By Law Teacher
2.2.1 Acceptance Lecture – Introduction
Welcome to the second lesson of this module guide – the acceptance! The acceptance is the accepting the offer of a contract. There are many different ways an offer can be accepted. Being able to differentiate between the different rules that govern acceptance is very important.
This section will begin by giving an overview of the relevant principles that apply to acceptance. Each principle will be explored with the relevant case law illustrating important acceptance aspects.
Below are some goals and objectives for you to refer to after learning this section.
Goals for this section
- To understand the importance of an acceptance to a contract
- To understand what an acceptance is
- To understand the different principles governing acceptance
Objectives for this section
- To be able to define an acceptance
- To be able to distinguish between a counter offer and an invitation to treat.
- To be able to determine when acceptance has been communicated
- To be able to explain what happens when the offeror stipulates the method of communicating acceptance.
- To be able to demonstrate the importance of communicating acceptance.
- To be able to recognise when the need to communicate acceptance does not apply.
- To be able to describe the postal acceptance rule and when it applies.
- To be able to recognise when the postal acceptance rule does not apply.
- To be able to recognise when the parties are free to withdraw from negotiations.
- To be able to distinguish between instantaneous and non-instantaneous forms of communicating acceptance, and when they are valid.
- To be able to State how and when an offer expires.
2.2.2 Acceptance Lecture
What is acceptance?
Acceptance proceeds an offer as the second requirement for a legally binding contract. It can be defined as the instance in contractual formation where the parties’ intentions as to the terms of the contract are the same or unequivocal. This intent must then be effectively communicated to the offeror to complete the acceptance of the offer.
Unequivocal is one of the key terms relevant when dealing with issues with acceptance. It is defined as “leaving no doubt” and is often strictly interpreted – Hyde v Wrench [1840] 3 Beav 334.
Communication is the second key word. Although the moment intent has been communicated effectively is often obvious in certain situations, issues can be easily overlooked.
Acceptance must mirror the offer
Often in situations it will seem as though an offeree has effectively communicated their acceptance of an offer to the offeror. If this acceptance however has modified conditions attached as to the terms of the offer, then can it be considered unequivocal?
Counter-offers
In Hyde v Wrench [1840] 3 Beav 334, the above issue was raised in the Court. The facts of the case are as follows;
An offeror made an offer to sell land at £1000 and the offeree responded by attempting to accept the offer at £950. This was subsequently rejected by the offeror. An attempt was by the offeree to accept the original offer of £1000.
The Court found that the original offeree was now unable to accept the original offer of £1000. This was due to the fact that the previous “acceptance” of the offer at £950 had fundamentally changed the relationship of the parties. Why? When the original offeree changed the conditions of the offer by changing the terms of its price, they in fact created a counter-offer.
Counter-offers revoke any previous offers and a revoked offer is not capable of being accepted.
Requests for information
Often counter-offers are confused with simple requests for information due to them both involving terms of existing offers in a similar way.
The distinction between them was made apparent in the case of Stevenson Jaques & Co. v McLean (1880) 5 QBD 346;
In this instance the offeree made an inquiry as to whether the offeror would allow a particular method/time of delivery, of the goods concerned in the offer.
It was found by the Court that asking question to clarify the existing terms of an offer was not in-fact a counter-offer but a simple request for information.
Cross-offers
While incredibly rare, there are instances where two parties both send complimentary offers to one-another at the same time. The question is, if this occurs has the contract been accepted?
Tinn v Hoffman (1873) 29 LT 271 – Such instances are not sufficient to amount to acceptance of either offer i.e. offers and acceptance must be communicated separately.
Remember:
- Without an offer there can be no acceptance.
- A counter-offer will revoke existing offers;
- Requests for information do not revoke offers.
- To determine whether something communicated by the offeree is either a counter-offer or request for information. Always examine whether to give effect to the communication, the terms of the offer have to change, as that is the key distinction.
