Problems with the Offer and Acceptance Model

It is evident in classical English contract law that an agreement is established by identifying an offer with its corresponding acceptance.[1] Over time, this traditional approach has been criticized on the basis of which it is uncommercial within practise and is too rigid. This is essay will set out to explain the current law on the rules of offer and acceptance within contract law. Arguments for and against the effectiveness of this approach will be discussed but nevertheless this essay will support the stance that the offer and acceptance model to some extent is inflexible and inapplicable.

A contract is an agreement giving rise to
obligations which are enforced by law.[2]
The fundamental elements of an
enforceable contract is that the parties reach an agreement through offer and
acceptance, provide consideration and intend to create legal relations. A
contract will cease to exist if one of these elements is missing. In order to decide
if there is an agreement between contracting parties, the courts have
traditionally analysed these negotiations using the offer and acceptance model.
The requirements of an offer and acceptance will be examined below.

The
general rule of an offer is an expression of willingness to contract on
specified terms made with the intention that it is to become legally binding
once accepted by the person whom the offer is addressed to (per Treital).[3]  There must be an offer from one party (known
as the offeror) which is then accepted by the other party (offeree). There are
three basic requirements of an offer.

Firstly,
an offer must be clear and certain. Applying the judicial precedent of Gibson v Manchester City Council[4], an
agreement will exist when there is a clear offer mirrored by a clear
acceptance. In this case, the council had enforced a policy of selling houses
to tenants. The claimant was a tenant and applied for details of the price of
the council house he was renting and the mortgage terms. The treasurer had
replied to the claimant stating that the council ‘may be prepared to sell the
house’ and invited him to complete an application form. Gibson completed this
form however the council had changed its policy on the sale of council houses.
The issue presented was whether there was a contract of sale between the
claimant and Manchester city council. The House of Lords concluded there was no
offer as the language used by the treasurer in the document evidently
demonstrated that council did not intend to make a binding promise, but rather
to invite Gibson to make an offer to buy. The terms ‘maybe prepared’ lacked
sufficient certainty therefore an offer was not made. This case can be
distinguished with Storer v Manchester
City Council[5] in which
there was evidence of a binding contract where there was a clear and certain
offer and acceptance.

Secondly,
an offer must be addressed to the offeree and can be communicated orally, in
writing or implied from conduct. In Taylor
v Laird[6], the
offeree must have knowledge of the offer for it to be valid.

Furthermore,
an intention to enter into a legal relationship must be demonstrated as the
parties must intend for their agreement to be legally binding as held in the
case of Parker v Clark.[7]

Moving
on, the rules relating to what does not constitute to an offer will be
discussed. Within a contract, an offer must be distinguished from an invitation
to treat (ITT). An invitation to treat is the first step in negotiations which
may lead to the conclusion of a contract however this does not amount to an
offer. A case to demonstrate this rule is Partridge
v Crittenden[8] in which
advertisements are invitations to treat.

An
exception to this rule of advertisements is subjected to unilateral offers. This
offer is made to the world at large as opposed to one specific party without
the need for further negotiations and requires the offeree to perform a
specific act.[9] A
unilateral contract is formed when an individual offers to do a particular act
in return for the performance of the act specified in the offer.[10] This
suggests that acceptance does not have to be communicated and can be accepted
by the performance of the act. A unilateral contract
can be demonstrated in Carlil v Carbonic
Smoke Ball Company[11].
Carbonic Smoke Ball company intended to test the effectiveness of the smoke
ball remedy. The company advertised that they would offer a £100 reward to any
individual who used the remedy and contracted the flu. The claimant once made
aware of the offer accepted this when she purchased the remedy and followed the
instructions. Upon contracting the flu, the claimant became eligible for the
reward. The company’s offer to pay £100 in return for the use of the remedy was
performed.

In
regards to the end of a contract, an offer remains open until it is terminated.
There are various ways a contract can be terminated for instance an offer can
be revoked before acceptance takes place applying Payne v Cave[12].  An offer may also come to an end by lapse of
set or reasonable time using the case law of Ramsgate Victoria hotel v Montefiore.[13] The
case of Hyde v Wrench[14]
presented the issue of counter offers. Where an offeree responds to an offer in
which they make a different offer in known as a counter offer. The effect of
this counter offer destroys the original offer so that it is no longer open for
the offeree to accept.

Now
that the rules of an offer have been established, the following stage is a
corresponding acceptance which results in a binding agreement.

An
acceptance can be defined as the final expression of assent to the terms of the
offer and must be made in response to that offer.[15] A
requirement of an acceptance is that it must be a mirror image to the terms
specified by the offeror.[16] Therefore,
an acceptance must correspond with the terms of the offer. This is known as the
‘mirror image rule’.

