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Date Posted: 01:39:26 05/01/02 Wed
Author: Åwªï¬µÊ\: jameslam@hkpro.com.hk
Subject: Åwªï¬µÊ\: nancychow@hkpro.com.hk

Chapter 1
Offer and acceptance
A contract is based on agreement, which arises from offer and acceptance. One person makes an offer; another person accepts that offer. When that has happened, and provided that the other necessary factors, consideration and intention to contract, are present, there is a contract.
Offer
An offer is a proposition put by one person(or persons) to another person (or persons) coupled with an indication that he is willing to be held to that proposition. The offeror(that is, the person who makes the offer) may make the offer to a particular person, or to group of persons or to 'the whole world'. The offer may be in writing, or spoken, or by conduct. Thus the offer may take any form between an elaborate document with numerous clauses and sub-clauses and an ordinary everyday act of conduct, such as a bus driver pulling up at a bus stop. The indication that the offeror is willing to be bound need not be stated in words(written or spoken); it may be, and frequently is, inferred from the nature of the offeror's proposition or from the circumstances in which the proposition is made.
True Offer Distinguished from Invitation to Treat
o It is necessary to distinguish a true offer from an 'offer to chaffer' ( as some of the old cases call it) or from an 'invitation to treat' (to use a more modern phrase). The importance of the distinction is that, if a true offer is made and accepted, the offeror is bound; on the other hand, if what the offeror said or did is not a true offer, the other person cannot create a contract by saying'I accept'; in other words, he cannot bind the offeror by saying'I accept'.The distinction is important, but it is not always easy to make it. For an example of this,see Gibson v.Manchester City Council (1979,H.L), a case involving council house sales.
o Tenders
o In connection with tenders the distinction between an offer and an invitation to treat is reasonably clear. If A asks a number of suppliers to put in tenders for supplying particular goods or services, he is not making an offer. This position is similar where A asks one supplier to put in an estimate for supplying particular goods or services. It is not A who makes the offer; the offer comes from the supplier in the form of the tender or estimate: see Spencer v. Harding (1870).
o On the other hand, there may be cases where the person inviting tenders may bind himself to accept the highest bid. This is what happened in Harvela Investments Ltd v Royal Trust Co. of Canada (CI) Ltd (1985, H.L). The Royal Trust Co. invited two parties to make sealed competitive bids for a block of shares; the parties were the plaintiffs and the second defendant, Sir Leonard Outerbridge. In their invitation, the Royal Trust Co. make the statement, 'we bind ourselves to accept the higher offer'. The plaintiffs made a bid of $2175000 ; the second defendant made a bid of '$2100000... or $101000 in excess of any other offer...expressed what is known as a 'referential bid'. The House of Lords held that this kinds of bid was invaild. They said that the purpose of a sale by fixed bidding was to provoke the best price which the prospective purchasers were prepared to pay regardless of what rival bidders were prepared to pay. It was inconsistent with this purpose to allow a referntial bid. See also Blackpool and Fylde Aero Club Ltd v. Blackpool Borough Council(1990,C.A).
Display of goods for sale
o The rule that asking for tenders is not making of an offer accords with common sense. But common sense is not is not so clearly satisfied with the parallel rule that the displaying of goods for sale is not the making of an offer. Of course, it is convenience to have a definite rule one way or the other, but actual content of the rule seems somewhat arbitrary. The rule is, however, now firmly established. In Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern)Ltd(1953,C.A.),the Society brought an action against Boots alleging that boots were breaking the law laid down in the Pharmacy and Poisons Act 1933 which requires the sale of any article containing any substance included in Part 1 of the Poisons List to be made under the supervision of a registered pharmacist. Boots had a self-service shop in Edgware. A customer went in and selected articles from the shelves, put them in a wire basket, went up to the cash-desk and paid for them. There was a registered pharmacist standing by the cash-desk but not by the shelves. If the sale took place when the customer picked up the article, then (subject to another point in the case) Boots were in Breach of the law; if the sale took place at the cash-desk, then they were not. The Court of Appeal held that the sale took place at the cash-desk. The display of articles on the shelves was not an offer, only an invitation to treat. The offer was made by the customer taking the article to the cash-desk. That offer could be, but need not be, accepted by Boots at the cash-desk. If it were so accepted the contract of sale would arise at that point, and so would be under the supervision of the registered pharmacist. The courts have taken the same view of goods displayed in a shop window. Indeed in Fisher v Bell(1961) Lord Parker considered the point to be beyond argument. He said:' It is perfectly clear that according to the ordinary law of contract the display of an article with a price on it in a shop window is merely an invitation to treat. It is in no sense an offer for sale, the acceptance of which constitutes a contract,' (the law is the same if the article is displayed without a price on it.)
