Acceptance

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This article is a topic within the subject Principles of Private Law.

Contents

Required Reading

Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009), pp. 58-72 (Chapter 3).

Introduction

[1] Acceptance is an unqualified assent to an offer.

There is a debate whether acceptance is dependent upon actual consensus between the parties (a ‘meeting of the minds’ or ad idem). In other words, if the Offeree accepted the offer, but did not understand the terms of the offer, has he really accepted the offer and entered the agreement?

  • The Objective approach considers only the outward manifestations rather than actual consensus.
  • The Subjective approach considers whether there was a real understanding between the parties

Objective vs Subjective approaches

Futility of Subjective approach because of Estoppel

[2]In practice, the Subjective approach will always lead to the same result. This is because of the principle of Estoppel.

An Estoppel will arise when a person conducts himself in a way which would induce the other party to reasonably believe he accepted the contract. The effect of the Estoppel is to prevent the Offeree from denying that he has accepted the contract. Thus, the principle of Estoppel entails that the outward manifestations of acceptance will still constitute acceptance in the absence of a real meeting of the minds. This was decided in Smith v Hughes[3]:

  • “if, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other’s terms.[4]

Prevalence of the Objective approach

[5]Besides the futility of the Subjective approach once coupled with Estoppel, the courts in Australia have since ruled that the Objective approach will determine acceptance. This was held in the following cases:

  • Taylor v Johnson:
    • “The clear trend in the decided cases and academic writings has been to leave the objective theory in command of the field[6]
  • Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd:
    • “It is not the subjective belief or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe.[7]

Thus, acceptance is constituted if the Offeree behaves in such a way that a reasonable person would believe he is agreeing to the offer, even if there is no real consensus between the parties.

Exception – Unilateral contracts (Consciousness of the offer)

[8]With unilateral contracts, it is possible that a person would perform the act necessary to accept the contract without actually being aware of an offer or contract.

  • For example, a person returning a lost dog without knowing there is a reward for it.

The courts have decided in Crown v Clarke that the performance of a requested act will not form a unilateral contract when it is clear that the Offeree was not performing the act on the faith of the offer.

  • The court held that the Subjective approach should govern unilateral contracts in which the communication of acceptance is dispensed with.
  • In these cases, the evidence of subjective intention should be taken into account.

Communication of acceptance

The general rule

[9]Acceptance has effect when it is received by the Offeror. This was established in Latec Finance Pty Ltd v Knight:

  • A contract is not made until acceptance is received by the Offeror.
  • However, the Offeror may expressly or impliedly dispense with the need for actual communication of acceptance. This can be done in two ways:
    • Offeror agreeing to treat the doing of a particular act as effective acceptance. This is usually the case in unilateral contracts.
    • Offeror treats the despatch of a particular method as effective regardless of whether it reached him.

The postal rule

[10]Where the acceptance is expected to be sent by post, the acceptance is effective as soon as it is posted. This was decided in Adams v Lindsell[11] and Henthorn v Fraser[12], and is an exception to the general rule.

  • However, there have been judgments indicating that the postal rule only applies when the Offeror intended that the offer could effectively be accepted by the act of posting a letter of acceptance (Tallerman & Co Ltd v Nathan’s Merchandise (Vic) Pty Ltd[13])

Scope of the postal rule

[14]The postal rule does not extend to telecommunications. This means that the contract is formed when and where the acceptance is received by the Offeror.

  • England, decided in Entores v Miles Far Eastern Corp[15], reaffirmed explicitly in Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH[16] .
  • Australia: Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd[17]

In Brinkibon, the court admitted that exceptions may be made when:

  • The message is sent or received through a third party
  • The message is sent out of office hours
  • The message is not intended to be read immediately

It should be noted that the courts haven’t yet addressed the question of communication over the internet (interactive websites/email). However, it follows from other instant communications that the postal rule will not apply, and formation will take place when and where it is received by the Offeror.

Regardless, in Australia, the Electronic Transactions Acts have been enacted to govern such cases. The acts distinguish between:

  • Information systems expressly designated to receiving acceptance
    • In this case, acceptance is effectively communicated once it enters the information system
    • Note: a general email inbox on a letterhead does not constitute an expressly designated information system.
  • Information systems which are not expressly designated for such purposes.
    • In this case, acceptance is effectively communicated once it comes to the attention of the Offeror.

Methods of acceptance

[18]The Offeror is allowed to prescribe exclusive methods of communication of acceptance. If he does so, acceptance can only be communicated via those methods. Similarly, the Offeror may dispense with the communication, as is impliedly done in unilateral contracts.

Silence as acceptance

[19]An Offeror cannot stipulate silence as a method of communication of acceptance. Similarly, silence cannot constitute acceptance. This was decided in Felthouse v Bindley.

Acceptance inferred from conduct – exception to silence rule

Silence can constitute acceptance when the Offeree’s conduct indicates that he has accepted the offer. This was decided in Empirenall Holdings Pty Ltd v Machon Paull Partners Pty Ltd.

  • Since acceptance is measured objectively, it all comes down to whether the Offeree’s conduct, which may include silence, signals that he accepted the offer.
  • When the Offeree takes the benefit of services which he knows are in accordance to the offer, and had a reasonable time to reject the offer, it signals acceptance.

Correspondence between offer and acceptance

Acceptance corresponds precisely with the offer. This means that the offer can only be accepted or rejected by the Offeree. Negotiation will be viewed as a ‘counter offer’, which means that the old offer was rejected, and a new offer exists.

A problem arises during complex negotiations where two parties exchange inconsistent standard forms, and reach agreement on the principal terms without deciding whose standard form should prevail. This is called “the battle of the forms”, and was discussed in Butler Machine Tool Co Ltd v Ex-Cell-O-Corp (England) Ltd[20], where two approaches were identified:

  • Conflict approach:
    • Requires the courts to determine which set of terms has prevailed.
    • Either by who ‘had the last shot’ (the last say), or the party who is most persistent in insisting that their own set of terms should prevail.
  • Synthesized approach:
    • Make up a contract from consistent terms, along with terms from one set that appeared to be accepted by the other party.
    • Any gaps in the synthesized contract could be filled with terms implied by the court.

References

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009)

  1. Textbook, p. 58 [3.75]
  2. Textbook, pp. 58-9 [3.75]
  3. (1871) LR 6 QB 597
  4. (1871) LR 6 QB 597, 607
  5. Textbook, pp. 59 [3.75]
  6. (1983) 151 CLR 422, 429
  7. (2004) 219 CLR 165, 179 [40]
  8. Textbook, pp. 59-60 [3.80]
  9. Textbook, pp. 60-1 [3.85]
  10. Textbook, pp. 61-2 [3.90]
  11. (1818) 1 B & A 681; 106 ER 250
  12. [1892] 2 Ch 27
  13. (1957) 98 CLR 93
  14. Textbook, pp. 62-3 [3.95], 64 [3.100]
  15. [1955] QB 327
  16. [1983] 2 AC 34
  17. (1988) 5 BPR 11
  18. Textbook, p. 65 [3.105]
  19. Textbook, p. 65 [3.110]
  20. [1979] 1 WLR 401
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