Tuesday, June 8, 2010

Contracts - Offer and Acceptance

What sets contracts apart are that it is voluntarily entered into.


  • Objective test of agreement
  • Agreement as offer and acceptance
  • Why bother with offer and acceptance?
  • What is an offer?
  • What counts as acceptance?
  • When is agreement reached?

The role of objectivity

    • A contract is a consensual agreement between two parties
  • The most important thing is that contract is an agreement that the law will enforce.
  • The role of objectivity
    • If the parties made an agreement, when and where did they make it.
    • There is often a disagreement between the intentions of the two parties
    • So we can’t rely on what the parties subjectively intended
    • People often forget their intentions and remember them at a later time in a manner more fortuitous to themselves.
    • Each persons actions and words are interpreted as they would reasonably be understood by an honest and reasonable person standing in the other party’s shoes
    • So if the law is going to enforce contractual agreements it needs some external fact situation to give rise to that.

General Notes

  • Offer and acceptance helps determine whether there is an agreement
    • Go through criteria to determine offer and acceptance.
  • Offer and acceptance is useful in determining the end of negotiations and the beginning of the contract.
  • No negotiations become binding unless and until the magic moment.
    • Before magic moment no contractual obligations
    • Neither party is bound to perform
    • Either party can withdraw and refuse to make a contract
    • Either party can introduce new terms
  • After the magic moment;
    • Both parties are bound to perform
    • Neither party can back out without being legally liable
    • Neither party can introduce new terms without a new round of negotiations
  • So there is immense importance in pinpointing the moment of formation
  • Highlights the commitment issue and the content issue
    • Commitment issue: Whether a contract was concluded at all. From then on people are bound and it’s when the nature of the relationship changes
    • Content issue: We can use the discussions and negotiations up to that point to determine what the terms of the contract area. Terms discussed after that magic moment are not part of the contract.
  • Can be a limiting model because
    • People often don’t do that much negotiation
    • People do often want to change terms

2 routes to contract

Offer + Acceptance = Contract

Invitation = Offer + Acceptance = Contract

Route to no contract

Invitation + Offer + Rejection = No contract

after Taylor & Taylor 2007

What is an offer?

  • Courts have to attach these rules to the facts.
  • Statement by offeror containing proposed terms
  • Gives offeree a choice between acceptance and rejection;
  • Indicates willingness by the offeror to be bound by offeree’s acceptance, without further negotiation
  • Everything exists in an offer except acceptance.
    • An offer is a contract in search of a yes

  • The offer is a proposal of the terms of the exchange.
  • An offer confers power on the offeree to bind the offeror as soon as they express acceptance
    • So it puts the offeror at a certain risk

What is an offer?

If O + A = C

Then, O = C – A

Two ways to deny existence of contract

  • Given that risk, it is often in the offeror’s interest to disguise or withhold a certain amount of their offer so they have room to back out
    • No offer at all
    • Offer no longer valid at time of purported acceptance

  • For common sense reasons, we don’t want people to be bound unless we are fairly certain they want to, so we must ask a few questions,
    • Does the statement set out terms for both sides with some clarity? Or
    • Are there other matters that need to be negotiated?
    • Is the offeror willing to be bound right away?
    • This is a question of fact

What is an offer? II

  • Question of fact:
    • Objectively assessed, with subjective intentions largely irrelevant
    • Each case must be dealt with on its own terms through interpretation of conduct and context
      • Things that look like offers may be an invitation to others to make an offer, invitations to treat.
  • Invitation to treat = invitation to enter into negotiations, not an offer
  • E.g: auctions, tenders, tickets for travel; shop displays and catalogues, rewards and prizes.

What conduct does not amount to an offer?

  • It is in an offeror’s interest to characterizes their conduct as less than an offer so as not to conclude on the other person to conclude the deal
    • It’s just an invitation.