Furthermore,
an acceptance must be made by the offeree as held in Boulton v Jones[17] and
must communicated to the offeror applying Entores
v Miles Far Eastern Corporation.[18] This
acceptance must be also being in response to an offer.[19]

Finally,
an acceptance must be communicated to the offeror in which the case Fenthouse v Bindley[20] concluded
that silence cannot amount to an acceptance.

However,
there are exceptions to this rule of the communication of acceptance.

The
first exception relates to unilateral offers. Within this type of offer, it is
not necessary for the claimant to tell the offeror that they have accepted.
Referring back to the case of Carlil v
Carbonic Smoke Ball[21],
acceptance occurs once the other party has performed. The claimant was not
bound to state she was accepting as she had performed by purchasing the smoke
ball and contracting the flu.

Another
exception is the ‘Postal Rule’. The case Adams
v Lindsell[22]
established the postal rule in which its application will be valid when both
parties agree that the use of post will be a form of communication. This rule
states that where a letter is correctly addressed and stamped, acceptance will
take place once the letter is placed in the post box.

Now
that the rules of both offer and acceptance are established, the efficiency of
the offer and acceptance model will be evaluated.

According
to McKendrick, the courts have come under criticism due to their attempt to analyse
all contracts using offer and acceptance.[23] The
traditional approach of identifying agreements implies that all contracts
require an offer and acceptance. However, in some cases this has been inflexible
and as a result, the courts either find an offer and acceptance using the long
process of  ‘reasoning backwards’[24]
(the court enforces the contract and then look for offer and acceptance from
the conduct of parties) or use external evidence to find the existence of an agreement
by ignoring the traditional approach.

Firstly,
the traditional approach of offer and acceptance is inflexible because it
ignores the reality of a potential situation by expressing that there has not
been an agreement due to technical reasons.[25]

Lord
Wilberforce’s view in New Zealand
Shipping Co[26] [1975]
AC 154 is that the traditional approach is ‘often at the cost of forcing the
facts to fit uneasily into the marked slots of offer, acceptance and
consideration’. This implies that not all facts of the contract are able to fit
into the offer and acceptance model.

Lord Denning
used this statement to support his view of identifying an agreement using a
different approach besides the traditional method in Butler Machine Tool Co. ltd v Ex-cell-o Corporation[27].
Here Denning suggested that in order to identify an agreement, the
circumstances as a whole, for instance the documents and conduct of the parties
should be taken into account. He stated ‘In many cases…traditional…offer,
counter-offer, rejection, acceptance and so forth… [are] out of date…[it
is] better… to look at all the documents passing between the parties.”
This perspective indicates that evidence beyond the offer and acceptance model
should be taken into consideration when analyzing contracts in order to establish
an agreement between the parties.

Denning
further applied this same perspective in Gibson[28]
in which he directed the court to “look
at the correspondence as a whole and at the conduct of the parties and see
there from whether the parties have come to an agreement on everything that was
material”. Denning’s suggestion of a more flexible approach
offers the opportunity of making sensible decisions as contrasted with the traditional
approach.

In
both instances, the final judgement was to remain the normal analysis of the
traditional approach though where an offer and acceptance cannot be applied to
a contract, Denning’s approach could be used as Lord Diplock at p. 297 acknowledged
that there are some exceptions which do not fit into the normal analysis of
offer and acceptance.

Secondly,
the offer and acceptance model may not be applicable to every fact situation
within a contract.

In
the course of business, companies dealing with one another will use the
standard of form contracts[29]
as demonstrated in Butler Machine Tool Co
Ltd.[30]

In similar cases where there is a ‘battle of
forms’ an offer and acceptance may not be applicable because it could be
artificial and impossible to look for a matching offer and acceptance due to
prolonged negotiations over the terms. It can be argued that in such
complicated cases, the only solution is to conclude that the parties have an
agreement but not through and an offer and acceptance.[31]

Despite
the flaws and inefficiency of the offer and acceptance model at times, this
approach still remains to be the dominant authority as many contracts are
susceptible to this analysis.[32] Some
may debate that the traditional method has some benefit as the model provides a
degree of certainty to both parties as each person understands they will not be
contractually bound until there is an offer and acceptance.

Parties
are able to rely on previous case law precedents in order to recognise and
distinguish between and offer and invitation to treat or identify an acceptance
instead of a counter offer.[33]
Therefore, the traditional approach can be considered to be necessary.