- Cross-offers cannot amount to acceptance.
Acceptance must be effectively communicated
Communication as mentioned earlier can present itself in a variety of forms. Some of which can cause difficulties determining whether the offerees’ intended acceptance is in fact sufficiently effective to form a contract.
The postal rule
The basic principle of the postal rule was defined in Henthorn v Fraser [1892] 2 Ch 27;
Where postage is considered a prescribed means of communication between the parties, effective acceptance occurs at the moment of postage.
Although this seems odd, as the offeree may not be aware of the acceptance when it occurs, the Courts’ reasoning can be considered logical/fair. Offerees have no control over an acceptance letter once it is posted. Therefore, it would place an undue burden on an offeree to count on the postal service to deliver the letter. This burden is instead placed on the offeror; the Court contends that by not excluding the postal rule as a means of acceptance (which is within an offerors power – Household Fire insurance v Grant [1879] 4 Ex D 216), they have willingly acknowledged and agreed to host this burden.
Issues to consider with the postal rule
Acceptance occurring at the moment of postage raises a number of questions, the first;
Can an offer still be accepted if the acceptance letter itself does not arrive?
In Adams v Lindsell [1818] 1B & Ald 681 it was established that even in situations where a letter is destroyed, delayed or lost, acceptance is still effectively communicated at the moment of postage. As the burden of the letters arrival has passed to the offeror.
The second question is;
If the letter does not arrive due to the fault of the offeree, is the acceptance still effectively communicated?
The case of LJ Korbetis v Transgrain Shipping BV [2005] EWHC 1345 establishes that, in situations where the acceptance does not arrive due to the fault of the offeree, for example, instances where a letter is misaddressed. The burden of the letters arrival does not pass at the moment of postage and as such, any acceptance is not considered effectively communicated.
The final question is;
Can the offeror exclude the postal rule from being applicable to their offer?
First it should be determined whether the post is a prescribed means of communication between the parties. If it is not, then the postal rule will not apply – Henthorn v Fraser [1892] 2 Ch 27.
To reiterate a point made earlier, if an offeror can willingly consent to accepting the postal rules’ burden, can they refuse it?
Household Fire insurance v Grant [1879] 4 Ex D 216 makes it evident that if an offeror expressly or impliedly rescinds the effect of the postal rule, then acceptance will not occur at the moment of postage.
Remember:
- It must be reasonable to accept the offer through the post.
- If all the formalities surrounding the letter and its correct postage are met, then whether it arrives is immaterial.
- The offeror can exclude postage as a communication method.
- The offeror can expressly/impliedly rescind the postal rule.
Instantaneous methods of communication
Clearly as time has progressed, postage being used as a method of communicating acceptance has become less frequent. Various other instantaneous methods of communication (e.g. emailing) have instead replaced this older method of communication.
So does the postal rule apply to other methods of communication?
The short answer is no. The rules surrounding instantaneous methods of communication focus on the receipt of the acceptance i.e. the moment it arrives at the offerors’ end of the relevant communicative technology.
The Courts will also closely examine the facts surrounding the typical contractual practices the parties adhere to, to determine whether the methods of communication relative to the receipt are in fact prescribed.
When does acceptance occur?
Tenax Steamship Co v Owners of the Motor Vessel Brimnes [1974] EWCA Civ 15, also highlights that similarly to the postal rule, the actual acceptance itself does not need to be acknowledged by the offeror for effective communication to be established. It merely needs to be received!
The rationale surrounding this, similarly to the postal rule, is based on the Court attempting to balance the positions of the parties relative to the potential contract.
In Brinkibon Ltd v Stahag Stahl [1983] 2 AC 34 it was contended that if acceptance were limited to situations in which the offeror had the acceptance brought to their attention, it would convolute typical business arrangements. Due to working hours being restricted and the relevant personnel not being directly contactable at all hours.
What happens if the acceptance is sent but it is not received?
