BUSINESS LAW: THE RULES WHICH APPLY TO THE ACCEPTANCE OF AN OFFER (AIDED WITH CONCLUDED CASES)

- Written by Isabella Gonda (MBA Student)

Acceptance in Law is an expression of assent to the terms of an offer. This must be made by an offeree in a manner requested or authorized by the offeror.  An acceptance is valid only if the offeree knows of the offer. The acceptance should be unequivocal and unconditional and the acceptance is manifested according to the terms of the offer.

Contractual agreement has traditionally been analyzed in terms of offer and acceptance. One party, the offeror, makes an offer which once accepted by another party, the offeree, creates a binding contract.

Once valid acceptance takes place a binding contract is formed. It is therefore important to distinguish what constitutes a valid acceptance in order to establish if the parties are bound by the agreement.

There are three main rules relating to acceptance:

1. The acceptance must be communicated to the offeree.

2. The terms of the acceptance must exactly match the terms of the offer.

3. The agreement must be certain.

1. Communication

(a.) The general rule is that the offeror must receive the acceptance before it is effective

Entorres v Miles Far East [1955] 2 QB 327     

Case summary

The plaintiff’s in London made an offer by telex to the defendants in Holland. The defendant’s acceptance was received on the plaintiffs’ telex machine in London. The plaintiffs sought leave to serve notice of a writ on the defendants claiming damages for breach of contract. Service out of the jurisdiction is allowed to enforce a contract made within the jurisdiction. The court of appeal had to decide where the contract was made.

Denning L.J. stated that the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when acceptance is received by the offeror, and the contract is made at the place where the acceptance is received. The contract was made in London where the acceptance was received. Therefore service could be made outside the jurisdiction.

(b.) Silence will not amount to acceptance:

Felthouse v Bindley [1862] EWHC CP J35         

Case summary 

The plaintiff discussed buying a horse from his nephew and wrote to him “if I hear no more about him, I consider the horse mine...” the nephew did not reply but wanted to sell the horse to the plaintiff and when he was having a sale told the defendant auctioneer not to sell the horse. The plaintiff sued the defendant in the tort of conversion but could only succeed if he could show that the horse was his.

It was held that the uncle had no right to impose upon the nephew sale of his horse unless he chose to comply with the condition of writing to repudiate the offer. It was clear that the nephew intended his uncle to have the horse but he had not communicated his intention to his uncle or done anything to bind himself. Nothing, therefore, had been done to vest the property in the horse in the plaintiff. There had been no bargain to pass the property in the horse to the plaintiff and therefore he had no right to complain of the sale.

(c.) Acceptance can be through conduct:

Brogden v. Metropolitan Railway Co. (1877) 2 App. Cas. 666         

 Case summary

Brogden supplied coal to Metropolitan Railway Co for many years without an agreement. Metropolitan Railway Co sent a draft agreement to Brogden who filled in the name of an arbitrator, signed it and returned it to Metropolitan Railway Co’s agent who put it in his desk. Coal was ordered and supplied in accordance with the agreement but after a dispute arose Brogden said there was no binding agreement.

It was held that Brogden’s returning of the amended document was not an acceptance but a counter offer which could be regarded as accepted either when Metropolitan Railway Co ordered coal or when Brodgen actually supplied. By their conduct the parties had indicated their approval of the agreement.

Butler Machine Tool v Ex-cell-o Corporation [1979] 1 WLR 401 

Case summary

The plaintiff offered to sell a machine to the defendants. The terms of the offer included a condition that all orders were accepted only on the sellers’ terms which were to prevail over any terms and conditions in the buyers’ order. The defendants replied ordering the machine but on different terms and conditions. At the foot of the order was a tear off slip reading “We accept your order on the terms and conditions stated thereon.” The plaintiff signed and returned it, writing, “your official order... is being entered in accordance with our revised quotation...”

The court of Appeal had to decide on which set of terms the contract was made. Lord Denning M.R. stated:

In many of these cases our traditional analysis of offer, counter offer, rejection, acceptance and so forth is out of date. This was observed by Lord Wiberforce in New Zealand Shipping Co Ltd v AM Satterthwalte. The better way to look at all the document passing between the parties, whether they have reached agreement on all material points, even though there may be differences between the forms and the conditions printed on the back of them. As lord Calms L.C. said in Brogden v Metropolitan Railway Co (1877):

…there may be a consensus between the parties far short of a complete mode of expressing it, and that consensus may be discovered from letters or from other documents of an imperfect and incomplete description.

