Offer and acceptance
Offer and acceptance are generally recognized as essential requirements for the formation of a contract. Analysis of their operation is a traditional approach in contract law. This classical approach to contract formation has been modified by developments in the law of estoppel, misleading conduct, misrepresentation, unjust enrichment, and power of acceptance.
Offer
defines an offer as "an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed", the "offeree". An offer is a statement of the terms on which the offeror is willing to be bound.The expression of an offer may take different forms, and which form is acceptable varies by jurisdiction. Offers may be presented in a letter, newspaper advertisement, fax, email verbally or even conduct, as long as it communicates the basis on which the offeror is prepared to contract. Traditionally the common law treated advertisements as being unable to contain offers, but that view is less forceful in jurisdictions today.
Whether the two parties have reached agreement on the terms or whether a valid offer has been made is a legal question. In some jurisdictions, courts use criteria known as 'the objective test', which was explained in the leading English case of Smith v. Hughes. In Smith v. Hughes, the court emphasised that the important thing in determining whether there has been a valid offer is not the party's own intentions but how a reasonable person would view the situation. The objective test has largely been superseded in the UK by the introduction of the Brussels Regime in combination with the Rome I Regulation.
An offer can be the basis of a binding contract only if it contains the key terms of the contract. For example, in some jurisdictions, a minimum requirement for sale of goods contracts is the following four terms: delivery date, price, terms of payment that includes the date of payment, and a detailed description of the item on offer including a fair description of the condition or type of service. Other jurisdictions vary or eliminate these requirements. Unless the minimum requirements are met, an offer of sale is not classified by the courts as a legal offer but is instead seen as an advertisement.
In line with the definition from Treitel above, to invite acceptance an offer must be serious. In this sense, an obvious joke cannot become the basis of an offer because the potential offeror lacks actual intent to enter into an exchange. For instance, in the famous case of Leonard v. Pepsico, Inc., depiction of a military aircraft offered in exchange for "Pepsi Points" was interpreted by a court as a joke. Despite having clear terms, the humorous elements of the commercial rendered that portion of the advertisement a joke rather than a serious offer.
Whether a potential offer is serious is evaluated under an objective standard, independent of the subjective intent of the one making or accepting the offer. In the case of Lucy v. Zehmer, what one party believed were jests about selling a farm turned into a binding contract, based on the court's evaluation of the circumstance from the perspective of a reasonable observer. Similarly, in the case of Berry v. Gulf Coast Wings Inc., one party's offer of a "Toyota" for the winner of a contest was interpreted as requiring the offeror to provide a vehicle to the winner rather than a "Toy Yoda" doll from Star Wars, despite the assertion that the contest was based on a joke.
Unilateral contract
A unilateral contract is created when someone offers to do something "in return for" the performance of the act stipulated in the offer. In a unilateral contract, acceptance may not have to be communicated and can be accepted through conduct by performing the act. Nonetheless, the person performing the act must do it in reliance on the offer.A unilateral contract differs from a bilateral contract, where there is an exchange of promises between two parties. For example, if one party promises to buy a car and the other party promises to sell a car, that is a bilateral contract.
The formation of a unilateral contract can be demonstrated in the English case Carlill v Carbolic Smoke Ball Co. In order to guarantee the effectiveness of the Smoke Ball remedy, the company offered a reward of 100 pounds to anyone who used the remedy and contracted the flu. Once aware of the offer, Carlill accepted the offer when she purchased the Smoke Ball remedy and completed the prescribed course. Upon contracting the flu, she became eligible for the reward. Therefore, the company's offer to pay 100 pounds "in return for" the use of the Smoke Ball remedy and guarantee not to contract the flu was performed by Carlill.
