TOPIC 4

Contract Formation – Acceptance

Learning Outcomes
At the end of this topic you should be able to:
(i) Define what the term acceptance means;
(ii) Describe the characteristics of an acceptance;
(iii) Explain the general rule and exceptions regarding the
communication of acceptance; and
(iv) Distinguish between an acceptance, a counter offer and a request for
information.

Prescribed Reading:
Corrin Care J; Contract Law in the South Pacific, Chapter 2.
Christensen S; Formation of Contracts by Email - Is is just the same as post?
(2001) Vol 1 No 1 QUT LJ 22 [Link]

Prescribed Cases:
Butler Machine Tool Co v Ex-Cell-O Corp [1979] 1 WLR 401 (CA) (Poole, 35 – 37).
Adams v Lindsell (1818) 106 ER 250. (Poole, 43.)
Entores v Miles Far East Corp [1955] 2 QB 327. (Poole 48 – 49).
Byrne v Van Tienhoven (1880) 5 CPD 344. (Poole 56).
Mudaliar v Investment Corporation of Fiji Ltd [1993] FJLawRp 13 (On PacLII).
Sami v Veitogavi [2008] FJHC 391 (On PacLII).
1. Definition
One writer has defined acceptance as follows:
Define
Acceptance of an offer is the expression, by words Acceptance
or conduct, of assent to the terms of the offer in the
manner prescribed or indicated by the offeror.
(Beatson J; Anson's Law of Contract, 27th ed 1998, page 38).

In essence acceptance is the unconditional assent to a

definite offer.

2. Offer and Acceptance must correspond

The acceptance must mirror the terms of the offer. If an offeree's response to the
offeror does not match the offer, he or she may have made a counter-offer. A
counter-offer is a response to an offer that introduces new terms or conditions.

For example:

Sally offers to buy 3 sacks of flour from Sam for 2000vt. Sam agrees but
requires Sally to pay 2200vt.

This is a counter-offer. Sam can no longer accept Sally's original offer and
for a contract to be formed Sally needs to accept Sam's offer. If this
happens Sally, who was the original offeror becomes the offeree, and
Sam, who was the original offeree becomes the offeror.

STUDY TASK 1

Read Butler Machine Tool Co v Ex-Cell-O Corp (Poole 35 – 37)

The English Court of Appeal held that the seller was not entitled to rely on the
price variation clause contained in the quotation as it did not form part of the
contract.

1. When was the contract made in this case?

2. Can you identify the offer and the acceptance?
3. Is this an example of a case where you should look to the overall intention
of the parties rather than trying to identify with precision an exact offer
and an exact acceptance of that offer?

Conditional contracts

A contract may occasionally be conditional – it will only come into effect if a

condition has been met, such as the buyer of property gaining a bank loan.

LW201: Contract Law I 5.2

Option contracts

Wikipedia provides a useful definition (using American authorities, but the

principle also applies in English common law):

An option contract, or simply option, is defined as "a promise which

meets the requirements for the formation of a contract and limits the
promisor's power to revoke an offer." Restatement (Second) of Contracts §
25 (1981).

An option contract is a type of contract that protects an offeree from an

offeror's ability to revoke their offer to engage in a contract.

An option is NOT an acceptance. Instead it is its own mini contract – there is a

new offer to hold another offer open for a set period of time. If this is accepted,
and consideration is paid, then a valid contract is formed. If no consideration is
paid then the option is not legally binding.

STUDY TASK 2

1. In an option contract who is the offeror and the offeree?

2. Does it matter if you cannot clearly distinguish who the offeror and
offeree is?

STUDY TASK 3

Read: Mudaliar v Investment Corporation of Fiji Ltd [1993] FJLawRp 13

1. The statement of legal principle about option contracts comes from
Halsburys. What is Halsburys?
2. What is the statement of legal principle about option contracts in this
case?
3. What were the terms of the option contract and the consideration paid?

Requests for information

A request for information may appear to be similar to an acceptance or a
counteroffer but it is quite distinct. A request for information neither accepts the
offer nor suggests new terms, but attempts to clarity the terms of the offer. In

LW201: Contract Law I 5.3

comparison to a counter- offer, a request for information has no effect on the
original offer.

