The Notion of Offer and Acceptance - Essay Example

?Law for Accounting The issue in this question relates to the basic law on contract formation that is the proposition of offer, acceptance, revocation of offer, invitation to treat, instantaneous communication for offer and acceptance, counter-offer, the aspects of consideration and whether existing contractual obligation can constitute to be good consideration. The law on each of these would be discussed in line with facts of the case and a conclusion in accordance with the law would be made. The notion of offer and acceptance and the resultant formation of contracts has been a notion which has been developed particularly by common law and there has been statutes enacted upon the area as well. It is a well established principle that a contract can come into existence even if it is oral or has been concluded in an informal manner, however, it is important to note that there are certain conditions which must be satisfied for a legally binding contract to be existent. The starting point for the formation of a contract is that there must be an offer made and it should clearly not be an invitation to treat and subsequently there should be acceptance. The next aspect is that of the criterion of consideration, the intent to enter into legal relation the presence of certainty. For an effective evaluation of how a contract is to be concluded can be found in the case of Smith v Hughes1, whereby the subjective as well as the objective test was laid down so as to evaluate the existence of a valid and legally enforceable contract. The subjective test focuses on the intention of the parties who entered into the contract, while on the contrary the objective test looks into what had been said, done, not done by the parties and what the intention of saying or doing was. An important evaluation on the principles of offer and acceptance can be seen from the evaluation of Professor Atiyah, whereby it was reasoned that offer and acceptance is determined by of one of the methods which is ‘reason forwards’ and ‘reason backwards’. Reason forwards takes into account of offer and acceptance and their existence at first and then goes on to reason out and conclude on the dispute at hand and as for reason backwards the most reasonable solution is made out and it then turns around to ascertain from that offer and acceptance. The definition offer is unequivocal willingness by the offeror that is the person making offer to be bound by certain terms and conditions subject to acceptance of the offeree that is the peron to whom the offer is made. There has been a clear distinction which has been drawn by the courts on the area of invitation to treat and offer, however, there have been times when the differentiating was a mere thin line. Invitation to treat has been defined as an expression of willingness to induce another party to enter into negotiations and to make an offer, however, the boundary is, the fact that it is conditional and is therefore not an offer. The case of (Fisher v Bell)2 clearly defined the fact that invitation to treat is merely an expression of willingness of one party to enter into negotiations with another party thereby hoping that eventually offer and acceptance would take place and a valid and legally enforceable contract would come into existence. The thin line and the distinguishing features between an invitation to treat and offer can be seen from the cases of of Gibson v Manchester City Council3 and Storer v Manchester City Council4. The facts in Gibson were that the treasurer in his letter to Mr. Gibson stated that the council was willing to sell Mr. Gibson the house and needed him to make a formal application. The courts looked into the circumstances of the case and in particular the price factor and held to be an invitation to treat. Contrary to Gibson, in Storer the courts held that a valid contract had been created because of the fact that the transaction had moved one step further and was prior to exchange of contracts. Even though it was a very thin line the courts distinguished between the two cases, which has been criticized and interpreted offer and invitation to treat. Therefore it is clear that different interpretations can be made on facts of each case which might be similar but one step further. It is important to differentiate between enquiry of price and offer, as the former is merely an invitation to treat and does not in any way constitute to be an offer.(Harvey v. Facey)5 The courts have scrutinized the area of advertisements and have strictly adhered to the principle that it is merely an invitation to treat (Partridge v Crittenden)6, however there have been exceptions which have been created, that is unilateral offer and the reasons that have been cited are the intent to be bound and sufficient certainty and this was clearly the case in Carlill v Carbolic Smoke Ball Co.7 where it was held that there had been a unilateral offer because a person who after reading the advertisement used the smoke ball and got influenza would be able to claim the amount because of the fact that the offeror had deposited the amount in his bank account and therefore had gone one step forward. In respect of advertisement of an auction sale it has been held that they are merely invitation to treat (Harris v Nickerson)8. In respect of the advertisement that had been