Contract Cases

Acceptance TranscriptDeveral Capps

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This lecture will examine the law relating to acceptance.


By the end of this lecture you should have understood what acceptance is, how acceptance can be made and when acceptance will be valid.


We have already seen that in order to create a valid legally binding contract certain elements are required. These are offer, acceptance, consideration and an intention to create legally binding relations. This lecture will deal with the second of these elements, acceptance. Before you listen to this lecture it is important that you have covered the law relating to offer.


Acceptance can be defined as the unconditional assent to all the terms of the offer. Acceptance must therefore be complete and unequivocal.

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It may be useful at this stage to point out two occasions where acceptance may appear to have occurred, but in fact legally has not. These two occasions are where the acceptance amounts to a counter-offer or the words subject to contract are used. We shall look at each of these in turn.

The first is counter-offer. This, as you should already know, is where an acceptance actually tries to alter the terms of the original offer. This is a counter-offer and not acceptance. A counter-offer will terminate the original offer. You should be aware of the leading case on counter-offer, which is Hyde v Wrench.

The second is subject to contract. This term is used widely in contracts for the sale of land and means that acceptance will not actually occur until the contract has actually been signed. Therefore a verbal acceptance will not suffice. Either the person making the offer or the person accepting the offer can use the words subject to contract. Now we can turn to when acceptance has actually occurred.


Acceptance can occur either expressly or impliedly. Where acceptance is expressed, there are few problems. The express acceptance can come either in words, gestures or in writing. Therefore a person when accepting an offer could say verbally "I accept", or that person could accept in writing by sending a letter to the offeror, that is the person making the offer with the words "I accept your offer". Alternatively, you could even accept by using recognized gestures signifying the affirmative, for example the thumbs up, by nodding your head, or by merely handing over the money to pay for the item being contracted for.

Where acceptance is implied, it will normally arise through the conduct of the offeree. This is the person to whom the offer was made.


Let us look in detail at a House of Lords case. This case is Brogden v Metropolitan Railway Company. The facts of this case are as follows. Brogden had been a supplier of coal to the railway company for a number of years without any formal agreement. The respondent eventually suggested that a formal agreement be created and submitted a draft agreement to Brogden detailing prices and delivery dates etc. .Brogden inserted several new clauses into the draft document and in particular filled in a blank space left for him to enter the name of an arbitrator who would settle any problems that may arise over the course of the contract. Brogden then wrote approved on the document and returned it to the company's agent. This document remained on the agent's desk without any formal communication of acceptance.

Coal was delivered to the company according to the quantities and the prices mentioned in the document. After a while, the parties had a disagreement and Brogden refused to deliver any further coal. The company sued for breach of contract. Brogden argued in court that by entering the name of an arbitrator in one of the blank spaces on the contract, this amounted to a counter-offer that required the defendant's acceptance. As the document had remained in the agent's desk and no formal acceptance had occurred, there was, according to Brogden, no binding agreement.

The House of Lords held that, although the company had not formally agreed to the new terms, both parties had agreed by conduct to the terms in the draft document. The conduct had been the deliveries of the coal by Brogden and the acceptance of these deliveries by the railway company from the time of the draft agreement up until the time of the dispute. This conduct, the court believed, had amounted to acceptance. Therefore we can see that acceptance can be implied by conduct.


One thing that is certain with the law relating to acceptance is that there must be some action, either verbally or physically, to indicate that acceptance has been made. Silence cannot constitute acceptance and the following case illustrates this – Felthouse v Bindley. The facts of this case are as follows. The plaintiff wrote to his nephew offering to buy a particular horse for £30 15s. The plaintiff wrote on the note "If I hear no more about him, I consider the horse mine at that price". The nephew intended to sell the horse to the uncle at the price, and, in accordance with note, did nothing.

At this time, the horse was in the possession of an auctioneer who was the defendant in this case, and the nephew instructed the auctioneer not to sell the horse in a forthcoming auction. However, due to a misunderstanding, the horse was sold to another person. The uncle sued the auctioneer in the tort of conversion, which is the wrongful disposal of another's property.

The uncle lost his case at trial. The court held that there could be no acceptance by silence. An offeror cannot impose acceptance merely because the offeree does not reject the offer. The intention to accept will not constitute valid acceptance unless there has been communication of the acceptance in some form. As the uncle had no title to the horse, an action complaining of the wrongful disposal of his property must fail. Therefore, we can see that, if silence cannot constitute acceptance, there must be some communication of the acceptance for it to take effect. The fact that someone has decided to accept an offer does not amount to acceptance in law. The acceptance must be communicated to the offeror and acceptance will not be effective until this is done.


