Offer and Acceptance in Contract Law

Peter acquired a Degas painting. On 2nd May, he sent a telex message to Manjit that he was prepared to sell the Degas painting to her for £240,000, but that he "must receive an answer within seven days." Manjit replied immediately by telex, stating that she was willing and that she would pay for it in monthly instalments of £20,000 each.

On 3rd May, Manjit received a telephone message from Peter that he would prefer six monthly payments of £40,000 for the painting. The following day, Manjit sent a letter to Peter which stated, "I agree to pay monthly payments. Please arrange for the delivery of the painting on 10th May." Unfortunately, her letter reached Peter on 12th May.

On 11th May, in response to a magazine advertisement Manjit contacted the seller Victoria over the phone and left a message on her answering machine, stating that she would buy the Van Gogh painting for £201,000.

On 15th May, both Peter and Victoria arrived at Manjit's office, each claiming that she was contractually bound to buy their respective paintings. As Manjit had received a letter from her accountant that morning warning that her business was in some difficulty, she now states the she does not wish to buy either painting. Advise Manjit.

In English Law in order to form a contract, the following elements have to be present:

• A valid offer has been proffered by the first party to the other party or parties.

• The offer has been accepted unchanged by the second party or parties and this has been communicated to the offeror.

• There is an intention by all parties to create legal relations, when they enter into the contract and the parties have the capacity to contract.

• The promises made within the contract are for valuable consideration.

• The terms of the contract are certain.

An offer is defined as an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the "offeree". The "expression" referred to in the definition can have various forms, such as a letter, newspaper, fax, email, conduct (http://en.wikipedia.org/wiki/Offer_and_acceptance), etc., and the main criterion is that it has to perforce communicate the basis on which the offeror is prepared to contract.

The courts will judge the aspect of intention, referred to in the definition, objectively. In Smith v. Hughes it has been emphasized that the important thing is not a party's real intentions but how a reasonable person would view the situation (http://en.wikipedia.org/wiki/Offer_and_acceptance). This is attributable to the reason that in accordance with common sense neither party would wish to breach their side of the contract if it would make them culpable to damages.

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Acceptance is a final and unqualified expression of assent to the terms of an offer (http://en.wikipedia.org/wiki/Offer_and_acceptance). A defendant cannot claim that it was never his intention to be bound by the agreement if it is established during trial that his action served to communicate to the other party or parties that he had in fact agreed.

Assent may be exhibited in a variety of ways and one of them is by the signing of a contract or it might consist of a promise to pay someone if the latter performs certain acts and may be accepted by the requested conduct instead of a promise to do the act. The performance of the requested act confirms that the party has agreed to the terms of the offer.

What is required, without fail, is that there should be evidence that each of the parties had, from an objective perspective, engaged in conduct manifesting their assent. This requirement of an objective perspective gains importance in cases where one of the parties claims that an offer had not been accepted and thereby takes advantage of the performance of the other party. In such instances the test of whether a reasonable bystander would have perceived that the party has impliedly accepted the offer by conduct is relevant.

The rules of acceptance are:

• The acceptance must be communicated, this implies that depending on the construction of the contract, the acceptance may not have to come until the notification of the performance of the conditions in the offer, in as in Carlill v. Carbolic Smoke Ball Company (http://en.wikipedia.org/wiki/Offer_and_acceptance), where the defendants, the proprietors of a medical preparation called the carbolic smoke ball, issued an advertisement to the public, in which they offered to pay £ 100 to any person who contracted influenza after having used one of these smoke balls in a manner specified by them and for a specified period. However, it is important to note that this offer was unilateral or open to the whole world to accept. In the absence of such an unilateral offer advertisements are nothing more than an invitation to treat. In Partridge v. Crittenden it was held that the offer for sale of certain wild birds, which was illegal, was deemed to be, by the High Court as an invitation to treat and not offers for sale.

• An offer can only be accepted by the offeree (http://en.wikipedia.org/wiki/Offer_and_acceptance).

