Acceptance in a contract

Acceptance in a contract

Acceptance in a contract is a final and unqualified expression of assent to the terms of the offer.

An acceptance of an offer is a reciprocal act or action of the offeree to the offer in which he indicates his agreement to the terms of the offer as conveyed to him by the offeror.

Putting in another language, acceptance is the act of compliance on the part of offeree with the terms of the offer. It is the elements of acceptance that underscores the bilateral nature of the contact.

The various ways in which acceptance in a contract maybe made

They are namely:

  • by the conduct of the parties.
  • their words of mouth.
  • by document passing between them.  

But an acceptance by conduct would amount to proper acceptance only if it was clear that the offeree did the act with the intention of accepting the offer.

There must be positive evidence from which the court can infer acceptance. It must not be subjective in nature.

In other words, the person accepting must indicate it either by words, in writing or by conduct.

For an acceptance to be valid, there must be an external manifestation of assent; some spoken words or acts done by the offeree or his authorized agent which the law can regard as communication of acceptance from the offeree to the offeror.

Thus, acceptance must be notified to the offeror. Mental or ‘internal’ acceptance is not enough.

See Felthouse v. Bindley [[1862]7 L.T 835; 142 E.R 1037]

In the above case, the plaintiff made a written offer to buy his nephew’s horse for £30 15 shillings, adding that if he did not receive a reply from the nephew he would assume that his nephew had accepted the offer.

The nephew intended to accept but took no other action to demonstrate this except to request an auctioneer of his farm property to reserve the horse in question during the auction. The auctioneer forgot to carry out this instruction and auctioned the horse along with other lots.

The plaintiff brought an action for convention against the auctioneer.

Success in this action depended on whether the nephew had validly accepted the plaintiff’s offer, in which case the horse already belonged to him at the time of the auction.

Dismissing the suit, the court held that at the time the horse was sold, there had been no valid acceptance by the nephew to the plaintiff’s offer.

Though the nephew ‘’in his own mind’’ intended his uncle to have the horse, he had not communicated his intention to the uncle nor done anything to bind himself.

Thus, in this case, the nephew’s subjective intention and more specifically his silence did not constitute acceptance.

This case also illustrates the trite rule that, to be effective, acceptance must be communicated.

Invalid types of Acceptance in a contract

1. Counter-offer

An acceptance must correspond with the terms of the offer.

Any qualification or amendment of the offer will constitute a counter offer which destroys or cancels the original offer.

The purported acceptance thus becomes a fresh offer which is open to the original offeror, now the offerer to accept or reject.

See Hyde v. Wrench [[1840] 3 Beav 334]

In the above case, the defendant on June 6 made an offer to sell an estate to the plaintiff for £1000. On June 8, the plaintiff replied with an offer to buy the estate for £950. This was rejected by the defendant on June 27.

On June 29, the plaintiff purported to accept the defendant’s original offer of the estate for £1000. This was rejected by the defendant and the plaintiff brought an action for specific performance.

It was held that the original offer was no longer open to the plaintiff to accept.

By ‘’accepting’’ to buy the estate £950 instead of the £1000 for which it was offered, the plaintiff rejected the original offer and was in effect making a counter offer. Therefore, there was no obligation whatsoever between the parties.

A valid acceptance in a contract must fulfill the following conditions:
  1. It must be plain.
  2. must be unequivocal.
  3. it must be unconditional.
  4. must be without variance of any sorts between it and the offer.
  5. It must be communicated to the offeror without unreasonable delay.

Where an offeree makes a counter, the offeror ‘s acceptance of it may be express or  by conduct. Once acceptance occurs, a contract comes into existence between the two parties in the normal way.

2. Conditional acceptance in a contract – acceptance ‘’subject to contract’’ and ‘’provisional’’ acceptance.

A conditional acceptance is not a valid or binding acceptance. Any acceptance which is made subject to a condition cannot create a binding contract until that condition has been met or fulfilled. See Win v. Bull [[1877] 7 Ch.D. 29.]