Entores v Miles Far East Corp [1955] 2 QB 327 informs us that in situations where the offeror is at fault for the lack of receipt then the acceptance is still deemed to be effectively communicated. If however there is no fault by either party for the lack of receipt, then the acceptance is not considered effectively communicated.
Remember:
- The postal rule does not apply to methods of instantaneous methods of communication.
- Acceptance only occurs on receipt. If there is no receipt, then there is no effective communication, unless;
- The lack of receipt is the fault of the offeror.
- Always review the specific facts of the case! If contractual offers between parties have always been accepted by email and the offeree sends a fax instead, is the method of communication considered prescribed?
Silence
Silence alone is not considered communication – Felthouse v Bindley [1862] EWHC CP J35.
If silence however, is also accompanied with particular types of conduct, then it could potentially amount to communication. This is known as implied acceptance. A type of situation where this could occur is best illustrated through a case example.
In Brogden v Metropolitan Railway (1877) 2 App Cas 666, a situation arose where parties had been dealing with each other for a long time on an informal basis. It was decided by the parties that they should write-up a formal contract, the parties did not actually do this. However, they did continue to operate as if the contract had been formalised with no objection as to this ‘contracts’ terms. No express acceptance as to the contracts terms could therefore be found. The Court however did not contend that there had been no acceptance. The Court believed that as the parties has been acting in a manner than affirmed the contract existed through their conduct, then the contract must have been impliedly accepted.
Remember:
- Silence does not equal acceptance. There must be communication, unless;
- The conduct of the parties indicates otherwise and acceptance can therefore be implied.
- Always pay attention the particular facts of a scenario, situations of implied acceptance are often difficult to notice.
Unilateral Contracts
Unilateral offers as defined in Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 CA have a completely different method for effectively communicating acceptance (for more information on unilateral offers consult Chapter 1).
Communication is not in fact necessary to accept unilateral offers. Due to the fact unilateral offers usually require some form of specific performance to be accepted. Which means to effectively communicate acceptance in these situations, the conduct of the offeree is normally sufficient.
The best example of this type of acceptance occurs in the case of Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 CA. Mrs. Carlil by using the “smoke ball” as prescribed by the term of the offer, provided the conduct necessary to accept the contract.
Things to consider when reviewing communication
The test to determine whether or not someone has accepted an offer is objective i.e. compared to standard of the reasonable man – Day Morris Associates v Voyce [2003] EWCA Civ 189.
In Scammell and Nephew v Ouston [1941] AC 251 HL, it was established that if the terms of an offer are not sufficient then it cannot be accepted, again an objective approach is adopted by the Courts in these situations.
The “Battle of the Forms”
Often in commercial contracts, the parties involved will employ standard terms whenever contacting. This is done for obvious reasons, namely to save time, money etc. If both parties have standard terms, then clearly a problem will arise. If the parties continually agree to each other’s standard terms during their course of dealings, then which terms will the Court bind the parties to? This is known as the “battle of the forms”.
It was decided in BRS v Arthur V Crutchley Ltd [1968] 1 All ER 811, that the Court would follow the last shot principle. Simply defined as, the last set of terms agreed to by the parties would be the ones applied by the Court. In this case, a party had agreed to deliver goods to the other. On receipt of the goods a party signed a delivery note with terms attached. The Court agreed these terms should be the ones that binds the parties, acknowledging that the previously agreed upon terms had been overridden by this acceptance.
Remember:
- Always examine who the last person to accept contractual terms was.
- Make sure to look at the actual terms agreed to and consider whether there are in fact other issues, such as the terms being a counter-offer – Butler Machine Tool v Ex-Cell- O Corporation [1979] 1 WLR 401 (CA).
End of acceptance period
Offers are not infinite i.e. all offers have different expiration periods, after which they cannot be accepted.
In Routledge v Grant [1828] 4 Bing 653 it was established that even if an offeree is given a timeframe in which they can accept the offer. The offeree can still revoke the offer during that time as long as the revocation is communicated effectively.