In Entores Ltd v Miles Far East Corporation Lord Denning said the following about acceptance. "Suppose, for instance, that I shout an offer to a man across a river but I do not hear his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment. If he wishes to make a contract, he must wait until the aircraft is gone and then shout back his acceptance so that I can hear what he says".

What would happen in the situation where the person who accepted the offer did so on the behalf of others, and what if this person did not actually have the power to accept. This situation occurred in the case of Powell v Lee.


The facts of Powell v Lee are as follows. The defendants here were the managers of a school. The managers interviewed the plaintiff for the position of headmaster and by a narrow majority the plaintiff won the position on a vote. One of the managers, a Mr. Dismore, without any instruction from the rest, sent the plaintiff a telegram saying that he had been selected as the headmaster. The next day another managers meeting was held, which

decided that the plaintiff was not the best person for the job and they appointed somebody else. The court held that there was no contract in existence as the acceptance was not from the whole body of the managers and therefore was unauthorised.

In this case Channell J said "There must be notice of acceptance from the contracting party in some way, and the mere fact that the managers did not authorise such a communication, which is the usual course adopted, implies that they meant to reserve the power to reconsider the decision at which they had arrived."


We have seen therefore that in order for acceptance to be valid it must be:

1 communicated to the offeror and2 made by a person who is authorised to accept if a body is

represented.


Now that we have looked at the standard law as it relates to acceptance, we should move on to examine the exceptions to the norm. These exceptions can be found in relation to posted letters of acceptance and also acceptance of unilateral contracts.


We shall now look at an unusual rule relating to acceptance of an offer when the acceptance has been posted. This is known as the Postal Rule. It should be made clear at the outset that the Postal Rule relates only to acceptance of an offer. Often students become confused with the Postal Rule and try to apply it to making an offer and revocation of an offer. The Postal Rule will not apply in these cases.

Also, the Postal Rule only applies to instances where acceptance has been posted. The Postal Rule does not apply to any other form of communication. It does not therefore apply to either fax, telegram or email. The Postal Rule states that acceptance of an offer when made by post will be deemed to be effective from the moment the letter of acceptance has been posted, that is dropped into a pillar box or some other postal collection point.

This is so even if the letter is subsequently delayed or even lost in the post. It is important, however, that the letter has been properly addressed and the correct amount of postage has been paid. Let us look at two cases.


The first of these is Adams v Lindsell. The facts of this case were as follows. The defendants made an offer by letter to the plaintiffs on 2nd September 1817, requiring an answer in the course of post. The letter of offer was misdirected and slightly delayed. It reached the plaintiffs on 5th September, who immediately posted a letter of acceptance that reached the defendants on 9th September. If the original offer had been properly addressed, the defendants could have expected a reply by 7th September. As this acceptance did not occur, the defendants believed the offer was not going to be accepted and on 8th September they sold the goods to another person. The court held in this case that the acceptance was effective as soon as it had been posted. Therefore the contract was legally binding at this time.


When dealing with the law relating to offer, you would have looked at the case of Byrne and Co v Van Tienhoven and Co. If you are unfamiliar with the facts of this case, then you should familiarise yourself with them before you continue with this lecture any further. In Byrne the offer was accepted on at least 15th October when the letter of acceptance was posted, unless of course the telegraphed acceptance had been communicated to the offeror by then. Over the years the law has realised that the Postal Rule is a very powerful rule indeed and judges have tried to limit the law in the following ways. Where the offer stipulates that acceptance must be communicated by notice in writing, the Postal Rule will not operate. Notice means the offeror must actually be notified. If the Postal Rule applied here and the letter was lost in the post, then the law would be overriding one of the conditions of the offer and this cannot be allowed to occur. Let us look at a case to illustrate this limitation to the Postal Rule.


The case is Holwell Securities v Hughes. The facts of this case are as follows. An option to purchase certain property was granted to the plaintiff in this action. An option to purchase means that a person has an opportunity to purchase something should they wish to do so. Clause 2 of the agreement stated that "the said option shall be exercisable by notice in writing". The plaintiff's solicitors wrote a letter to the defendants exercising the option and posted the letter, which was both prepaid and correctly addressed. This letter was lost in the post. The court held that the words "notice in writing" meant that notice must actually occur and that the letter must actually be delivered. Therefore, the Postal Rule could not apply as notice of acceptance was not actually given.