Invitations to treat
An invitation to treat is not an offer but only an indication of a person's willingness to negotiate toward a contract. It is a pre-offer communication. In the UK case Harvey v. Facey, an indication by the owner of property that he or she might be interested in selling at a certain price, for example, has been regarded as an invitation to treat. Similarly in the English case Gibson v Manchester City Council the words "may be prepared to sell" were held to be a notification of price and therefore not a distinct offer, though in another case concerning the same change of policy Storer v. Manchester City Council, the court held that an agreement was completed by the tenant's signing and returning the agreement to purchase, as the language of the agreement had been sufficiently explicit and the signature on behalf of the council a mere formality to be completed. Statements of invitation are only intended to solicit offers from people and are not intended to result in any immediate binding obligation.The courts have tended to take a consistent approach to the identification of invitations to treat, as compared with offer and acceptance, in common transactions. The display of goods for sale, whether in a shop window or on the shelves of a self-service store, is ordinarily treated as an invitation to treat and not an offer.
The holding of a public auction will also usually be regarded as an invitation to treat. Auctions are, however, a special case generally. The rule is that the bidder is making an offer to buy and the auctioneer accepts this in whatever manner is customary, usually the fall of the hammer. A bidder may withdraw his or her bid at any time before the fall of the hammer, but any bid in any event lapses as an offer on the making of a higher bid, so that if a higher bid is made, then withdrawn before the fall of the hammer, the auctioneer cannot then purport to accept the previous highest bid. If an auction is without reserve then, whilst there is no contract of sale between the owner of the goods and the highest bidder, there is a collateral contract between the auctioneer and the highest bidder that the auction will be held without reserve. The U.S. Uniform Commercial Code provides that in an auction without reserve the goods may not be withdrawn once they have been put up.
Revocation of offer
An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree. If the offer was made to the entire world, such as in Carlill's case, the revocation must take a form that is similar to the offer. However, an offer may not be revoked if it has been encapsulated in an option, or if it is a "firm offer" in which case it is irrevocable for the period specified by the offeror. For example, in the United States, the Uniform Commercial Code allows merchants to create firm offers for up to three months without consideration, through a signed writing.If the offer is one that leads to a unilateral contract, the offer generally cannot be revoked once the offeree has begun performance.
Offers as evidence of value
Unaccepted offers to purchase are generally not recognised by courts for the purpose of proving the value of the proposed purchase. In the US case of Sharp v. United States, a New Jersey landowner, Sharp, argued that the value of his land which had been taken by the government for fortification and defence purposes had been underestimated, and he sought to put forward examples of "different offers he had received to purchase the property for hotel, residential, or amusement purposes, or for a ferry, or a railroad terminal, or to lease the property for hotel purposes". The trial court, the Court of Appeals for the Third Circuit and the Supreme Court all affirmed that such evidence was to be rejected, citing evidence from a number of previous cases which had established the same principle. Offers to purchase are considered to suffer "inherent unreliability for this purpose".Acceptance
A promise or act on the part of an offeree indicating a willingness to be bound by the terms and conditions contained in an offer. Also, the acknowledgment of the drawee that binds the drawee to the terms of a draft.Test of acceptance
Acceptance is judged by an objective standard, based on the conduct of the offeree.The requirement of an objective perspective is important in cases where a party claims that an offer was not accepted and seeks to take advantage of the performance of the other party. Here, we can apply the test of whether a reasonable bystander would have perceived that the party has impliedly accepted the offer by conduct.
Rules of acceptance
Common law contracts are accepted under a "mirror image" rule. Under this rule, an acceptance must be an absolute and unqualified acceptance of all the terms of the offer. If there is any variation, even on an unimportant point, between the offer and the terms of its acceptance, there is no contract. In the United States, the Uniform Commercial Code provides for acceptance even when terms of the acceptance differ from terms of the offer. This might occur, for example, when a buyer's "Terms and Conditions" differ from a seller's "Terms and Conditions" yet both parties behave as if a contract exists. In this case, a complex series of rules known as "Battle of the Forms" evaluates what is included in the contract. These rules might require, for instance, that conflicting terms in the offer and acceptance are "knocked out" and replaced by default language provided in the Code.An acceptance is only contractually valid if the proposal to which response is made is an offer capable of acceptance. In an Appeal Court ruling in 2020, Sir John Chadwick, judge, accepted the argument put by the appellant in the case, drawing: