1. Chapter 2: The making of contracts (1) – offer and acceptance
Chapter 2
The making of contracts (1)
– offer and acceptance
Essential reading for Chapters 2 to 7
It is strongly recommended that you should buy your own copy of:
McKendrick, E. Contract Law. (Basingstoke: Macmillan, 2000) fourth edition
[ISBN 0 3337 9427 3].
for everyday use as the foundation text to be read, re-read and thoroughly digested.
You should also buy a casebook; the one we recommend is:
Poole, J. Casebook on Contract Law. (London: Blackstone, 2001) fifth edition
[ISBN 1 8417 4217 1].
Because these books are not intended to be as comprehensive in their coverage of the
materials as the traditional University undergraduate texts for law, you will need to
refer from time to time to the more advanced texts mentioned below.
Further reading
The more detailed textbook currently considered to be best suited to the needs of
external students is:
Furmston, M.P. Cheshire, Fifoot and Furmston’s Law of Contract. (London:
Butterworths, 2001) 14th edition [ISBN 0 4069 3058 9].
You may also wish to consult a more detailed casebook. Here the choice lies between:
Beale, H.G., W.D. Bishop and M.P. Furmston Contract: Cases and Materials.
(London: Butterworths, 2001) fourth edition [ISBN 0 4069 2404 X].
Smith J.C. Smith and Thomas: a Casebook on Contract. (Sweet & Maxwell, 2000)
11th edition [ISBN 0 4217 1690 8].
Smith and Thomas is a traditional casebook concentrating on purely legal materials.
The other takes a wider, some would say a more adventurous, approach and seek to
make the student aware of the wider context in which legal issues arise. The authors
Beale, Bishop and Furmston are particularly interested in economic considerations
and how the law works in practice. Our advice would be to use Beale, Bishop and
Furmston in the first case, with the others in reserve, but it is important that you resort
to the book which you find easiest to read.
It is not suggested that you must purchase the books mentioned under Further
reading: they should be available for reference in your college or other libraries.
Other books
Treitel Law of Contract. (Sweet & Maxwell/Stevens & Sons, 1999) 10th edition
[ISBN 0 4216 3460 X]. This is a very detailed and comprehensive account of the
law which may be referred to on occasion for elaboration of difficult or
controversial points.
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2. Introduction to the common law
Beatson Anson’s Law of Contract (Oxford University Press 2002) 28th edition
[ISBN 0 1987 6576 2]. This is a very clear and comprehensive account of the
modern law of contract which deals well with difficult points.
At the other end of the scale, many shorter books have been published in recent years
aimed at the student market. If you are using McKendrick and Poole, you will
generally not find that there is much benefit to be gained from these other works.
However, for the particular purpose of practising the art of writing examination
answers, you may find it helpful to have:
Brown and Chandler Law of Contract in Blackstone’s Law Questions and Answers
Series (London: Blackstone, 1996) third edition [ISBN 1 84174 0990 3]: but do
not be misled into thinking that this will provide you with ‘model answers’ which
can be learnt by heart and reproduced from memory in the examination. Every
examination question requires a specific answer and ‘pre-packaged’ answers do
not serve the purpose.
General remarks
The law of contract is concerned with the enforcement of promises. The defendant is
alleged to be under a liability to the plaintiff because he promised to do something
and has not done it, or has not done it properly. The relationship between the law of
contract and tort will be discussed later in the context of Chapter 8.
The ‘consensus’ theory of contract and objective interpretation
Formerly writers and courts placed much emphasis on the need for a ‘meeting of
minds’ or ‘consensus ad idem’ for the making of contracts. This reliance on actual
1
Laissez-faire: the theory of intention was an expression of laissez-faire1 philosophies and a belief in unfettered
government abstention from freedom of contract. This subjective approach to the making of contracts has now
interference in the workings of largely been abandoned, though its influence can still be detected in certain rules. In
the market or courts.
general, what matters today is not what meaning a party actually intended to convey
by his words or conduct, but what meaning a reasonable person in the other party’s
position would have understood him to be conveying. This is known as the process of
‘objective interpretation’.
• Hartog v Colin and Shields (1939)
• Centrovincial Estates v Merchant Investors (1983).
