executed by directly notifying the offeree of the withdrawal before they have accepted the offer.
Alternatively, revocation can occur indirectly if the offeree receives:
reliable information,
from a credible source,
suggesting that the offeror has taken actions which reasonably imply they no longer intend to maintain the offer (such as the offeree learning from a dependable third party that the offeror has sold the car previously offered to a different buyer).
Conditions for Effective Revocation
A revocation becomes valid only when the offeree acknowledges it. It is optional for the offeror to personally communicate the revocation; it can be conveyed effectively by a reliable third party, as illustrated earlier.
Restrictions on Revocation by the Offeror
While offerors typically have the discretion to withdraw offers any time before they are accepted, there are certain conditions under which this freedom is limited:
The Role of Collateral Contracts
In a collateral contract, the offeree provides something of value (consideration) in return for the offeror's promise, such as the assurance not to revoke a given offer. Further exploration of collateral contracts will occur subsequently.
Imagine a scenario where Charles offers to sell his vintage car to Diana for £50,000 and agrees to keep the offer valid for 60 days if Diana pays £500 as consideration for this extension. Diana pays the £500 as agreed. If Charles decides to revoke his offer after 20 days, he will breach the terms of the collateral contract established by Diana's payment.
Commencement of Performance in Unilateral Contracts
In unilateral contracts, once the offeree begins to perform the task outlined in the offer, the offer becomes irrevocable. It would be inequitable for the offeror to withdraw their offer after the offeree has commenced fulfilling the requested action. However, it's important to note that a binding contract only materialises upon the completion of the performance by the offeree, who retains the right to withdraw at any point until then.
Consider a situation where a mother offers her car to her son, stating that if he completes his university degree, the car will be his. This proposition is an offer in a unilateral contract, with only the mother making a promise. The son has yet to make a formal promise, but he can accept the offer by fulfilling the condition set by his mother. If the son enrols and starts his university education, it would be deemed unfair for the mother to retract her offer.
Differentiating the Commencement of Performance in Bilateral Contracts
Bilateral contracts emerge from offers that a promise or performance can accept. On the other hand, an offer in a unilateral contract is only obtained through performance, as previously discussed. In a bilateral contract, if the offeror has not specified a particular method of acceptance, the commencement of performance by the offeree equates to acceptance.
Consequently, this action solidifies the offer, making its revocation infeasible.
It's crucial to note that beginning performance in a bilateral contract mirrors that in a unilateral contract — once performance is initiated, the offer can no longer be terminated. However, the underlying logic differs. In a bilateral contract, starting performance doesn't just render the offer irrevocable but also acts as an acceptance, thus forming a contract.
Consider a scenario where a retailer offers to buy 500 units of a specific product from a supplier at £10 per unit, signalling a bilateral contract since the mode of acceptance isn't restricted to performance. Hence, the supplier can accept either by confirming via email or by starting the process of supplying the 500 units. If the supplier opts to get through the commencement of supply (like packaging the products for delivery), this action constitutes acceptance, and the contract is effectively formed at that point.
2.2 OFFER TERMINATION BY OFFEREE
An offeree can bring an offer to an end through rejection, either explicitly or implicitly, as with a counteroffer.
Direct Rejection
A direct or express rejection occurs when the offeree explicitly communicates their decision not to accept the offer. Such a rejection effectively terminates the offer, preventing any future acceptance by the offeree should they change their mind. This rejection becomes valid when it reaches the offeror.
Consider a situation where a property developer offers to buy a plot of land for £800,000. The landowner explicitly states the land is worth more, suggesting a value of £850,000 instead. Later, the landowner decides to accept the original £800,000 offer. The initial offer is terminated due to the earlier rejection, meaning no contract exists under the terms.
The Dynamics of a Counteroffer
A counter offer arises when the offeree responds to the original offer with a new proposal concerning the same subject but with altered terms (e.g., "I'm interested in purchasing the property at the stated price, provided you include the existing furniture."). A counteroffer serves two functions: it acts as a rejection of the initial offer and establishes a new offer. This process concludes the original offer and changes the roles of the involved parties: the offeree who presents the counteroffer becomes the new offeror, allowing the original offeror to either accept or decline this new proposal.
