Acceptance in Contract Law - Lecture

Overview of Basic Principles

The purpose of this chapter is to grasp the concept of acceptance, which is in simple terms the acceptance of the offer.  This is of course a deceptively simplistic overview of acceptance, as there are many different forms of acceptance, and a variety of scenarios within which acceptance may be found.  However, in brief terms: in order for a contract to be formed, the offer must be accepted, e.g. I accept your offer of £1,000 in exchange for my car.  Acceptance represents the meeting of the minds of the parties to the contract - both agree to exchange something for the other (payment, services, goods, etc.).  it is important that you are able to distinguish between the different rules and principles governing acceptance, and under which circumstances each rule will apply. 

Principle 1: Acceptance must be unequivocal

This essentially means that there must be nothing left to be negotiated by the parties.  This is a simple principle, which in fact ties in with Principle 2 below.

Principle 2: Acceptance must mirror the offer

The acceptance must correspond exactly with the offer in order to be valid and form a binding contract.

The offeree cannot accept an offer and add further terms while accepting.  For example, A offers to sell 100 books to B for £1000.  B accepts the offer but adds that A must deliver the books at no extra cost.  This does not mirror the offer because it did not initially include the free delivery.  This is not valid acceptance because it does not mirror the offer.  It is a counter offer which can then be accepted or rejected by the original offeror, or met with a further counter offer.  The parties can continue to make counter offers until a consensus has been reached.

Hyde v Wrench [1840] 3 Beav 334 - Wrench offered to sell a farm to Hyde for £1000.  Hyde responded that he would pay £950 for the farm.  Wrench rejected.  Hyde later accepted Wrench’s original offer of £1000.  Wrench rejected again.  It was held that there was no agreement between the parties, as Hyde had rejected the original offer by submitting the counter offer of £950.  

A mere request for information is not a counter offer.  If the offeree asks the offeror for more information, the original offer stands and the offeree has neither accepted or rejected the offer.  Referring back to the above example, if B merely asks A if the £1000 includes delivery of the books, this would be classed as a mere request for information, not a counter offer.

Stevenson Jaques & Co. v McLean (1880) 5 QBD 346 - Mclean (M) offered to sell Stevenson (S) iron. S asked whether he would accept delivery over 2 months, and if not, what his longest time limit for delivery would be.  M did not respond and later claimed that the original offer had not been accepted because S’s telegram was a counter offer.  It was held that the telegram was a mere request for information, not a counter offer, or a rejection of the original offer. 

It is important to understand the difference between a request for information and a counter offer.  If you compare Hyde v Wrench and Stevenson Jaques & Co v Mclean, you will be able to observe that, while in Hyde the offeree responded with a completely different price, the offeree in Stevenson simply requested information on delivery terms.  A counter offer is the offeree’s adding of terms (“I accept but you must also deliver the books for free” or “I will pay £900 rather than £1000”) whereas a request for information is simply a question about the original offer (“does the price include delivery?” or “will the goods be ready for collection in one week?”).   

Consider the justifications that underlie the distinction between a counter offer and a request for information.  Would it be fair for an offeree to try to negotiate better terms, and then to revert back to the original offer?  Think about the aim of the courts.  Does it create certainty?  For whom?  Should an offeror be required to negotiate with one party when another is ready to accept the original offer?  The attempt here is to achieve both certainty and an equal playing field for both offeror and offeree.  The same applies to a request for information, which protects the offeree’s position.  In the book example, imagine that C has approached A, accepting his offer.  If A is in the middle of negotiations with B and is required to continue such negotiations, would it be fair? 

You may be given a scenario in which the parties make a cross offer.  An example of this could be when A sends B a letter offering him 100 books for £1000 and B sends A the same offer.  If the letters cross in the post, then there is no agreement - Tinn v Hoffman (1873) 29 LT 271. 

Principle 3: Acceptance must be communicated to the offeror

This is a logical requirement, and should not be too difficult to grasp because the offeror must be aware that the contract has been formed.  If B accepts A’s offer to buy 100 books for £1000, but does not communicate his acceptance, A cannot fulfil his part of the bargain and give the books to B.