• An offer is not bound if another person accepts the offer on his behalf without his authorisation (http://en.wikipedia.org/wiki/Offer_and_acceptance) .

• It may be implied from the construction of the contract that the offeror has dispensed with the requirement of communication of acceptance (http://en.wikipedia.org/wiki/Offer_and_acceptance).

• If the offer specifies a method of acceptance then such acceptance must be made using a method that is no less effective than the method specified (http://en.wikipedia.org/wiki/Offer_and_acceptance).

• Silence cannot be construed as acceptance, as held in Felthouse v. Bindley(http://en.wikipedia.org/wiki/Offer_and_acceptance).

The power of acceptance is always terminated by rejection or counter offer by the offeree, revocation by the offeror prior to acceptance, lapse of time, debt or incapacity of the offeror or offeree.

In Carlill v. Carbolic Smoke Ball Company there was an advertisement that consumption of a smoke ball in the prescribed manner would protect the consumer from influenza. The plaintiff believing in this advertisement bought one of these carbolic balls and used it in the prescribed manner and for the prescribed period but nevertheless contracted influenza. The court held that the plaintiff was entitled to recover the promised amount. However, the acceptance must be communicated and before acceptance, an offer can be withdrawn.

In our present problem, Peter an art dealer was in possession of a Degas Painting which he offered to sell to Manjit, another art dealer for £ 240,000/-, with the condition that acceptance had to be communicated to him within seven days. To this Manjit replied by telex that she was willing to purchase the painting and that she would pay in monthly installments of £20,000/-. Manjit’s telex message cannot be considered to constitute acceptance since she had made a counter offer to Peter.

From the above it is evident that legally, Manjit had made a counter offer to Peter and not an acceptance of his offer according to the provisions of the contract act. An offeror can revoke an offer before it has been accepted, but such revocation has to be communicated to the offeree.

After receiving Manjit’s counter offer, Peter again made an offer to pay for the painting by six monthly installments of £ 40,000/- each by telephone on the 3^rd of May. Manjit indicated her acceptance by a letter, which she posted to Parker on the 4^th of May. The letter was correctly stamped and addressed but nevertheless it was received by Peter only on the 12^th of May.

An offer will remain in force until:

• First, its revocation by the offeror any time before acceptance and such revocation is communicated to the offeree.

• Second, it is rejected by the offeree due to a counter offer.

• Third, the offer lapses due to the expiry of a stipulated time limit.

• Fourth, a contract condition has failed.

• Finally, if the offeror has expired and notice of such demise is received by the offeree.

In Hyde v Wrench , Wrench offered to sell his property for £1200 to Hyde. When Hyde rejected that offer, Wrench made a further offer to sell for £1000. Hyde replied that he would buy the property if offered for £950, but Wrench refused to sell for this amount. Subsequently, Hyde wrote to Wrench that he would buy this property for £1000. The Court of Chancery held that Hyde had rejected both offers made by Wrench and that an offer, once rejected, cannot be revived.

Accordingly, there was no contract in existence and consequently, the action was deemed to have failed. These facts clearly indicate that Hyde made a counter offer and also tried to accept an offer which he had previously rejected.

Therefore, in accordance to the case law discussed above, an offer which was rejected in the first instance by the offeree cannot be accepted later on in order to create a legally binding contract. In our present case Peter made an offer to Manjit for selling the painting for a specified amount. Manjit made a counter offer in which she offered to pay by installments.

Peter was not agreeable to the number of installments and accordingly, he made another in which the number of installments was reduced.

Manjit accepted this offer but according to the Hyde v Wrench decision, Manjit cannot rely on the original offer since she made a counter offer subsequently, therefore there is no valid contract between Peter and Manjit. If the offeree rejects the offer, the offer has been destroyed and cannot be accepted in the future.

Even otherwise, she had posted her letter of acceptance on the 4^th of May, which reached Peter only on the 12^th of May, in which she had made a time stipulation for the delivery of the painting by the 10^th of May.