An artist offers to sell a painting to a collector for £10,000. The collector responds, “I will buy it for £9,000.” This response is a counteroffer. It effectively rejects the artist's initial offer of £10,000, and the collector's later attempt to accept the original price would not result in a contract.
The crucial difference now is the collector's counteroffer, which the artist can get. Should the artist agree to this new price of £9,000, a contract to sell the painting at this revised amount would be established.
Clarifying Enquiry vs. Counteroffer
It’s important to distinguish between a counteroffer, which effectively rejects the original offer, and a simple enquiry or request for additional information. An enquiry does not end the offer if it implies that the offeree is still considering the original proposal. The deciding factor is whether a reasonable person would interpret the response as rejecting the initial offer.
A property developer offers a plot of land to a prospective buyer for £200,000. The buyer responds by querying if the developer would consider a price reduction of £10,000. This question constitutes a mere enquiry. A reasonable person listening to this exchange would not conclude that the initial offer has been rejected but that the buyer is seeking further information while contemplating the original offer.
Handling Collateral Contract Rejections
When an original offer is accompanied by a collateral contract, which typically involves an agreement to keep the offer open for a fee, a rejection or a counteroffer concerning the collateral contract does not cancel the original offer. The offeree retains the option to accept the primary offer.
Charles offers to sell a vintage car to Diana for £30,000, proposing to keep the offer open for a month if Diana pays £200 for this period. Diana responded that she wouldn’t pay £200 but would pay £100 to keep the offer open. By doing so, Diana is rejecting Charles' terms for the collateral contract. However, Charles' initial offer to sell the car for £30,000 remains valid and open for Diana's acceptance.
Offer Termination due to Time Elapse
An offer becomes void if not accepted within the time frame outlined in the offer or if no time limit is specified within a period deemed reasonable. The definition of 'reasonable' is contextual and depends on the nature of the contract's subject matter.
For example, an offer to sell technology products like the latest smartphones might lapse quicker than an offer for more stable commodities like furniture, considering the rapid pace of technological advancements and market trends. Similarly, offers related to time-sensitive services, such as a limited-time promotional deal for a service, would require prompt acceptance before the promotion ends.
DEFINING ACCEPTANCE
In the context of contract formation, acceptance signifies an unequivocal agreement to the stipulated terms of an offer.
This concurrence must be absolute and without deviation, as any alteration or qualification to the terms constitutes a counteroffer. Creating a counteroffer extinguishes the original offer, thus precluding its subsequent acceptance in its original guise.
3.1 ELIGIBILITY FOR ACCEPTANCE
The capacity to accept an offer is confined to the individual or entity to whom the offer is specifically addressed. This also extends to group members targeted by the offer, such as an offer made to all subscribers of a specific magazine, where any subscriber can accept the offer.
Limitations on Transfer of Acceptance Rights
Generally, the right to accept an offer cannot be transferred to another party. However, it's essential to consider the principles of agency, where an agent can agree to an offer on behalf of their principal. In such cases, the resultant contract is formed between the offeror and the principal, not the agent.
3.2 AWARENESS OF OFFER FOR ACCEPTANCE
For an acceptance to be valid, the offeree must be aware of the offer, whether for a standard bilateral or a unilateral contract.
Therefore, in a cross-offer situation, where two parties independently send offers to each other with identical terms, unaware of the other's offer, no contract is formed despite the matching terms.
3.3 SELECTING THE MODE OF ACCEPTANCE
In cases where the offeror does not prescribe a specific method, an offer can be accepted in any reasonably suitable manner, given the prevailing conditions.
In bilateral contracts, this acceptance may take the form of a commitment to perform or by beginning the performance itself.
This contrasts unilateral contracts, which necessitate completing the requested action for acceptance.
Prescribed Acceptance Method by the Offeror
If the offeror has set out a specific mode of acceptance, and the offeree does not adhere to this prescribed method, the acceptance is typically considered invalid. An exception to this rule is when the offeree’s chosen method, though different, is no less favourable to the offeror.
The Non-Validity of Silence for Acceptance
Under normal circumstances, an offeree cannot be compelled to respond, nor can their silence be interpreted as accepting an offer. Contractual obligations necessitate affirmative actions from the offeree to indicate their agreement. Silence, inherently, fails to qualify as such an action due to its inherent ambiguity and the uncertainty surrounding the offeree's intentions. While this rule has occasional exceptions, they are exceptional and infrequent.
