WEEK 2 & 3

TOPIC: OFFER & ACCEPTANCE

 Legislation to consider: Contracts Act 7 of 2010 Sections 3-10

The law of contract is about the enforcement of promises. Not all promises are enforced
by courts. To enforce a set of promises, or an agreement, courts look for the presence of
certain elements. When these elements are present a court will find that the agreement is
a contract. This is a somewhat artificial process. To a certain extent, courts will find that
some agreements simply look like contracts and they then reason backward – and find the
elements necessary to form a contract. As a student you need to be aware of the elements
required to constitute an enforceable contract.
To say that we have a contract means that the parties have voluntarily assumed liabilities
with regard to each other. The process of agreement begins with an offer. For a contract
to be formed, this offer must be unconditionally accepted. The law imposes various
requirements as to the communication of the offer and the acceptance. Once there has
been a valid communication of the acceptance, the law requires that certain other elements
are present.
If these elements are not present, a court will not find that a contract exists between the
parties. In the absence of a contract, neither party will be bound to the tentative promises
or agreements they have made. It is thus of critical importance to determine whether or
not a contract has been formed.

The offer

Essential reading

 Mc Kendrick, Chapter 3: ‘Offer and acceptance’ – Section 3.1 ‘Offer and invitation
to treat’ to Section 3.7 ‘Acceptance’.
 Poole, Chapter 2: ‘Agreement’ – Section 1 ‘Subjectivity versus objectivity’ to
Section 4 ‘Acceptance’.
Self-Assessment questions
I. How were the facts of Carlill v Carbolic Smoke Ball Company different from
the usual situation involving an advertisement?
II. How does an invitation to treat differ from an offer?
III. Does a railway or airline timetable constitute an offer?
IV. How do courts treat the display of goods in a shop window differently from a
display in an automated machine?

Communication of the offer

Essential reading
 Mc Kendrick, Chapter 3: ‘Offer and acceptance’ – Section 3.9 ‘Acceptance in
ignorance of the offer’.
 Poole, Chapter 2: ‘Agreement’ – Section 4C ‘Acceptance must be made in
response to the offer’.

To be effective an offer must be communicated: there can be no acceptance of the offer

without knowledge of the offer. The reason for this requirement is that if we say that a
contract is an agreed bargain, there can be no agreement without knowledge. There can
be no ‘meeting of the minds’ if one mind is unaware of the other. Stated another way, an
acceptance cannot ‘mirror’ an offer if the acceptance is made in ignorance of the offer.
The authorities are, however, divided on the need to communicate the offer. In
Gibbons v Proctor (1891) a policeman was allowed to recover a reward when he sent
information in ignorance of the offer of reward. The better view is thought to be
expressed in the Australian case of R v Clarke (1927):

Read the case of Tinn v Hoffman (1873) which deals with the problem of cross-offers.

Acceptance of the offer

Essential reading
 McKendrick, Chapter 3: ‘Offer and acceptance’ – Section 3.7 ‘Acceptance’.
 Poole, Chapter 2: ‘Agreement’ – Section 4 ‘Acceptance’.

For a contract to be formed, there must be an acceptance of the offer. The acceptance
must be an agreement to each of the terms of the offer. It is sometimes said that the
acceptance must be a ‘mirror image’ of the offer.
The acceptance can be by words or by conduct. See Brogden v Metropolitan Railway
Company (1871), where the offeree accepted the offer by performance.
Acceptance occurs when the offeree’s words or conduct give rise to the objective inference
that the offeree assents to the offeror’s terms: Day Morris Associates v Voyce (2003).
If the offeree attempts to add new terms when accepting, this is a counter-offer and not
an acceptance. A counter-offer implies a rejection of the original offer, which is thereby
destroyed and cannot subsequently be accepted. See Hyde v Wrench (1840).
Where the offeree queries the offer and seeks more information, this is neither an
acceptance nor a rejection and the original offer stands. See Stevenson, Jacques & Co v
McLean (1880).

Communication of the acceptance

Essential reading
McKendrick, Chapter 3: ‘Offer and acceptance’ – Section 3.8 ‘Communication of the
acceptance’, and Section 3.10 ‘Prescribed method of acceptance’ to Section 3.14
‘Termination of the offer’.

The general rule is that acceptance is not effective until it is communicated to the offeror.
This is sometimes expressed by saying that the acceptance cannot be made through
silence. See Felthouse v Bindley (1862). The offeror cannot waive communication if that
would be to the detriment of the offeree. This rule is not, however, an absolute rule (see
Vitol SA v Norelf Ltd (1996)).
Self-Assessment Questions
I. What was the detriment to the offeree in Felthouse v Bindley?
II. Could an offeror use this case to avoid liability?

Exceptions to the need for communication of the acceptance

Essential reading
McKendrick, Chapter 3: ‘Offer and acceptance’ – Section 3.12 ‘Exceptions to the rule
requiring communication of acceptance’.
Poole, Chapter 2: ‘Agreement’ – Section 4D ‘Communication of the acceptance to the
offeror’.

As we saw above, the general rule is that for an acceptance to be valid it must be
communicated to the offeror. It must be brought to the offeror’s attention. To this
general rule there are certain exceptions – situations where the law does not require
communication of the acceptance.
Where the offeror has waived the requirement of communication
This is what occurred in Carlill v Carbolic Smoke Ball Co.
A weakness to this exception is that it appears to be of limited application where there is
a bilateral contract. In Felthouse v Bindley, the argument can be made that the uncle had
clearly waived any need for the nephew to communicate his acceptance of the offer and
yet the court held that the offer had not been accepted.
Unilateral offers
In the case of Carlill v Carbolic Smoke Ball Company (1893) it was established that full
performance is the acceptance of the offer and there is no need to communicate the
attempt to perform. Communication of the acceptance is waived because it would be
unreasonable of the offeror to rely on the absence of a communication which would
have been superfluous or which no reasonable person would expect to be made.
The other principal exception is the postal acceptance rule.

