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Acceptance and Unilateral Contracts

Author: Dr Robert N Moles

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Acceptance

Acceptance - the "magic moment" when the contract comes into being

I think it takes some ingenuity at times to reconcile the practice of the common law with the theory of offer and acceptance as elements of contract. Napier J Subdivisions Ltd v Payne [1934] SASR 214 at 220

It is usually said that offer and acceptance must correspond exactly. They must be "mirror images" of each other. Any departure will result in the acceptance being ineffective - a conditional acceptance being in effect a "counter offer". One may infer acceptance from conduct e.g. as in Carlill.

When stated in general terms, these provisions seem fairly straightforward - but difficulties can arise.

Acceptance Must be in Response to the Offer

The whole idea of the analysis in terms of offer and acceptance is to emphasise the reciprocal nature of the relationship. This is not a problem with regard to bilateral contracts where one party makes an offer to which the other responds with an acceptance, thus identifying the existence of a contract and its terms. In the case of a unilateral contract, i.e. an act in reliance upon a promise, it is necessary to show that a link exists between the act and the request that it should be performed. Thus a party can hardly accept an offer of which he / she did not know or had forgotten.

R v Clarke - rewards

(1927) 40 CLR 227 Australian High Court

A reward has been offered for anyone giving information which led to the conviction of those responsible for the murders of policemen. Clarke gave information which led to such arrest and conviction. However, his claim to the reward was resisted. Clarke's motive and intention in giving the evidence was to protect himself and to clear himself of the charge of murder. Only after arrest, conviction and appeal by the others, did Clarke think of claiming the reward

It was held that Clarke did not act "in reliance upon the offer or with the intention of entering into any contract" - although clearly, the convictions would not have come about without his evidence. Isaacs ACJ points out in his judgment the difficult case of Gibbons v Proctor (1891) where, by contrast, a policeman was allowed to recover a reward, although he did not know of the existence of the reward when he sent off the information. He points out that in Anson on Contracts it was stated that that decision was wrong, and that he (Isaacs) thought it was too.

So a mere coincidence between the act required and the doing of that act is not sufficient - it requires some mental element connecting the two - and which we would call an intention - although we also know of course that in many cases, the intention involved does not go beyond the doing of the act itself - the intention to get on the bus, seldom involves an "intention" to create a contract, but we have no problems construing the situation as if there were such an intention. This is often done via the "objective test" idea - which was obviously thought not to be appropriate to this type of situation.

Gibson v Manchester City Council - reciprocity not imposed

[1979] House of Lords

We looked at this case in the previous lecture, (sale of Council houses) - the letter said it was not a formal offer and invited applications - Gibson sent in his letter saying "I accept" - the H/L held that the purported acceptance could not have been a real acceptance, because there was no offer on the table. Lord Diplock pointed out that Denning had rejected the conventional approach and said one should look at the position as a whole i.e. one should take a "global approach". But he pointed out that this may make outcomes less certain as the criteria involved are none too clear. The conventional approach does well for all but exceptional cases. Diplock also pointed out that there was a claim that Gibson had done much to improve his house, therefore there was a reliance based argument which did not prevail here - it being none too clear what Gibson had actually done.

It should be noted that 2 offers, identical in terms, made at the same time or which cross in the post, will not create a contract because neither offer counts as an informed acceptance of the other -

Tinn v Hoffman (1873) 29 LT 271.

Acceptance must correspond to the offer

As a contract is an agreement on certain terms, an offer in one set of terms can hardly be accepted by a communication in different terms, a document which is therefore called a counter offer.

Turner Kempson & Co v Camm - suggestions, not stipulations?

(1922)Sup Ct Vict - Full Ct.

Here we had an exchange of documents dealing with the sale of raspberry pulp. The final contract note delivered by the plaintiff to the defendant supplier, had provisions for delivery to take place in 3 lots of 5 tons each, with 10 days between each delivery and contained provisions dealing with claims. At this stage the defendant claimed there was no contract and sought to avoid completion

Counsel for the plaintiff suggested that the differences were not stipulations, but suggestions. However the view was taken that the effect of the letter with the contract note is to specify the terms of the acceptance, which is not an acceptance pure and simple - what purports to be an acceptance, attempts to incorporate different terms - it is clear that an acceptance is not to add anything to the offer, even if consistent with it.