Finding ‘the intention of the parties’
You will soon discover that, in spite of the disappearance of the subjective approach
to the making of contracts, the law frequently uses ‘the intention of the parties’ as a
test for resolving difficulties. It is most important to appreciate that this does not
refer to the parties’ actual intentions (which may well have been conflicting) but to
the ‘proper inference’ from the facts as a whole. You should image that the courts
infer intention from the outside (like a fly sitting on the wall) watching events and
inferring intention from statements and actions. When deciding what is the ‘proper’
inference, a judge has considerable room for manoeuvre and is in reality reaching a
conclusion based upon experience, tempered by the justice of the case as much as
upon any inference in the strict sense. In commercial situations the expectations of
the parties tend to follow a relatively fixed pattern which helps the courts draw the
necessary inferences. For an instructive illustration of this process in action see the
judgment of Denning LJ in:
• Oscar Chess v Williams (1957)
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3. Chapter 2: The making of contracts (1) – offer and acceptance
where the court had to decide whether a warranty was intended. Note that Lord
Denning defines the test by reference to ‘an intelligent bystander’, but it is clear that it
is the court’s responsibility to draw the inference and that the intelligent bystander is
merely an alias for the judge.
Most promises are made as part of bilateral agreements (i.e. agreements between two
parties which involve undertakings, i.e. promises, on both sides) so that, for practical
purposes, the question, ‘Has the defendant promised?’ usually becomes, ‘Have the
parties reached agreement?’
This question could, in each case, be answered as a matter of impression based on the
facts. In practice, by the development of the rules of ‘offer and acceptance’, the courts
have developed a set of criteria by which to answer the question, ‘Has agreement
been reached?’ These rules can best be understood by taking them in simple stages
and by remembering always that it is not the subjective intentions of the parties which
determine the legal effect of their words or actions but the objective inference by the
courts of these intentions. Nowhere is this more crucial than in relation to the very
first question, namely: ‘What is an offer?’
The offer
Essential reading
McKendrick, E. Contract Law. (Basingstoke: Macmillan, 2000) fourth edition
[ISBN 0 3337 9427 3] 26–42.
Poole, J. Casebook on Contract Law. (London: Blackstone, 2001) fifth edition
[ISBN 1 8417 4217 1] 24–39.
Further reading
Furmston, M.P. Cheshire, Fifoot and Furmston’s Law of Contract. (London:
Butterworths, 2001) 14th edition [ISBN 0 4069 3058 9] 30–37.
There can be no acceptance, and therefore no agreement, unless there was an offer in
the first place. An offer exists whenever the objective inference from the offeror’s
words or conduct is that she intends to commit herself legally, without further
negotiation, to the terms she is proposing if the offeree says ‘Yes’. See:
• Gibson v Manchester City Council (1979): note the firm rejection by the House of
Lords of the Court of Appeal’s unorthodox approach to offer and acceptance.
In some situations the analysis may be rather artificial but is used nevertheless
because it provides a basis for a just decision. See for example:
• Clarke v Dunraven (1897) where the courts inferred a number of different
contacts..
For a recent example of a contract made by conduct which the court did not find
necessary to analyse precisely into offer and acceptance, see:
• G. Percy Trentham Ltd v Archital Luxfer Ltd (1993): after full performance it was
‘implausible’ to argue that there was no evidence of a contract ever having been
concluded.
• Inland Revenue Commissioners v Fry (2001) the cashing of a cheque was held not
to have amounted to acceptance of a compromise offer by the taxpayer.
By making an offer, the offeror is surrendering the initiative to the offeree: he is
leaving it to the offeree to decide whether there is to be a contract or not. In a number
of situations, however, the courts have concluded that general expressions of
15

4. Introduction to the common law
willingness to do business should not pass the initiative to the other party, saying that
the defendant was ‘merely supplying information’ or making an ‘invitation to treat’.
See on the former:
• Harvey v Facey (1893)
• Clifton v Palumbo (1944)
but contrast:
• Bigg v Boyd Gibbins (1971).
With regard to invitations to treat, see the cases on shop window displays, self-service
shops, catalogues and advertisements, namely:
• Partridge v Crittenden (1968)
• Fisher v Bell (1961)
• Pharmaceutical Society of GB v Boots (1953)
• Grainger v Gough (1896)
• Harris v Nickerson (1873).