Applying this guide, it will be found that in most cases when there is a “battle of forms” there is a contract as soon as the last of the forms is sent and received without objection being taken to it. Therefore, judgment was entered for the buyers.

(d.) The postal rule

Where it is agreed that the parties will use the post as a means of communication the postal rule will apply. The postal rule states that where a letter is properly addressed and stamped the acceptance takes place when the letter is placed in the post box

Adams v Lindsell (1818) 106 ER 250     

Case summary

September 2,            The defendant wrote to the plaintiff offering to sell goods asking for a reply “in the course of post”

September 5,            The plaintiff received the letter and sent a letter of acceptance.

September 9,            The defendant received the plaintiffs acceptance but on September 8 had sold the goods to a third party.

It was held that a binding contract was made when the plaintiff posted the letter of acceptance on September 5, so the defendant was in breach of contract.

It is relatively easy for the parties to exclude the postal rule:

Holwell Securities v Hughes [1974] 1 WLR 155  

Case summary

The defendant gave the plaintiff an option to buy property which could be exercised “by notice in writing”. The plaintiff posted a letter exercising this option but the letter was lost in the post and the plaintiffs claimed specific performance. The court of appeal held tha the option had not been validly exercised. Lawton L.J. stated that the plaintiff were unable to do what the agreement said they were to do, namely, fix the defendant with knowledge that they had decided to buy his property. There was no room for the postal rule since the option agreement stipulated what had to be done to exercise the option.

2. The terms of the acceptance must exactly match the terms of the offer.

If the terms differ this will amount to a counter offer and no contract will exist:

Hyde v Wrench (1840) 49 ER 132      

Case summary

June 6            Wrench offered to sell his estate to Hyde for 1000 pounds; Hyde offered 950 pounds.

June 27          Wrench rejected Hyde’s offer

June 29          Hyde offered 1000 pounds. Wrench refused to sell and Hyde sued for breach of contract.

Lord Langdale MR held that if the defendant’s offer to sell for 1000 pounds had been unconditionally accepted, there would have been a binding contract, instead the plaintiff made an offer of his own of 950 pounds and thereby rejected the offer previously made by the defendant. It was not afterwards competent for the plaintiff to revive the proposal of the defendant by tendering an acceptance of it; and that; therefore, there existed no obligation of any sort between the parties.

3. The agreement must be certain

When viewed objectively it must be possible to determine exactly what the parties have agreed to. Compare the following two cases:

Scammell & Nephew v. Ouston [1941] AC 251   

Case summary 

Ouston agreed to buy a lorry from Scammell 'on hire purchase terms’. Before the hire purchase contract was entered into Ouston decided not to proceed with the purchase. Scammell sued Ouston for breach of contract and Ouston replied that there was no contract of sale because the agreement was void for uncertainty since the words 'on hire purchase terms' were too vague.

Contract was not enforceable. There was no certainty as to the terms of the agreement. Whilst there was agreement on the price there was nothing in relation to the Hire Purchase terms stating whether it would be weekly or monthly installments or how much the installments would be.

Viscount Maugham stated “In order to constitute a valid contract, the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that, unless this can be done, it would be impossible to hold that the contracting parties had the same intention. In other words, the consensus ad idem would be a matter of mere conjecture.”

Sudbrook Trading Estate v. Eggleton [1983] AC AC 444

 Case summary  

Sudbrook was granted an option to buy a reversion in fee simple at not less than £12,000 as agreed by two valuers, one appointed by each party. If they could not agree to a value, an umpire was to be chosen by the valuers. When Sudbrook tried to exercise their option, Eggleton refused to appoint a valuer. The Court of Appeal claimed they could not appoint a valuer for Eggleton, and thus the option was unenforceable.

The clause was not too vague to be enforceable as it put in place a mechanism to ascertain the price.

References:

1.    Aje R. Adofikwu – The Nature and Principles of Legally Binding Contracts: June 7, 2014.

2.    Jill Poole - Contract Law: pg 47 - 49 OUP Oxford 24 May, 2012

3.    Business Law, Paper 5: School of Open learning, University of New Delhi, March 2017

4.     Internet: www.elawresources.co.uk/case-summaries