Offer and Acceptance in Contract Law

An offer is an expression of willingness to contract on specified terms, made with the intention that it will become binding as soon as it is accepted by the person to whom it is addressed. The offer must be definite, communicated to the offeree, and capable of being accepted.

An offer may be made to a specific person, a class of persons, or to the world at large. In Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, the Court of Appeal held that an advertisement promising £100 to anyone who contracted influenza after using the smoke ball as directed constituted a valid offer to the world at large. The company's deposit of £1,000 in the Alliance Bank demonstrated sincerity of intention.

An offer must be distinguished from a mere supply of information. In Harvey v Facey [1893] AC 552, the Privy Council held that a statement of the lowest price at which a party would sell was not an offer but merely a supply of information in response to a query.

An invitation to treat is not an offer but an invitation for others to make offers. The distinction is critical because accepting an invitation to treat does not create a binding contract. The key categories are:

Display of goods: Goods displayed in a shop window are invitations to treat, not offers for sale (Fisher v Bell [1961] 1 QB 394). Similarly, goods on supermarket shelves are invitations to treat; the offer is made by the customer at the checkout and accepted by the cashier (Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401).

Advertisements: General advertisements are ordinarily invitations to treat (Partridge v Crittenden [1968] 1 WLR 1204), unless they are unilateral offers specifying performance as acceptance (as in Carlill).

Auctions: An auctioneer's request for bids is an invitation to treat; each bid is an offer, accepted by the fall of the hammer (British Car Auctions v Wright [1972]). However, an auction advertised "without reserve" creates a collateral contract that the auctioneer will sell to the highest bidder (Barry v Davies [2000] 1 WLR 1962).

Tenders: An invitation to tender is generally an invitation to treat. However, where the invitor undertakes to consider all conforming tenders, a collateral contract may arise (Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195).

Acceptance is an unconditional assent to all the terms of the offer. It must be communicated to the offeror and must correspond exactly with the terms of the offer (the mirror image rule).

Counter-offers: A purported acceptance that introduces new terms is a counter-offer, which destroys the original offer. In Hyde v Wrench [1840] 3 Beav 334, the defendant offered to sell his farm for £1,000. The claimant counter-offered £950, which was refused. When the claimant then purported to accept the original £1,000 offer, the court held there was no contract — the counter-offer had destroyed the original offer.

Requests for information: A mere inquiry about terms does not constitute a counter-offer and leaves the original offer intact (Stevenson, Jacques & Co v McLean [1880] 5 QBD 346).

Communication of acceptance: Acceptance must generally be communicated to the offeror. Silence cannot constitute acceptance (Felthouse v Bindley [1862] EWHC CP J35). The offeror cannot impose a duty on the offeree to reject the offer.

The postal rule is an exception to the general requirement that acceptance must be communicated. Where acceptance by post is within the reasonable contemplation of the parties, acceptance takes effect at the moment the letter is posted, not when it is received (Adams v Lindsell [1818] 1 B & Ald 681).

The postal rule applies even if the letter of acceptance is lost in the post and never arrives (Household Fire Insurance v Grant [1879] 4 Ex D 216). However, the rule does not apply to instantaneous communications such as telex (Entores Ltd v Miles Far East Corporation [1955] 2 QB 327), fax, or email (Thomas v BPE Solicitors [2010] EWHC 306).

The postal rule can be excluded by the offeror stipulating that acceptance must be received. In Holwell Securities v Hughes [1974] 1 WLR 155, the court held that where the offer required acceptance "by notice in writing," the postal rule was excluded because "notice" implies actual communication.

An offer may be terminated by: revocation (withdrawal by the offeror before acceptance — Routledge v Grant [1828]), rejection or counter-offer by the offeree, lapse of time (either a specified deadline or a reasonable time — Ramsgate Victoria Hotel v Montefiore [1866]), death of either party (in certain circumstances), or failure of a condition.

Revocation must be communicated to the offeree before acceptance. It need not be communicated by the offeror personally; reliable information from a third party suffices (Dickinson v Dodds [1876] 2 Ch D 463). For unilateral offers, revocation is not effective once the offeree has commenced performance (Errington v Errington [1952] 1 KB 290).