Law of Contract: Acceptance

Law of Contract

Acceptance

• Introduction: Section 2(b) of the Contracts Act 1950 defines acceptance as 'when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted: a proposal, when accepted, becomes a promise.'

• The offeree has the option to accept or reject the offer.

• Section 2(c) of the Contracts Act 1950 designates the person making the proposal as the "promisor" and the person accepting the proposal as the "promisee."

How to Make an Acceptance?

• Expressly (by words): As per Section 9 of the Contracts Act 1950.

• Impliedly (by conduct): As per Section 9 of the Contracts Act 1950.

• Performing the conditions in the offer: According to Section 8 of the Contracts Act 1950. Example: Carlill v Carbolic Smoke Ball Co.

• Giving the consideration required: According to Section 8 of the Contracts Act 1950. Example: Paying the price of goods.

Conditions for a Valid Acceptance

1) Acceptance Must Be Absolute and Unqualified

• As per Section 7(a) of the Contracts Act 1950.

• Acceptance must precisely match the offer; it must not change the terms (e.g., price, type of goods).

• An acceptance that does not match the offer is a qualified acceptance, known as a counter-offer.

Counter-Offer

• A counter-offer means the offeree is presenting a new offer to the offeror.

• The original offeror can accept or reject the new offer.

• The original offer is automatically revoked; the offeree can no longer accept the original offer unless the offeror consents.

Case Example: Hyde v Wrench (1840) 3 Beav. 334

• Facts: Wrench offered to sell his estate to Hyde for £1000. Hyde offered £950, which Wrench rejected. Hyde then agreed to pay £1000, but Wrench refused to sell. Hyde sued for breach of contract.

• Held: Hyde’s offer of £950 was a counter-offer, which revoked Wrench’s original offer. Therefore, Hyde could not later accept the original offer of £1000.

2) Acceptance Must Be Made in a Usual and Reasonable Manner

• Section 7(b) of the Contracts Act 1950 requires the offeree to use the customary and reasonable means of communication under the circumstances (e.g., phone, post).

Acceptance Must Follow the Manner Stated in the Offer

• Section 7(b) of the Contracts Act 1950 states the offeror may insist on a specific mode of acceptance.

• Failure to comply with the prescribed manner signifies a failure to accept the offer, as per Section 6(c) of the Contracts Act 1950.

• The method's difficulty or unreasonableness is irrelevant if the offeror mandates it.

Case Example: Eliason v Henshaw [1819] 4 Wheat. 225, 4 L.Ed. 556

• Facts: Eliason offered to buy flour from Henshaw, specifying that acceptance be sent to Harper’s Ferry by the wagon that delivered the offer. Henshaw sent the acceptance by mail, thinking it would be faster, but it arrived after the specified date.

• Held: Eliason was entitled to reject the acceptance because Henshaw did not adhere to the prescribed mode of acceptance.

Acceptance Must Be Made Within the Time Stipulated in the Offer

• If no time is prescribed, acceptance must be made within a reasonable time.

Case Example: Fraser v Everett [1889] 4 Ky 512

• Facts: A contract for the sale of shares required acceptance to be mailed by the end of March, expected to arrive by April 23rd. The acceptance was mailed in early April and reached the defendant on May 15th.

• Held: Given the fluctuating nature of shares, time was of the essence. The acceptance was not made within a reasonable time.

Other Conditions

• Acceptance must be made by the offeree or their authorized agent.

• Acceptance must be made while the offer still exists.

• The offeree must know about the offer.

• Acceptance must be communicated.

Can Silence Be an Acceptance?

Case Example: Felthouse v Bindley (1826) 29 LT 271

• Facts: Felthouse offered to buy a horse from his nephew, stating, “If I hear no more about him, I consider the horse is mine at £30 15s.” The nephew did not reply, and the horse was later sold in an auction.

• Held: There was no acceptance, and Felthouse had no right to impose a sale by silence.

Communication of Acceptance

• Section 3 of the Contracts Act 1950 outlines two types of communication:

  • Instant or Immediate Communication: The General Rule

  • Communication by Post or Delayed Communication: The Postal Rule - Exception to the General Rule

Instant or Immediate Contract

• Involves instant methods of communication like face-to-face conversations, telephone, or fax.

• Acceptance reaches the offeror immediately without delay.

• The contract is formed as soon as the offeror receives the acceptance.

• There is no contract if the offeror does not receive the acceptance.

