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Chapter 3.1 - Proposal and Acceptance
Chapter 3.1 - Proposal and Acceptance
Chapter 3.1 - Proposal and Acceptance
BUSINESS LAW
Chapter 3.1 – Proposal and
Acceptance
2
LEARNING OUTCOMES
• To understand the significance and importance of offer
and acceptance
DEFINITION OF CONTRACT
SIMPLE DEFINITION:
Proposal
• An agreement between 2 or more parties is
constituted by a proposal and an
acceptance of it
• ‘Proposal’ bears the same meaning as
‘offer’ in English Law
5
Proposal
An offer or proposal is necessary for the
formation of an agreement
S2(a) Contracts Act 1950 states that “when one
person signifies to another his willingness to do
or to abstain from doing anything, with a view to
obtaining the assent of that other to the act or
abstinence, he is said to make a proposal”
Under the Contracts Act 1950 and English Law,
a proposal or offer is something which is
capable of being converted into an agreement
by its acceptance
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VERBALLY
IN WRITING
BY CONDUCT
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Proposal
• Can be made to: -
• A specific individual
• A specific group of people
• Whole world
• Can be accepted by anyone provided he fulfils the condition
• If the condition is fulfilled, the offeror must fulfil his part of the agreement
(Carlill v Carbolic Smoke Ball)
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Proposal
The terms must be specific
◦ Gunthing v Lynn (1831)
The defendant agreed to pay a further sum if it was "lucky".
Held: the offer was too vogue.
Merely giving information is not an offer
◦ Harvey v Facey (1893)
P telegraphed D - "Will you sell us Bumber Hall Pen? Telegraph
lowest cash price." D replied, "Lowest cash price £900." P purported
to accept the offer.
Held: Price information is merely information. There was no offer to
accept.
Proposal
A definite offer may be made to a class of persons or to the
world at large
◦ Carlill v Carbolic Smoke Ball Co. (1893)
The manufacturers of a patent medicine published an advertisement
by which they undertook to pay '£100 reward…to any person who
contracts…influenza…after having used the smoke ball three times
daily for two weeks'. The advertisement added that £1,000 had been
deposited at a bank 'showing our sincerity in this matter'. The
claimant read the advertisement, purchased the smoke ball and used
it as directed. She contracted influenza and claimed her £100
reward. The manufacturers argued a number of defences, including
the following: -
The offer was so vague that it could not form the basis of a contract as no
time limit was specified.
It was not an offer which could be accepted since it was offered to the
whole world.
Held: the court considered these two defences as follows: -
The smoke ball must protect the user during the period of use. The offer
was not vague.
An offer to the public can be accepted so as to form a contract.
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Invitation to Treat
• An invitation to treat is an invitation to people to make
offers/proposals
• Sometimes, it may be difficult to ascertain whether it is an
offer/proposal or invitation to treat
• The importance of the difference is that if an offer is
accepted it will give rise to a binding contract enforceable
through the courts (in most cases)
• However, an invitation to treat is not an offer and the
person responding to such invitation will only be able to
enforce his offer if the other person accepts it
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PARTRIDGE v CRITTENDAN
FACTS:
•P ADVERTISED IN PAPER - Bramblefinch cocks &
hens ... 25s each
•AN OFFENCE TO SELL OR OFFER FOR SALE A
PROTECTED BIRD
•P CHARGED WITH "OFFERING FOR SALE"
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HELD:
ADVERTISEMENT MERELY AN
INVITATION TO TREAT
15
Normal Advertisements
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DISPLAY OF GOODS
BOOTS’ CASE
FACTS:
•BOOTS HAD A SELF-SERVICE PHARMACY
•LAW PROHIBITED SALE OF PRESCRIBED
MEDICATION UNLESS UNDER "SUPERVISION OF A
PHARMACIST"
ISSUE: WHETHER GOODS ON DISPLAY AN OFFER?
DISPLAY OF GOODS
FISHER v BELL
AUCTIONS
TENDERS
VENDING MACHINES
(NOT AN INVITATION TO TREAT)
OFFER MUST BE
COMMUNICATED TO
THE OFFEREE
27
Communication of Offer/Proposal
The communication of a proposal is complete
when it comes to the knowledge of the person to
whom it is made (s4(1) Contracts Act 1950)
This means that an offer or proposal is effective
once it is communicated to the offeree by the
offeror
It is the same for by telephone, fax, face-to-face,
post
The communication of an offer or a proposal is
deemed to have been made by an act or
omission of the party proposing by which he
intends to communicate the proposal or which
has the effect of communicating it (s3 Contracts
Act 1950)
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Communication of Offer/Proposal
A proposal made in words (oral or written) is
said to be expressed. If a proposal is made
other than in words (e.g. by conduct), it is
said to be implied (s9 Contracts Act 1950)
An offer should be differentiated from an
option
An option is merely an undertaking to keep
the offer open for a certain period of time
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Revocation of Offer
• S5(1) Contracts Act 1950 – an offer can be
revoked at anytime before the communication
of its acceptance is complete
30
Revocation of Offer
Routledge v Grant (1828)
D offered to buy P's house stating that his offer is open for
only 6 weeks. Within 6 weeks he withdrew his offer.