Examples in which it has been held that the parties have made the operation of their contracts conditional upon the execution of a further document are

  1. An agreements to purchase freehold land ‘’subject to a proper contact to be prepared by the vendor’s solicitors’’ Chillingtonworth v. Esche [[1924] 1 Ch. 97]
  2. An agreement to take a flat ‘’subjects to suitable agreements being arranged between your solicitors and mine’’ Lockett v. Norman-Wright [1925] Ch. 56.]

It is now clear that the meaning attached to the phrase ‘subject to contract’ in what has become fixed namely a non binding contract. Tiverton Estates Ltd. v. Wearwell Ltd [[1975] Ch.146; [1974] 1 All E.R 209, CA.

Thus, an agreement to sell land ‘’subject to the satisfaction survey’’ or ‘’subject to planning permission’’ does not contemplate further negotiation or a further agreement or document.

It will be regarded as a binding agreement if:
  1. it is sufficiently precise and definite for a court to be able to say when it is satisfied;
  2. does not leave either party with the discretion whether to go on with the transaction. See Smith and Thomas, A case book on contract [7th EDI.] p.35.

The term ‘’provisional’’ is not a magic term which automatically invests binding quality on an agreement. Indeed, prima facie, it indicates that the agreement has not yet ripens into a contract. It is therefore, a term whose effect can only be determined from the context of its usage. In this case, the context emphatically negated the existence of a binding agreement between the parties.

3. Cross offer

Cross offer occurs when two offers,  identical in terms, are sent by two parties to each other, by post or by any other means and the offers ‘cross’’ in the post or en route. See Tinn v. Hofman & Co [1873] 29 L.T 271]

In the above case, the defendant wrote to the plaintiff on November 28, 1871 offering to sell him 800 tons of iron at 69 shillings per ton.

On the same day the plaintiff wrote to the defendant offering to buy 800 tons at 69 shillings per ton.  The letters crossed in the post.  

The plaintiff contended that there was a contract for 800 tons at 69 shillings per ton.

It was held that there was no contact. There were merely two simultaneous offers.  

Agreement involves the apparent meeting of minds of the parties, an apparent union of wills when neither party at the moment when he declares his will, can have heard the declaration to the will of the other.

4.  acceptance in ignorance of offer

In Fitch v. Snedaker, 38 N. Y. 248 [1868], it was held that a reward could not be claimed by one who did not know that it had been offered.

5. Acceptance of tenders

When a party advertises for tenders from contractors or suppliers, this constitutes an invitation to treat.

The tenders from the contractors and suppliers constitutes the offers, and acceptance occurs when advertisers selects one or more of the tenders and communicate this to the supplier or contractor. Great Northern Railway v. Witham. [[1873] L. R. 9 C.P. 16.

Communication of acceptance in a contract

Acceptance must be communicated; otherwise it will not be valid. Not only that, the communication must be in such a form that it can be objectively determined.

It must be externally manifested either by words, conduct, writing, or by one of the modern modes such as telex, fax or e-mail.

In certain circumstances the offeror may expressly or implicitly waive the requirement of communication of acceptance. This happens mainly in unilateral contract or particularly in reward cases. Carlill v. Carbolic Smoke Ball Co.

The  advertisement cases, according to the court, carry the implication that notification of acceptance is not required.

Moment of acceptance in a contract

Generally acceptance becomes effective not merely when communicated, but when actually received by the offeror. The case of acceptance by post is radically different from the general proposition above.

Where method of acceptance in a contract is prescribed

An offeror may or may not prescribe the mode of acceptance.

Where he states how the acceptance of his offer is to be communicated; the question arises whether precise observation is mandatory. See Manchester Diocesan Council of Education v. Commercial and General Investments Ltd [1969] 3 All E.R. 1593 or incline all AR 1539; [1970]1 W.L.R 241.

In that case, the plaintiff invited tenders from interested parties for the sale of one of its properties.

It also stated in the advertisement that the successful tenderer would be informed by a letter of acceptance sent to an address which every tender should contain.

In the event,  the plaintiff first notified the defendants of its acceptance of the defendant’s tender; not through not through the address given by the defendants as stipulated in the advertisement but through the defendant’s solicitor.