An example would be where Jo offers to sell Isaac his video player. Isaac asks
whether cash is required or whether a cheque is acceptable. This is neither an
acceptance nor a counter-offer.

3. Unilateral contracts – special

considerations
a. Knowledge of an offer is required for there to be an acceptance
Acceptance requires the offeree to be aware of the offer and of their acceptance of
it. Thus, if a person offers a reward for the return of a lost dog and another person
finds the dog and returns it, not knowing about the reward, then there is no
contract. This peculiar situation will only arise with unilateral contracts.

b. Motive for accepting the offer

Another issue arises where the offeree, when performing an act in a unilateral
contract has previously heard of the offer (and therefore has knowledge of it), but
has another motive in performing the action required for acceptance of the offer.
In the Australian case of R v Clarke it was held that a person who had known of
the offer but was at the same time acting purely to avoid danger to himself,
should not be regarded as accepting the offer. However, it seems that acting for
mixed motives does not preclude there being a valid acceptance of an offer.
(Williams v Cowardine [1833] 5 C&P 566.)

4. Communication of the acceptance

The general rule is that an acceptance must be communicated either by the
offeree or by someone on behalf of the offeree. To be effective the offeree must
accept using the method stipulated by the offeror. If no method of acceptance is
stipulated, the offeree can accept in a reasonable manner. This may include
acceptance being made in a written or oral form or by some form of conduct.
An exception to the need for communication is where the offeror either expressly
or impliedly waives the requirement for communication. In these situations an act
or some forbearance (refraining from doing something) will suffice as an
indication that there has been acceptance of the offer. The act or the forbearance
will usually be stipulated by the offeror in the offer.

LW201: Contract Law I 5.4

 STUDY TASK 4

1. What amounted to the acceptance in Carlill v Carbolic Smoke Ball

Company? (case from topic 3)
2. Did acceptance need to be communicated, or was there an implied
waiver of communication?

Silence cannot amount to acceptance

Felthouse v Bindley (1862) 142 ER 1037 confirms that silence cannot amount to
acceptance. In that case an offer was made for the sale of a horse. The offer
included the words "If I hear no more about him I consider the horse mine."
There was no response to this offer. The horse was later sold at auction and the
plaintiff (the offeror) sued for conversion saying the horse was his property. The
court disagreed holding that there must be some outward manifestation of consent
or agreement. This is also connected to the point that an offeree must be aware of
the offer and knowingly accept it.

STUDY TASK 5

1. What do you think is the main policy reason for the conclusion that
silence cannot amount to acceptance?

Unsolicited goods

One situation which sometimes occur involving silence is in relation to

unsolicited goods. This situation arises, for example, when unsolicited goods are
sent through the mail with a statement that unless they are returned they must be
paid for. In Fiji ss 71-73 of the Fair Trading Decree 1992 provides that, in
certain circumstances, unsolicited goods may be treated as a gift and threats and
demands for payment may render the supplier guilty of a criminal offence. The
Unsolicited Goods and Services Act (UK) 1971 has a similar provision. In
jurisdictions where there is no legislation on point, the common law would apply.

4. The postal acceptance rule

The normal rule, that acceptance is only effective when communicated to the
offeror (in the sense that it is received by the offeror) applies to acceptances by
telephone, fax and telex. These types of communication are considered
instantaneous, so the contract is made where and when the message is received,
not when and where it is sent. (See for example Brinkibon Ltd v Stahag Stahl

LW201: Contract Law I 5.5

[1983] 2 AC 34 and Entores v Miles Far East [1955] 2 QB 327 (CA) involving
telex messages).
The postal acceptance rule is an exception to the rule that acceptance is not
communicated until it is received by the offeror. The rule was established in
Adams v Lindsell. Under this rule, if the post is contemplated by the parties as the
proper method to communicate acceptance, then the acceptance is deemed
complete as soon as the offeree posts the letter.
Note that this rule only applies to posted acceptances. It does not apply to the
revocation of offers that are posted. An example of the law in this area can be
found in the case of Byrne v Van Tienhoven.