In all these cases the court is being asked to balance one party’s expectations, such as
those of the customer who thinks he will obtain goods as displayed in the shop
window, against the need of the other party (who has raised those expectations) for
protection against unreasonable demands. You could usefully ask yourself whether the
courts have not been too reluctant to draw the inference of an offer in some of these
cases. Note, however, the courts’ readiness to infer an offer in certain categories of
advertisement: the advertisement of rewards and (very exceptionally) other ‘offers to
all the world’:
• Carlill v Carbolic Smoke Ball (1893)
• Wilkie v London Passenger Transport Board (1947).
Note also the controversial decision in:
• Warlow v Harrison (1859) which confirmed the existence of a collateral contract
in auction situations. The facts concerned the advertisement of an auction sale as
being ‘without reserve’. Is this decision consistent with Harris v Nickerson?
• Warlow v Harrison was followed in Barry v Heathcote Ball & Co (Commercial
Auctioneers) Ltd (2001) where an auctioneer who had put up goods as ‘without
reserve’ was held to have made a collateral contract with the highest bidder. The
device of the collateral contract is relatively rare. It can take the form of, ‘When
you make me an offer I will promise not to take the item out of the sale’.
The existence of a collateral contract does not affect the ability to accept or reject
the main offer. This was considered in Society of Lloyd’s v Twin (2000).
See also:
• Harvela Investments v Royal Trust of Canada (1986) where the invitation to treat
included a binding commitment to accept an offer which satisfied the stated
conditions.
• Blackpool and Fylde Aero Club v Blackpool BC (1990) where damages were
awarded for breach of an implied undertaking in the invitation to treat to consider
all conforming tenders.
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5. Chapter 2: The making of contracts (1) – offer and acceptance
Activities
1. How does an invitation to treat differ from an offer?
2. How were the facts of Carlill v Carbolic Smoke Ball different from the normal
situation involving an advertisement?
3. How would an English court have decided the case of Lefkowitz v Great
Minneapolis Surplus Stores?
4. Does a railway timetable constitute an offer?
Communication of the offer
Essential reading
McKendrick, E. Contract Law. (Basingstoke: Macmillan, 2000) fourth edition
[ISBN 0 3337 9427 3] 31–42.
Poole, J. Casebook on Contract Law. (London: Blackstone, 2001) fifth edition
[ISBN 1 8417 4217 1] 19–21.
Further reading
Furmston, M.P. Cheshire, Fifoot and Furmston’s Law of Contract. (London:
Butterworths, 2001) 14th edition [ISBN 0 4069 3058 9] 33–40.
An offer is said to be ineffective, and thus incapable of acceptance, unless
communicated to the offeree. The principal application of this rule is in reward cases,
where the general view is that a reward cannot be claimed, even though the act for
which the reward was offered has been performed, if the person performing the act
was unaware at the time that a reward was being offered. See:
• R v Clarke (1927)
• Williams v Carwardine (1833).
Note also:
• Tinn v Hoffmann (1873) on cross-offers.
Activities
1. Was the decision in R v Clarke influenced by the consensus theory of contract?
Should it have been?
2. Do you think the decision might have been different if Clarke had been a poor
but honest widow?
Acceptance
Essential reading
McKendrick, E. Contract Law. (Basingstoke: Macmillan, 1997) third edition
[ISBN 0 3337 1980 8] 42–53.
Poole, J. Casebook on Contract. (London: Blackstone, 2001) fifth edition
[ISBN 1 8417 4217 1] 40–59.
Further reading
Furmston, M.P. Cheshire, Fifoot and Furmston’s Law of Contract. (London:
Butterworths, 2001) 14th edition [ISBN 0 4069 3058 9] 40–61.
17

6. Introduction to the common law
Acceptance occurs when the offeree’s words or conduct give rise to the objective
inference that the offeree assents to the offeror’s terms. When the offeree queries or
seeks to change the terms, it may be held that the offeree has passed the initiative
back to the offeror by making a counter-offer which destroys the original offer.
Contrast:
• Hyde v Wrench (1840)
• Stevenson, Jacques v McLean (1880).
Note also:
• Butler Machine Tool v Excell-o (1979) adopting the last shot rule in the ‘battle of
forms’.
Activities
1. A wrote to B offering 300 bags of cement at £10 per bag. B wrote in reply that he
was very interested but needed to know:
a. whether it was Premium Quality cement
b. whether the price included delivery to his (B’s) yard.
The following morning, soon after A read B’s letter, B heard a rumour that the
price of cement was about to rise. He immediately sent a fax to A stating, ‘Accept
your price of £10 for Premium Quality.’ Assuming that the cement actually is
Premium Quality, is there a contract? (If so, does the price include delivery?)