In this case Russell LJ said "The relevant language here is 'the said option shall be exercisable by notice in writing to the intending vendor…' a very common phrase in an option agreement. There is, of course, nothing in that

phrase to suggest that notification to the defendant could not be made by post. But the requirement of 'notice…to', in my judgement, is language which should be taken expressly to assert the ordinary situation in law that acceptance requires to be communicated or notified to the offeror, and is inconsistent with the theory that acceptance can be constituted by the act of posting…as acceptance without notification".


Russell went on to say "The answer might well be that in the circumstances the defendant had impliedly invited communication by use of an orifice in his front door designed to receive communications".

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The Postal Rule will also not apply if a letter is not posted but is in fact handed to a postman, who later goes on to post the letter. This can be seen in the case of Re London and Northern Bank ex parte Jones. The facts of this case were as follows. One morning at 7.30 am a servant of Northern bank took a letter along with many others addressed to Dr. Jones in Sheffield to the General Post Office in London. This letter accepted Dr. Jones' offer to buy shares from the bank. On the outer precincts of the GPO a postman came by and offered to take the letters. The bank's employee handed over the letters and the postman went into the building, returned to the bank's employee and confirmed that the letters had been posted.

A letter was received by the bank at 8.30 that morning from Dr. Jones withdrawing his offer to buy shares in the bank. Therefore we can see that the Postal Rule is very important here, as one hour after the letter of acceptance was posted the offer was withdrawn. The court held that handing the letter to the postman outside the GPO was not posting a letter so as to amount to acceptance by the Postal Rule, even though that letter was actually posted. The postal guide expressly states that town postmen were not allowed to take charge of letters other than from a post box. This case undoubtedly illustrates the court's intention to take every possible opportunity to restrict the ambit of the Postal Rule as far as possible.

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We shall now move on to look at prescribed modes of communication. There is always the possibility that the person who has made the offer prescribes a particular mode of acceptance, for example by letter or by fax. A failure to comply with such a condition will mean that the offer will be terminated. The courts, however, have taken the view that, unless it is stipulated in the offer that only one particular method of acceptance will suffice, any other equally advantageous form of acceptance will be valid.

Let us look at a case to illustrate this, Yates Building Co. v Pulleyn & Sons. The facts of this case were as follows. The defendants granted the plaintiffs an option to purchase land exercisable by notice in writing to be sent by

registered or recorded delivery post. The plaintiffs sent a letter exercising the option by ordinary post. The defendants received this letter, but because it wasn't sent by either registered or recorded delivery, they refused to accept it.

The Court of Appeal held that sending the letter by ordinary post was valid and was no disadvantage to the offeror. The court said that by stating the acceptance must be made by recorded or registered delivery , this implied that the acceptance must be made by post. Registered or recorded post was only to ensure delivery and, as this had happened, acceptance had occurred. If the defendants had stated that the acceptance would only be valid if made by registered or recorded delivery, then this may have altered the situation.


Unilateral contracts. A unilateral contract is an exception to the normal rules of acceptance because the person who is making the offer does not require the person who is accepting the offer to actually communicate the acceptance. With unilateral contracts, a person promises to do something for another if they carry our a particular task. With a unilateral contract, the acceptance comes from the performance of the task.

The case of Carlill v Carbolic Smoke Ball Company, which you will already be familiar with, illustrates this point. The Carbolic Smoke Ball Company advertised that if anyone used the smoke ball and subsequently caught influenza, the company would pay that person £100. The law does not expect that acceptance in this case be communicated. The acceptance will arise by conduct, here through the purchase and use of the smoke ball. It would be ridiculous for every purchaser of the smoke ball to expressly accept the company's offer. In cases where an offer is made to the world, it would be absurd to require the communication of acceptance.


This draws us to the end of this lecture on acceptance. To summarise the main points we have seen:

1. When the words subject to contract are used, or if the acceptance inserts new terms into a contract, so as to amount to a Counter Offer, no acceptance will occur.

2. Acceptance can occur either expressly or impliedly through conduct.3. Silence cannot constitute acceptance4. The postal rule states, when it is applicable, that acceptance will be

deemed effective when the letter of acceptance is posted.5. Acceptance will not be valid until it is communicated to the offeror

unless the postal rule is valid, or the offer was made unilaterally.

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