The ‘acceptance’ of the agreement
To create a binding contract there must be an offer, acceptance, consideration and an intention by the parties to create legal relations.
For acceptance to be valid it must:
- be communicated to the offeree;
- the acceptance must precisely match the terms of the offer;
- the terms of the agreement must be certain.
Communication of the acceptance of an offer will normally be through words spoken or written in some form of document. With certain exceptions (see Postal Rule below), acceptance generally only occurs where the message of acceptance is received (Entores Ltd v Miles Far East Corporation (1955)).
Acceptance can be made through conduct (Brogden v Metropolitan Railway Co (1877)), but silence will usually not be enough to constitute acceptance (Felthouse v Bindley (1862)).
The acceptance must precisely match the terms of the offer
The acceptance must be of all the terms of the offer. A person cannot pick and choose certain parts of an offer to accept and decline the remainder. Where an acceptance introduces new terms into the contract by altering existing ones or inserting new ones, this is not an acceptance; it will be considered a counter offer to the original offer. A counter offer will act as a rejection of the original offer which will no longer be able to be accepted (Hyde v Wrench (1840)).
A counter offer should be distinguished from a mere inquiry as to one of the terms of the offer. A mere inquiry or question regarding the original offer will not reject the original offer by creating a counter offer. The original offer can still be accepted.
The terms of the agreement must be certain
All of the terms of the agreement must be certain and agreed to for acceptance to be valid. For example, in Scammell and Nephew v Ouston (1941), an agreement to supply a van on hire purchase for £286 over two years was found to be invalid by the House of Lords for uncertainty because the agreement had not stipulated how much the installments should be and how often they should be paid.
The postal rule
Normally an acceptance of an offer must be received to be effective. The exception to this is where the postal rule comes into effect. This applies where a properly addressed acceptance is sent through the post (Adams v Lindsell (1818)). This will be effective on posting as long as the person making the offer has not specifically stated that postal communication is not acceptable, for example, by requiring ‘notice in writing’ (Holwell Securities v Hughes (1974)).
The risk of the letter containing acceptance being delayed is then placed on the person making the offer, as the person accepting the offer has done all they can to take the appropriate measures.
If the offeree makes a mistake with the address on the envelope, this is their own fault and acceptance will not be effective on posting.
The postal rule will not apply in cases involving fax, telex, email etc (Entores Ltd v Miles Far East Corporation (1955)). The normal rule will apply here that acceptance must be received by the person making the offer for it to be effective.
It is not necessary for an email to be physically read by the receiver for the acceptance to be effective. Once they have received the acceptance it is effective from that moment (Thomas & anr v BPE Solicitors (2010)).
How can an offer be terminated?
An offer can be withdrawn at any time prior to acceptance (Dickinson v Dodds (1876)).
If the offer states it will be open for a certain period of time this will have no bearing on the amount of time the offer is actually open for. The same rule still applies: the person making the offer can withdraw the offer right up to acceptance.
An offer will be terminated after a reasonable amount of time has lapsed. What amounts to a reasonable lapse of time will depend on the circumstances (Ramsgate Victoria Hotel v Montefiore (1866)).
The demise of an offeror or offeree will also terminate an offer.
The withdrawal of an offer needs to be communicated and the postal rule does not apply to termination in any situation.
Where the withdrawal of an offer was posted on Monday but not received until Wednesday, and the acceptance of the offer was posted in between on the Tuesday, then the withdrawal will not be accepted.
The battle of forms
The battle of forms is a chain of correspondence between the parties of the contract where each party introduces their standard terms into each letter. This is usually printed on the back of the letter.
It is usually the person who sends the last letter containing their terms will effectively ‘win’, and therefore their terms will be those contained in the contract.
Each time a letter is sent out containing different terms on the back of it, the new set of terms will be classed as a counter offer, therefore cancelling the previous terms.
The last set of terms introduced before the parties actually act upon the agreement will be the terms that create the contract (Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd (1977)).
Offer and acceptance mistakes
If both parties make the same mistake and it cannot be established what the subject matter of the contract actually is, the contract will be void (Scott v Coulson (1903)).
Where one contracting party knows that the other party is mistaken as to the terms of the contract they will not be able to enforce those terms against the other party (Hartog v Colin & Shields (1939)).
Where one party makes a mistake as to the identity of the other party – commonly arising in cases involving fraud – the contract will be void.