placed by Serena in the Sunday Times Style, the first and foremost question is whether such advertisement was an invitation to treat or an offer. As pointed out earlier it has been seen that the general attitude of courts towards advertisements is that they are considered to be an invitation to treat and the notable exception is that of a unilateral offer as could be seen from the decision of Carlill whereby an advertisement was held to be an offer based on the ground that the advertisement had clearly stated that if the advertisement did turn out to be true an amount had been deposited in the bank and this was held to be conclusive so as to make it an offer and not a mere invitation to treat. The courts reasoned out on the fact that people were made to believe that it was an offer and the wordings of the advertisement made it quite clear and furthermore the depositing of amount created further certainty of the existence of such an offer. If the facts of the question at hand is looked into it can be said with ease that is not a unilateral offer and is merely an invitation to treat and such an argument would be defended on the ground that advertisements are generally considered to be an offer and the next aspect which makes it quite apparent is that fact that it was based on bidding therefore it is conclusive that Serena has merely made an invitation to treat which required bids by way of the advertisement. The second issue at hand that requires analysis the instantaneous mode of communication that is the message left by Eric on the mobile of Serena. The important aspect in respect of this issue is that communication problems are not existent in respect of the message as the message had been listened to by Serena and therefore there is no problem on communication, however, the problem that arises is that Eric clearly contradicted to what had been stated within the advertisement by quoting ?19,500. Now the first thing is that since Serena had merely made an invitation to treat it can be reasoned out that an offer has been made by Eric which can either be accepted or rejected by Serena. However, the argument to the contrary would be that since the bids should have been higher this is not a valid offer. By way of the facts and law it can be said that even if there were restrictions it is open to make an offer and therefore a valid offer has been made by Eric. Clearly in respect of Chuck the same thing needs to be reiterated that is since Serena had placed an advertisement which merely required bids, it was an invitation to treat. The requirement of an offer being made at this point in time had not been fulfilled. It is important now to look at what had been said by Chuck. Clearly Chuck made an offer but subject to satisfactory inspection. It can be argued that Chuck made it conditional however it can be said that it was a mere insertion of an additional term. Another important point that needs to be raised here is that even if it is presumed that an offer had been made Serena informed Chuck that she was not willing to accept the offer and therefore rejection took place at that point in time and a counter offer was also placed, whereby Chuck was asked about Columbus. The facts also require an analysis on the issue of certainty which would be discussed. After going through the process of offer, the notion of acceptance needs to be looked into. The rule on acceptance is that it should be unconditional, should not impose any other conditions and must be communicated to the offeror. (Holwell Securities v. Hughes9). There have been exceptions which have been developed to the rule the notable one being that of the postal rule which states that when acceptance is sent by post, even if it gets lost or delayed, it takes place at the time that the letter was posted. (Adams v. Lindsell). This rule created a lot of problems and therefore it has been seen that express exclusion of post is now provided for or a mode of communication is expressly stipulated. Another area where problems were caused were the implications of the postal rule on instantaneous methods of communication which was scrutinized by the courts (Lord Wilberforce in Brinkibon Ltd. v Stahag Stahl GmbH), however it is important to mention that for instantaneous communication there is a lacuna whereby when acceptance takes place is still unclear and has not been addressed, though it has been settled that if instantaneous mode of communication is used then it is deemed to be effective if it has been dispatched and received during working hours for e.g. an e-mail being sent and received on a working day . The other exception that needs to be pointed is that of unilateral offer whereby communication of acceptance is not held to be necessary.(Carlill v. Carbolic Smoke Ball Co.) Acceptance have to be analyzed into vigilantly, because the details must specify it to be unconditional is stringent and so if new provisions and conditions are initiated it would not be held to be acceptance and would instead be classified as a counter offer, which in turn has to be accepted by the original offeror, who by reason of such a counter offer becomes the offeree as in Hyde v Wrench10 the facts of which were that the defendant had offered to sell sell some land to the claimant for $1000 and the claimant replied with an offer of $950 for the land. On the refusal by the defendant, the claimant agreed to pay $1000 which was again rejected by the defendant. It was held by the courts that there was no contract between the parties because the claimants offer of $950 was a counter offer which killed off the original offer. It is important to mention that conduct will lead to acceptance only if it can be shown that the offeree performed the actions in lieu of the contract and had the intention to become bound by the contract.