When acceptance is by post, potential problems arise.  For example, B accepts A’s offer, and communicates such acceptance by post.  How does B know when the letter will arrive?  At what point does the posted acceptance form a binding contract?  The postal rule for communication of acceptance is therefore different to the usual rule that posted communication is legally valid once it has arrived.  Therefore, acceptance has been communicated once the letter has been posted:

Henthorn v Fraser [1892] 2 Ch 27 - Where post is considered to be a main means of communication within the contemplation of the parties, acceptance is communicated once it has been posted.    

Consider the legal reasoning behind the postal rule.  To require that the letter of acceptance actually arrive at the offeror’s address places a considerable burden on the offeree to ensure that it arrives, which is not fair.  Therefore, in order to balance the positions of the offeror and offeree, it is accepted that the offeree has fulfilled his obligation by posting the letter.  He can assume that it will arrive and should not be expected to do anything more.  The offeror, in accepting to communicate by post, therefore accepts responsibility for the potential that the letter may not arrive.  

This rule applies even if the letter has been destroyed, delayed or lost.

Adams v Lindsell [1818] 1B & Ald 681 - The postal acceptance rule applies even if the letter is destroyed, delayed, or lost.  A valid contract had been formed at the moment that the letter of acceptance had been placed in the post box.  The rule applies when the parties have agreed to communicate by post, and when the letters have been correctly addressed and stamped.

The postal rule can be excluded by the offeror - he can state that acceptance must be communicated in a specific way (fax, telephone etc.), or that postal acceptance must arrive in order to be binding.  This gives the offeror the freedom to require that acceptance actually come to his notice.  It also relates to the above section on the legal reasoning behind the postal rule.  The fact that the offeror is free to exclude the postal rule means that it would be unfair to require that the offeree take extra steps to ensure that the letter has arrived.  The offeror, in declining to exclude the postal rule, accepts that the letter may not arrive. 

Household Fire insurance v Grant [1879] 4 Ex D 216 - The acceptance letter was lost in the post.   The postal rule was applied, and hence acceptance was binding once it had been posted.  Thesiger LJ opined that using the postal service as a method of communicating is the same as putting the letter in the hands of the recipient oneself.  Bramwell LJ most importantly added that the postal rule could have been avoided if the offeror (G) had stated that acceptance would only be binding when it actually reached him.  

However, should the offeree use a different form of communication to that which was specified by the offeror, this may be acceptable provided it is no more disadvantageous than the stipulated method of communicating acceptance.

Holwell Securities v Hughes [1974] 1 WLR 155 - Hughes granted an option to Holwell Securities (HS) to purchase his house for £45,000.  The offer stipulated that acceptance should be in written form and returned within 6 months.  5 days before the offer was to expire, HS posted a letter of acceptance to Hughes.  Hughes never received the letter and HS sought to enforce the agreement by relying on the postal rule.  It was argued that, since the letter had been posted before the offer expired, the agreement was valid and binding.  It was held that Hughes, in stipulating that communication of acceptance had to be in writing, he had specified that acceptance would only be communicated upon his receipt of the letter.  He had effectively excluded the postal rule by placing this requirement in his offer.

The postal acceptance rule is not absolute, however.  It only applies in cases in which the parties could reasonably contemplate that communication would be by post.  The aim is to achieve fairness, as has been addressed.  But it could also prove unfair for the offeror, because the offeree could omit to reveal acceptance if, for example, the prices of goods they would have bought falls.  This illustrates that the law cannot be completely fair, but only seek to strike a balance between the position of offeror and offeree. 

The postal rule will also apply if the offeror has stipulated that communication of acceptance is to be by post.  Moreover, and quite logically, if the offeree has incorrectly addressed the letter of acceptance, or been careless in some other manner which causes delay or failure to communicate, then the postal acceptance rule does not apply - Getreide-Import GmbH v Contimar SA Compania Industrial, Comercial y Maritima [1953] 1 WLR 207.

LJ Korbetis v Transgrain Shipping BV [2005] EWHC 1345 - Acceptance letter was sent to the wrong address.  Toulson J held that there was no acceptance because it would be unfair to bind B to an agreement that he was not aware of due to the fault of A. 