However, the offer and acceptance model has
limitations as there are other methods in which contracts can be analysed. An
exception to the model is the case of Clarke
v Dunravan (The
Satanita).[34]
Both parties entered in a yacht race pursuant to Yacht Racing Association rules
which provided that if a yacht was damaged due to negligence, the negligent
party must pay the damages. Lord
Dunraven’s yacht (the Valkyrie II) was damaged by Clarke’s yacht (the
Satanita). The issue here was whether Dunraven had to pay pursuant to the
YRA rules. By entering the race on the YRA terms the competitors entered into a
contract with each other on those terms – consequently Dunraven had to pay.

This case is recognized for not fitting into
the typical pattern of the offer and acceptance model that normal law uses to
identify an agreement. The courts here focused on the intention of the parties since
the case involves facts that do not fall into the general framework of the
rules of offer and acceptance.[35] 

Another case that does not follow the traditional
approach is the decision held in the Supreme Court in RTS Flexible Systems Ltd v Molkerei Alois Müller Gmbh [2010] UKSC
14, [2010] 1 WLR 753.[36]

The claimant RTS, a supplier of automated machines for
the food industry had been asked to manufacture and deliver a machine for the
defendant Muller. The judgment delivered on behalf of the court analyses the
formation of a contract, and the terms in which it was made, without any
reference to “offer and acceptance”. An agreement was reached by the parties in
outline and sought to have the contract formalized but went ahead. They now
disputed whether an agreement had been created and as to its terms if so.[37]

This flexible approach takes a broad view of the
negotiations between the parties to determine whether in the view of a
reasonable third party, if an agreement was reached. A binding agreement had
been reached based on an objective assessment of the parties’ intentions. The “Müller” analysis depends on taking a broader view of the
negotiations between the parties to determine whether in the view of a reason
third party is an agreement is reached.[38]
 

A final criticism to the offer and acceptance
model is that it may not reflect the negotiations between the party in which an
agreement may be established. This strict approach had been created by legal
academics and can be further criticised because the model bears little
resemblance to how lay people i.e. individuals that do not possess specialist
knowledge perceive the formation of a contract. [39]

In
conclusion, the traditional approach will certainly remain a fundamental part
of contract law when establishing an agreement however this method is
ineffective on the basis that is it uncommercial within practise and
inapplicable to certain scenarios. There are other methods in identifying an
agreement besides the traditional way.

Table
of cases

UK
Cases

Adams v Lindsell 1818 1 B & Ald 681

Australian Woollen Mills Pty. Ltd. v. The
Commonwealth [1954] HCA 20; (1954) 92 CLR
424]

Boulton
v Jones [1857] 27 LJ Ex 117

Butler Machine Tool v Ex-Cell-O Corporation [1979] 1 WLR 401

Clarke v Dunravan (The
Satanita) [1897] AC 59

Entorres v Miles Far East [1955] 2 QB 327

Felthouse v Bindley [1862] EWHC CP J35

G Percy Trentham Ltd v Archital Luxfer [1993] 1 Lloyd’s Rep 25

Gibson v Manchester City Council [1979] UKHL 6

Hyde v Wrench [1840] 3 Beav
334

New Zealand Shipping v Satterthwaite [1975] AC 154

RTS Flexible Systems Ltd v Molkerei Alois Müller Gmbh
[2010] UKSC 14, [2010] 1 WLR 753

Storer v
Manchester City Council [1974] 1 WLR
1403

Taylor v Laird [1856] 25 LJ Ex 239.

Parker v Clark [1960] 1 WLR 286.

Partridge v Crittenden [1968] 1 WLR
1204.

Payne v Cave [1789] 3 TR 148

Bibliography

Chen-Wishart, M, Contract Law (2^nd edn, Oxford University
Press 2008)

Clarke,
J. ‘Clarke v Dunraven’ (Website 2010-2013)
<http://www.australiancontractlaw.com/cases/clarke.html> accessed April
2017

Gilles, P, Business
Law (12^th edn, The Federation Press 2004)

McKendrick, E, Contract Law Text, Cases and
Material (Oxford University Press 2012)

Poole, J, Textbook on
Contract Law (13^th edn, Oxford University Press 2016)

Stone, R, ‘Forming Contracts without Offer and
Acceptance, Lord Denning and the

Harmonisation of English Contract Law’ [2012] 4 Web JCLI.

Swarb, ‘Rts Flexible Systems Ltd V Molkerei Alois Muller Gmbh And
Company Kg (Uk Production): Sc 10 Mar 2010’ (Website n.d.) <http://swarb.co.uk/rts-flexible-systems-ltd-v-molkerei-alois-muller-gmbh-and-company-kg-uk-production-sc-10-mar-2010/>
accessed 12 April 2017

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The Law School Authority, ‘Contracts Law: Offer and Acceptance’ (Website
2012) <http://www.4lawschool.com/contracts101/offer.htm> accessed April
2017

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‘Unilateral Offer’ (Trans Legal, 2017)
<https://www.translegal.com/legal-english-dictionary/unilateral-offer>
Accessed 7 April 2017

Treital, GH. The Law of Contract (10th ed.)

