Agreement (Offer and Acceptance) (OCR A-Level Law): Revision Notes
Agreement (Offer and Acceptance)
Introduction to contract formation
Understanding how contracts are formed is fundamental to contract law. A valid contract requires four essential elements to be formed:
- An agreement (comprising offer and acceptance)
- An intention to create legal relations
- Consideration
- Privity of contract
This note focuses on the first element: agreement through offer and acceptance.
The most common type of contract is a bilateral offer, where two parties agree to perform certain services for a specific price. This differs from unilateral offers where only one party makes a promise without requiring reciprocal agreement from a named party.
The offer
What is an offer?
An offer is an expression of willingness by one party to enter into a contract on specific terms, made with the intention that it becomes legally binding once accepted.
The person making the offer is called the offeror, while the person receiving the offer is the offeree.
Key characteristics of a valid offer:
- The offeror states (verbally or in writing) they will be bound by the terms
- Shows intention to create legal relations
- No contract forms until the offeree accepts
Simple Offer Examples
Both of the following statements constitute valid offers:
- "I'll sell you my car for £5000"
- "Do you want to buy my car for £5000?"
In each case, the speaker is expressing willingness to be bound by specific terms (selling a car for £5000) once accepted.
Invitation to treat distinguished from offer
An invitation to treat represents the early stages of contractual negotiation. It is not an offer but rather an invitation for others to make offers.
Critical Distinction: Offer vs Invitation to Treat
Understanding this distinction is crucial because:
- An offer can lead to a binding contract
- An invitation to treat cannot be accepted to form a contract
- Invitations to treat allow for negotiation without legal commitment
This distinction protects both parties during the negotiation stage and prevents unintended legal obligations.
Goods on display in shops or online
The display of goods in a shop or online is an invitation to treat, not an offer.
Legal principle: If displays were offers, simply picking up an item would constitute acceptance, creating a binding contract. This would be impractical and unfair to retailers.
How it works:
- Shop displays goods (invitation to treat)
- Customer takes item to till (customer makes offer to buy)
- Shop owner accepts or rejects the offer
Key case: Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd (1953)
- Facts: The court examined whether controlled drugs displayed in a self-service pharmacy were offers (making their sale an offence) or invitations to treat
- Legal principle: The display was an invitation to treat. The contract formed when goods were presented at the till, where a qualified pharmacist could supervise the transaction
- Significance: Established that goods on display are not offers
Key case: Fisher v Bell (1961)
- Facts: A shopkeeper displayed a flick knife in his shop window. Statute prohibited 'offering' such items for sale
- Legal principle: The display was an invitation to treat, not an offer for sale
- Significance: Confirmed that window displays are invitations to treat, even in criminal law contexts
Advertisements in newspapers, magazines and other media
Advertisements are generally invitations to treat, not offers.
Legal principle: The person responding to an advertisement makes the offer, which the advertiser can then accept or reject.
Key case: Partridge v Crittenden (1968)
- Facts: Partridge placed an advertisement in a newspaper offering wild birds for sale, which was a criminal offence
- Legal principle: The advertisement was an invitation to treat, therefore no offer to sell had been made
- Significance: Confirmed the general rule for advertisements
Exception: unilateral offers
A unilateral offer occurs when only one party makes a promise to fulfil contractual obligations without securing a reciprocal agreement from a specific named party.
Common Examples of Unilateral Offers
Typical scenarios include:
- Rewards for finding a lost cat
- Rewards for information leading to an arrest
- Competition prizes for completing specific tasks
When an advertisement promises a reward, the law treats it as a unilateral offer, not an invitation to treat.
Key case: Carlill v Carbolic Smoke Ball Co. (1893)
- Facts: The company advertised that they would pay £100 to anyone who used their product correctly but still caught influenza. Mrs Carlill used the product as directed, caught flu, and sued for the £100
- Legal principle: The advertisement was a unilateral offer. The company's promise to pay was enforceable once the conditions were met through performance
- Significance: Established that reward advertisements are binding unilateral offers, not mere invitations to treat
Termination of offers
An offer can be terminated in four ways before acceptance. Understanding these termination methods is essential because once an offer is terminated, it can no longer be accepted to form a binding contract.
Counter-offer
A counter-offer occurs when an offeree proposes different terms from the original offer.
Effect of a Counter-Offer
A counter-offer has two critical legal consequences:
- Rejects and terminates the original offer
- Creates a new offer that the original offeror can accept or reject
Once a counter-offer is made, the original offer is destroyed and cannot be revived by later attempting to accept it.