Specific Situations


  • Advertising an auction and/or calling for bids generally an invitation to treat
  • Each bid an offer
  • Seller/auctioneer free to accept or reject any bid
  • Complications
  • Generally understood that the highest bidder gets the house
    • To do so, they have to show that the auctioneer, by offering to sell the house was the offeror
    • But many auctions involve reserve
      • The seller wants to reserve a right not to sell if certain conditions aren’t met
    • Where there’s a reserve price its clear that the calls for bids is an invitation to treat and the bids are offers to be accepted or rejected by an auctioneer, hammer counting as acceptance
    • The other implication is that you can withdraw your bid before the hammer falls
    • Even if no reserve, it seems that a bid is only ever an offer which the seller can accept or reject (see text 53-6)


  • Call for tenders generally invitation to treat
  • Submitting of tenders = offers for which the buyer can accept or reject
    • Party calling for tenders not subject to legal obligation; (often made clear in the tender invitation
    • Party submitting tender making an offer
    • But facts might give rise to legal obligation on party calling for tenders to
      • Consider all tenders properly submitted; or
      • Conduct tendering process in accordance to specified procedures
  • But tenders should be transparent and there may be other forms of compensation to the party that submitted a tender which perhaps was not properly considered.
    • But not under this model, because there are no legal obligations before the tender is accepted (Magic Moment)
  • But check Hughes Aircraft Systems
    • Federal Court got around this by saying that maybe there is a contract (mini-contract)
    • This mini contract governs the way the process is carried out which may be legally binding
    • The government is offering to review the tender according to certain guidelines and the tender is acceptance of that
    • Finn J. also said that not only is the tender process governed by the tender process, but the terms of this process contract includes an implied term that Air Services had a duty to conduct the process in good faith and deal fairly with the parties in the process
    • So there may be legal obligations before the acceptance of the tender
  • The other scenario is where the party inviting explicitly says that the lowest bid will be accepted

Tickets for travel

  • Some possible interpretations
    • Running buses/trains = offer by transport company,
    • Passenger boarding/buying ticket = acceptance


  • Passenger paying for ticket = invitation to treat
  • Company issuing ticket = offer
  • Passenger retaining ticket = acceptance
  • General view is advertising the service in the form of a timetable is seen as an offer and handing over the fare and buying the ticket is seen as acceptance
    • Problematic if service doesn’t run but usually got around via an exemption clause
  • Often more complicated in the context of bigger fares/longer travel (future travel)
  • Particularly when the ticket is issued later
    • Are these terms of the contract if the contract was formed when I paid for the ticket?
    • If the airline wants these terms to be part of the contract, then they have to delay the magic moment until the customer has had time to read them.
    • SO
  • Read MacRobertson Airlines:
    • First question was why it was necessary to decide when the contract between the airline and the passenger had been made.
      • This was actually not a dispute between a passenger and an airline but an issue of stamp duty on agreements as the WA leg. provided for.
    • The legal issue was does the airline ticket = agreement for the purposes of the legislation, or did the moment of acceptance occur later? After the issue of the ticket
    • So, when did the offer and acceptance occur?
      • FACTS, the customer orders a ticket for Pt. Hedland and pays the fare
      • Later they are issued with the ticket which has all the terms and conditions on it.
      • Passenger later turns up and gets the carriage
    • Stephen J: Issuing the ticket = the offer by the airline and it was up to the passenger to accept or reject it.
      • Traditionally, in relation to other forms of transport, the issuing of the ticket = offer, and the paying = acceptance
    • BUT in this case the passenger has already paid, so Stephen J, says that rejection of the contract is possible in the form of a refund.
    • Not demanding a refund and turning up at the airport indicates acceptance
    • Jacob J agrees. Issuing the ticket, some time after the paying of the fare was just an offer. The payment is not the moment of the agreement because it would mean introducing T&C later.
    • According to Barwick CJ, who made the offer, how was it accepted, and when was the contract made?
    • The airline’s terms and conditions are full of exemptions, so in a sense the airline is offering to do basically nothing
    • SO, the passenger is making the offer
      • I’ll pay you the fare if you fly me to PH
      • The airline accepts by it conduct, by actually flying the passenger to PH and retaining the fare as its reward.
      • And if they don’t, it constitutes a rejection of the offer.
    • Either way, the moment of acceptance occurs after the offering of the ticket.