R.A. Brierley Investments Ltd - no matching offer and acceptance

(1966) 120 CLR 224 High Court of Australia

Appeal from Supreme Court NSW

On 1 October 1965, Brierley (the vendor) was the registered holder of 13,000 shares in the Hawkesbury Co. By 21 October it had 46,825 shares.

On 16 Sept, another company called Landmark made offers for 51% of the share capital of Hawkesbury at 17s per share. Shortly after 1 Oct, B received the offer to buy which said that the offer would remain open for one month after 1 Oct. On 29 Oct, B accepted the offer with regard to 51% of its then holding (23, 880 shares). Landmark said the offer was only for 51% of the shares which were registered at 1 Oct and said it was prepared to treat the acceptance of the offer as a valid acceptance for 51% of the shares which were held at 1 Oct i.e. some 6,000. B said that the offer must be understood to relate to the number of shares at the time of the acceptance. B sought specific performance of the sale of the shares.

If you look at this arrangement carefully you will find that there is no actual correspondence between any of the purported offers and acceptances. The majority of the court thought that the letter from Landmark to treat the acceptance for a reduced amount, gave rise to an implied acceptance of this by Brierley. The minority thought that this could not be right, for B continued to assert that there had been an acceptance for the whole amount.

This need for harmony between offer and acceptance will not be satisfied in a situation called a battle of the forms where buyer and supplier of goods both issue their standard form contracts and each attempts to insist that it is its own document which constitutes the contract between the parties. How is this problem to be resolved?

Butler Machine Tool v Ex-Cell-O Corp - battle of the forms

[1979] Court of Appeal

In essence this was a transaction so typical of the modern ways of doing business. Both buyer and seller deal with each other in accordance with their standard forms for doing business, thinking little about the details of the transaction until something goes wrong - then each appeals to the forms which they sent to try and settle the matter. So whilst Lawton agrees with Denning as to outcome, could we say that his understanding of the analysis is the same? No, the "global approach" of Denning is clearly contrary to the "set rules" preferred by Lawton.

Denning said that in deciding what terms prevail, one could take the first shot approach, the last shot approach, or a combination. Here the trial judge thought that the terms of the initial document prevailed throughout. Denning thought one should go by the last form which was sent without objection being raised.

A lack of identity between alternative or competing forms may not be vital if one signifies or may be taken to signify the acceptance of the other to the exclusion of any consideration of the differences contained in them.

Thornton v Shoe Lane Parking

see under "signs and tickets" in previous lecture

Sindel v Georgiou - "correspondence" depends upon intention

(1984) 154 CLR 661 High Court of Australia - Appeal from Sup Ct NSW

Here we had an "exchange of contracts" as part of a conveyancing transaction. The actual documents exchanged did not correspond with each other. The court held that the parties had agreed on the salient issues, and intended to enter a binding relationship. Although there were some blanks in the documents, they did not contradict each other, therefore the court would hold there to be a binding contract.

The United Nations Convention

Contracts for the International Sale of Goods (1980)

This provides that an acceptance which limits or modifies the offer is a counter-offer. A reply, purporting to be an acceptance with different terms (but not materially different) is an acceptance, unless the offeror objects promptly orally or in writing. A material difference will include matters such as price, quantity, quality, delivery details, provisions re liability or the settlement of disputes.

Where acceptance is an executory promise in exchange in for another executory promise (an offer), it is BILATERAL

Where acceptance is an act in exchange for an executory promise (an offer), it is UNILATERAL

Colonial Ammunition Co v Reid - standing offers

(1900) Sup Ct NSW

"This agreement imposes no obligation upon the Govt to order one single cartridge from the Co - but they agree to pay the stipulated price for any goods which they do order".

In effect the so-called "contract" amounts to no more than a standing offer.

Acceptance Must Generally be Communicated

This elementary principle requiring the communication of an acceptance will operate unless it is displaced by the clear intention of the parties.

Latec Finance v Knight - non communication of acceptance

[1969] NSW

A finance company had set up its operations so as to take advantage of these rules of offer and acceptance. The purchaser was required to fill in the form and send it back to the finance co as the offer. The finance co can then accept the offer, in their office, by signing the appropriate section on the form - when the credit reports check out OK. It was held that the signing of the form was to be seen as an essential step in the procedure, but it was not to displace the normal requirements of acceptance i.e. that it be communicated. An English case on all fours with this is Robophone [1966] where Denning said that if the finance company could sign the document in their own office, then they could assert the existence of a contract or not as it suited them, and no one could say otherwise.