Key case: Hyde v Wrench (1840)
- Facts: Wrench offered to sell his farm for £1000. Hyde counter-offered £950, which Wrench rejected. Hyde then tried to accept the original £1000 offer, but Wrench had sold to another party
- Legal principle: Hyde's counter-offer of £950 terminated the original offer of £1000. The original offer could no longer be accepted
- Significance: Established that counter-offers destroy original offers
Distinction: Mere enquiries about terms do not constitute counter-offers.
Key case: Stevenson v McLean (1880)
- Facts: McLean offered to sell iron to Stevenson, agreeing price and quantity. Stevenson asked about the possibility of four months' credit instead of cash payment. Hearing nothing, Stevenson sent a letter accepting the original terms
- Legal principle: The enquiry for credit was merely a request for information, not a counter-offer. The original offer remained open for acceptance
- Significance: Distinguished between counter-offers (which reject the original) and simple enquiries (which do not)
Modern Application: eBay Negotiations
On eBay, when a seller lists an item with "Buy it now or best offer", a buyer can propose a lower price. The seller can:
- Accept this offer (contract formed)
- Make a counter-offer with a higher price (original buyer offer terminated)
If the seller counter-offers, the buyer's original offer is terminated and cannot later be accepted.
Death of either party
The death of either the offeror or offeree terminates the offer.
Lapse of time
An offer lapses after:
- Any time limit specified in the offer expires, or
- A reasonable period has passed if no time limit was stated
Key case: Ramsgate Victoria Hotel v Montefiore (1866)
- Facts: Montefiore offered to buy shares in the hotel. Six months later, the hotel owners 'accepted' the offer, by which time the share price had fallen
- Legal principle: Although not formally withdrawn, the offer had lapsed after a reasonable time given the nature of share purchases
- Significance: Established that offers lapse after a reasonable time even without express withdrawal
Revocation
An offer can be revoked (withdrawn) at any time before acceptance.
Key case: Dickinson v Dodds (1867)
- Facts: Dodds offered to sell his house to Dickinson, promising to keep the offer open until Friday. On Thursday, Dodds sold the house to a third party and communicated this to Dickinson. On Friday morning, Dickinson attempted to accept the original offer
- Legal principle: An offeror can withdraw an offer at any time before acceptance, even if they promised to keep it open (unless consideration was provided for that promise)
- Significance: Established the freedom to revoke offers before acceptance
Communication of offers
Fundamental Rule of Offer Communication
An offeree cannot accept an offer they have not received or are unaware of.
This principle ensures that both parties are genuinely aware of and agreeing to the same terms.
Key case: Taylor v Laird (1856)
- Facts: Taylor commanded Laird's ship but resigned from command and worked as an ordinary crew member. Upon returning to England, Taylor tried to claim wages for his work
- Legal principle: Taylor could not claim because he had not communicated his offer to work as crew. Without communication, no contract existed
- Significance: Established that offers must be communicated to be valid
Acceptance of an offer
For a contract to form, the offeree must validly accept the offer and communicate that acceptance to the offeror. Acceptance transforms an offer into a binding agreement.
Requirements for valid acceptance
Acceptance must satisfy three essential requirements to create a binding contract:
- Mirror the offer and be certain in its terms
- Not change the terms of the offer (otherwise it becomes a counter-offer)
- Be communicated properly to the offeror
Key case: Sudbrook Trading Estate v Eggleton (1983)
- Established that acceptance must be certain and match the offer exactly
Acceptance must be unconditional
Acceptance cannot impose new conditions or vary the original terms.
Principle: As established in Hyde v Wrench (above), conditional acceptance operates as a counter-offer, rejecting the original offer.
However, requesting information does not amount to conditional acceptance, as shown in Stevenson v McLean (above). The key distinction is between:
- Asking questions about the terms (permissible)
- Attempting to change the terms (creates a counter-offer)
Battle of the forms
In commercial contracts, businesses often use standard form contracts containing their preferred terms and conditions.
The problem: When two businesses contract using different standard forms, which terms apply if there is a conflict?