Shop displays and ads

  • Displaying goods with price (in store or in advertisement) = invitation to treat (generally)
    • Even the case where the word offer is used.
  • Each individual customer who presents to pay for goods making an offer (Pharmaceutical society of Great Britain v Boot’s Chemist)
    • Not a dispute between customer and shopkeeper
    • Issue was about identifying the magic moment
    • Boots had decided to go self-service and there was a storekeeper who could refuse sale, but was this too late?
    • If displaying the goods was an offer then each time they picked it up would constitute an acceptance
    • Offer and acceptance happens at the register
  • Shopkeeper free to accept or reject customers’ offers.
    • Because advertising is less than an offer, it is reserving the right to refuse service, it is not a contract in search of a yes.
  • But if it says it will sell to ‘the first 15 customers’ then it will probably constitute an offer
    • Look at the intention, i.e. whether they intend to be bound.


What the courts are doing is using the language of offer and acceptance to ask the question whether its reasonable that the statement or conduct alleged to be an offer should be capable of being converted into a contract simply because of the other party’s acceptance, or is it more reasonable in all the circumstances that further discussion and negotiation will take place on the possibility that one party may refuse.

The question of whether an offer was made or an invitation to treat was made will depend on the intentions, objectively ascertained, by the particular party. Essentially, we don’t want a person to be legally bound unless they want to.


- Converts an offer into a binding contract.

Acceptance: Is there still an offer?

  • Is there still an offer to accept?
    • Only becomes an issue once there is an alleged acceptance that has been communicated to the offeror
  • Offer may be terminated by:
    • Revocation or withdrawal by offeror
    • Expiry or lapse of time
    • Rejection by offeree

Acceptance: elements

  • Acceptance = unqualified assent to an offer
  • Either statement or form of conduct
  • Acceptance must:
    • Correspond to an offer (correspondence)
    • Must be in response to an offer (nexus)
    • Must be communicated to the offeror (communication)
      • It is this that fixes the time that the agreement is concluded
  • The absence of any of these three will result in no contract.


  • Purported acceptance containing terms which differ from the original offer may fail to create contractual responsibility
  • Requires unqualified assent, any changes in the terms make it a counter-offer
    • Counter offer = rejection of the offer. One cannot go back to the original offer
    • After a counter-offer, the person can accept or reject, even if it amounts to their own original offer. This is because it is acceptance of the new offer from the original offeree, rather than the acceptance of the original offer that binds.
    • Counter-offers, however, can often look like acceptances. Where there are multiple terms, the question becomes more difficult.
  • Request for information (as opposed to acceptance)


  • Offeree must accept in response to the offer which means
  • Offeree must have knowledge of the offer and its terms.
  • Cross offers
    • Don’t amount to offer and acceptance because they are offers made without knowledge of acceptance
    • Two offers don’t = offer and acceptance.
  • Problematic where offer in the form of a promised reward
    • What happens when they perform an act ignorant of any award.
      • But there is no nexus so no offer and acceptance.
    • Performance of act does not necessarily establish it was done in exchange for promise
    • Read R v Clarke, 1927
      • Clarke was arrested and charged with murder. Gave false information to cops about other murders but eventually told the truth which led to the arrest of another person who was subsequently charged.
      • He was released and claimed reward. The government refused to pay.
      • Government argued that he did not give the information to get the award but gave it to secure his release.
      • He admitted that he did not give info in response to the award, although he admitted being aware of the offer.
      • CASE stands for proposition that acceptance must be made in response to and because of an offer.
  • This case is interesting because, objectively, Clarke saw the offer and gave the info. This presumption was displaced by other evidence however…
  • It’s up to the offeror to prove that the claimant’s behaviour was not in response to the offer.