Thus far, you will have recognised certain core principles surrounding the postal rule.  These may seem confusing and difficult to remember, but they are in fact simple.  The list below outlines the core principles:

• It must be reasonable to accept the offer by post (Henthorn v Fraser).
• The letter must be correctly addressed and properly posted.
• The offeror can exclude post as a valid form of communicating acceptance.
• If the offeror prescribes a specific method of acceptance, then the postal rule may be excluded (Manchester Diocesan Council of education v commercial and general investments Ltd).
• The postal rule will not apply if it will create an absurd result (British & American telegraph Co v Colson).

There are problems with the postal rule, and also with the use of post to communicate offer and acceptance.  Consider, for example, that B posts his acceptance of A’s offer of 100 books for £1000.  Before A receives the letter of acceptance, he revokes his offer and sells the books to C.  He then receives A’s letter of acceptance and, because he no longer has the books, is technically in breach of his contractual obligation to B.  Due to such problems, the courts have adopted an increasingly restrictive approach towards the postal acceptance rule.  Refer back to Holwell Securities v Hughes above, in which the court accepted that the offeror could exclude the postal rule by stipulating that he must receive acceptance in order for a contract to be formed between them.  Contracting parties are therefore free to determine the method of communication of acceptance, and to avoid the problems posed by the postal rule altogether.

As technological advancements have made methods of communicating more instantaneous, the postal rule has lost its original force and scope.  The postal acceptance rule has therefore not been extended to include instantaneous communication such as fax and email.  The rule in such cases is that acceptance is binding at the time and place of receipt.  ‘Receipt’ means the point at which the acceptance has actually reached the technology of the offeror, not when he has actually heard or read it - Tenax Steamship Co v Owners of the Motor Vessel Brimnes [1974] EWCA Civ 15.

Brinkibon Ltd v Stahag Stahl [1983] 2 AC 34 - When instantaneous communication is used, the acceptance is binding when it is received.  The rationale behind this is that, particularly in a business context, acceptance may be sent out of business hours, or it may be read by others, or not read by the recipient at the time it arrives.  The rule is therefore based on principles of good business practice.  Consider the underlying justification here, and the importance attached to fairness once again.  It is important to reiterate that acceptance need not actually be read or heard by the offeror - it must have arrived at his computer/answer machine.  The fairness here is based on balancing the position of both offeror and offeree.  It would be unfair to require that the offeror actually read or hear the acceptance, because he could fail to do so purposely if he finds another buyer, which would be unfair for the offeree.  On the other hand, it would be unfair to the offeror to state that acceptance is binding once it is sent, because many different events could occur (an email could be put into offeror’s spam folder, message could be deleted by another in the office, etc.). 

Entores v Miles Far East Corp [1955] 2 QB 327 - A in England sent offer by telex to B in Holland to purchase 100 tons of goods.  B accepted via telex.  The court was required to consider the point at which a binding contract had come into existence in order to determine whether English or Dutch law would govern the contract.  It was held that acceptance had to be actually communicated to the offeror.  The contract was therefore held to be governed by English law - the place at which acceptance had been received.  The court reasoned that telex messages are almost instantaneous, similar to a telephone conversation.  The postal rule did not therefore apply.  This is an important case because it establishes three categories of acceptance via instantaneous communication.

(1) - Offeree is aware that acceptance has not been received, but neither party is at fault.  There is no contract because this would produce an absurd result that neither of the parties could reasonably have contemplated and should therefore not be bound to it.  An example of this would be if A communicates acceptance to B over the telephone, but the line drops before he accepts.  It would be absurd to bind the parties to an agreement.

(2) - Offeree reasonably believes that acceptance has been received, although it has not, but neither party is at fault.  There is no contract because an absurd result would again arise.  It would not be fair to bind the parties to the agreement. 