Carlill v Carbolic Smokeball Co - Offer can be made to the world at large

(1893) Court of Appeal - discussed in previous lecture

The manufacturers of an influenza remedy in their advertisements said that if anyone used their remedy and then caught flu they would be entitled to £100. When a claim was made they said that there was no contract. It was held that an offer made to the world at large, can become a contract with those who fulfil the condition.

The operation of this basic requirement may be affected by an implied assent to the existence of a contract based upon an acceptance that was not communicated.

Manchester Diocesan Council v Commercial Investments - communication may be waived

[1970] Chancery Division

Offeror may waive communication, or by conduct, the right to insist on the express manner of acceptance. As the plaintiff introduced the term, the plaintiff may waive strict compliance with it. Where offeror indicates that acceptance in one form would be OK, then acceptance may be in that manner or something better.

Tinn v Hoffman - something better will do

(1873) - if an offer stipulates acceptance by return of post - then an acceptance by telegram or personal communication would be just as good.

Farmers' Mercantile Union Mills v Coade

(1921) High Court of Australia

Coade and another applied to be shareholders in the company, and sent off their money with the form. They heard nothing for a year or two and were then asked to pay a call on the share, and again a year or two later. The company became insolvent and they were asked to pay up. The majority held that from the time they had notice of their shareholding, even if it was unreasonably delayed, they could by their conduct be taken to have waived the requirement of communication. Starke J argued some cogent points in his dissent.

What if the offeror attempts to create a contract with the offeree by imposing upon the latter a need to deny the existence of the contract, e.g. if I do not hear from you in seven days I will consider we have a deal? Normally this would not be allowed.

Felthouse v Bindley - silence is not consent

(1862) Court of Common Pleas

The uncle offered to buy the horse and said that if he heard nothing further, he would take it to be his. The case clearly indicates that a person who makes an offer, cannot impose a bargain on the other merely by stating that silence indicates consent. But could the acceptance here not be by conduct - taking the uncle at his word and doing nothing more to try to sell the horse - what if the horse had been held back at the auction, and then the uncle refused to pay? May not the person making the offer dispense with the necessity to communicate the acceptance? If one needs an overt act to indicate acceptance, why wasn't the instruction to the auctioneer sufficient?

Corbin, the great American writer in his article in the Yale law Journal says that it should not necessarily be the case that silence cannot amount to acceptance.

It is argued that whether silence indicates consent may depend on who is trying to enforce the contract.

Supposing the offeree takes the offeror at his words i.e.: "I don't have to do anything. He says if I do nothing the contract will be concluded." And so the offeree does nothing. The offeror then tries to pull out of the deal and says "Your silence does not amount to acceptance even though I said that it will be alright." Wouldn't it be fair to say that the offeror has only herself to blame if silence is being stipulated as a form of acceptance. In such instances, says Corbin, it would not be fair on the offeree who having relied on the offeror's assurance does nothing in response to the offer believing that to be the appropriate response.

The practice of sending unsolicited goods through the mail to a person with a statement that if they are not returned within a stated period the recipient will be taken to have agreed to buy them, has long been of concern to consumer protection authorities.

Note that there is Commonwealth and State legislation providing that in many circumstances the making of a demand for payment for unsolicited goods is an offence and also that where the sender does not collect the goods within a certain time the goods become the property of the recipient, in effect as a gift - See the Trade Practices Act 1974 (Cth) s65 and the corresponding States Fair Trading Acts.

Carlill is the most obvious circumstance - a more recent example follows:

However, silence may constitute consent to a contract where the circumstances create a duty to deny a contractual relationship which would otherwise be assumed to exist.

Empirnall Holdings v Machon Paull - benefiting from offer

(1988) 14 NSWLR 523 Court of Appeal Supreme Ct NSW

A property developer arranged for an architect to do some work, but did not complete a proper contract - after being told that "Eric does not sign contracts". The court held that this circumstance was not so much an acceptance by silence, but rather taking the benefit of an offer, with knowledge of the terms of it, and with knowledge that the offeror was relying on payment being done for the work.

What Constitutes Communication?