Advertisements
o The same rule applied to an advertisement by, for example, a trader stating that he is willing to sell some goods. The advertisement is not an offer, merely in invitation to treat. This point is well illustrated by Partridge v.Crittenden (1968). Mr Partridge was charged with unlawfully offering for sale a wild live bird(a brambling), contrary to section6(1) of the Protection of Birds Act 1954. He had put in a periodical called Cage and Aviary Birds an advertisement which read 'Bramblefinch cocks, bramblefinch hens, 25s. each'. A Mr Thompson, having seen the advertisement, wrote up for a hen and enclosed the money. Mr Partidge sent him a hen. On those facts he was charged. It was held by the Divisional Court that the advertisement was an invitation to treat, not an offer for sale, and that therefore the offence charged was not established. (He could have been charged, under the same section, with selling, rather than offering for sale; in sale, he would presumably have been convicted.)
o There are situations, however, where an advisement will be held to be an offer, not a mere invitation to treat. This is so, for example, where an advertisement offers a reward for the return of lost property. If the finder returns the property, knowing of the reward offer, he is entitled to the reward. It is not open to the owner to say:'I was not making an offer, I was only inviting offers.' Such a situation is sometimes described as a unilateral contract. This type of contract is a one-sided contract, in the sense that one party binds himself by a conditional promise leaving the other party free to perform the condition or not, as he pleases. It is a rare form of contract; most contracts are bilateral or multilateral. Both these may be called synallagmatic contracts. In a unilateral contract the offeror will not know whether the contract is valid and effective until the offeror party has performed his part. Such a unilateral contract arose in Carlill v. Carbolic Smoke Ball Co. (1983, C.A.). The defendants were the makers of a medicinal item called 'The Carbolic Smoke Ball'. They issued an advertisement in which they had deposited £1000 with their bankers 'to show their sincerity'. Mrs Carlill saw the advertisement, bought a smoke ball, sniffed at it in the prescribed manner and then caught'flu. She sued for the £100 and succeeded. The defence argued that the advertisement was not a true offer, but the Court of Appeal held that it was.
o Doubts have sometimes been expressed as to whether unilateral contracts really constitute a separate category of contracts, but the Court of Appeal has held there is such a category. See United Dominions Trust (Commercial) Ltd v.Eagle Aircraft Services Ltd (1968, C.A.).
Auction sales
o The analysis of auction sales in terms of offer and acceptance is not entirely easy. The bidder is the offeror; his bid(which may be words or by conduct, such as waving a catalogue) is the offer. The auctioneer accepts the offer by striking the table with the hammer. It follows that the auctioneer can withdraw an item at any time provided he has not accepted a bid. Previous bids, it seems, lapse as offers as soon as a higher bid is made. In Harris v.Nickerson (1873) it was decided that the advertising of an auction sale to be held at a particular time and place is not an offer. But it seems that an advertisement that a sale will be held 'without reserve' is a definite offer, if the sale once starts, that the auctioneer will accept the highest bid. According to Warlow v. Harrison(1859) the auctioneer in such circumstances makes a contract with each bidder that he will sell to the highest bidder.
