Business Law: Offer and Acceptance

Business Law: Offer and Acceptance.

For a simple contract to be valid one party must make an offer and the other party accept it. ‘An offer is made where a person (the offerer) unequivocally expresses to another (the offeree) his willingness to make a binding agreement on the terms specified by him if they are accepted by the offeree’ (Card 2002). This offer could be made to a specific person, in which case it cannot be accepted by anyone other than that individual. On the other hand it could be made to a group of people or the whole world! Usually the offer will indicate a number of things like in which form the acceptance should take, it may also have a time limit for acceptance attached to it. In which case this will be a self-terminating contract. If the offer does not have a time limit the courts may deem the offer to have expired after a reasonable time even if the offerers haven’t actually revoked the offer. An offer can be revoked at any point up to acceptance as long as the offerer has made this clear to the offeree.

Offer’s can sometimes get confused with an ‘Invitation to treat’. It is important not to get the two confused as there are different rules regarding both. An example of an invitation to treat would be an item on display with a price label in a shop window. This is an invitation to open negotiations with a view to forming a contract; in other words it can be seen by anyone that happens to walk past the shop at the time of the window display. A good example of a case associated with this is Fisher v Bell (1961). The defendant, a shopkeeper, was prosecuted for displaying an illegal flick-knife for sale. Because it is an offense to offer such an item he was convicted. On appeal, however, it was held that a shop window display is an invitation to treat, not an offer in contractual terms. The conviction was therefore quashed (K-Zone law).

Tenders can sometimes be confused for offers when really they are invitations to treat. This is where, for example, a company may require a large supply of something and may issue a document requesting suppliers of such to make offers. This is referred to as a tender when actually it is only an invitation to treat and not an offer. If the supplier sent over a lorry load of what was required and a bill the company has every right to send them straight back because a formal offer was not made and accepted. The tender can only be classed as an offer if that same company specified a price he would charge and the terms he would trade under, and then the manufacturing plant accepts the tender making it a contract. Some other examples of invitations to treat are advertisement, catalogues and brochures, company prospectuses and auctions (Keenan, 2002).

A contract can be ‘Unilateral’ or Bilateral’. Most contracts are bilateral. This means that a party promises to do something if the other party promises to do something in return. For example A might offer some Bananas for 50p and B accepts this, A must provide the Bananas and B must pay the 50p. Then you have the unilateral contract, this is an agreement to pay in exchange for performance, if the potential performer chooses to act. An example of this would be a reward for a lost pet. The pet owner (A) makes a conditional promise to which is the reward for the pet but B can choose whether or not to perform the condition. B is under no obligation to find the pet. If B chooses to perform the condition then A will have to carry out his promise of the reward. However if the pet is found by someone who was unaware of the reward and finds out about it after he returns the pet A is under no obligation to pay him the reward.

Now moving on to ‘Acceptance’. The acceptance can be signaled by communication to the offerer or by conduct e.g. a unilateral contract (see above). A valid acceptance must be a ‘mirror image’ of the offer, trying to introduce new terms will be seen as a counter offer and not an acceptance (Adams, 2003). Unless stated acceptance can be in writing, orally or by conduct. A written acceptance might be made by post; this is where the Postal Rule comes into play. In English Law it is the usual ruling that acceptance occurs at the moment of posting, not of receipt. This is because obviously a letter could get lost or delayed in the post. We also run into problems where the offerer posts an acceptance and then changes his mind and sends a rejection of acceptance by faster post. To avoid this, the offerer may use a clause stating that acceptance by post is not appropriate. There is a different rule for instantaneous methods of communication. In this case the acceptance doesn’t occur when communication is made but when it is received.

In a made up case study Trotter Computers Ltd are manufacturers of computers, they