Held: D could withdraw his offer before acceptance. D
was not obliged to keep the option opened for 6 weeks,
as there was no consideration.
32
Revocation of Offer
• According to s6 Contracts Act 1950 a proposal is
revoked: -
a) By the communication of notice of revocation
b) By the lapse of the time prescribed in the proposal
c) The offeree makes a counter-offer
d) Offeror dies/mental disorder
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Revocation of Offer
• S6 (a) Contracts Act 1950 - by the
communication of notice of revocation
34
FACTS:
1 OCT - OFFER POSTED
8 OCT - REVOCATION POSTED
11 OCT - OFFER RECEIVED
11 OCT - TELEGRAPH OF ACCEPTANCE
POSTED CONTRACT MADE
(15 OCT - LETTER OF ACCEPTANCE POSTED)
20 OCT - LETTER OF REVOCATION RECEIVED
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HELD:
REVOCATION EFFECTIVE AS IT HAD BEEN COMMUNCIATED
THROUGH A RELIABLE SOURCE.
(IN THIS CASE THE PROMISE TO KEEP THE OFFER OPEN TILL
FRIDAY WAS NOT BINDING BECAUSE NO CONSIDERATION HAD
BEEN GIVEN FOR IT. A BINDING PROMISE TO KEEP AN OFFER
OPEN IS KNOWN AS AN OPTION ).
37
Revocation of Offer
• S6 (b) Contracts Act 1950 –
• By the lapse of the time prescribed in the proposal.
• All offers last for a specified time only.
• It then expires and cannot be accepted.
• Sometimes an offeror does not specify how long the offer will be kept open.
• If so, the courts will have to decide a reasonable length of time it should be kept
open.
Ramsgate Victoria Hotel v Montefiore (1866)
D offered to purchase shares but did not specify how long his offer would last. P
accepted after 5 months, by letter. D, meanwhile, refused to pay.
Held: D's offer was only for a reasonable period. 5 months was more than that
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Revocation of Offer
• S6 (c) Contracts Act 1950
• The offeree makes a counter-offer.
• A counter-offer revokes the original offer.
• It will have the effect of terminating the original offer and substituting for the original offer,
the counter-offer.
• Thus, the original offeror whose offer has been terminated by the offeree's counter-offer
can accept or reject the offeree's counter-offer.
Hyde v Wrench ((1840)
D made an offer to sell his house for £1000. P purposely accepted at £950 but when D
refused, P accepted the original offer of £1000.
Held: The counter-offer terminated the original offer. There was nothing to accept.
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Revocation of Offer
• S6 (d) Contracts Act 1950
• Offeror dies/mental disorder
• If know – offer is terminated
• If do not know, offer still open
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Revocation of Offer
The effect of revocation in the case of a
potentially 'unilateral' contract’, such as in the
Carlill's case, is not straightforward
Where the offer has been made to the whole
world, as for example where a reward has been
offered in a newspaper for the return of a lost
dog, a revocation will probably be effective as
against anyone who has yet to start looking for
the dog, provided it is given the same publicity
as the original offer of the reward
However, if someone has started to perform the
act requested in the offer, the offer cannot be
revoked.
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Revocation of Offer
Errington v Errington (1953)
A father bought a house for his son and his
daughter-in-law to live in. The father paid the
deposit of one-third of the purchase price and
borrowed the balance from the building society. He
told his son and daughter-in-law that if they paid the
mortgage he would convey the house to them when
all the instalments had been paid. The Court of
Appeal held that the father's offer could not be
revoked provided the son and daughter-in-law
continued to make mortgage payments. Once the
offeree has acted on the offer and embarked upon
the prescribed course of conduct the offer cannot be
revoked.
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Acceptance
• S2(b) Contracts Act 1950 – “when a person
to whom the proposal is made signifies his
assent thereto, the proposal is said to be
accepted: a proposal, when accepted,
becomes a promise”
43
Acceptance
• Acceptance can be made by conduct, orally
and of course in writing
• For acceptance by conduct see Carlill's
case where the response to the challenge
to use smokeball constituted acceptance
• Also see reward cases
44
Acceptance
Conditions: -
◦ Absolute and unconditional (s7(a) Contracts
Act 1950)
An acceptance must be an unqualified acceptance of
the terms of the offer. If the terms of the offer are
varied or qualified the acceptance is not valid. It is in
fact a counter-offer.