Negotiations for sale of land
o In sale of lands there are so many points to be settled between the parties that the courts are inclined to treat as a mere step in the negotiations a communication which in other circumstances might be held to be a definite offer. A good example of this is to be found in Harvey v. Facey (1893, P.C.). The plaintiffs telegraphed to the defendants: 'Will you sell us Bumper Hall Pen? Telegraph lowest each price.' The defendants replied by telegraph: 'Lowest price for Bumper Hall Pen £900.' The plaintiffs telegraphed: 'We agree to buy Bumper Hall Pen for £900 asked by you. Please send us your title deed…' It was held by the Privy Council that there was no contract. The second telegram was not an offer but merely an indication of the price the defendants would want if they eventually decided to sell. Another example is to found in Clifton v.Palumbo(1944,C.A). The plaintiff estate owner wrote to the defendant: 'I…am prepared to offer you or your nominee my Lytham estate for £600000…I also agree that a reasonable and sufficient time shall be granted to you for the examination and consideration of all data and details necessary for the preparation of the Schedule of Completion.' It was held by the Court of Appeal that this letter was not a definite offer. Consequently, the defendant's 'acceptance' was ineffective and there was no contract.
Acceptance
Acceptance is best discussed under two heads:first, the fact of acceptance;secondly, the communication of acceptance.
The Fact of Acceptance
Two questions have to be dealt with here: (1) how does one recognize that acceptance has occurred as a fact? And (2) what amounts to acceptance?
Negotiations
When parties carry on complicated negotiations it is sometimes difficult to say when(if at all)an offer has been accepted. As in the case of Clifton v. Palumbo, it is sometimes hard to determine whether or not an offer has been made. It is harder still sometimes to say whether an acceptance has been made. This is because it is necessary to find two things instead of only one; an acceptance as well as an offer. What is more, it is necessary to find an acceptance that exactly fits the offer: see below, As negotiations go on, each party may advance a new point or withdraw a former point, and in the end they may disagree as to whether they have ever agreed. The court must then look at the whole course of the negotiations and decide whether the parties ever did agree to the same terms.
An example of this type of problem is to be found in Walford v. Miles (1992,H.L.) The defendants owned a photographic business, which they were interested in selling. After negotiations with the plaintiffs, they agreed in principle to sell the business to them 'subject to contract'. Soon after, it was further with any third party. The comfort letter was duly provided, but the defendants sold the business to a third party. The plaintiffs claimed that there was a binding 'lock-out' agreement, under which they had been given an exclusive opportunity to try to come to terms with the defendants and which was collateral to the negotiations for the sale of the business. The house of Lords said that a lock-out agreement may be an enforceable agreement, but went on to say that an agreement to negotiate in good faith for an unspecified period is not enforceable. On the other hand, in Pitt v.PHH Management Ltd (1993, C.A.), the Court of Appeal found that there was a lock-out agreement, in the context of negotiations for the sale of land, and that the defendants were in breach of it. This case is considered more fully below: see p 25(' Subject to Contract').
Acceptance by conduct
Just as an offer may be made by conduct so may an acceptance. This is clearly so in the case of a unilateral contract. Thus is A offers a reward for the return of his lost dog, Fido, then B, by taking Fido to A, both accepts the offer of the reward and performs the act necessary to gain it. It is more important to note that a bilateral contract can be made by means of an acceptance by conduct. In Brogden v. Metropolitan Railway Co. (1877,H.L.)
Brogden had for years supplied the railway company with coal without a formal agreement. The company wished to regularize the situation, and so they sent a draft form of agreement to Brogden. He inserted a new term into the draft and returned it, marked 'approved'. The company's agent put it in his desk and it lay there for two years. For two years Brogden sent, and the company paid for, deliveries of coal in accordance with the terms of the draft. Then a dispute arose, and Brogden denied that any binding contract existed. The house of Lords held that a contract had been created by conduct, and that it came into existence either when the company ordered its first load of coal upon the terms of the draft or at least when Brogden supplied it.
