Offer and Acceptance in Contract Law | Lecture notes Law

Offer and Acceptance – Generally:

• Person who makes an offer OFFEROR, person to whom the offer is made is called

an OFFEREE

• An offer = A proposal by one party that is communicated to another person to enter

into a LEGALLY BINDING agreement. If the other person accepts a contract is made

• The courts distinguish offers from other statements such as mere puffs, invitation to

treat and statements supplying information.

Rules as to offer:

MERE PUFF:

• A mere puff is a statement containing exaggerated claims and assertions about

products or services that no reasonable person would take seriously.

• It has no contractual significance and cannot constitute an offer. It is the common

currency of the advertising world.

Case Example – Leonard V PepsiCo 88 F Supp 2d 116 (1999)

• PepsiCo ran a campaign in which consumers were encourage to collect “Pepsi

points” from specially marked packages of Pepsi.

• A TV commercial for “Pepsi Stuff” showed a series of products with the Pepsi logo

and the number of Pepsi points that were required to purchase the,

• In the final scene from the advertisement, a young boy is seen flying a harrier jet

fighter. After he parked the jet on the school playground he emerged with a Pepsi in

his hands and the words “HARRIER FIGHTER 7,000,000 PEPSI POINTS” appeared

on the screen.

• After viewing the commercial Leonard submitted a cheque for $700,008.50.

• When PepsiCo rejected his order and returned his cheque, Leonard sought specific

performance of the unilateral contract that he alleged had been formed when he

performed his obligations.

• The court decided the advertisement was not “clear, definite and explicit” enough to

constitute an offer.

• Due to the comical nature of the commercial, a reasonable person would not

conclude that PepsiCo was offering a Harrier Jet to anyone. It was a mere puff.

Advertisements = INVITATIONS TO TREAT:

• Window displays, catalogues, price lists circulars and advertisements are usually

invitations to treat and not firm offers by the seller.

• In going up to a counter to buy something, you’re making an offer NOT an

acceptance.

• This law is put in place to protect suppliers as if they run out of a product advertised,

they will not be in breach of a contract, as it is not considered an offer, rather an

invitation to treat/for offers to be made. They can then subsequently accept or deny

the offer.

• E.g. If A said “I want to sell my car but I will not let it go for less than $5,000”, that is

an invitation to treat. Even if you desired to purchase A’s car for $5,000 he cannot be

compelled to sell it to you for he has made no offer which you can accept. However,

if A said “I will sell you my car for $5000” that would be an offer.

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Offer and Acceptance – Generally:

Person who makes an offer OFFEROR , person to whom the offer is made is called an OFFEREE
An offer = A proposal by one party that is communicated to another person to enter into a LEGALLY BINDING agreement. If the other person accepts a contract is made
The courts distinguish offers from other statements such as mere puffs, invitation to treat and statements supplying information.

Rules as to offer:

MERE PUFF:

A mere puff is a statement containing exaggerated claims and assertions about products or services that no reasonable person would take seriously.
It has no contractual significance and cannot constitute an offer. It is the common currency of the advertising world. Case Example – Leonard V PepsiCo 88 F Supp 2d 116 (1999)
PepsiCo ran a campaign in which consumers were encourage to collect “Pepsi points” from specially marked packages of Pepsi.
A TV commercial for “Pepsi Stuff” showed a series of products with the Pepsi logo and the number of Pepsi points that were required to purchase the,
In the final scene from the advertisement, a young boy is seen flying a harrier jet fighter. After he parked the jet on the school playground he emerged with a Pepsi in his hands and the words “HARRIER FIGHTER 7,000,000 PEPSI POINTS” appeared on the screen.
After viewing the commercial Leonard submitted a cheque for $700,008.50.
When PepsiCo rejected his order and returned his cheque, Leonard sought specific performance of the unilateral contract that he alleged had been formed when he performed his obligations.
The court decided the advertisement was not “clear, definite and explicit” enough to constitute an offer.
Due to the comical nature of the commercial, a reasonable person would not conclude that PepsiCo was offering a Harrier Jet to anyone. It was a mere puff. Advertisements = INVITATIONS TO TREAT:
Window displays, catalogues, price lists circulars and advertisements are usually invitations to treat and not firm offers by the seller.
In going up to a counter to buy something, you’re making an offer NOT an acceptance.
This law is put in place to protect suppliers as if they run out of a product advertised, they will not be in breach of a contract, as it is not considered an offer, rather an invitation to treat/for offers to be made. They can then subsequently accept or deny the offer.
E.g. If A said “I want to sell my car but I will not let it go for less than $5,000”, that is an invitation to treat. Even if you desired to purchase A’s car for $5,000 he cannot be compelled to sell it to you for he has made no offer which you can accept. However, if A said “I will sell you my car for $5000” that would be an offer.