However, since the letter, which was correctly stamped and addressed, was received only on the 12^th of May, i.e. after the 10^th of May by Peter, the contract is invalid. Consequently, Manjit is under no legal obligation to purchase the Degas painting from Peter.

In respect of Victoria, on the 11^th of May, Manjit saw a magazine advertisement in which Victoria had offered to sell a Renoir painting for the first offer above £200,000. Manjit contacted Victoria over the phone and left a message on her answering machine, stating that she would buy this painting for £201,000.

The legal aspects to be considered are whether an advertisement constitutes a valid offer or not. Advertisements are termed as an invitation to treat and hence they do not constitute an offer, but only an indication of a person’s willingness to negotiate a contract.

In Pharmaceutical Society of Great Britain v Boots , Boots were prosecuted for selling drugs in the absence of a qualified pharmacist. The procedure was that a customer, on entering the store was given a shopping basket and this customer after having selected which medicines to purchase, would place them in this basket and take them to the cash desk.

In the vicinity of the cash desk a registered pharmacist would be available. The statute has made it unlawful to sell any listed poison unless the sale was effected under the supervision of a registered pharmacist.

The Plaintiffs allegation was that the display of goods was tantamount to an offer which could be deemed to have been accepted when the customer put these drugs in the shopping basket, therefore, if the drugs were poisons then their sale took place at an instant of time which was prior to the pharmacist’s intervention.

The Queens Bench and the CA rejected this argument, because they held that the offer to purchase originated from the customer only when the article was placed in the shopping basket and that the defendants had the choice to accept or reject this offer. Whenever, this purchase offer was accepted it was at the cash desk, where a registered pharmacist was available.

Therefore, the courts held that there was no breach of the Act. In Harvey v. Facey, an indication by the owner of the property that he might be interested in selling at a certain price was regarded as an invitation to treat (ITT).

Similarly, in Gibson v. Manchester County Council the words “may be prepared to sell’ were held to be a notification of price and therefore not a distinct offer. The courts have taken a consistent approach in respect of the identification of invitation to treat, as compared with offer and acceptance, in common transactions. The display of goods for sale, either in a shop window or on the shelves of a self service store, is ordinarily treated as an invitation to treat and not an offer, this was held by the judges in Fisher v. Bell.

In Entores Ltd v. Miles Far East Corporation the contract was entered into when and where the acceptance was received. Lord Denning confirmed that the same principles also applied to acceptances by telephone. In respect of answering machines and voice mail the maximum delay for receipt of acceptance would be the next working day. Faulty hardware, lack of link & paper or slipshod business practices, such as not checking the fax for days, does not stop or delay the acceptance of an offer.

In our case Manjit in response to the advertisement given by Victoria for sale of the painting, placed a message in Victoria’s answering machine stating that she would buy the painting for £ 201,000/-. Victoria’s magazine advertisement constitutes an invitation to treat and the message left by Manjit constitutes an offer to purchase the painting. This message was left on the answering machine by Manjit on the 11^th of May.

Victoria did not respond to this message but went on the 15^th of May to Manjit’s office and insisted that Manjit should purchase the painting as there was a contract between them. Since, in this case there is no acceptance by Victoria, there is no binding contract. Therefore, Manjit need not buy the painting from Victoria. In this manner Manjit is not under any legal obligation, whatsoever, to perform these contracts as demanded by Peter and Victoria.

Bibliography

• P.S Atiyah ‘Consideration: a restatement’ in Essays on Contract, Oxford University Press, 1986.

• P.S Atiyah ‘An introduction to the law of contract’ 5^th ed., Clarendon Press Oxford, 1995.

• H.G Beale, W.D Wishop, M.P furmston, ‘Contract: cases and materials’ 4^th ed., Butterworth, 2000.

• M. Cope ‘Duress, undue influence and unconscientious bargains’, Monash studies in law, The law book company Ltd, 1985.

• E. McKendrick ‘Contract law’, 4^th ed., Palgrave law masters, 2001.

• G.H Treitel ‘The law of contract’ 10^th ed., Sweet and Maxwell, 1999.