Communication I

  • Acceptance must be communicated to offeror for agreement to be effected: mere intention to agree to an offer does not create agreement.
  • A contract is formed at the time when and the place where acceptance is communicated.
  • General rule: acceptance is effective only when received by the offeror (or, generally, the offeror’s agent)

Communication II

  • However, the general rule may be altered by:
    • stipulation by the offeror of a method of acceptance (other than silence)
    • Use of different technologies
      • Questions of what counts as communication.
      • Will depend on mode of acceptance.

Departing from the General Rule:

Offeror Stipulates Mode of Acceptance

  • Offeror has power to specify the manner in which acceptance must be made
  • It is within the offeror’s power to determine the mode of communication.
  • If they specify a mode of acceptance, but do not rule out others, then acceptance can be in a form no less disadvantageous to the offeror.
    • But cannot specify silence as mode of acceptance
  • Courts will infer acceptance from conduct which comes to the attention of the offeror – usually part performance of the contract.
    • Read Empirnall Holdings v Machon Paull Partners, 1988
      • Machon Paull drew building plans
      • Empirnall offered them a building contract, they accepted and drew up the contracts
      • Empirnall said, send the bill but not the contracts because the boss didn’t sign contracts.
      • They went ahead and sent the bills and the contracts
      • Empirnall pays the first bill and Machon Paull writes back saying they are proceeding on the understanding that the terms of the contract have been accepted.
      • Empirnall goes insolvent and there are several outstanding payments
      • This was significant because Machon had a charge over some of Empirnall’s land
      • The issue was that Machon Paull wanted to argue that this particular contract was the one they wanted to enforce
      • Question was whether they had accepted that contract, and was it silence having accepted the offer. – Felthaus rule, just because one does not expressly reject the offer doesn’t mean that they have accepted it.
      • BUT silence may constitute acceptance, especially where the offeree takes the benefit of the offer.
      • Empirnall took the opportunity of Machon’s offer.
      • So if you start performing your obligations like you’re committing to the offer then that may constitute acceptance.
      • Acceptance by conduct is useful when the particular facts do not fit into offer and acceptance model.

Departing from the General Rule:

Use of Different Technologies

  • Law has generally drawn a distinction between instantaneous and delayed communication.
  • Instantaneous forms of communication such as telephone usually follow the general rule
  • Non-simultaneous but instantaneous communication, such as fax, sms, email etc.
    • But the recipient may not be available, so notification may not be instant but receipt is SO:-
    • Acceptance when sent?
      • No, when it is received.
    • Acceptance when it actually comes to offeror’s notice?
      • No, unreasonable because it gives the offeror too much control over when or where or even whether a contract is made by choosing not to open his inbox etc.
    • Acceptance when in all the circumstances a reasonable offeror would access the message?
      • This is the law, because it is reasonable for the offeree to rely on this.
      • The idea is that the offeror should act reasonably by regularly checking the technology used.
    • ALSO IMPORTANT TO NOTE: This defines where the contract is concluded which is the destination of the fax etc.
      • So the issue with E-shopping is not so much its timing but its location – it is global. So in the event of a dispute, the law of contract that will prevail is that of where the contract is formed.
  • ‘Postal rule’ applies if the offeror intended the offer to be accepted by post
    • where postal acceptance reasonable, acceptance completed when offeree posts it.

Postal Rule

  • Postal rule departs significantly from the above rules
    • Because of inevitable time-lag involved.
  • During this time lag there is a window where neither parties know they are contractually bound
    • From the moment of post the offeree cannot with draw their offer and the offeror cannot act on reliance on the contract until receiving the letter.
  • The contract is formed even when the letter doesn’t arrive or isn’t read or something else…
      • See Adams v Lindsell (1818)

Limits of Postal Rule

  • Postal rule applies if the offeror intended (within the reasonable contemplation of the parties) the offer to be accepted by post or where postal acceptance reasonable
    • If the postal rule doesn’t apply then the general rule applies: that the agreement will become binding once the offeror gets notification of acceptance. See Tallemann. (at 111)
    • So the postal rule only applies if reasonable in all the circumstances to use the post.
    • The rule doesn’t apply if the offeror specifies another mode of communication or comments that the deal will be done only when acceptance is received or ‘actual notice’
  • Postal Rule does not apply to withdrawals of offers, only relates to acceptance.
  • Courts have not expanded rule beyond post or telegrams.