THE EXCEPTION TO THE ABOVE ADVERTISEMENT RULE:

Case Example – Carlill V Carbolic Smoke Ball Co [1893] 1 QB 256

The manufacturers of the “carbolic smoke ball” claimed it would prevent the onset of the influenza and other maladies and offered to pay 100 pounds to any customer who, despite using the ball, contracted influenza.
Mrs Carlill saw the advertisement, bought a smoke ball and used it as direct. She nevertheless contracted the influenza.
When she requested the company pay her the 100 pounds as promised, they refused and she sued the company for breach of contract.
The company denied liability
The case involved a number of issues – the first was whether the advertisement was an offer or a mere puff which no reasonable person would regard as a binding contractual promise.
The court held that the advertisement was more than a mere puff as the Carbolic Smoke Ball Co made a serious offer to the whole world and “deposited 1000 pounds with the Alliance Bank showing our sincerity in the matter” as evidence that it was not engaging in mere puffery
Lindley LJ: “The deposit is called in aid in proof of his sincerity in the matter - that is the sincerity of his promise to pay the 100 pounds in the event which he specified” “In point off law this advertisement is an offer to pay 100 pounds to anybody who will perform these conditions, and the performance of these conditions is the acceptance of the offer”
THIS CASE LAW MUST BE MENTIONED Case Example - Gibson V Manchester City Council [1979] 1 ALL ER 972.
Manchester city council adopted a policy that allowed its housing tenants to purchase their flats
Gibson, a tenant, was sent a letter in which the council said “it may be prepared to sell” him the flat for a particular price and outlining other terms and conditions
“If you would like to make a formal application to buy your council house please complete the enclosed application form and return it”
Gibson completed the form but before formal contracts were signed, the council policy changed and it only proceeded with those contracts that had already been executed.
Gibson argued that the Council’s letter was an offer and his response was an acceptance of that offer.
The council argued that its letter was an invitation to treat, that Gibson’s response was an offer that had not been accepted by the council.
The House Of Lords decided that there was no enforceable agreement. The council’s letter was an invitation to treat, not an offer.
A statement that provides information but does so without indicating that the person intended to make an offer is not an offer.
An advertisement may be regarded as an offer if it is sufficiently definite in its terms (quantity, quality and price) and is communicated in a way that is reasonable person would say that the advertiser intends to enter into a contract if the response from the person receiving the communication is positive. Case Example – Harvey V Facey [1893] AC 552
Harvey sent a telegram enquiring, “will you sell us Bumper Hall Pen? Telegraph lowest cash price” (a property)

Auctions conducted online, such as eBay, raise interesting questions about the process of contract formation. So too does internet shopping
In both situations, the traditional contractual formation process can be applied. Case Example – Smythe V Thomas [2007] NSWSC 844
The seller listed a Wirraway aircraft on eBay with an effective disclosed reserve of $150,
Smyth made a bid of $150,000 in accordance with eBay rules and was the highest bidder. Both parties received a notification that Smythe had won the auction
Thomas, however, refused to complete the transaction, arguing that no contract had been made between Smythe and himself.
He argued there were only contracts between eBay and the buyer, and eBay and the seller.
The court decided that the eBay terms and conditions created a framework for the auction in which Thomas and Smythe were willing participants.
A binding contract was formed between the buyer and seller that the court would specifically enforce
THIS CASE LAW MUST BE MENTIONED Tenders:
A tender is an offer to do or perform an act, which the party offering, is bound to perform to the party to whom the offer is made. Up to someone to decide which tender to accept. Person submitting the tender is the offeror; the person who can accept this offer is the offeree.
A statement that goods are to be sold by tender is usually regarded as an invitation to treat.
A party submitted a tender makes the offer and there is no contract until the person who called for tenders accepts the tender.
Further, unless it says so in the original document calling for tenders, the person calling tenders is not obliged to accept the lowest or any tender. Case Example – Harvela Investments V Royal Trust Co of Canada LTD
The House of Lords indicated that those inviting tenders had an obligation to abide by the undertakings given in the tender document
The Royal Trust Co owned share in a company, and invited bids for them from two parties
The letter of invitation said “… we confirm that if any offer made by you is the higher offer… we will bind ourselves to accept it...”
Harvela bid 2,175,000 and its competitor bid 2,100,000 or 101,000 in excess of any other offer… expressed as a fixed monetary amount, whichever is higher
The Royal Trust accepted the competitor’s bid as being $2,276,000.

Harvela sued for breach of contract, saying a referential bid (not a fixed bid, but one that refers to an increases a competitors bid” was invalid.
The house of lords agreed.
It held that Harvela’s bid should have been accepted.
The parties had been invited to put in a tender, they had invested time and effort in preparing the tender and it was reasonable for the tender selection process to be carried out in the way Royal trust has impliedly promised – that is it would accept the higher of the two fixed bids. It therefore could into accept a referential bid. Persons to whom an offer can be made:
An offer can be made to a specific person or persons, to a particular class of persons, or to the world at large.
The person or persons form whom it was intended are the only ones who can accept it.
If the offer is made to the world at large, for example, by way of general advertisement, then anyone who reads the advertisement is able to make an offer Communication of Offer:
The offer must be communicated, that is, brought to the notice of the person to whom it is made.
Unless an offer is communicated, there can be no acceptance and therefore no contract.
The reason for the rule that an offer must be communicated is that the whole basis of the law of contract is that there has been an agreement between parties.
The word agreement presupposes that parties were aware of the act that they were doing would lead to an agreement Revocation of Offer
An offer is revoked when the offeror formally withdraws the offer.
On revocation the offer come to an end and cannot subsequently be accepted.
The offeror can give notice of the revocation of the offer at any time BEFORE acceptance
To be effective the revocation of an offer, like the offer itself must be communicated to the offeree.

Offer and Acceptance in Contract Law, Lecture notes of Law

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Rules as to offer:

MERE PUFF:

THE EXCEPTION TO THE ABOVE ADVERTISEMENT RULE: