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OFFER AND ACCEPTANCE
There can be few contract exam papers which do not contain a question on offer and acceptance. Students will often maket his one of their banker questions, but you will need to make sure that you are prepared to deal with any of the forms in which a wuestion about offer and acceptance may be asked. The topics which are covered within this general heading are quiet varied, but are neverthless fairly predictable. General issues which will need to be understood include:
- The nature of an offer and an acceptance is an advertisement an offer? What if an acceptance does not match the offer precisely? The effect of a counter offer;
- The relationship between offer and acceptance on the one hand and agreement on the other the objective approach to determining the existence of a contract; and
- The differences between unilateral and bilateral contracts.
As will be seen from the question in this chapter, problems concerning the communication of offer and acceptance are often asked. In particular, students will need to be familiar with:
- The postal rule (Adams v. Lindsell) the types of communication to which it applies, and the situations where it does not apply;
- Isilence as acceptance the rule in Feitho use v Bindley, and possible exceptions to it;
- The problems, many of them unresolved by the courts, of electronic communications, such as faxes and e mail. Does the postal rule apply to them? If not, when and where do they take effect? And
- The rules governing revocation of an offer, in both bilateral and unilateral contracts can there be revocation once performance of a unilateral contract has started?
Finally, it should be remembered that a question involving offer and acceptance may also sometimes require you to touch on other issues. An example here is Question 3, which brings in intention to create legal relations. You might also find, however, that some offer and acceptance questions (though not the examples used here) will touch on issues like consideration, or mistake.
Students should be familiar with the following areas:
- The meaning of offer: the distinction from an invitation to treat
- The meaning of acceptance: the distinction from a counter offer, and possibility of an acceptance by conduct or silence.
- Subjective and objective approaches to agreement
- The differences between unilateral and bilateral contracts
- The postal rule and its limitations
- Revocation of offers and
- Recall of acceptance.
On 1 November, Albatross plc.(public limited company) sent a letter to Budgie Ltd., with whom the had been negotiating, offering them a contract to service all Albatrosss birdseed processors each month for the next five years at cost of £10,000 per annum. The letter said that Budgie should reply by return of post. Unfortunately, the letter contained an error in the address and was not delivered to Budgie until 6 November. Budgie replied at once accepting. This letter was posted at 11 am on 6 November. In the meantime on 4 November, Albatross had received an offer from Canary Ltd to do servicing work for £9,000 per annum. Albatross, having heard nothing from Budgie, telephoned Canary on 5 November and offered them the contract at £8,000. Canary accepted Albatross sent an e mail to Budgie on 6 November telling them that the offer of 1 November was withdrawn. This e mail was received on Budgies computer system at 10.45 on 6 November, but not read by anyone until 5 pm on the same day.
Advise Albatross, Budgie and Canary.
This question is of a common type, raising issues about the communication of offers and acceptances, and which of two parties is entitled to enforce a contract. On answering such a question, where the timing of events may be very important, it is a good idea to make a chronological plan for example, here:
1 Nov Albatross offer to Budgie, letter posted
4 Nov Canary offer to Albatross, £9,000
5 Nov Albatross counter offer to Canary, £8,000, accepted by Canary
6 Nov 1 Nov offer arrives 10.45 Albatrosss e mail withdrawing offer to Budgie 11.00 Budgies acceptances posted 5.00 Albatrosss e mail read.
This should make it easier to pinpoint the issues for discussion. Particular areas to be considered here are:
- Offers and counter offers
- The operation of the postal rule (Adams v. Lindsell (1818));
- The time of communication of electronic messages, such as e mails and
- The revocation of an offer
This problem raises the issue of whether Albatross is committed to one contract, or two. The answer to this will depend on the precise time at which each contracts was formed. This in turn depends on the point at which communications between the parties take effect, particularly acceptances and revocations of offers.
The English law on the formation of contracts has its centre the need for there to be an offer and a matching acceptance. The offer must set out, or refer to, all the important terms of the contract; the acceptance must indicate agreement to all these. If it does not do so, not only will it not be valid acceptance, but it will be regarded as a counter offer which prevents the original offer from being accepted later (Hyde v Wrench (1840)). An offer can generally, be withdrawn at any time before acceptance is complete.
In the problem, there are three offers, two of which are made by Albatross. One is contained in the letter to Budgie of 1 November, and the other in the phone call to Canary on 5 November (this is strictly speaking a counter offer). The third offer is made by Canary in the letter received by Albatross on 4 November. This offer is rejected by Albatrosss counter offer, and so need not be discussed further.