2. What is the position under the ‘last shot rule’ if, after the exchange of forms, the
seller fails to deliver the goods?
Communication of the acceptance
Essential reading
McKendrick, E. Contract Law. (Basingstoke: Macmillan, 2000) fourth edition
[ISBN 0 3337 9427 3] 42–51.
Poole, J. Casebook on Contract Law. (London: Blackstone, 2001) fifth edition
[ISBN 1 8417 4217 1] 48–60.
Further reading
Furmston, M.P. Cheshire, Fifoot and Furmston’s Law of Contract. (London:
Butterworths, 2001) 14th edition [ISBN 0 4069 3058 9] 52–61.
Acceptance is not effective as a general rule unless communicated to the offeror but
there are several important exceptions. See:
• Brogden v Metropolitan Railway (1877), acceptance by conduct
• Carlill v Carbolic Smoke Ball (1893).
In the latter case, communication of the acceptance may be said to be waived,
because it would be unreasonable of the offeror to rely on the absence of a
communication which would have been superfluous or which no reasonable person
would expect to be made. The offeror cannot, however, waive communication if that
would be to the detriment of the offeree. See:
• Felthouse v Bindley (1862).
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7. Chapter 2: The making of contracts (1) – offer and acceptance
Activities
1. What was the detriment to the offeree in Felthouse v Bindley?
2. Could an offeror use this case to avoid liability?
The most important exception relates to postal communication and is dealt with in the
following section.
Postal communication
Essential reading
McKendrick, E. Contract Law. (Basingstoke: Macmillan, 2000) fourth edition
[ISBN 0 3337 9427 3] 47–51.
Poole, J. Casebook on Contract Law. (London: Blackstone, 2001) fifth edition
[ISBN 1 8417 4217 1] 49–54.
Further reading
Furmston, M.P. Cheshire, Fifoot and Furmston’s Law of Contract. (London:
Butterworths, 2001) 14th edition [ISBN 0 4069 3058 9] 57–61.
When the parties communicate by letter, the interval of time between the posting of a
letter and its receipt by the addressee and the possibility of a letter’s being delayed in
the post or lost altogether gives rise to problems. Although maintaining the general
principle that a letter is effective only if and when it arrives, in all other cases, the
courts departed from this principle in the case of letters (or telegrams) of acceptance,
see:
• Adams v Lindsell (1818)
• Household Fire Insurance v Grant (1879).
These decisions establish that acceptance is complete when posted, thus putting the
risk of delay and loss on the offeror, at least in certain situations. Although often
called a rule, the principle of these cases is really an exception to the general
requirement of actual communication which will prevail where the circumstances or
the terms of the offer show that it should, see:
• Holwell Securities v Hughes (1974).
Note also the courts’ refusal to extend the postal principle to acceptance by telex:
• Entores v Miles Far East Corp (1955)
• Brinkibon v Stahag Stahl (1982).
Activities
1. What reasons have been given by the courts for the postal acceptance rule? Are
they convincing?
2. Is there such a fundamental difference in practice between communicating by
telex and sending a telegram?
3. What rule do you think the courts would adopt for acceptance sent by fax or
e-mail?
19

8. Introduction to the common law
Method of acceptance
Essential reading
McKendrick, E. Contract Law. (Basingstoke: Macmillan, 2000) fourth edition [ISBN
0 3337 9426 3] 42.
Poole, J. Casebook on Contract Law. (London: Blackstone, 2001) fifth edition [ISBN
1 8417 4217 1] 46–48.
Further reading
Furmston, M.P. Cheshire, Fifoot and Furmston’s Law of Contract. (London:
Butterworths, 2001) 14th edition [ISBN 0 4069 3058 9] 54–55.
The offeror may state that the acceptance should be conveyed to him in a particular
manner, but must the offeree comply with this instruction? See:
• Eliason v Henshaw (1819)
• Manchester Diocesan Council for Education v Commercial and General
Investments (1970).
The required method for communicating acceptance may also be inferred from the
manner of making the offer. See:
• Quenerduaine v Cole (1883).
Acceptance can sometimes be inferred from conduct, see:
Brogden v Metropolitan Rly Co (1877) where coal was supplied to a railway
company without the terms of the written agreement being fixed.
Though the conduct must point clearly to the existence of the contract, see:
IRC v Fry (2001) where the cashing of a cheque by the IRC was held not to be
acceptance by them of a compromise offer by the taxpayer.