The postal acceptance rule

The exception was devised in the cases of Adams v Lindsell (1818) and Household Fire
Insurance v Grant (1879).
These decisions establish the ‘postal acceptance rule’, that is, that acceptance is complete
when posted. This puts the risk of delay and loss on the offeror. It is important to
understand that the rule is an exception to the general rule requiring communication.

The postal acceptance rule will only prevail in certain circumstances. It will prevail where
use of the post was reasonably contemplated by the parties or stipulated by the offeror.
See Household Fire Insurance v Grant (1879).
It may be that the post is the only reasonable form of communication available. See
Henthorn v Fraser (1892).
The postal acceptance rule will not allow a contract to be concluded by posting the
acceptance where the letter is incorrectly addressed by the offeree. The offer may accept
the risk of delay occasioned by the post but not the carelessness of the offeree: LJ
Korbetis v Transgrain Shipping BV (2005).

For email and fax communications see the case of , Allianz Insurance Co-Egypt v Aigaion
Insurance Co SA (2008)).

Assignment
 What reasons have been given by the courts for the postal acceptance rule?
 In what circumstances will the postal acceptance rules not operate?
 When, if ever, can an offeror waive the need for communication?

Method of acceptance

Essential reading
McKendrick, Chapter 3: ‘Offer and acceptance’ – Section 3.10 ‘Prescribed method of
acceptance’.

Sometimes an offeror may stipulate that acceptance is to be made using a specific

method. See Eliason v Henshaw (1819) and Manchester Diocesan Council for Education V
Commercial and General Investments (1970).
In other cases, the required method for communicating acceptance may also be inferred
from the making of the offer. See Quenerduaine v Cole (1883).
The problem that arises is this: if the offeree uses another method of acceptance, does
this acceptance create a contract? See Manchester Diocesan Council for Education V
Commercial and General Investments (1970).

Self-assessment questions
I. Where a method of acceptance has been prescribed by the offeror: a. May the
offeree choose to use another (equally effective) method of communicating his
acceptance?
II. What does equally effective mean?
III. Whose interest should prevail?
IV. Can an offer made by fax be accepted by letter?

The end of an unaccepted offer

Essential reading
McKendrick, Chapter 3: ‘Offer and acceptance’ – Section 3.14 ‘Termination of the offer’.

Offers do not exist indefinitely, open for an indeterminate time awaiting acceptance.
Indeed, some offers may never be accepted. There is no legal commitment until a contract
has been concluded by the acceptance of an offer.

Change of mind
Because there is no legal commitment until a contract has been formed, either party may
change their mind and withdraw from negotiations any time before there is acceptance
(Payne v Cave (1789)). See Offord v Davies (1862).
In situations where an offeror has stipulated that the offer will be open for a certain time
period, he or she can nevertheless withdraw the offer within this time period. This will
not be the case, however, where the offeror is obliged (by a separate binding collateral
contract) to keep the offer open for a specified period of time: Routledge v Grant
(1828).
If a time has been set by which to accept then the offer will automatically lapse at the
end of that period.
For the revocation of an offer to be effective, there must be actual communication of the
revocation. See Byrne v van Tienhoven (1880).
It is not necessary for revocation to be communicated by the offeror. Communication to
the offeree through a reliable source is sufficient. See Dickinson v Dodds (1876).
If a condition in the offer is not fulfilled, the offer terminates
Where the offer is made subject to a condition which is not fulfilled, the offer terminates.
The condition may be implied. See Financings Ltd v Stimson (1962). In this case, the
offeror purported to accept an offer to purchase a car after the car had been badly
damaged.

Death: if the offeror dies, the offer may lapse

Again, a point on which the cases divide. On the one hand, Bradbury v Morgan (1862)
158 ER 877 (Ex) held that the deceased offeror’s estate was liable on the offer of a
guarantee after the death of the offeror. However, obiter dicta in Dickinson v Dodds
(1876) state that death of either party terminated the offer because there could be no
agreement. The best view is probably that a party cannot accept an offer once notified of
the death of the offeror but that in certain circumstances the offer could be accepted in
ignorance of death. The death of an offeree probably terminates the offer in that the
offeree’s personal representatives could not purport to accept the offer.
Lapse of an offer
The offeror may set a time limit for acceptance; once this time has passed the offer
lapses. In many cases, the offeror can revoke the offer before the time period lapses
provided that the offer has not been accepted. See Offord v Davies (1862).
In cases in which no time period is stipulated for the offer, an offeree cannot make an
offeror wait forever. The offeror is entitled to assume that acceptance will be made
within a reasonable time period or not at all. What a reasonable time period is will
depend upon the circumstances of the case. See Ramsgate Victoria Hotel v Montefiore
(1866).

Self-assessment questions
 What is an offer?
 What is the different between an offer and other communications?
 How do you know when an offer has been communicated?
 What is (and is not) a valid acceptance?
 What is the necessity of communicating the acceptance?
 What are the exceptions are to the necessity of communicating the acceptance?
 What occurs when the offeror stipulates a certain method of acceptance?
 What happens to an offer which is not accepted?
 When does an offer expire?