Which of the other two offers was accepted? In both cases, there was a purported acceptance. Albatrosss first offer is accepted by Budgie in the letter posted on 6 November. Canary accepts Albatrosss offer during their telephone conversation on 5 November. There seems no reason to doubt the effectiveness of this acceptance, so Albatross would appear to have made a binding contract for the servicing of their machines with Canary. Have they also made such a contract with Budgie?
The issue here is the time at which communications are effective when conducted by post or e mail. Looking first at Albatrosss offer to Budgie, this was posted on 1 November, but did not arrive until 6 November. Offers have to be actually communicated to the recipient to be effective, so this offer took effect on 6 November. Budgie posted a reply accepting on the same day. We are not told when this was received, but this may well not matter, if the special postal rule as regards acceptances applies.
The postal rule derives from the case of Adams v Lindsell (1818). In this case, a letter offering some wool for sale was sent to the plaintiffs, but unfortunately, as in the problem, it was misdirected and delayed. The plaintiffs posted a letter of acceptance as soon as they received the offer. After this letter was posted, but before it was delivered, the defendants had sold the wool elsewhere. The plaintiffs brought an action for non-delivery. The court decided that the acceptance should be regarded as having taken effect when posted. The main reason for adopting this rule was that of business efficiency. It was thought that business would be able to operate more effectively if, having posted an acceptance of a contract, they could then proceed on the basis that a valid contract existed immediately, rather than having to wait to receive confirmation that the acceptance had been delivered. Later cases have confirmed that the Adams v Lindsell rule should apply whenever it was reasonable for the offeror to expect the acceptance to be made by post (for example, Henthorn v Fraser (1892)). This expectation can be removed by express instructions from the offeror (as in Holwell Securuties v Hughes (1974) where a requirement for notice in writing displaced the postal rule) or be implicit in the means of communication (for example Quenerduaine v Cole (1883) where an offer by telegram was help to imply a requirement for an acceptance by equally speedy means).
From the facts given here there is no reason to say that the postal rule should be displaced. The offer was made through the post, and specifically asks for a reply by return of post. There is no indication that actual notice of acceptance was specified. What of the fact that the letter was delivered five days after posting? This was the result of the letter being wrongly addressed by Albatross, so that they should take responsibility for it. Indeed, the same had happened in Adams v Lindsell, so it is clear that, despite the fact that the acceptance was not sent until several days after they would have expected, the acceptance must be taken to have been effective at 11.00 am on the 6 November. If this were only relevant communication, then Albatross and Budgie would be bound to a contract created at that point. Albatross however, had tried to withdraw his offer at 10.45 on 6 November. The effectiveness of this attempted withdrawal must now be considered.
The first point to note is that the postal rule has no application here for two reasons. First, there is clear authority from the case of Byrne v van Tienhoven (1880) that the rule does not apply to revocation of offers. Secondly, the case of Entores v Miles Far East Communication (1995) established that the postal rule did not apply to communications by e mail.
If the postal rule does not apply, when exactly is an e mailed revocation effective? In particular for our purposes, does it need to be read by the recipient to be effective, or is it sufficient that it is received on his computer?
Two cases since Entores haye addressed this issue in respect of telexes. In The Brimnes (1975) the Court of Appeal agreed with the judge that the telex took effect when it was received on the recipients telex machine, provided that this was within office hours. In Brinkibon Ltd v Stahag Stahl (1983), Lord Wilberforce suggested a more flexible approach, looking at all the circumstances. On balance, it seems likely that the courts would say that Albatrosss e mail withdrawing his offer was effective at 10.45 on 6 November (assuming that 6 November was a normal working day).
If this is the answer given by the court, then albatross are in a good position. They have their contract at £8,000 with Canary, and have managed to escape from their contract with Budgie. Budgies only hope is to try to argue that the revocation of an offer by fax should not be effective until it is actually communicated. If that is so, then Albatrosss attempted revocation will be ineffective and Budgies acceptance will stand Albatross will then be in the position of having made contracts with both Budgie and Canary, and being unable to fulfil both of them. They run the risk of having to pay substantial damages for breaking one of the contracts. Canary are in the best position. Their contract was clearly formed on 5 November. They can stand aside and leave Albatross and Budgie to sort out.