Historically contract making was a person process between the two parties and perhaps their lawyers. As commerce expanded contracts were still a matter of personal negotiation, though the carrying out of that task might be entrusted to an agent by one or both sides. The advent of a postal service in the late 18th century in Britain created an entirely new problem for the courts. The offer and acceptance were no longer virtually contemporaneous acts between the parties or their agents face to face. Could there be a contract when that occurred? Cooke v Oxley suggested not.

For a negative and confusing response see

Cooke v Oxley - confuses 2 stage completion of contract

100 ER 785

The defendant proposed to sell some goods to the plaintiff. The plaintiff asked to be allowed until 4pm to decide. Before 4pm, the plaintiff gave notice to take the goods. It was held that there was no contract. The courts did not appear able to determine what to do when a contract was completed in two distinct stages.

However this answer was rejected in the specific context of negotiations by post in Adams v Lindsell which formed the basis for the rule that an acceptance by post is effective from the time of posting, not the time of delivery.

Adams v Lindsell - exception for postal rule

(1818) 106 ER 250

It was said there that if a contemporaneous expression of assent were required from both parties, no contract could be completed by post. If the offeror were not bound until the acceptance was received, then the offeree ought not to be bound until they had received notice that the acceptance had been received. To this process there is no end. The offer must be seen as continuing whilst the letter is on its way to the other party, and the contract is then completed by the acceptance of it.

This is the main exception to the rule that acceptances have to be communicated, to be effective. In these cases the acceptance is effective upon posting - even though there may be delay or even non-delivery.

Adams is an early authority. In British v American Telegraph Co (1871) It was said that convenience requires the rule to be so - otherwise, people might deny receipt of letters. The answer is that if the rule is otherwise, people would untruly assert posting them.

The law was subsequently stated in

Henthorn v Fraser - post within ordinary contemplation

[1892] 2 Ch 27

Lord Herschell said that where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.

The applicability of the postal rule will determine not only the time of the completion of a contract, but also the place and hence the jurisdiction which applies.

Bressan v Squires - (notice in writing)

[1974] Sup CT NSW

Was the important date that of posting or of receipt? The general rule requires actual communication - except by post. The exception is based on expediency & convenience. The matter is important for it will determine not only the time of completion, but also the place (and hence jurisdiction) of completion. The parties need not contemplate that posting would conclude the contract - that would make the requirement too restrictive. Here, the post was clearly contemplated - so a contract would be found unless there were reasons for holding otherwise. When the offeror says that "notice" should be given, this could mean "actual notice" - which would require communication. If the parties meant "posted", they could easily have said so. In my view, says the judge, "in writing addressed to me" leaves the matter ambiguous. The matter, he says, is one of impression - my impression is that "addressed" did not mean posted but that actual notice was required.

This appears to be the sort of case where the judge is finding an ambiguity, where many others would not - isn't a letter "in writing - addressed?" Why might the judge have come to this view - we should bear in mind that the contract being considered here was an option for $2- dealing with land.

The following case spells out in more detail the significance of the word "notice".

Holwell Securities Ltd v Hughes

[1974] 1 WLR 155 Court of Appeal

This case involved an option to purchase premises. The agreement said that the option could be exercised by "notice in writing" addressed to the vendor at any time within 6 months from that date. It was accepted that an acceptance was posted but this was not received. The offeree sought specific performance. The action was dismissed at trial.

The judge held that "notice in writing" should be contrasted with "agreed in writing" and "required in writing". The word "notice" comes from the Latin word "to know" and the Oxford Dictionary suggests it means intimation or warning. Now, notice in writing to the vendor meant that he was to actually have this information - but he never did because it never got to him. The Plaintiffs were unable to do what the agreement said they were to do, and fix the vendor with the knowledge of the exercise of the option. If this construction of the option is correct, there is no room to apply the postal rule in this case.

What should we do about a letter which is mis-addressed, so that it might not arrive in the ordinary course of post? One could say that this does not comply with the normal requirements of the postal rule. But what then happens if a specially vigilant postman notices the mistake so that it is properly delivered?

Although the rule has been applied to similar modes of communication, e.g. telegrams, it has not been applied to those where the response is virtually instantaneous e.g. faxes, sms, emails and telephones.