(3) - Offeree reasonably believes that acceptance has been received, although it has not, and the offeror is at fault. There is a contract because the offeree should not be denied the contractual agreement simply because the offeror is at fault.  An example of this would be that the telephone line is unclear, and the offeror does not hear the offeree’s acceptance, but does not ask him to repeat.  It would be unfair to not hold the parties to the agreement, because the offeree could not know that the offeror did not receive the message, and the offeror is at fault for not stating as such.

You will see that the principle of fault serves to distinguish between these three categories.  It is unfair to disadvantage party A due to the fault of party B.  Fault was developed further in Brinkibon, in which Lord Wilberforce emphasised the need for the law to be sufficiently flexible to account for many different potential scenarios.  The concept of sound business practice plays a core role here, because the courts will consider whether the facts of the case indicate usual business practice (sending emails inside of usual office hours, using the company’s official email address, etc.).   

The offeror cannot state that the offeree’s silence qualifies as acceptance.  It must be communicated.

Felthouse v Bindley [1862] EWHC CP J35 - Silence cannot amount to acceptance.

However, silence can qualify as acceptance if it is accompanied by conduct.  This is a form of implied acceptance, which is gathered by examining the whole course of conduct of the parties.  Note that the courts again adopt an approach based on fairness, depending on the conduct of the parties.  It would be unfair to overlook the fact that a party was acting as though an agreement existed, and to then allow him to go back on it simply because a problem has arisen. 

Brogden v Metropolitan Railway(1877) 2 App Cas 666 -The companies had been dealing with each other on a long-term and informal basis, and without any written contract.  They agreed that they should write up a formal agreement.  Acceptance was never communicated but the companies continued to do business with each other.  A valid contract was found because acceptance was inferred from the continued performance of the contract without any objection as to its terms.   

In the case of unilateral contracts, the communication rule does not apply.   Acceptance in such cases can be by conduct, or performance.  This is because unilateral contracts feature an offer to pay another if a certain act is performed.  Acceptance of the offer takes place through performance of the specified act - there is no need to communicate acceptance.  For example, A puts an advertisement in the local shop window offering £50 to anyone who finds his dog.  B searches for and finds B’s dog.  He has accepted the offer by performing the act that A requested - he need not have communicated to the offeror that he has accepted the offer.  In searching for (and eventually finding) the dog, he has accepted the offer by performance.  Refer to chapter 1 for the legal principles and case law on this principle.   

Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 CA -In the case of a unilateral contract, there is no need for the offeree to communicate acceptance of the offer, because acceptance is achieved through performance.

The communicated acceptance, whether it is by words or conduct, must allow one to objectively conclude that the offeree is consenting to the terms of the offeror.  This is an overarching rule that can apply to all cases.  It will also help you to examine problem questions in order to determine, overall, whether a contract can be said to have been formed.

Day Morris Associates v Voyce [2003] EWCA Civ 189 - Day Morris Associates (DMA) approached Voyce (V), offering to sell her property in return for commission once it had been sold.  To the knowledge of V, DMA listed the particulars of and marketed the property.  The property was sold, but V refused to pay commission to DMA, arguing that she had not communicated acceptance.  It was held that V had acquiesced to the marketing of her property, and was thereby held to have accepted DMA’s offer to market it in return for commission upon the sale of the property.  The court stated that the test for determining whether an agreement has been formed is objective - a reasonable person observing the conduct of the parties would assume that V had accepted DMA’s offer through conduct.

Scammell and Nephew v Ouston [1941] AC 251 HL - Scammel (S) entered into an agreement to sell a van to Ouston (O), to be paid for in monthly instalments over 2 years.  Ouston also agreed to trade his old van for £100.  A dispute arose between the parties and S refused to sell the van to O.  The court held that there was a lack of certainty regarding the terms of the agreement.  Although the price had been agreed, there was no statement as to how often the instalments should be made and how much they would be.  It could therefore not objectively be concluded that an agreement had been formed.  

Sudbrook Trading Estate v Eggleton [1983] AC 444 HL - A lease granted tenant Eggleton (E) the option to purchase the property at a price that was to be determined by two surveyors - one of which would be appointed by the landlord and the other of which would be appointed by E.  E sought to exercise the purchase option, but the landlord declined to appoint a surveyor, claiming that the clause did not specify a price and was therefore too vague to constitute an offer.  The court again adopted an objective approach towards the facts of the case, holding that the clause was not vague because it contained a process for determining the price.