Acceptance must exactly fit the offer
A reply to an offer is only effective as an acceptance if it accepts all the terms of the offer without qualification or addition. Thus in Brogden's case Brogden's returning the draft, marked 'approved' , did not amount to acceptance because he had introduced a new term. In Jones v.Daniel (1894) Daniel made a written offer to purchase Jones's property for £1,450 . In reply Jones's solicitors wrote 'accepting' the offer, and adding: 'We enclose contract for your signature.' The enclosed draft contract contained special terms not referred to in the offer, including the payment of a deposit of 10 per cent by the purchaser, a stipulation fixing the date for completion, and a provision limiting the title to be shown by the vendor. Daniel returned the document unsigned. It was held that the letters did not constitute a contract; the solicitors' letter with its enclosure was not an acceptance but a counter-offer. Daniel was free to accept or reject this counter-offer; he close to reject it, and so no contract came into existence. For a more recent example, see Rimeco Riggelsen &Metal Co. v.Queensborough Rolling Mill Co. (1994) which involved the question whether an arbitration clause was included in an agreement.

A 'battle of forms'
In some cases there occurs what has come to be called a 'battle of forms'. A makes an offer on his own printed form containing certain terms, and B accepts on his own printed form contains conflicting terms. A contract may well come into existence by conduct, but on which terms? Often the answer is that the party who fires the last shot wins, but this is too simple a proposition to meet all the varied facts of commercial life. The whole matter is discussed in Butler Machine Tool Co. Ltd v Excell-O Corporation (England) Ltd (1979, C.A.).

The Communication of Acceptance
The offeree may have decided, in his own mind, that he accepts the offer, nut that decision in itself does not amount in law to acceptance. It is necessary that he should communicate his acceptance to the offeror. Thus, in Brogden's case, the fact that the agent of the railway company put the amended draft contract in his drawer did not amount to acceptance, even though in his own mind he did accept the amendments. It would still not have amounted to acceptance if the agent had written on the draft, before putting it in his drawer, 'Amendmants accepted'.
However, the terms of an offer may be such that the requirement of communication of acceptance is waived by the offeror. This is commonly the case in unilateral contracts. In Carlill v.Carbolic Smoke Ball Co. the court rejected the argument that Mrs Carlill should have notified the defendants of her intention to put their medicament to the test. Bowen L.J. said: 'If I advertise to the world that my dog is lost and that anybody who brings the dog to a particular place will be paid some money, are all the police or other persons whose business it is to find loat dogs to be expected to sit down and write me a note saying that they have accepted my perposal?' In such a case acceptance does not require communication in the ordinary sence. But, of course, there is kind of communication; the bringing along of the lost dog is, in a sence, a communication.
In Carlill's case it did not matter when acceptance took place; it was sufficient for the court to decide that acceptance had some time taken place. But in some unilateral contract situations it is of great importance to decide when acceptance takes place. A difficuly arises from the coming together in one situation of fact of two rules:(1)that an offer can be withdrawn at any time before acceptance, and (2)that acceptance need not be communicated. If A promises£10 to anyone who returns his precious Fido, can he withdraw his offer when he sees Fido being walked along on a lead by B towards A's house? To put the question in another way, at what point in time does B accept the offer of a reward? In Daulia Ltd v.Four Millbank Nominees Ltd(1978, C.A). Goff L.J. answered this question in the following terms:'Whilst I think that the true view of a unilateral contract must in general be that the offeror is entitled to require full performance of the condition which he has imposed and short of that he is not bound, that must be subject to one important qualification, which stems from the fact that there must be an implied obligation on the part of the offeror not to prevent the condition becoming satisfied, which obligation...must arise as soon as the offeree starts to perform,' An example of this is Errington v. Errington(1952,C.A.). A father allowed his son and daughter-in-law to live in a house which he had bought for £750, of which he borrowed £500 on mortgage from a building society. He told them that if they paid the mortgage instalments the house would be theirs when the mortgage was paid off.The couple did not bind themselves to continue paying the mortgage instalments, but they began to pay them and did not fail to pay any instalment that was due. At this point of time the father died and his personal representatives purported to withdraw his offer. It was held by the Court of Appeal that it was too late to withdraw his offer. Denning L.J. said:'The father's promise was a unilateral contract- a promise of the house in return for their act of paying the instalments. It could not be revoked by him once the couple entered on performance of the act, but it would cease to bind him if they left it incomplete and unperformed, which they have not done.' In most unilateral contracts the same act is both the acceptance and the consideration. On this view, however, given proper facts, the two may be separated, in that partial performance can amount to acceptance, while complete performance remains necessary to consitute consideration. (This point will become clearer after a study of Charpter2, on consideration.)