Brinkibon Ltd v Stahag Stahl - telex and instantaneous communication

[1983] 2 AC 34 House of Lords

NB. Lord Wilberforce, a well respected judge in commercial matters, here demonstrates his awareness of the artificiality of the intention theory, and takes into account more commercial considerations.

If the telex was sent from London to Vienna where is the contract made? If seen as a postal acceptance, then on posting - in London. If seen as a telephone acceptance, then on reception in Vienna.

Entores says that a telex is to be treated like a telephone message. The English Co says this should be reviewed. But Entores has not been subject to adverse comment and should be accepted as a general rule. In this area, it is difficult to have a universal rule. One should have regard to intentions, business practice and where the risk should lie. In the case of instant communication between principals, the contract is made when and where the communication is received, indicating the time at which the deal is clinched and the jurisdiction and law which applies.

Reese Bros v Hamon-Sobelco -applied instant communication rule to faxes

(1988) 5 BPR The Court of Appeal of Supreme Court NSW

Should the postal acceptance rule be retained?

Prescribed Means of Acceptance.

It is open to an offeror to prescribe the precise method by which an acceptance must be made in such a way as to render other means ineffective. In such a situation a requirement that a notice should be given in writing is not satisfied by a telephone message left with a clerk or an answering machine. The courts are reluctant to impose an absolute requirement and all will depend upon the apparent intentions of the offeror. For example, a statement in an offer requiring a reply by return of post is likely to be regarded as imposing a time limit rather than just a sole means of communication.

Hudson Holdings Ltd v Rudder and French - acceptance by post or delivery

(1973) 128 CLR 387 High Court of Australia

Hudson wanted to make a takeover bid for a company and offered to buy its shares. The offer talked about how to accept by post, but French delivered his acceptance to the company. When it went into liquidation, French claimed his money back, but it depended on whether he had completed a contract with the Co. It depended on whether the clauses dealing with posting were stipulations. The judge held that the real concern of the company was with the receipt of the acceptances, not the method of delivery; so actual delivery was seen as a valid acceptance.

Withdrawal of Postal Acceptance

A classic difficulty in this area is the problem of what happens when a letter of acceptance is posted, but the offeree then has a change of heart, and attempts to withdraw the acceptance before it reaches the offeror, by using a faster means. The notice of revocation could then take effect before the acceptance has arrived? Would it necessarily be unjust to allow the withdrawal to be effective? This could mean, of course that the offeree can have the best of both worlds for a day or three?

TPA 1974 Cth Unsolicited goods

S 65 1 receiver of them not liable to pay for them and not liable to damage to them (other than wilful damage or unlawful acts)

After the expiry period provided for in the Act, the sender is not allowed to take action to recover the goods. The goods then become the property of the person to whom they were sent.

The above sub section does not apply when the person unreasonably refuses to allow the sender to take recovery of the goods - has taken possession - where person receiving knows goods intended for someone else.

Before s65, it might have been thought that opening a package and keeping the contents amounted to an acceptance. This section makes it clear that opening the package does not matter.

Exemption Clauses

In contracts for carriage of goods, the carrier's exemption clauses have been held to protect 3rd parties as well.

Where the owner of goods employs a contractor to ship goods from A to B, that contractor will have the benefit of certain exemption clauses - the question arises as to whether the benefit of them extends to a third party contractor (sub-contractor) - stevedores or truck drivers. The analysis suggests that the offer of the exemption is extended to the TP contractors, who accept it by dealing with the goods in accordance with their task - unloading etc. Many of them will not know at that stage of the existence of the exemption clauses - therefore, if the reward cases analysis was carried through, one would say you cannot accept what you do not know about. Yet here, the unilateral contract analysis is allowed to bring "contract" into existence. It is claimed that this is patently artificial, and is only used to get around the privity of contract rule - and to allow contracts which will sensibly allow for risk allocation. Cheshire and Fifoot suggest that this should be done specifically without "conjuring up" a unilateral contract for the purpose.

Another point in this connection is ONUS OF PROOF. Smith v Chadwick (1882) referred to by Higgins J indicates that if an action is prima facie in accordance with that required by the offeror, then the inference is that it was done in reliance upon it. It is open to the other party to show that this was not so, but the existence of such a presumption means that it may be very difficult for me to establish an intention (or lack of intention) which accompanied your doing certain things. The presumption in Clarke was rebutted by his own express admissions.

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