Existence and formation of a contract - Offer and acceptance

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Overview

Offer and acceptance are fundamental to forming contracts, a main topic for the SQE1 FLK1 exam. This article covers these basic principles, evaluating their relevance in today's legal world. We’ll examine the difference between offers and invitations to treat, consider the nature of acceptance, and address the issue of revocation. Through case law and practical scenarios like electronic communication, this guide aims to help future solicitors thoroughly prepare for exams and practice.

Offer vs. Invitation to Treat

Recognizing the distinction between an offer and an invitation to treat is essential. While both suggest terms, only an offer indicates readiness to be bound once accepted. An invitation to treat merely shows an openness to negotiate.

Main Characteristics

An offer should have:

  1. Definite terms
  2. Communication to the recipient
  3. Intention to be bound upon acceptance

An invitation to treat lacks the immediate intention to bind and invites further negotiation.

Case Law Examples

  • Carlill v Carbolic Smoke Ball Co [1893]: Illustrated a unilateral offer through a specific advertisement and a bank deposit, showing an intent to commit.
  • Partridge v Crittenden [1968]: Established that advertisements are generally invitations to treat, not offers, to avoid obligating advertisers to everyone interested.
  • Fisher v Bell [1961]: A shop display was deemed an invitation to make an offer, not an offer itself.

Modern Application: E-commerce

In the digital world, the difference between offers and invitations has evolved:

  • A fixed-price listing online is usually an invitation to treat, allowing sellers to decline if out of stock.
  • The 'Buy Now' function can be seen as an offer that the seller’s automated system accepts.

This flexible approach shows how courts apply traditional rules to today's commercial environment, important for SQE1 FLK1 candidates.

Acceptance and Counter-Offers

Acceptance confirms agreement to the terms, creating a contract. The 'mirror image rule' means the acceptance must align exactly with the offer, or it becomes a counter-offer, nullifying the original.

Acceptance Principles

  1. Must be communicated to the offeror (exceptions include the postal rule).
  2. Silence isn't considered acceptance, as shown in Felthouse v Bindley (1862).
  3. Must be unconditional.

Counter-Offers

A counter-offer rejects the initial offer, as in Hyde v Wrench (1840).

Example

Company A offers to sell 1,000 units for £50,000 with 30-day delivery. Company B replies, "We accept, but need delivery in 20 days." This is a counter-offer, not acceptance, allowing Company A to accept or reject.

Mirror Image Rule Exceptions

  • Standard Terms: Routine contract terms might not constitute a counter-offer if variations are minor, especially in business transactions.
  • "Battle of the Forms": When both parties use their own terms, the prevailing set depends on conduct and context, often the last terms communicated.

Communication of Acceptance

How acceptance is communicated affects when a contract is formed:

Instant Communication

For means like phone or email, acceptance is effective once received, as noted in Entores Ltd v Miles Far East Corporation [1955].

Postal Rule

With post, the contract forms when acceptance is posted, based on Adams v Lindsell (1818), as long as the method is reasonable and correctly addressed.

Electronic Communications

Laws clarify electronic transactions:

  • Emails are generally instantaneous, effective upon receipt.
  • Website transactions involve offers from the customer, accepted by the seller's system.
  • Timing depends on terms agreed by parties.

Online Auction Scenario

Online auction listings are typically invitations to treat. The highest bid is an offer, which the seller may accept. Clicking 'Buy It Now' may be acceptance, forming a contract.

Revocation of Offers in Unilateral Contracts

Unilateral contracts involve an act in exchange for a promise. Revocation in such contracts poses challenges when performance starts.

Revocation Basics

  1. An offer can be withdrawn before acceptance (Routledge v Grant (1828)).
  2. Revocation must be communicated, directly or indirectly, from a reliable source (Dickinson v Dodds (1876)).

Unilateral Contracts and Performance

The issue arises if performance begins but isn't finished. Carlill v Carbolic Smoke Ball Co [1893] suggests offers may become irrevocable once performance starts.

Modern Approach: Errington v Errington and Woods

In Errington v Errington and Woods [1952], it was held that once performance begins, the offeror can't revoke, but the offeree isn't obliged to finish, forming an 'option contract.'

Example

A property owner offers a reward for finding an artifact. If a hunter starts searching, the offer can't be revoked, though the hunter isn't bound to continue.

Impact on Contracts

This affects:

  • Reward offers: Once someone starts fulfilling conditions, it might be irrevocable.
  • Sales promotions: Must be clearly worded to avoid unintended obligations.
  • Construction: Starting work might irrevocably accept a project offer.

Bilateral vs. Unilateral Contracts

Recognizing these types is important:

Bilateral Contracts

  • Involve promises on both sides.
  • Example: A service agreement where both parties are bound by their promises.

Unilateral Contracts

  • Involve a promise in exchange for an action.
  • Example: Insurance policies offer payouts if premiums are paid.

Conclusion

Comprehending offer and acceptance is essential for the SQE1 FLK1 exam and legal practice. These principles shape every stage of contracts. The interaction between traditional law and modern realities, especially in digital contexts, presents unique challenges. Candidates must apply these principles in real-world situations, aware of factors influencing contract terms. As laws adjust to technology, merging old and new approaches becomes necessary.

Key points:

  1. Differentiate offers from invitations to treat; intent to bind is significant.
  2. Acceptance must exactly reflect the offer; changes lead to counter-offers.
  3. Communication methods influence acceptance timing.
  4. Unilateral contract revocation is complex during performance.
  5. Understanding contract types aids in various scenarios.
  6. Technology and e-commerce present new challenges for contract law.
  7. Case law continues to guide offer and acceptance understanding in modern times.