Neale v Merret
The offer was to sell land at £280. P purportedly
accepted enclosing £80 and promising to pay the
rest by instalments of £50.
Held: It was implied that the term £280 meant cash
and not instalments. The 'acceptance' was not valid
because it was qualified.
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RULES OF
ACCEPTANCE
MUST BE ABSOLUTE &
UNQUALIFIED
Acceptance
• S7(b) Contracts Act 1950 provides that
acceptance must be expressed in some
usual and reasonable manner, unless the
offeror prescribes the manner in which it is to
be accepted
• If the offer stipulates the mode of
acceptance, then acceptance must take
place according to the method specified
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MODE OF COMMUNICATION
MODE OF COMMUNICATION
IF NOT PRESCRIBED
USUAL AND REASONABLE
MANNER
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Acceptance
• Acceptance may be made by performance
of the condition of a proposal, or the
acceptance of any condition for a reciprocal
promise which may be offered with a
proposal (s8 Contracts Act 1950 and
Carlill’s case)
50
Acceptance
• All offers last for a specified time only. It then
expires and cannot be accepted
• Sometimes an offeror does not specify how long
the offer will be kept open. If so, the courts will
have to decide a reasonable length of time it
should be kept open (Ramsgate Victoria Hotel v
Montefiore (1866))
51
Communication of Acceptance
The general rule is that acceptance must be
communicated, i.e. must reach the offeror (s3 Contracts
Act 1950)
Communication of Acceptance
In the business environment, where the mode of
communication is non-instantaneous (fax & telex),
communication reaches only when it appears on the
offeror's printer/machine during normal office hours.
If the mode of communication is by telephone,
acceptance takes place once the offeror hears the
acceptance.
If the offeror does not hear due to bad line etc, then
there is no acceptance.
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INSTANTANEOUS COMMUNICATIONS
AGREEMENT ONLY
MADE WHEN THE YES
MESSAGE IS
RECEIVED
(EFFECTIVELY GENERAL RULE
THAT ACCEPTANCE MUST BE
COMMUNICATED APPLIES)
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Communication of Acceptance
• As stated earlier, acceptance must be communicated (s3
Contracts Act 1950)
• There must be some act on the part of the offeree to
indicate his acceptance
• An acceptance must be made by some positive act. Mere
silence is not acceptance.
• In Fraser v. Everett (1889), Wood, Acting CJ, held that
there is no rule of law like the saying “Silence gives
consent”.
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ACCEPTANCE MUST BE
COMMUNICATED
FELTHOUSE v BINDLEY
Exceptions
• There are 3 exceptions to the rule that
acceptance must be communicated:
• Offeree benefitted when he could have rejected the
offer
• Where performance is acceptance (Carlill's case and
reward cases).
• Where the mode of communication specified is the post.
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Exceptions
• However, if the offeree benefits when he has the time to
reject the offer, silence may acceptance
• Example: A proposer sent food to the promisee,
prescribing that payment for the food need to be paid if
the promisee accepts the proposal by consuming the said
food. In this situation the act of consuming the food
amounted to an acceptance even if the promisee kept
silent (not communicating his acceptance to the
proposer).
• This principle was held in Weatherby v. Banham (1832)
Exceptions
• The postal rule of acceptance is stated in s4(2)(a) Contracts Act 1950
and Illustration (b) to s4 Contracts Act 1950
• According to the postal rule of acceptance, if both parties have
agreed to use post as a mode of communication, then acceptance
takes place the moment the letter is posted provided the letter is be
properly stamped and correctly addressed
• Adams v Lindsell (1818)
D made an offer to sell goods requiring an answer 'in the course of
post'. P wrote back accepting the offer. The letter of acceptance was
lost and delayed. In the meantime, D sold the goods to someone else.
Held: The acceptance was made when P posted the letter in the post
box and not when it reached the offeror. There was a valid contract
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Exceptions
• This is called the postal rule. This rule is subject to one
exception. This is where the offeror specifies that the
acceptance must be 'in writing'.
Holwell Securities v Hughes (1974)
D offered P an option to purchase land to be exercised by
notice in writing. The letter of acceptance was lost in the
post.
Held: The postal rule did not apply. 'Notice in writing'
meant that it must reach the vendor.
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R v CLARKE
FACTS: REWARD FOR THE ARREST & CONVICTION OF MURDERER. C
ARRESTED FOR MURDER. TO SAVE HIMSELF GAVE INFORMATION
THAT LED TO THE ARREST OF Y
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COMMUNICATION OF ACCEPTANCE BY AGENT MUST BE
AUTHORISED
POWELL v LEE
Revocation of Acceptance
• An acceptance may be revoked at anytime before the
communication of acceptance is complete (s5(2)
Contracts Act 1950)
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QUESTIONS