Death of an Offer

  • Revocation
    • Generally, offers can be revoked prior to acceptance provided notification is received, unless:
      • Express or implied agreement not to revoke: an ‘option’
    • Revocation only effective upon communication to offeree
  • If offer not revoked before acceptance then revocation not possible.
  • One can even promise to keep offer open and then withdraw it unless consideration received.
  • Goldsbrough, Mort v Quinn (1910) (nature of option)
    • There was an option to purchase some real property GM issued by Quinn.
    • Quinn was paid 5 shillings to keep the offer open for a set period.
    • So Quinn thereby had a legal duty to keep the offer open but he revoked the offer before acceptance, before the option was exercised.
    • The issue was not that he had breached but what might follow.
      • It depends on whether we consider the option a mini-contract prior to the main contract or whether the option was part of the overall contract (a conditional contract)
        • If all Quinn did was breach a mini-contract, GM is confined to damages
        • But if it was a conditional contract, then damage is for specific performance.
      • Usually the contract will terminate if there is no action from the offeree.

Unilateral contracts

  • Bilateral contract: promise for a promise
    • Although doesn’t have to have two parties while unilateral has one. All contracts require at least two parties. What is one-sided is the obligation.
  • Unilateral contract: promise for an act
    • Same as bilateral in as much they are exhibiting a clear intention to be bound should someone accept the offer, its just we don’t know who that other person is before they do it. Performance = acceptance. But nothing flows from failure to perform. The only string is in the hand of the offeree.
    • Offers of reward or prize
    • Some types of advertising (eg Carlill v Carbolic Smoke Ball)
  • Used when one party wants to induce another to act in a certain way but know that they are not going to be able to force the person to act in that way.
  • So the rules of offer and acceptance have to be modified to fit this model.

Offer in Unilateral Contracts:

    • Read Australian Woollen Mills:
      • During WW2, the commonwealth would buy up all the wool and make it available to the manufacturers of wool products.
      • After WW2, the wool was just sold through the normal market mechanism, but the commonwealth said it would continue to subsidise the purchase of wool by wool manufacturers
      • So AWM bought up large quantities of wool until mid 1948 and then the commonwealth announced it was going to discontinue the subsidy
      • It would allow manufacturers to buiy up to a certain amount which they would subsidize
      • AWM had already exceeded this amount and were asked to pay the subsidy back.
      • AWM argued that the commonwealth’s offer of a subsidy was a unilateral contract, and they had announced a reward to buy wool
  • Why was the Commonwealth’s promise to pay a subsidy not an offer?
    • The essential ingredient is that the offer was made to induce the other party to act in a certain way and that party acted in that way.
    • You need evidence that the offeree would not have acted in that way but for the offer. There needs to be a quid pro quo.
    • In this case the commonwealth didn’t care if they bought wool or not, they were trying to put superannuation
  • How do courts distinguish between conditional promises and unilateral contracts?:
    • See A going to Sydney example

Revocation in Unilateral Contracts:

  • What happens if one accepts the offer and commences the relevant course of conduct but the offer is withdrawn before the conduct is completed
    • Full acceptance
    • Read Mobil Oil v Wellcome
      • Only read first part.
      • There’s no universal principle governing revocation of unilateral offers
        • Did the offeror know that the conduct had commenced?
        • Is the act detrimental to the offeree?
        • Did they understand that they commence performance at one’s own risk?
        • Are you really performing something you wouldn’t have done otherwise?

1 comment:

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