Key case: Butler Machine Tool Co. Ltd v Ex-Cell-O Corp. (1979)
- Facts: Butler's standard form included a price variation clause. Ex-Cell-O accepted the offer on their own standard form with conflicting terms and no price variation clause
- Legal principle: Lord Denning controversially suggested that where standard forms conflict, courts should replace contested terms with reasonable implied ones
- Significance: Highlighted the practical difficulties when competing standard forms clash
Exam Guidance: Analyzing Battle of the Forms
In problem questions involving business contracts, examine which party's terms were in the final acceptance, as these typically govern the contract.
The general rule: the last set of terms communicated before acceptance usually prevails.
Rules of communication and acceptance
General principle
Acceptance must be communicated to the offeror for a contract to form. Only the offeree can accept an offer.
Critical Rule: Silence and Acceptance
Silence does not constitute acceptance.
An offeror cannot impose a contract by stating "if I don't hear from you, I'll assume you accept."
Method of acceptance
Acceptance can generally be made in any form, including:
- Conduct (as in Carlill v Carbolic Smoke Ball Co.)
- An agreed method specified in the offer
If the offer stipulates a specific method of acceptance, that method must be followed for the acceptance to be valid.
The postal rule
The postal rule is an important exception to the general communication requirement.
Key case: Adams v Lindsell (1818)
- Facts: Lindsell wrote to Adams offering wool and requiring acceptance by post. The letter was incorrectly addressed, causing delay. Adams accepted and posted the letter the same day, but Lindsell had already sold the wool to another party
- Legal principle: The contract formed when the acceptance was posted, not when received by the offeror
- Significance: Established the postal rule—acceptance by post is effective upon posting
Application of the Postal Rule
The postal rule has important limitations:
- The rule only applies where using the post is reasonable or agreed
- It can be excluded by the terms of the offer
- It creates a binding contract at the moment of posting, even if the letter is lost or delayed
Key case: Holwell Securities v Hughes (1974)
- Established that if the contract terms require acceptance to be communicated before a contract forms, the postal rule does not apply
Modern developments: electronic communications
The postal rule's relevance has diminished with modern communication methods.
Recent High Court decisions have considered its application to electronic communications:
Pretty Pictures v Quixote Films Ltd (2003):
- Principle: Email exchanges do not amount to a binding contract where parties intended their agreement to be concluded by post
Greenclose v National Westminster Bank plc (2014):
- Principle: On balance, emails should not be subject to an equivalent of the postal acceptance rule
Electronic Commerce Directive 2000:
- Where contracts are formed electronically, an offer is made when a consumer sends an order
- An acknowledgment screen typically constitutes acceptance
Exam Guidance: Electronic Communications
When analyzing scenario questions involving electronic communications:
- Consider whether the parties intended to use the postal rule
- Assess whether it was reasonable in the circumstances
- Remember that modern courts generally prefer the general rule of actual communication for emails and instant messages
Rules of revocation
Revocation means withdrawal of an offer. The following rules govern when and how offers can be withdrawn.
Unilateral offers cannot be withdrawn during performance
Protection for Unilateral Offer Performance
Once someone has begun performing under a unilateral offer, the offeror cannot withdraw the offer while performance is ongoing.
This rule prevents unfairness where someone has invested time and effort based on the promise.
Key case: Errington v Errington and Woods (1952)
- Facts: A father bought a house for his son and daughter-in-law to live in, promising to transfer the title if they paid off the mortgage. The father died, and his estate wanted possession of the house
- Legal principle: The father's unilateral promise could not be withdrawn while the couple were in the process of performing (paying the mortgage)
- Significance: Established that unilateral offers cannot be revoked once performance has begun
Offers can be withdrawn before acceptance
Key case: Routledge v Grant (1823)
- Facts: Grant offered to sell his house, stating the offer would remain open for six weeks. Grant withdrew the house from sale before the six weeks expired
- Legal principle: Without acceptance, Grant was entitled to revoke the offer, even within the six-week period
- Significance: Confirmed that offers can be withdrawn at any time before acceptance (unless consideration was given to keep the offer open)
Revocation must be communicated
Timing is Critical for Revocation
Revocation is only effective when it is communicated to the offeree. A letter of revocation sent but not yet received does not terminate the offer.
This means acceptance can still create a binding contract before revocation is received.
Key case: Byrne v Van Tienhoven (1880)
- Facts:
- 1 October: Van Tienhoven wrote to Byrne offering to sell goods
- 8 October: Van Tienhoven wrote to Byrne revoking the offer
- 11 October: Byrne received the first letter and accepted by telegram
- 15 October: Byrne confirmed acceptance by letter
- 20 October: Byrne received the revocation letter
- Legal principle: The revocation was received after Byrne's acceptance on 11 October. The postal rule applied to the acceptance, creating a binding contract before the revocation was communicated
- Significance: Established that revocation must be communicated to be effective
Third-party communication of revocation
Revocation does not need to come directly from the offeror, but if communicated by a third party, that party must be reliable and known to both parties.