Case Example: Entores Ltd v Miles Far East Corporation (1955) 2 QB 327

• Facts: An offer was sent by telex from London, and acceptance was sent by telex from Amsterdam to London. The plaintiff claimed damages for breach of contract and the issue was where the contract was made.

• Held: The contract was formed in London. The instantaneous nature of telex meant that regular rules of acceptance by post did not apply, and acceptance takes place when communicated.

The Postal Rule

• Applies when the contract is made by post or telegraph.

• There is a delay in communication.

• The offeror might not know that acceptance has been made.

• The parties must have contemplated the use of the post as a means of communication.

• The use of post for communication must not be unreasonable.

Effect of Section 4(2)(a)

• Section 4(2)(a) states that communication of acceptance is complete ‘as against the proposer when it is put in a course of transmission to him, so as to be out of the power of the acceptor.’

• This means when the offeree has posted or telegraphed his acceptance (i.e., put it in the mailbox).

• The offeror has not yet received the letter.

• However, the offeror is bound by the contract and cannot revoke their offer, even if the letter is lost.

• The offeree is not yet bound by the contract and can still revoke their acceptance.

• Thus, the contract legally exists and binds only the offeror.

Effect of Section 4(2)(b)

• Section 4(2)(b) states that the communication of acceptance is complete ‘as against the acceptor when it comes to the knowledge of the proposer.’

• This means when the offeror has received the letter of acceptance from the offeree.

• Both parties are bound by the contract.

• The offeree cannot revoke their acceptance.

Case Example: Ignatius v Bell (1913) 2 FMSLR 115

• Facts: Bell gave Ignatius an option to purchase land, conditional on the option being exercised by written notice on or before August 20, 1912. Ignatius posted his acceptance on August 16, but it reached Bell on August 25.

• Held: Because the parties contemplated using the post, Section 4 applied, and a contract existed on August 16 when the acceptance was posted.

Case Example: Adams v Lindsell (1818) 106 ER 250

• Facts: Lindsell offered to sell wool to Adams. The letter was misdirected and arrived late. Adams promptly posted his acceptance. Lindsell, not receiving a reply, sold the wool to someone else.

• Held: A contract existed from the date the acceptance was posted.

Exception to the Postal Rule

• The offeror may stipulate that they will not be bound until actual receipt of the acceptance.

Case Example: Holwell Securities Ltd v Hughes (1974) 1 WLR 155

• Facts: Hughes stated that acceptance must be in writing and delivered to him. Holwell Securities posted the letter, but it was lost.

• Held: The postal rule did not apply because Hughes expressly stipulated that he would only be bound by actual receipt of the acceptance.

Revocation of Acceptance

• Section 5(2) states: “An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.”

• Illustration to S.5:

  • A proposes by a letter sent by post to sell his house to B.

  • B accepts the proposal by a letter sent by post.

  • B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards.

Case Example: Dunmore v Alexander [1830] 9 Shaw 190

• The letter of acceptance and the letter revoking the acceptance were received by the offeror simultaneously.

• It was held that the acceptance had been effectively revoked by the offeree, and therefore there was no contract.

Revocation by Post

• Section 4(3)(a) states that the communication of a revocation is complete ‘as against the person who makes it when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it.’

• Section 4(3)(b) states that the communication of a revocation is complete ‘as against the person to whom it is made when it comes to his knowledge.’

Effect of Section 4(3)

• The revocation is valid and binding on the party who made it.

• It is not binding on the other party until they have received knowledge of it.

• Thus, the offeree may accept the offer even after the offeror has posted their revocation, provided the offeree has not received the revocation letter.

• The offeree cannot accept the offer after receiving the revocation letter.

Case Example: Byrne v Van Tienhoven (1880) LR 5 CPD 344

• Facts: Van Tienhoven posted a letter on October 1 offering to sell tinplate to Byrne, then posted another letter on October 8 withdrawing the offer. The first letter reached Byrne on October 11, and they accepted the offer at once by telegram, following with a confirmatory letter four days later.

• Held: The withdrawal letter arrived on October 20, by which time the offer had been accepted, so it was too late for Van Tienhoven to withdraw.

Conclusion

• There is no agreement if there is no acceptance.

• Acceptance must be communicated to the offeror according to the conditions stated in the offer.

• Once there is offer and acceptance, an agreement is deemed to exist.

• Whether it is a contract or a mere agreement depends on whether other elements have been fulfilled.