(Day Morris Associates v. Voyce11). Therefore if it is evident on the fact that the offeree did not accept the terms and conditions in their entirety as had been laid down by the offeror and had introduced new terms then the original offer is killed and a new offer comes into existence which in turn can be accepted by the original offeror and the original offer lapses. As far as acceptance is concerned it has been a rule that it needs to be communicated and must have been heard by the offeror. (per Lord Denning in Entores v. Miles Far East Corporation)12. The courts have also held that if there has been a prescribed method of communication which has been expressly provided for then it must be followed. Finally it has been held that silence cannot anyway be deemed to be acceptance. (Felthouse v Bindley)13. The general perception about acceptance was that the principles were straight forward, however, the judges have at times interpreted acceptance in a manner which would not have been perceived by a reasonable man on the situation that occurred. It has been argued that since a person without knowledge of law would remain unaware of the point in time when offer and acceptance occurs. There have been arguments by critics that the law on offer and acceptance requires legislation so as to allow the principles to be firmly embedded as this would cause greater harmony. It has further been argued that there have been situations where there was injustice cause to people and was clearly contrary to business norms and practices. After the stage of offer and acceptance, the next principle that requires analysis is that of certainty. Certainty in a contract is very important for it to be binding and thus if the consent of the parties and the agreement between them certain then the courts would enforce it. The principles of certainty is important because of the fact that the courts have always stayed away from private transactions between two parties thereby inserting its own terms into such contracts. (Viscount Maugham in Scammell and Naphew Ltd. v. Ouston)14. In respect of Chuck it is clear that Chuck’s offer of the Galileo that is his bid was not accepted by Serena and on the contrary enquiry as to his interest of Columbus was enquired upon which in no way would constitute to be an offer because of the fact that it was merely an invitation to treat and lacked the important element of the price of the Columbus and thus no offer at this point in time had been made and Chuck merely replied that he would think about it and therefore nothing has been done. In respect of termination of offer, the courts have laid down five different ways of termination. The one that are relevant to the facts would now be discussed. The first method of terminating offer is the way whereby the offeror withdraws the offer before the acceptance takes place by the offeree and clearly the revocation of such an offer and notice of such must be brought to the notice of the offeree. It is important to mention that notice of such revocation need not necessarily be communicated by the offeror, it can be from someone else as a well (Dickinson v. Dodds)15. This requirement of withdrawal being brought to the attention of the offere has caused problems in respect of offers that had been sent by means of post. This can clearly be seen by the case Byrne v. Van Tienhoven16 whereby the defendants sent an offer by post to the claimant on 1 October , and this offer was received by the claimant on 11 October and the claimant immediately sent the acceptance to the offer by post. Before the acceptance of the offer the defendants changed their mind thereby sending a revocation letter, on 8 October, however, such revocation was received by the claimants on 20 October. The courts in the current scenario found that even though the revocation was posted on 8 October the postal rule did not apply and so the revocation when it was bought to the attention would become effective then only. Thus in the current scenario the claimant had already accepted the offer and the acceptance had taken place and a valid contract was in existence and so the offer could not be revoked. The other way of rejection of offer is the method of what is known as counter-offer. This is where the offeree rejects the offer, as the counter-offer kills the original offer and therefore a new offer comes into existence. In respect of Eric he told Serena that he wanted to buy the Galileo even though it was for his girlfriend’s birthday was an offer, and so acceptance to that offer could take place. Therefore acceptance can take place. The element of certainty which is important in respect of a binding contract will now be discussed. A contract can only be enforceable if there is sufficient certainty as to form and the courts can enforce the contract, the reason for which as stated before is that the court do not wish to insert terms on their own. The reasons for