Principle 4: The battle of the forms

It is not uncommon for the parties to negotiate the terms of the contract, which they do by going back and forth with different terms and stipulations.  The ‘battle of the forms’ term arises from the fact that the parties keep changing the standard terms of the agreement.  For example, A offers B 100 books for £1000, and his standard terms apply that delivery costs are to be paid by the buyer.  B responds, accepting the offer, but adding his own terms and conditions, which state that the seller must organise and cover the costs of delivery.  In such cases it can get confusing to determine what the terms of the agreement are, and what the parties have actually agreed to, because of the back and forth addition and alteration of the terms of the agreement.  This is common in commercial agreements because the parties often have their own standard terms, which are then either altered or met with other standard terms. The parties go back and forth, amending the standard terms of the agreement. 

The rule in such cases is that the last shot wins,in that the last party to send the form which is then acted upon and not explicitly rejected provides the basis for the contract.  Contrast this to the counter offer rule, under which the counter offer must be accepted or rejected. 

BRS v Arthur V Crutchley Ltd [1968] 1 All ER 811 - A delivered a consignment of whisky to B to be stored at B’s property.  The delivery driver gave B a delivery note which incorporated A’s conditions of carriage.  B signed the delivery note to show that he had received the consignment, and also wrote on the note that it was received under his own conditions.  The whisky was then given to B.  The last shot rule was applied by the court.  B’s writing on the note of his own conditions constituted a counter offer which had been accepted by A through conduct, as in, the handing over of the consignment of whisky.     

Butler Machine Tool v Ex-Cell-O Corporation [1979] 1 WLR 401 (CA) - Ex-Cell-O (E) approached Butler (B) with the intention of purchasing a machine.  B offered E the machine for £75,535, and sent the offer along with a copy of their standard terms of sale.  Included in the terms was a price variation clause, as well as the stipulation that B’s terms would override any terms submitted by E.  E ordered the machine at the offered price and sent their own set of terms which did not include B’s price variation clause.  Accompanying the order was a slip stipulating that the contract would be subject to E’s terms, and which required that B sign it and return it to E.  B signed and returned the slip, and the machine was delivered.  B sought to enforce the price variation clause, which demanded that E pay an additional sum, which E refused to pay.

It was held that E, in responding to the original offer with its own terms, had responded to the original offer with a counter offer.  The price variation clause contained in B’s original terms of sale was therefore not a part of the contractual agreement.  E’s counter offer had been accepted by B’s act of signing the acknowledgement slip accompanying and referring to E’s terms. 

It is appreciated that this is a somewhat complex case and it can indeed get confusing.  However, it is merely necessary to recognise the points at which an offer, a counter offer, and an acceptance of the counter offer took place.  This is best achieved (and will aid in deconstructing problem questions) by breaking the scenario down into a timeline as follows:

1. B offers E machine for £75,535, with B’s terms of sale (original offer).
2. E placed order with its own terms of sale and acknowledgment slip (counter offer).
3. B signed acknowledgement slip (acceptance of counter offer).

Recognise that stage 2 represents a counter offer because E’s terms of sale were different to B’s terms of sale.  Remember that only acceptance of exact terms qualifies as acceptance, whereas the changing of terms qualifies as a counter offer.  This case also demonstrates the ‘battle of the forms’ principle explored below.  When each party submits their own terms, the courts will apply the last shot rule, under which the terms set forth by the last party will govern the contract.

Principle 5: end of acceptance period

An offer does not last forever, and an offeree does not have an unlimited time frame within which he may accept an offer.  The valid period of an offer may end in a variety of situations.

If the offeror changes his mind and revokes the offer.

Routledge v Grant [1828] 4 Bing 653 - A offered to purchase B’s house and gave him 6 weeks to accept the offer.  Before the 6 weeks had passed, A withdrew his offer.  B sought to accept the offer, claiming that the 6 weeks’ time limit had not passed and was therefore still valid. It was held that A was free to withdraw his offer because there was no contract.