The offeror may waive the requirement for acceptance to be communicated, as was mentioned earlier. He may not waive the requirement of communication in the sense of starting that silence is to amount to acceptance. In Felthouse v. Bindley(1862) a man called Felthouse discussed with his nephew, John, the possibility of buying a horse belonging John. A few days after the oral discussion, John wrote to his uncle that he gathered there had been a misunderstanding: the uncle apparently believed that he had bought the house for £30; the nephew believed that he had sold it for 30 guineas. The uncle then wrote in reply to his nephew proposing to split the difference, adding:'If I hear no more about him, I consider the house mine at £30 15s.' John did not reply to that letter, the uncle did not pay any money, and the horse remained in John's possession. Eight weeks later, John held an auction sale of his farming stock. He told the auctioneer, Bindley, not to sell this particular horse, as it had already been sold. By mistake the auctioneer sold the horse. Uncle Felthouse sued Bindley in conversion; he could only succeed in conversion if the horse was his at the time. His action failed; the court held that the horse was not his at the time, there having been no effective acceptance of his offer.The case shows that even where acceptance is by conduct, that conduct requires to be communicated; after all, it was clear from the nephew's conduct that he mentally accepted his uncle's offer, but that conduct was not revealed to the uncle.
An important application of the principle in Felthouse v.Bindley is that if a trader sends goods to a householder by post, without request. he cannot claim later that the householder has contracted to buy them because he has remained silent in the face of the implied offer to sell. This matter is now to some extent governed by statute: see the Unsolicited Goods and Services Acts 1971 and 1975.
The general rule that acceptance, to be effective, must be communicated, stems from the basic principle that contract is based on agreement. If acceptance is not communicated the circle of agreement is not, or is not seen to be, complete.
The question then arise as to what happens if a person does an act which in fact fulfils the terms of an offer, though the actor did not know that the offer had been made. On principle the answer should be that there is no contract, because there has been no agreement. The point is more likely to arise in reward cases: A offers a reward,e.g. for information; B gives the information not knowing that a reward has been offered. Is there a contract? In other jurisdictions the courts have answered 'No'. In England the point is not entirely clear. In some textbooks it is suggested that Gibbons v.Proctor(1891 64 L.T. 594) decided the contrary. But the report of that case(sub nom. Gibson v.Proctor) at 55 J.P. 616 states further facts and gives a version of the judgment which is consistent with the answer 'No'.
If a person does know of the offer of a reward, it does not matter that he does the act of acceptance for some motive other than gaining the reward, For example, in Carbolic Smoke Ball Co., Mrs Carlill recovered the £100 although her motive in sniffing at the smoke ball was presumably to avoid catching 'flu rather than to get the reward by getting' flu.
A similar point arises in connection with 'cross-offers', that is, offers which cross with each other in the post. If A writes to B offering to sell his car for £1300, and B,before he was received that letter, write to A offering to buy the same car for £1300, is there a contract? In form there is no acceptance; both letters are offers. Can it be said that in substance B is accepting A's offer, or A is accepting B's offer? Again, on principle the answer should be ' No'. But the principle is not so strong as in the case of B's doing an act which, unknown to him, has been the subjects of A's offer of a reward. In the case of cross-offers, although there is no acceptance, there is a kind of agreement: both A and B want to make an exchange of a car for £1300. This point has never been decided in England, but it has been stated, obiter, in Tinn v.Hoffman (1873) that in such a situation there is no contract.