Essentially, an offeror can revoke an offer at any point unless acceptance has been communicated – Hare v Nicholl (1966) 1 All ER 285. Note that, in the case of unilateral offers, the offer cannot be revoked if the conduct of the parties has objectively evidenced communication.
An offers revocation also does not need to be communicated by the offeror, a reliable third party (objectively accessed) can sufficiently communicate said revocation – Dickinson v Dodds (1876) 2 Ch D 463.
What if the offeree changes their mind?
What would happen if the offeree decides that they want to revoke their acceptance of an offer? It is important to note there is no English/Welsh case law surrounding this topic area so all case decisions discussed here are persuasive.
It was held in Dunmore v Alexander (1830) 9 Sh 19 (a Scottish case) that postal acceptance can be revoked by a faster means of communication. Clearly this decision contrasts with the idea that acceptance occurs at the moment of postage, and should therefore be discussed with caution.
A case from New Zealand that provides the opposing view – Wenkheim v Ardnt (1873) 1 JR 73. In this case a postal acceptance was not revoked through the use of a telegram (a faster means of communication).
The presumption so far in the UK, although not affirmed. Is that a revocation of acceptance through a faster means of communication will only be possible if it would not be unjust to the offeror to allow said revocation.
Death of the offeror
If either party dies before contract formation is complete then it cannot be accepted Dickinson v Dodds (1876) 2 Ch D 463. As such, an offer cannot be accepted posthumously Bradbury v Morgan [1862] 158 ER 877.
Remember:
- Normally offers can be revoked before acceptance is communicated or evidenced.
- There is no EW case law on the relevant areas of revocation of acceptance, so approach this area with caution.
- If one of the parties dies before acceptance, then the contract cannot be formalised.
2.2.3 Acceptance Lecture – Hands on Example
The following scenarios will test your knowledge and understanding of the various principles that have been outlined above. Some are purposely complex, so that you can become more familiar with the process of breaking difficult scenarios into distinct events, which can then be assessed both individually and collectively. The answers at the end will enable you to compare your approach and conclusions to determine where you may need to refer back to the principles outlined above. The scenarios may appear confusing at first, but do not be discouraged, apply the guidance you were given on breaking down scenarios into manageable sections and you will be surprised at how simple the scenario actually is!
SCENARIO 1
Anna has recently encountered financial problems and realises that she cannot pay the next instalment on her mortgage. In a bid to gather funds, she decides to sell her large collection of rare bone china plates. She places an advertisement on the internet, offering to sell all 50 of them for £5000. China Ltd is a company that deals in rare crockery, and emails Anna, asking whether the plates are in good condition. Anna responds, stating “They are in good condition, I will remove the advertisement and you can pay by Paypal if you prefer”. The next day, China Ltd informs Anna that it is ready to send the £5000 via Paypal, but adds that the plates must be in their original boxes, and accompanied by their display brackets, else it will only pay £4000. Anna informs China Ltd that she does not have the original boxes or the brackets and states that she has found another buyer. China Ltd states that it accepts her original offer of £5000 but Anna has already agreed to sell the plates to another buyer.
Advise Anna.
SCENARIO 2
Peter writes a letter to Bob, offering to sell him 50 shares in Greko Ltd. In his letter, which arrives at Bob’s address on Tuesday, Peter asks that Bob let him know by next Sunday whether he accepts his offer. Bob posts a reply letter stating his acceptance of peter’s offer on Thursday. However, Bob hears of a more lucrative deal from another friend and changes his mind about the shares in Greko Ltd. On Friday evening he telephones Peter to reject his offer. Peter was absent but Bob left a message on his answering machine stating that he withdraws his acceptance of the offer. On Monday morning, Peter opens Bob’s letter of acceptance, then checks his answerphone messages and hears Bob’s withdrawal message.
Advise Peter.