Offord v Davies(1862) 12 CBNS 748 - D agreed to secure funds given to a third party on discount for 12 calendar months.  It was held that this offer could be withdrawn before the 12 months had passed because it had not been acted upon. It was further emphasised that the withdrawal of an offer must be communicated.

If the offeror stipulates a specific deadline for acceptance of the offer, the offeree cannot accept it once the deadline has passed. The offeror can still withdraw the offer before the deadline, provided it has not been accepted by the offeree - Hare v Nicholl(1966) 1 All ER 285. 

As has been stated above under Offord v Davies, revocation of an offer must be communicated in order to be validly withdrawn.

Byrne & Co v Leon Van Tien Hoven & Co [1880] 5 CPD 344 - Van Tien Hoven (VTH) posted letter from Cardiff to Byrne (B) in New York, offering 1000 boxes of tin to be sold on 1 October.  B received the letter on 11 October and sent acceptance of the offer via telegraph on the same day.  On 8 October, VTH had sent a further letter to B, withdrawing the offer.  It was held that revocation of an offer must be directly communicated to the offeree.  The postal rule does not therefore apply to revocation of offer, as it is only valid once it is received by the offeree.

The offeror himself does not need to communicate revocation - it can be achieved through a third party or other reliable source: Dickinson v Dodds(1876) 2 Ch D 463.  See chapter 1 on offer for elaboration on this issue, as it is more relevant to  offer.

The offeree’s rejection of the offer will cause it to expire: Hyde v Wrench [1840] 3 Beav 334.

If the offeree changes his mind, problems can arise. For example, B accepts A’s offer of 100 books for £1000, and posts a letter of acceptance.  However, before the letter arrives at A’s address, B telephones A and rejects the offer.  Which method of communication applies first in such a scenario?  There are no English cases on this matter, illustrating that it is indeed rare, although not impossible.  It is worth considering cases decided in other jurisdictions, although they are of course not binding in England. 

Dunmore v Alexander (1830) 9 Sh 19 - A Scottish decision in which it was held that postal acceptance can be withdrawn by faster means of communication.  This case should not be relied on as an authoritative decision - it is merely an example of the approach that can be taken in such cases.

Wenkheim v Ardnt(1873) 1 JR 73 - A New Zealand case in which a letter of acceptance was sent, and a revocation of the acceptance letter was communicated by telegram.  The court held that the revocation by telegram was not valid.  Again, this is not binding in the UK, but it is interesting to observe a different approach to that adopted in Dunmore v Alexander.

You may refer to the above cases to determine what may be the case if such a situation was to arise in England.  The general approach appears to be that the courts will consider whether the offeror would be subject to unjust consequences by allowing the offeree to revoke acceptance by faster means of communication, having accepted the offer by post.

An offer will terminate if a condition of the offer is absent or unfulfilled.  For example, if B accepts the offer of 100 books for £1000 and the books have become badly damaged (the offeror in his original offer stated that the books are in good condition), then the offer, and acceptance, are no longer valid -  Financings Ltd v Stimson [1962] 3 All ER 386.

An offer will end upon the death of the offeror.  The general rule is that the death of either the offeror or the offeree means that there can be no agreement: Dickinson v Dodds (1876) 2 Ch D 463.  Therefore, if the offeror dies and the offeree is aware of this, he cannot accept the offer: Bradbury v Morgan [1862] 158 ER 877.

Learning Outcomes - You should be able to:

• Explain and distinguish between valid and invalid acceptance.
• Distinguish between a counter offer and an invitation to treat.
• Determine when acceptance has been communicated.
• Explain what happens when the offeror stipulates the method of communicating acceptance.
• Demonstrate the importance of communicating acceptance.
• Recognise when the need to communicate acceptance does not apply.
• Describe the postal acceptance rule and when it applies.
• Recognise when the postal acceptance rule does not apply.
• Recognise when the parties are free to withdraw from negotiations.
• Distinguish between instantaneous and non-instantaneous forms of communicating acceptance, and when they are valid.
• State how and when an offer expires.

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