The defendant argued that the acceptance was invalid for failure to comply with the terms of the plaintiffs own requirements; that is for not being posted to the defendants through the address stated in the tender.

It was held that the acceptance was not invalid simply because it did not follow the mode stipulated in the advertisement.

‘’Where… the offeror has prescribed a particular mode of acceptance, but not in term insisting that only acceptance in that mode shall be binding, I am of the opinion that acceptance communicated to the offeror by any other mode which is no less advantageous to him will conclude the contract.’’ [at 1597-8]

One other issue of  importance that arose from the Manchester Diocesan Council of Education Case is that the prerogative to reject an acceptance for failure to comply with a stipulated mode of acceptance, lies exclusively with the party prescribing the mode, and not with the other party.

In Eliason v. Henshaw, if the offeror had decided to accept the letter of acceptance which was sent by post instead of by wagon as he had stipulated; the offeree could have been bound, and could not be heard to say his own acceptance is invalid because he had sent it by post instead of by wagon.  

 In Manchester Diocesan Council of Education Case, it was held that since it was the plaintiffs who stipulated  that they would communicate acceptance by posting to a particular address, they were entitle to modify their own stipulation.

The defendants could not take advantage of a failure by plaintiffs to comply with the stipulated mode since it was not there [the defendants] who made the stipulation.

Method of acceptance in a contract — not prescribed

Where no form of communication of acceptance is prescribed by the offeror, the form to be adopted by the offeree will depend on the nature of the offer and the surrounding circumstances.

Thus, an oral offer implies oral acceptance. If the offer is by telegram, fax or email then a prompt reply is indicated and it’s too should be by telegram fax or e-mail. In most cases, acceptance does not occur until received by the offeror. The only exception is acceptance by post.

Acceptance by post

Unlike the other modes of acceptance earlier referred to; the rule with regards to acceptance by post is acceptance takes effects and, therefore; the contract comes into existence the moment the letter of acceptance is posted.

This rule was first laid down by Lord Ellensborough in 1818 in the famous case of Adams v. Lindsell [[1818] 1 B. & A. 681]

By a letter dated September 2 1817, the defendants, wool merchants, offered to sell a quantity of wool to the plaintiffs, wool manufacturers, and required a reply by post.

The defendants misdirected their letter and it did not reach the plaintiff until the evening of September 5. That same night, the plaintiffs posted a letter of acceptance which reached the defendants on September 9.

If the letter containing the offer had been properly directed, an answer ought to have been received by September 7.

Meanwhile, on September 8, not having received a reply from the plaintiffs, the defendants sold the wool to another person.

The plaintiffs sued for breach of contract. It was argued on behalf of the defendants that there was no contract until the letter of acceptance was actually received, and that by that time the wool had already been sold to another person.

It was held that in a contract concluded by post, the contract comes into existence the moment the letter of acceptance is posted.

In this case therefore, the contract came into existence on September 5, and the defendant committed a breach of it by selling the wool to third parties on September 8.

Exceptions to the rule in Adams v. Lindsell

  • Where the terms of the offer either expressly or implicitly indicate that acceptance must reach the offeror.

Holwell Securities Ltd. v. Hughes [1974] 1 W.L.R. 155;  [1974] 1 All E. R. 161,the defendants granted a six-month option to the plaintiffs to purchase certain property.

The offer stipulated that the option was to be acceptable ‘’by notice in writing’’ to the defendant.

The plaintiff sent a written acceptance by ordinary post but this was never received by the defendant.

The plaintiff claimed that he has made a valid acceptance as soon as letter exercising the option was posted.

The court held that the option had not been validly exercised. Acceptance was to take effective from the time the letter exercising the option reached the defendants and not at the time of posting.

  • Where the application of the rule would produce manifest inconvenience and absurdity.
  • The rule does not apply where the letter of acceptance is wrongly addressed or inadequately stamped. D. It does not apply where the letter was not properly posted. In Re London And Northern Bank Ex. P. Jones [1900] 1 Ch. 220.

Revocation of acceptance in a contract

Generally, where acceptance is not by post it can be revoked before it reaches the offeror.