Offer and acceptance
A contract starts when one party signifies willingness and the other signifies assent. Most problems turn on two questions. Who made the offer? When was each step complete?
ICA ss. 2(a)–(h), 4, 8, 9Released week of 12 Oct6. Acceptance
The offeree accepts by signifying assent. The offeree must do an outward act, in words or by conduct, and must direct it to the offeror.
Silence is never acceptance. Conduct can be acceptance.
- The railwaySends a draft with blanks
- BrogdenFills the blanks: the offer
- Both sidesTrade on its terms: acceptance
- ResultContract by conduct
Facts: Brogden supplied coal to the railway without a written contract. The railway sent him a draft agreement with blanks. He filled in the blanks and sent it back. The manager kept it unsigned in a drawer, but both sides traded on its terms.
Held: Brogden's completed draft was the offer. The railway accepted it by conduct when it ordered and paid for coal on those terms.
A purchase order says: "Deemed accepted unless you object within 7 days." If the purchase order is an offer or a counter-offer, this clause has no effect. The offeree has no duty to refuse. The clause can work only if an existing contract allows it.
7. When acceptance is complete
| Mode | The offeror is bound | The offeree is bound |
|---|---|---|
| Post | When the offeree posts the acceptance | When the acceptance reaches the offeror |
| Instant communication (phone, telex, fax) | When the acceptance reaches the offeror | When the acceptance reaches the offeror |
- Post
- When the offeree posts the acceptance
- When the acceptance reaches the offeror
- Instant communication (phone, telex, fax)
- When the acceptance reaches the offeror
- When the acceptance reaches the offeror
- 2 SepThe seller posts an offer to sell wool.
- 5 SepThe buyer receives the offer and posts an acceptance.
- 5 SepThe seller is bound from this moment.
- 8 SepThe seller sells the wool to someone else. This is a breach.
- 9 SepThe acceptance reaches the seller.
Held: The contract was made when the buyer posted the acceptance on 5 Sep. The sale on 8 Sep was a breach, although the seller did not yet know of the acceptance.
Reason: If the offeror were bound only when he knew of the acceptance, the offeree would then need to know that he knew, and so on. The court stopped this chain at posting. Section 4 follows this rule.
Facts: In Entores the acceptance went by telex from Amsterdam to London. In Bhagwandas Kedia the offer went by telephone from Ahmedabad and was accepted in Khamgaon.
Held: With instant communication, the contract is made where the acceptance is received. That was London in Entores and Ahmedabad in Bhagwandas Kedia. The place decided which court had jurisdiction.
Exam traps
- Carlill and Lalman Shukla do not conflict. Only Mrs Carlill knew of the offer.
- Silence is never acceptance. A "deemed accepted" clause in an offer does not bind the offeree.
- Do not apply the postal rule to phone, telex or fax.
- For jurisdiction, ask where the contract was made. Post: where the acceptance was posted. Instant communication: where it was received.
Also came up in class
- Open price: "the market price in December" is valid, because the price can be made certain later (s. 29). An agreement to agree on a price later is void.
- Government contracts: they must be in writing, in the form that Article 299 of the Constitution requires.
- Letter of intent: usually it comes before a contract and does not bind. If the parties perform it as a contract, it binds.
- Purchase order: it carries out an existing contract, so its terms must match that contract.
- Email and online acceptance: the IT Act 2000 (s. 13) governs these. The class did not cover them.
Coming next
The November class covers revocation of offers and acceptances (ss. 5–6) and counter-offers (s. 7, Hyde v Wrench).