Offer

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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. 46-58 (Chapter 3).

Introduction

[1]For an agreement to be formed, there needs to be an identifiable offer made by one party, and an acceptance of that offer by the other party.

“An offer is an expression of willingness to enter into a contract on certain terms[2]”. It is an unequivocal declaration that the Offeror will be bound immediately upon the Offeree’s acceptance.

To determine whether an offer has been made, two elements must be satisfied:

  1. Outward intent – this means the intent of the Offeror to make an offer. However, intent is measured objectively, which means the outward manifestations of it rather than actual intent. In other words, would it appear to a reasonable person that an offer has been made?
  2. Finality – that the offer is final and requires no further communication bar acceptance. In other words, that the acceptance of the offer would initiate an immediate binding agreement.
    • Brambles Holdings Ltd v Bathurst City Council[3]
    • Gibson v Manchester City Council[4]

Thus, the crucial issue in determining an offer is whether it would appear to a reasonable person in the position of the Offeree that an offer was made, and that his acceptance of the offer would entail a binding agreement.

Unilateral contracts

Usually, a unilateral contract is a contract where there is a promise in return for an act, whereas a bilateral contract is one where there is a promise in return for another promise.

“A unilateral is one in which the Offeree accepts the offer by performing his or her side of the bargain[5]”. By performing a specific act, the Offeree:

  • Accepts the contract.
  • Completely executes his consideration (his part of the bargain).

This means that by the time of the formation of the contract, one party has already fulfilled all its obligations under the contract, and only the other party is now is under further contract obligations. That is why it is called a unilateral contract.

  • Example: A promises to give $100 to whoever returns an ipod
  • B finds and returns the ipod, thus accepting the contract and fulfilling his obligation simultaneously
  • A now has an outstanding obligation to pay B $100

This is distinguished from a bilateral contract, in which at the time of formation, both parties still have to fulfil their obligations.

  • Example: A and B sign a contract regarding the transfer of property.
  • Both A and B now have obligations to fulfil (transfer the property, pay the agreed price)

The nature of unilateral contracts is discussed further in Carlil v Carbolic Smoke Ball Co and Australian Woollen Mills Pty Ltd v Commonwealth. The ‘AWM’ case illustrates the ‘holy trinity’ of offer and acceptance, consideration, and intention to create legal relations.

Offers and invitations to treat

[6]A distinction is made between an offer, and an invitation to treat. An invitation to treat is an invitation to another party to make an offer. There are no fixed rules about when conduct is simply an invitation to treat and when the conduct can amount to an offer. There are general rules and a sense of consistency with regards to general conditions, but the distinction must be judged on a case to case basis.

Shop Sales

[7]Items displayed for sale in shops are regarded as invitations to treat, not offers.

This issue was discussed in Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd'[8] , in which the plaintiff claimed that the display of items for sale should be viewed as an offer, which is then accepted when the Offeree takes them off the shelf.

  • Since customers are allowed to return items to the shelf, the mere display cannot constitute an offer.
  • Rather, when the customer presents the item to the cashier, he makes an offer which is then accepted when the cashier charges him money.

Auctions

[9]Auctions are also held to be invitations to treat. Each bid is considered an offer, and acceptance is communicated by the fall of the hammer. This entails that:

  • The auction can be cancelled
  • A bidder is entitled to withdraw his bid before it is accepted
  • No obligation to sell to the highest bidder

The laws regarding auctions are specifically mapped out in the Sales of Goods Acts, which state that an auction is only complete when the auctioneer declares it is complete, and until then, bids may be withdrawn.

Auctions ‘without reserve’

[10]A legal debate ensues when an auction is declared to be without reserve – does the auctioneer assume a legal obligation to sell to the highest bidder?

  • In Australia, an auction without reserve still does not alter the general rule. This was held in AGC (advances) Ltd v McWhirter[11].
    • Regardless of the announcement that the auction is without reserve, the auction is not an offer, and there is no obligation to sell to the highest bidder.
  • In England, an auction without reserve does constitute an offer to sell to the highest bidder.
    • By announcing the special conditions of the auction, the auctioneer offers to conduct the auction in a certain way, and the bidder accepts that way by bidding.
    • If the high bidder is not accepted by the auctioneer, the bidder may have legal cause to sue the auctioneer since.

Tenders

[12]A tender process involves each bidder submitting a single bid, without knowing what the other parties bid. A call for tenders is regarded as an invitation to treat, and the bids are regarded as offers.

However, similarly to auctions, the person calling for tenders may specify the terms of the process. Thus, if the person calling for tenders promises to accept the highest bid, the call for tenders will be regarded as an offer. This was discussed in Harvela Investments Ltd v Royal Trust of Canada (CI) Ltd.

Ticket Cases

[13]Ticket cases are examples of the need to ascertain when and where the contact has been formed, for purposes of jurisdiction or whether written conditions are a part of the contract.

The problem with usual transport tickets is that the written conditions are viewed by the other party only after he has bought the ticket. This defies the usual offer and acceptance rules: since the immediate assumption is that the contract is made when the ticket is bought, doesn’t this entail that the conditions are not a part of the contract?

The view held after MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) is that the ticket only represents an offer made to the passenger, which he accepts by presenting himself for travel. No contract is formed by the purchase of the ticket alone.