Scenario 1 Answer
This scenario focuses on the issue of request for information and counter offers. Begin by breaking the scenario down into specific events:
1. Anna offers 50 plates for £5000.
2. China Ltd asks if the plates are in good condition.
3. Anna confirms good condition.
4. China Ltd adds that plates must be in original boxes and with brackets, otherwise offers £4000.
5. Anna tells China Ltd that she does not have the boxes or the brackets, finds another buyer.
6. China Ltd accepts original offer of £5000.
7. Anna sells plates to another buyer.
Each event can then be labelled according to whether it is acceptance, a counter offer or a request for information:
1. Anna’s original offer.
2. China Ltd’s request for information.
3. Anna’s response to request for information.
4. China Ltd’s counter offer.
5. Anna’s rejection of counter offer.
6. China Ltd’s acceptance of original offer.
We can now observe the events more clearly and determine that a contractual agreement has not been formed between Anna and China Ltd. It is important to address the point at which the agreement cannot be formed. The request for information does not affect the agreement – it is merely a query regarding the condition of the plates and not the addition of any major terms into the agreement (Stevenson Jaques & Co. v McLean (1880) 5 QBD 346 ). However, when China Ltd adds the term that the plates must be in their original boxes and with brackets, otherwise it will only pay £4000, this is clearly a counter offer. China Ltd is changing the terms of the agreement. Refer to Hyde v Wrench [1840] 3 Beav 334. Anna is then free to accept or reject China Ltd’s counter offer, which she rejects. China Ltd’s counter offer also represents a rejection of Anna’s original offer, so its acceptance of her original offer following her rejection of its counter offer is not valid. There is therefore no contract and Anna is not in breach of any contract with China Ltd.
Scenario 2 Answer
This scenario concerns communication, the postal rule and expiration of offer.
Bob will argue that he is not required to purchase the shares because there is no contract. Break down the scenario:
1. P offers B shares via letter, states that offer is open until Sunday.
2. B posts acceptance letter Thursday.
3. B phones P on Friday to withdraw acceptance. Leaves answerphone message.
4. P opens B’s acceptance letter on Monday, then hears answerphone message.
The main question is whether B’s letter of acceptance or phone call withdrawing acceptance has been effectively communicated.
Note firstly that P is not obliged to keep the offer open until Sunday – he can withdraw it, provided he communicates this to B – Offord v Davies.
B posted his letter of acceptance – does the postal rule apply? Consider Adams v Lindsell – acceptance is binding once it is posted. You should recognise also that P commenced negotiations via post, meaning that post is a reasonable method of communication – Henthorn v Fraser. It does not matter that the letter arrived on Monday (remember that the offer expired on Sunday): when B posted the letter of acceptance on Thursday, a contract was formed.
However, P asked B to ‘let him know by Sunday’, which suggests that P excluded the postal rule in stating that acceptance must be actually received – Household Fire insurance v Grant, Bramwell LJ’s statement that offeror can exclude postal rule by requiring that communication be received. Also consider Holwell Securities v Hughes. Address the fact also that since Holwell, the courts have proven reluctant to uphold the postal rule.
If the postal rule applies, B’s change of mind is irrelevant because a contract was formed when he posted the letter. However, the fact that P reads/hears both of B’s messages almost simultaneously on Monday means that this would be an unreasonable outcome – remember the objective approach adopted by the courts in Scammell and Nephew v Ouston and Sudbrook Trading Estate v Eggleton. Also refer to Dunmore v Alexander – faster means of communication may be used to withdraw postal acceptance. It is important to note that this is not a binding decision in England. It is therefore unlikely that the court would rely on the postal rule to bring about an unfair and unreasonable result. Apply instantaneous communication rules in Entores v Miles Far East and Brinkibon to suggest that the telephone call prevails and that there is no contract. Finally, P is no worse off because he received the acceptance and rejection messages at the same time. It ultimately appears clear that there is no contract and B is not obliged to purchase the shares.