‘I [BP0150849] declare that this piece of work contains [2363]
words. I have read and fully understood the University Policy relating to
Academic Misconduct as cited on the VLE.’

[1] Richard Stone, ‘Forming Contracts without
Offer and Acceptance, Lord Denning and the Harmonisation of English Contract
Law’ [2012] 4 Web JCLI.

[2] Contract Law: Text, Cases,
and Materials by Ewan McKendrick 4

[3] Treital, GH. The Law of
Contract (10th ed.). p. 8.

[4] Gibson
v Manchester City Council [1979] UKHL 6

[5] Storer v Manchester [1974] 1 WLR 1403

[6] Taylor
v Laird [1856] 25 LJ Ex 239.

[7] Parker
v Clark [1960] 1 WLR 286.

[8] Partridge
v Crittenden 1968 1 WLR 1204.

[9] Trans Legal
‘Unilateral Offer’ (Trans Legal, 2017) <https://www.translegal.com/legal-english-dictionary/unilateral-offer>
Accessed 7 April 2017

[10] Australian Woollen Mills Pty. Ltd. v. The Commonwealth [1954] HCA 20; (1954) 92 CLR
424]

[11] Carlil
v Carbonic Smoke Ball and Company [1892] EWCA Civ 1

[12] Payne
v Cave (1789)
3 TR 148

[13] Ramsgate
Victoria Hotel v Montefoire (1866) LR 1 Ex 109.

[14] Hyde v
Wrench 1840 3 Beav 334

[15] Jill Poole Textbook on contract law 28

[16] Hyde v
Wrench 1840 3 Beav 334

[17] Boulton
v Jones (1857) 27 LJ Ex 117

[18] Entorres v Miles Far East [1955] 2 QB 327

[19] R v
Clarke (1927) 40 CLR 227

[20] Felthouse
v Bindley [1862] EWHC CP J35

[21] Carlil
v Carbonic Smoke Ball and Company [1892] EWCA Civ 1

[22] Adams
v Lindsell 1818 1 B & Ald 681

[23] Ewan McKendrick (2012). Contract Law Text, Cases
and Materials. Great Britain: Oxford University Press. p. 85

[24] G Percy Trentham Ltd v Archital Luxfer [1993] 1 Lloyd’s Rep
25

[25] Jill Poole Textbook on Contract Law 34

[26] New Zealand Shipping Co v A M Satterthwaite & Co Ltd, The Eurymedon [1975] AC 154

[27] Butler Machine Tool v Ex-Cell-O Corporation [1979] 1 WLR 401

[28] Gibson v Manchester City Council [1979]
UKHL 6

[29] The Law School
Authority, ‘Contracts Law: Offer and Acceptance’ (Website 2012)
<http://www.4lawschool.com/contracts101/offer.htm> accessed April 2017

[30] Butler Machine Tool v Ex-Cell-O Corporation [1979] 1 WLR 401

[31] Taylor D, Taylor R, Contract
Law Directions (5edn, Oxford University Press)

[32] Mindy Chen-Wishart, Contract
Law (2edn, Oxford) 98

[33] Taylor D, Taylor R, Contract
Law Directions (5edn, Oxford University Press) http://global.oup.com/uk/orc/law/contract/taylor_directions5e/student/guidance/ch02/

[34] Clarke
v Dunravan (The Satanita) [1897] AC 59

[35] Julie Clarke, ‘Clarke
v Dunraven’ (Website 2010-2013) <http://www.australiancontractlaw.com/cases/clarke.html>
accessed

[36] RTS Flexible Systems
Ltd v Molkerei Alois Müller Gmbh [2010] UKSC 14,
[2010] 1 WLR 753

[37]
Swarb, ‘RTS FLEXIBLE SYSTEMS LTD V
MOLKEREI ALOIS MULLER GMBH AND COMPANY KG (UK PRODUCTION): SC 10 MAR 2010’
(Website n.d.)
<http://swarb.co.uk/rts-flexible-systems-ltd-v-molkerei-alois-muller-gmbh-and-company-kg-uk-production-sc-10-mar-2010/>
accessed 12 April 2017

[38]
Richard Stone, ‘Forming
Contracts without Offer and Acceptance, Lord Denning and the Harmonisation of
English Contract Law’ [2012] 4 Web JCLI.

[39] The Law School
Authority, ‘Contracts Law: Offer and Acceptance’ (Website 2012) <http://www.4lawschool.com/contracts101/offer.htm>
accessed April 2017