Offer and Acceptance: Legal Definition, Revocation, Rejection and Invitation to Treat under Contract Law
What is an Offer and Acceptance?
In legal terms, an offer is a clear, definitive, and communicated proposition by one party (the offeror) to enter into a contract on specified terms to be bound once accepted. An acceptance is an unequivocal indication by the party to whom the offer is made (the offeree) that they agree to the exact terms of the offer, thereby creating a binding contractual relationship.
Offer and Acceptance Legal Definition
Offer and Acceptance: Contract law forms the foundation of our daily transactions, ensuring the legal enforcement of promises or agreements between parties. Two of the most fundamental concepts in contract law are offer and acceptance.
At first glance, offer and acceptance may appear self-explanatory, but they have unique legal connotations that dictate how contractual relationships are formed.
What is an Offer?
An offer is a clear, unequivocal indication by one person (the offeror) to another (the offeree) of their willingness to enter into a contract on certain specified terms without further negotiations – see Ramsgate Victoria Hotel Co Ltd v Montefiore (1866).
The offer demonstrates a present intention to be bound by a contract if the terms are agreed upon.
Key Characteristics of an Offer
- Specificity: An offer must have definite terms. A general statement of intention or a mere price quotation doesn’t constitute an offer.
- Communicated: The offer must be communicated to the offeree. A person cannot accept an offer about which they are unaware.
- Revocation: An offer can be withdrawn or revoked by the offeror at any time before it is accepted unless it is an irrevocable offer.
What is Acceptance?
Acceptance is a final and unqualified expression of agreement to the terms of an offer. It demonstrates a clear intention to be bound by the terms of the offer – see Adams v Lindsell (1818).
Key Characteristics of Acceptance
- Mirror Image Rule: The acceptance must match the terms of the offer exactly. Any variation from the terms constitutes a counteroffer and not an acceptance.
- Communication: Acceptance must be communicated to the offeror unless the offeror has indicated that no communication is required or the contract is of a type where acceptance is typically inferred from conduct.
- Mode of Acceptance: Acceptance can be communicated through various means, including orally, in writing, or by conduct, depending on the circumstances.
Distinguishing Offers from Invitations to Treat
Not every expression of willingness to contract is an offer. Sometimes, it’s merely an ‘invitation to treat. Inviting to treat is a preliminary stage in the negotiation process, inviting others to make an offer.
Examples:
- Goods on Display: Items displayed in a shop window or on shelves are generally considered invitations to treat. When customers bring an item to the counter, they make an offer to buy, which the retailer can accept or reject.
- Auctions: When an auctioneer invites bids, it’s typically considered an invitation to treat. The bid is the offer, and the auctioneer accepts when they bring down the gavel.
Revocation, Rejection, and Lapse
- Revocation: As mentioned earlier, an offer can be revoked anytime before acceptance. For revocation to be effective, it must be communicated to the offeree before they accept.
- Rejection: If the offeree rejects the offer, it cannot be accepted later.
- Lapse: An offer can lapse after a specified time or a reasonable time, rendering it void.
Offer and Acceptance in Electronic Contracts
The digital age has introduced complexities to the concepts of offer vs acceptance. The ‘mailbox rule’ (which states that acceptance is effective upon dispatch) can be problematic with electronic contracts. When is an email deemed to be received? What if there’s a server delay?
Furthermore, online platforms often use ‘click-wrap’ agreements, where users click an “I accept” button.
The terms are typically predefined here, and the user’s click signifies acceptance. This adds another modern dimension to the principles of offer and acceptance.
Offer vs Acceptance: Difference between Offer and Acceptance
| Aspect | Offer | Acceptance |
|---|---|---|
| Definition | A proposal indicating a willingness to contract. | Unconditional agreement to the terms of an offer. |
| Party Making It | Offeror (the person making the offer). | Offeree (the person to whom the offer is made). |
| Intention to Contract | Demonstrates the intent to be legally bound. | Shows agreement with the offer’s terms. |
| Communication Required | Must be communicated to the offeree. | Must be communicated to the offeror. |
| Invitation to Treat | Not an invitation to treat (preliminary step). | Not an invitation to treat (indicates consent). |
| Revocation | An offer can be revoked before acceptance. | Effective upon communication to the offeror. |
| Rejection | Rejecting an offer terminates it. | A counteroffer or rejection ends the original offer. |
| Mirror Image Rule | Offeree’s acceptance must match the offer terms. | Must mirror the offer; variations may reject. |
| Communication Method | Acceptance method typically specified in the offer. | The communication method is often specified or implied by an offer. |
| Time Frame | It may have a specified expiration time/date. | It should be timely, often within a reasonable time. |
| Legal Consequences | Upon acceptance, a contract is formed. | Creates a legally binding contract between parties. |
How long does an offer remain valid if no expiration date is specified?
When an offer is made without a specified expiration date, it doesn’t remain open indefinitely. Instead, the offer remains valid for a “reasonable” period. What’s considered “reasonable” is determined by the nature of the contract, industry practice, prior dealings between parties, and other surrounding circumstances.
For instance, a perishable good’s offer might be deemed reasonable for a much shorter duration than a real estate offer.
If either party believes the other is delaying unreasonably, it’s advisable to communicate intentions. The offeror can revoke the offer, or the offeree can seek clarity or accept before the offer is withdrawn.
Can silence be considered acceptance?
The basic principle is that acceptance must involve a clear act or statement of agreement from the offeree – see Hyde v Wrench (1840). However, there are exceptions.
If the parties have a history of dealings where silence was understood as acceptance, or if the offeree starts performing the terms of the offer without expressly communicating acceptance, silence might be deemed an acceptance.
Additionally, if the offeror specifies that silence will be taken as acceptance and the offeree intends to accept by remaining silent, it could be valid. Nevertheless, such situations are exceptions, not the norm.
How are offers and acceptances treated in auctions, especially in the case of reserve prices?
Typically, displaying goods for auction is not an offer but an “invitation to treat”. Each bid made by a participant is considered an offer. The auctioneer’s hammer fall signifies the acceptance of the highest bid, resulting in a binding contract.
A reserve price adds complexity. It is a confidential minimum price set by the seller. If bidding does not reach this price, the auctioneer is not obliged to sell the item.
If bids surpass the reserve price and the auctioneer doesn’t accept the highest bid, the auctioneer could face legal consequences.
However, if no bids meet the reserve, the auctioneer can decline all offers without legal repercussions.
Additionally, in “without reserve” auctions, the item must be sold to the highest bidder, regardless of the bid amount, reinforcing the importance of the distinction.
Conclusion: Offer and Acceptance
Offer and acceptance are foundational to contract law, marking the initial stages of a contract’s formation.
While the principles might seem straightforward, their application can be intricate, especially in modern contexts like e-commerce.