3.4 ACCEPTANCE IN UNILATERAL CONTRACTS
An offer in a unilateral contract is characterised by the offeror seeking an action rather than a promise.
In such cases, the offeror commits to fulfilling their part of the agreement upon the offeree's completion of the specified act. The contract is established once this act is entirely performed.
No Compulsion for Offeree to Finalise Performance.
In the context of unilateral contracts, it is generally understood that acceptance is only achieved upon the completion of the specified act. Notably, the offeree is not obligated to see the performance through to completion simply because they have initiated it, as only the full completion of the specified act amounts to acceptance of the unilateral offer.
For instance, Maria announces a reward of £300 for anyone who can successfully locate her lost dog. Having some clues about the dog's possible whereabouts, James begins the search. However, he is not legally bound to persist in his search efforts because a contract only comes into existence upon the successful location of the dog.
Requirement of Notification
In most cases, the offeree in a unilateral contract is not obligated to inform the offeror when they start the requested performance. However, it is typically necessary for the offeree to notify the offeror within a reasonable timeframe after completing the performance. This requirement ensures that the offeror is aware of the completion of the terms and can fulfil their part of the contract accordingly.
3.5 COMMUNICATION OF ACCEPTANCE
Typically, the acceptance of an offer in a bilateral contract must be explicitly communicated to the offeror unless the offer specifically states that no such communication is necessary.
3.6 CONDUCT AS A FORM OF ACCEPTANCE
An offeree's actions can serve as a valid form of acceptance of an offer. It's essential, however, for the offeror to be made aware of the offeree’s conduct, meeting the communication requirement for acceptance.
This approach is particularly relevant in business transactions where actions, rather than explicit verbal or written communication, signify acceptance.
A freelance graphic designer offers to create a website for a local café at a quoted price. The café owner responds, suggesting a slightly lower price. The designer starts working on the website without explicitly accepting or rejecting this counteroffer. The commencement of work in this scenario would be interpreted as acceptance of the café owner's counteroffer.
3.7 EFFECTIVENESS OF ACCEPTANCE VIA POST - THE POSTAL RULE
The postal rule in contract law dictates that acceptance via post is considered adequate at the time of posting, not when it is received.
This holds true even if the acceptance letter is lost in transit, with a few exceptions:
The letter must be correctly addressed and appropriately stamped. If it fails in this regard, the postal rule does not apply.
The use of postal services to communicate acceptance must be reasonable. If it's unreasonable, the rule is not applicable.
The offer itself may explicitly or implicitly require that acceptance is only effective upon receipt. In such cases, parties are regarded as opting out of the postal rule.
It's important to note that the postal rule applies explicitly to accepting offers and does not extend to other contractual communications, such as offer rejections or revocations.
Application to Immediate Communication Channels.
The postal rule is irrelevant for immediate communication modes such as email. Acceptance through these methods results in the formation of a contract at the point when the offeror actually receives the acceptance. For instance, the contract is formed with email when the offeror reads the acceptance email. This principle aligns with the instantaneous nature of these communication methods, ensuring that the contract is established when both parties are contemporaneously aware of the acceptance.
3.8 NAVIGATING THE 'BATTLE OF THE FORMS’
This term refers to a frequent complication in commercial agreements where each party seeks to contract under their standard terms, which usually differ. The legal challenge is ascertaining whose terms prevail when both sets are referenced during negotiations. The general legal stance is that the contract is formed under the last communicated terms, provided they were not objected to and the contract's execution has begun.
In simpler terms, "the last shot" in this battle of terms, meaning the final set of terms proposed that is followed by contract performance, tends to dictate the contract's conditions.
Effectiveness of 'Prevail' Clauses
Frequently, an offeror incorporates a 'prevail clause' in their proposed contract, asserting that their terms override any others introduced by the offeree. This clause is designed to grant the offeror a strategic advantage in the 'battle of the forms'. However, the practical impact of these clauses is subject to debate. When an offeree counters with their terms, this action is typically viewed as a complete rejection of the original offer, including the 'prevail clause'. As a result, such clauses often fail to enforce the offeror’s terms as the dominant ones in the contract.