uncertainty can be due to the terms of contract being vague. There have been situations when the contract is held to be incomplete and there are options available so as to save the contract from becoming void on the basis of incompleteness, for example s.8(2) of Sale of Goods Act 1979 which provides for a reasonable price to be inserted where the price has not been determined. In respect of the facts relating to Chuck and so the invoice received by Chuck in February can be said to be merely an offer rather the amount that has to be paid in accordance with the agreement as no agreement had been reached. The problems in respect of the transaction are that in accordance with Gibson and Storer there had been no acceptance which has taken place as there was uncertainty as to price which had to be paid by Chuck to Serena. Therefore the invoice can be said to be merely an offer and so Chuck has the option to accept or reject the offer, furthermore silence will no way constitute to be acceptance. After offer and acceptance the courts look into whether consideration for the contract has been made out or not and this will be illustrated now. Consideration is the principle whereby the courts have given the badge of enforceability to contract. The classic case of Currie v. Misa17 was where in the definition of consideration was provided as ‘a valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.’ Critics like Professor Atiyah (1986c) argue that the doctrine of consideration is in no way based on reciprocity. There have been different situation where the courts have found that consideration was present, this can be said said to be at times being determined in accordance with benefit/detriment principles while there have been other reasons as well for which the enforcement of a promise can be made. Consideration must be sufficient but need not be adequate and so can be decided between the parties and can be the smallest consideration.( Thomas v. Thomas)18. As far as sufficiency of consideration is present there needs to be something of value which must be given in return, if a promise is to be enforced, thereby satisfying what is called ‘sufficient’. This principle has been at times disadvantageous where there were other reasons which led to the forming of contract. (Chappell & Co. v. Nestle)19. Promise by a son, in respect of intangible returns did not constitute to be consideration (White v. Bluett)20. A genuine belief that is held would constitute to be consideration (Cook v. Wright)21. The courts’ decision on the point, that the performance of an existing contractual obligation which was owed to the promisor was found not to be consideration (Stilk v. Myrick)22. In Williams v. Roffey Brothers23 the courts changed the important principle Stilk and adopted a wider approach whereby the Court of Appeal stated that the claimant had derived a practical benefit whereby he finished the work on time and thereby it was held by courts to constitute consideration. It had been argued that the defendant was already under an existing duty to finish the work on time and the fact that the element of duress was not present. In the concept of consideration the courts have found that past consideration will not constitute to be good consideration. (Roscorla v. Thomas)24. It has also been said that the doctrine of consideration must move from the promisee, meaning that the promisee can enforce a contract if there has been consideration for the promise. This doctrine had cause severe problems in modern days. In regard to the current situation the concerns are Jenny and the validity of instruction given to her by Serena and whether it is held to be valid consideration. The amount promised by Serena to Jenny was for the same work, however in accordance with Williams v. Roffey it can be said that that practical benefit had been derived from the acts of Jenny. The rebuttal to this arguments would that Williams does not apply to this case and since Jenny was merely an employee she could not do much. When drawing comparison between Williams and the facts it can be seen that there had been practical benefit that had been derived by Serena thereby voiding to go to someone else. Therefore the promise would be held to enforceable because of the fact that the existing contractual obligations have been met. Therefore from the facts it can be seen that there has been a contract with Eric, however not contract exists with Chuck. Finally in respect of Jenny the consideration that has been agreed has to be paid. In respect of the result that has been achieved it can be seen that it was reasonable to the extent that this can be related to the situation of battle of forms. It can be seen that the law did not take into account the intention of the parties and therefore the area requires reform and legislation. Binding other is not present. As for the law of contract there is need of legislation and requires clarification of principles by statutes is required. Therefore the principle even though the courts have developed requires ample legislation and reforms. Thus the legislature needs to look into the area and determine the areas that requires statutes to be legislated upon and therefore create certainties in the all important areas of offer acceptance and consideration. References MCKENDRICK, E. (2009). Contract law. Basingstoke, Palgrave Macmillan Read More