Key case: Dickinson v Dodds (1876)
- Facts: Dodds offered to sell houses to Dickinson, with the offer to remain open for two days. Berry, a reliable mutual acquaintance, informed Dickinson that Dodds had revoked the offer. Dickinson quickly attempted to accept
- Legal principle: An offeror does not need to revoke an offer personally. A reliable third party or agent known to both parties can communicate the revocation
- Significance: Established that third-party communication of revocation is valid if the third party is reliable
Intention to create legal relations
Both parties must intend to create legal relations (ITCLR) for a contract to be enforceable. Courts will only enforce agreements that require legal support, not gratuitous or social promises.
Distinguishing enforceable and non-enforceable agreements
Example 1: Social Arrangement
Nigel promises to meet his girlfriend Robyn at the gym at 6 p.m. Robyn agrees. Nigel stays home to watch TV instead.
Analysis: This social arrangement likely lacks intention to create legal relations. Courts would not enforce it as the parties did not intend legal consequences for non-performance.
Example 2: Commercial Transaction
Nigel agrees to buy Robyn's mobile phone for £100. The next day he changes his mind.
Analysis: This commercial transaction likely involves intention to create legal relations. Courts might enforce it as a binding contract because it involves an exchange of value in a commercial context.
Domestic and commercial contracts
Contract law applies a rebuttable presumption to determine intention to create legal relations:
Domestic and Social Agreements
- Presumption: No intention to create legal relations
- Effect: The party claiming a contract exists must prove there was intention
- Examples: Family arrangements, social engagements, friendly agreements
The burden of proof is on the person claiming the agreement should be legally enforceable.
Commercial or Business Agreements
- Presumption: There is intention to create legal relations
- Effect: The party claiming no contract exists must prove there was no intention
- Examples: Business transactions, employment contracts, commercial dealings
The burden of proof is on the person claiming the agreement should not be legally enforceable.
Exam Guidance: Applying ITCLR
In scenario questions:
- Identify whether the agreement is domestic or commercial
- This determines which presumption applies
- Consider who bears the burden of proof to rebut it
- Look for evidence to overcome the presumption (e.g., written contracts in domestic settings, or "binding in honour only" clauses in commercial settings)
Summary
Key Points to Remember:
Formation of Contracts:
- A contract requires a valid offer followed by valid, unconditional acceptance
- Distinguish between offers (which can be accepted) and invitations to treat (which cannot)
Termination of Offers:
- Offers can be terminated by counter-offer, death, lapse of time, or revocation
- A counter-offer destroys the original offer
- Revocation must be communicated to be effective
Acceptance Requirements:
- Acceptance must mirror the offer, be unconditional, and be properly communicated
- The postal rule states acceptance is effective when posted, not received
- Modern electronic communications generally do not follow the postal rule
Unilateral Offers:
- Cannot be revoked during performance
- Reward advertisements are typically unilateral offers
Intention to Create Legal Relations:
- Both parties must intend to create legal relations for an enforceable contract
- Presumptions apply: no ITCLR for domestic agreements; ITCLR exists for commercial agreements
Highlighted Key Terms:
- Offer: Expression of willingness to contract on specific terms with intention to be legally bound upon acceptance
- Invitation to treat: Early-stage negotiation inviting others to make offers, not creating binding obligations
- Bilateral offer: Two parties agreeing to perform services for a specific price
- Unilateral offer: One party promising to fulfil obligations without requiring reciprocal agreement from a named party
- Counter-offer: Proposal changing the original offer's terms, which rejects and terminates that original offer
- Revocation: Withdrawal of an offer before acceptance
- Intention to create legal relations (ITCLR): The parties' intention to form a legally enforceable agreement
Critical Cases:
- Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd (1953): Goods on display are invitations to treat
- Carlill v Carbolic Smoke Ball Co. (1893): Reward advertisements are unilateral offers
- Hyde v Wrench (1840): Counter-offers terminate original offers
- Adams v Lindsell (1818): The postal rule—acceptance effective when posted
- Errington v Errington and Woods (1952): Unilateral offers cannot be revoked during performance