The general rule that acceptance, to be effective, must be communicated to the offeror is beyond doubt. It is probable that the communication must be made by the offeree himself or by his authorised agent. In Powell v.Lee(1908) the plaintiff applied for the headmastership of a school. The managers of the school decided, by a narrow majority, to appoint him. One of the majority, without being authorised to do so, sent a telegram to the plaintiff telling him that he had been appointed. At a later meeting the managers rescinded their former resolution and appointed someone else. The plaintiff sued for damages for breach of contract. The court rejected his claim. The case is not entirely satisfactory as an authority, because the judgment seems to run together two reasons: that acceptance must be communicated by the offeree or his authorised agent, and that the fact that the managers did not authorise anybody to notify the plaintiff showed that they were reserving their right to reconsider the matter. Nevertheless it is submitted that, on principle, the decision is correct. If communication is necessary to effect a binding acceptance, then it must follow that the acceptor is not bound until communication has taken place. It would be strange if the acceptor could be deprived of his freedom to change his mind by the act of an unauthorised person.
As a general rule, acceptance takes place when, and only when, it is actually brought to the notice of the offeror. In Entores Ltd v. Miles Far East Corporation (1955, C.A.) Lord Denning gave a number of graphic examples. Thus, if A shouts an offer to B across a river and A does not hear B's reply because of the noise of a passing aircraft, there is no effective acceptance; if C makes an offer to D by telephone, and D's favourable reply is lost because the line is so bad, there is no contract.

Acceptance by post
The general rule that acceptance takes effect only when it is brought to the notice of the offeror raises difficulties where the acceptance is sent by post. The acceptance is sent by post.The acceptance may be delayed, or even permanently lost, in the post. Is it to be said that there has been no acceptance? If so, that may be very hard on the acceptor, who may have been expressly invited to make his reply by post. If, on the other hand, it is to be said that a postal acceptance takes effect from the moment it is posted, that may be hard on the offeror. Hearing nothing from the offeree, the offerormay put it out of his power to perform his offer and find himself liable in damages for breach of contract. This raises an almost insoluble problem in justice, and the courts have been content to lay down a rule upon a basis of convenience.
The rule is that an acceptance by post takes effect as soon as it is posted. The special rule relating to the post was laid down in Adams v. Lindsell (1818). On September 2,1817, the defendants wrote to the plaintiffs offering to sell some wool and requiring an answer 'in course of post'. The letter of offer had been wrongly addressed, and it did not reach the plaintiffs until the evening of September 5. That same day the plaintiffs posted a letter of acceptance, which reached the defendants on September 9. The evidence was that if the letter of offer had been correctly addressed, a reply could have expected ' in course of post' by September 7. On September 8 the defendants sold the wool to someone else. It was held that a contract came into existence on September 5, when the plaintiffs posted their letter of acceptance. It may well be that in reaching this conclusion the court was influenced in favour of the plaintiffs by the fact that it was the defendant's fault (in misdirecting their letter of offer) which led to the delayed acceptance. However that may be, the rule ever since, though not without one or two attempts to overturn it by judges who felt that it was inconsistent with a true doctrine of agreement. There is no meeting of minds, no consensus, if merely posting a letter can clinch a contract. The rule is an example of the point made in the Introduction to this book, that the law takes an objective, view of agreement.
The rule for postal acceptance applies even where the letter of acceptance is delayed in the post, and even where it is totally lost. This was laid down in Household Fire(etc.) Insurance Co. v . Grant (1879, C.A.). In this kind of extreme case the rule may operate very hardly on the offeror.
One justification of the rule is that it is earlier to prove posting than it is prove receipt of a letter. A letter is posted when it is put into an official letter box or into the hands of an employee of the Post Office who is authorised to receive letters. It is not posting to put a letter into the hands of a postman who is only authorised to deliver letters. See Re London and Northern Bank, ex p.Jones(1900).
A telegram is on the same footing as a letter, a telegram of acceptance takes effect when it is handed in at a post office: see, e.g.Cowan v. O' Connor(1888).

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