STUDY TASK 5

Identify the facts and the legal principles relating to the postal rule in:

 Adams v Lindsell (1818) 106 ER 250. (Poole, 43.)

 Entores v Miles Far East Corp [1955] 2 QB 327. (Poole 48 – 49).
 Byrne v Van Tienhoven (1880) 5 CPD 344. (Poole 56).
 Mudaliar v Investment Corporation of Fiji Ltd [1993] FJLawRp 13 (On
PacLII).

1. Do you think it is fair that a person should be bound by a contract when they
are not aware of the fact that their offer has been accepted?

2. What if they sell the goods to another person because they have not heard from
the offeree for perhaps a matter of weeks due to a delay in the post?

Instantaneous electronic communications

These days much communication is done by email, and instant messaging

services. The question becomes how the postal rule works with these – at what
point does acceptance occur? When the email is sent (like a letter)? Or when it is
received (like a conversation)?

STUDY TASK 6

Read sections 4, 5 and 6.1 – 6.3 of Christensen S, ‘Formation of Contracts by Email - Is it

just the same as post?’ (2001) 1(1) QUT LJ 22 [Link]

1. What are the elements of contract? (section 4)

LW201: Contract Law I 5.6

 2. What methods of communication to form a contract are there?
(section 4)
3. How might the internet change how offers are made? (section 5)
4. What arguments for and against applying the postal rule to electronic
acceptance are there? (section 6)

The reading in study task 6 raises the big issues relating to how technology might
affect contract law. Since that article was written a number of Pacific jurisdictions
have passed an Electronic Transactions Act or similar.

STUDY TASK 7

Do a search on PacLII for legislation from your jurisdiction governing electronic

transactions.
1. Does your country have any statute law in this area?
2. If yes, when does acceptance occur if it is communicated electronically?

5. Case reading
When you are reading cases they often discuss multiple issues – not just issues
relating neatly to offer and acceptance.
STUDY TASK 8

Read Sami v Vetogavi [2008] FJHC 391 (on PacLII)

1. Summarise the facts of the case – including a timeline of events

2. What was the central dispute or issue in the case?

3. What legal principle relating to lapsed offers, and how the can be
revived, were identified? What authorities were used?

4. What does subject to contract mean? Was it relevant in this case?

5. What does affirmation mean? Can acceptance occur through

affirmation?

6. What does waiver mean and how does it affect a parties rights?

LW201: Contract Law I 5.7

 7. What is the doctrine of part performance and how does it apply in this
case?

8. How did the courts apply the objective test?

9. What was the outcome in the case?

LW201: Contract Law I 5.8

SELF ASSESSMENT TASKS
1. Joseph offers to buy Tasi's jacket for 2000vt. Tasi says it sounds like a
good deal. He checks whether Joseph means his red or blue Jacket. Has Tasi
accepted Joseph's offer?
2. Later Joseph offers to buy Tasi's sandals for 500vt. Tasi says 'yes' but only
if Joseph pays 600vt. Joseph says 'no'. Tasi then says 'okay, I accept your
original offer'? Is there a valid contract?
3. Sally writes to Tom asking him if he would like a job gardening at her
house. Tom receives the letter on a Monday and decides to take the job. He
writes a letter to Sally accepting the job and posts it at the post office on
Tuesday. Meanwhile, on Tuesday night Sally's son comes home from university
and she realises that he could do the gardening. That night Sally writes to Tom
revoking her offer and she posts this letter on Wednesday before she receives
Tom's acceptance (which in fact gets lost in the post). Is there a valid contract
between the parties? What is an authority that supports your conclusion?
4. Raoul writes a letter to Tana offering to sell him 100 shares in his
company for 10,000vt. He says that if he does not hear from Tana by that Friday
he will assume that Tana agrees to the deal. Tana receives the letter from Raoul
on Wednesday and does nothing. Is there a valid contract between the parties?
5. What is the rationale for the postal acceptance rule? Should it apply to
emails?

LW201: Contract Law I 5.9

LW201: Contract Law I 5.10
LW201: Contract Law I 5.11