Termination of an offer

There are four types of ways in which an offer could be terminated:

Withdrawal

General rule

[14]An offer can be withdrawn or revoked by the Offeror at any time before it is accepted by the Offeree. Even if the Offeror promises to hold the offer open for a certain amount of time, he can withdraw or revoke it at any time as long as it hasn’t been accepted.

Withdrawal of the offer is effective only once it has been communicated to the Offeree. The usual conditions of the postal rule (see below) do not apply here.

If the Offeree wants to ensure the offer is not withdrawn for a period of time, he will have to supply consideration (ie, give something of value). This practice is called an ‘option’.

Options

[15]If consideration has been given in return for a promise to hold an offer open, that promise will be binding (essentially, a unilateral contract is formed).

  • Parties are split into Grantor (Promisor) and Option Holder (Promisee)
  • The offer made by the Grantor cannot be revoked for the amount of time specified, and the Option Holder is entitled to accept it or not.

Lapse

[16]An offer can be terminated through a lapse of time. If a certain time period for which the offer will be open is expressly specified by the Offeror, the offer will be terminated after that time has lapsed.

  • If no time is specified, the offer can also lapse after a ‘reasonable amount of time’ has passed.
  • What constitutes ‘reasonable’ time is subjective to circumstances and subject matter of the offer.
  • Usually, verbal offers would lapse more quickly than formal or written offers.

Death of a party

The death of one of the party often causes the termination of the offer. The court seeks to avoid making a generalised rule, but it is held that the Offeree cannot accept an offer after he learnt that the Offeror has died. This was decided in Fong v Cilli[17]

  • This means that an Offeree might be able to accept an offer even if the Offeror had died, if his acceptance was communicated before he had found out of the death.

In the case of an option, the death of the Option Holder does not terminate the offer, and the option may be exercised by the representatives of his estate. However, the offer will be terminated if the offer was ‘personal’ to the Option Holder.

This rule does not apply in the case of the Grantor’s death – in that case, the offer will be terminated. In Laybutt v Amoco Australia Pty Ltd[18], Gibbs J has said that since an option is a conditional contract, the option could be enforced against the estate of the grantor.

Failure of condition

[19]Offers can be made subject to a particular condition. This may entail that the offer may only be accepted after the condition has been fulfilled, or that the offer will lapse once the condition has been fulfilled.

This has been discussed in Financings Ltd v Stimson[20], in which the courts held that there are often implied conditions when an agreement is formed.

A common example of a condition in a written agreement is that all parties must sign the agreement in order for it to be binding. In Neill v Hewens[21], it was held that in the case of co-vendors, the signature of one co-vendor is not binding without the signature of the other co-vendor.

  • There is an implied presumption that one of the co-party only wishes to bind itself if the other parties does as well
  • This is an example of a condition which needs to be fulfilled.

Rejection and counter-offer

[22]If an offer is rejected, it is terminated and cannot be accepted again. A counter-offer also terminates the previous offer.

Because of this counter-offer rule, a distinction needs to be made between a counter-offer to an inquiry with regards to possible alternation of the terms. An inquiry is when the buyer has not manifested an intention to reject the offer, merely to see whether there is room for negotiation. Therefore, the offer is still open.

Unilateral contracts and revocation

A difficulty arises sometimes when an offer to enter into a unilateral contract is withdrawn, especially when the Offeree has begun to perform the performance but has not finished (so it does not constitute acceptance).

  • For example, A promises to pay B $100 to not eat for a whole day.
  • B doesn’t eat for 18 hours, at which point A withdraws his offer

This seems unfair, as B already supplied ‘partial’ consideration. The general rule is that an offer cannot be revoked if the act made in exchange for it has been partly performed.

  • There is an implied condition in the agreement that the offer will not be withdrawn once the Offeree begins to perform.

However, this general rule was not followed in Mobil Oil Australia Ltd v Wellcome International Pty Ltd, in which it was established that an “An offer made in return for performance of an act is, like any other offer, revocable at any time.[23]

  • Such an offer can only be secured against revocation when there is an implied contract not to revoke, or an estoppel.


References

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

  1. Textbook, pp. 45-6 [3.05]
  2. Textbook, p. 46 [3.10]
  3. (2001) 53 NSWLR 153
  4. [1979] 1 WLR 294
  5. Textbook, p. 47 [3.15]
  6. Textbook, p. 49 [3.20]
  7. Textbook, p. 49 [3.15]
  8. [1953] 1 QB 394
  9. Textbook, p. 50 [3.30]
  10. Textbook, p. 51 [3.30]
  11. (1977) 1 BPR 9454
  12. Textbook, p. 51 [3.35]
  13. Textbook, pp. 52-3 [3.40]
  14. Textbook, p. 54 [3.47]
  15. Textbook, pp. 54-55 [3.50]
  16. Textbook, pp. 55 [3.55]
  17. (1968) 11 FLR 495
  18. (1974) 132 CLR 57,76
  19. Textbook, pp. 56 [3.60]
  20. [1962] 3 AII ER 386
  21. (1953) 89 CLR 1
  22. Textbook, pp. 56 [3.65]
  23. Textbook, p. 58 [3.70]
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