OFFER AND ACCEPTANCE

How the courts understand the terms “offer” and “acceptance” in the formation of contracts

How the courts understand the terms “offer” and “acceptance” in the formation of contracts

Introduction

Offer and acceptance analysis is a traditional approach in contract law used to determine whether an agreement exists between two parties. An offer is an indication by one person to another of their willingness to contract on certain terms without further negotiations. A contract is then formed if there is express or implied agreement. A contract is said to come into existence when acceptance of an offer has been communicated to the offeror by the offeree.

The offer and acceptance formula, developed in the 19th century, identifies a moment of formation when the parties are of one mind. This classical approach to contract formation has been weakened by developments in the law of estoppel, misleading conduct, misrepresentation and unjust enrichment.

Offer

The nature of an offer

An offer is an expression of willingness to contract on certain terms, made with the the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the "offeree".

The "expression" referred to in the definition may take different forms, such as a letter, newspaper, fax, email and even conduct, as long as it it communicates the basis on which the offeror is prepared to contract.

The "intention" referred to in the definition is objectively judged by the courts. The English case of Smith v. Hughes (1871) LR 6 QB 597 emphasises that the important thing is not a party's real intentions but how a reasonable person would view the situation. This is due mainly to common sense as each party would not wish to breach his side of the contract if it would make him or her culpable to damages, it would especially be contrary to the principle of certainty and clarity in commercial contract and the topic of mistake and how it affect the contract.

The classical principles are illustrated in the well-known case of Carlill v. Carbolic Smoke Ball Company.

Acceptance

Test of acceptance

Acceptance is a final and unqualified expression of assent to the terms of an offer [G.H. Treitel, The Law of Contract, 10th edn, p.16]. It is no defense to an action based on a contract for the defendant to claim that he never intended to be bound by the agreement if under all the circumstances it is shown at trial that ...