Activities
1. Where a method of acceptance has been prescribed by the offeror, may the
offeree choose to use another (equally effective) method of communicating his
acceptance? Whose interest should prevail?
2. Can an offer made by fax be accepted by letter?
Change of mind
Essential reading
McKendrick, E. Contract Law. (Basingstoke: Macmillan, 2000) fourth edition [ISBN
0 3337 9427 3] 51–53.
Poole, J. Casebook on Contract Law. (London: Blackstone, 2001) fifth edition [ISBN
1 8417 4217 1] 46–48.
Further reading
Furmston, M.P. Cheshire, Fifoot and Furmston’s Law of Contract. (London:
Butterworths, 2001) 14th edition [ISBN 0 4069 3058 9] 62–67.
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9. Chapter 2: The making of contracts (1) – offer and acceptance
In principle there is no legal commitment until a contract has been concluded by the
acceptance of an offer and, up to that point, either party is free to change his mind and
withdraw from the negotiations, see:
• Offord v Davies (1862)
• Routledge v Grant (1828).
Note how the requirement of actual communication is maintained in considering
whether an offer has been revoked, see:
• Byrne v Leon van Tienhoven (1880).
Must the revocation be communicated by the offeror or merely to the offeree? See:
• Dickinson v Dodds (1876).
Note the special problems of withdrawal of an offer of a reward or other unilateral
contract:
• Errington v Errington (1952)
• Daulia v Four Millbank Nominees (1978)
• Shuey v US (1875).
Different problems arise when it is the offeree who changes her mind: for example if,
after posting a letter of acceptance, she informs the offeror by telephone, before the
letter arrives, that she rejects the offer. Should the act of posting an acceptance prevail
over the information actually conveyed to the offeror? In the absence of English cases
the books refer to a number of cases from other jurisdictions – see Dunmore v
Alexander (1830: Scotland) and Wenkheim v Arndt (1873: New Zealand). However,
when citing them, it is important to emphasise that they are not binding (and indeed
some have very little persuasive authority) so that the question must be answered
primarily as a matter of principle.
Activities
1. Why can the offeror break his promise to keep the offer open for a stated time?
2. In a unilateral contract, when has the offeree started to perform the act (so as to
prevent revocation by offeror)? Does the offeror need to know?
3. How can the offeror inform all potential claimants that the offer of a reward has
been cancelled?
4. Will there be a contract if the offeree posts a letter rejecting the offer but then
informs the offeror by telephone, before the letter arrives, that he accepts the
offer?
Lapse of offer
Essential reading
Furmston, M.P. Cheshire, Fifoot and Furmston’s Law of Contract. (London:
Butterworths, 2001) 14th edition [ISBN 0 4069 3058 9] 67–69.
The offeror may set a time limit for acceptance but, even without a limit, the offeree
cannot let the offeror wait indefinitely. The offeror is entitled to assume that
acceptance will be made fairly promptly or not at all. However, because of the ease
with which offers can be revoked, it is rarely necessary to resort to the principle of
lapse, but see:
• Ramsgate Victoria Hotel v Montefiore (1866).
21

10. Introduction to the common law
Summary
Essential reading
McKendrick, E. Contract Law. (Basingstoke: Macmillan, 2000) fourth edition
[ISBN 0 3337 9427 3] 53–55.
The detailed rules of offer and acceptance provide a ready source of problems and
difficulties on which an examiner can draw, for example:
• Is a statement an offer or an invitation to treat?
• Is there a counter-offer or mere enquiry?
• Does a posted acceptance fall outside the postal rule?
• Was the offeror or offeree free to have second thoughts?
• When is a telephone call recorded on an answering machine actually received?
There are also several everyday transactions where the precise contractual analysis is
not immediately apparent – the motorist filling up with petrol (gas), the passenger
riding on a bus, the tourist buying a ticket for the underground (subway) from a
machine and so on. The fact that some of these problems are not covered by authority
does not make them any less attractive to an examiner, indeed, the opposite might
well be the case. The key to most problems of offer and acceptance is the idea that the
law should give effect to actual communication wherever possible.
Learning outcomes
By the end of this chapter and the relevant reading, you should be able to:
• distinguish between an offer and an invitation to treat
• define and apply the requirements for acceptance
• discuss the scope and effect of the postal rule for acceptance
• explain the effect of change of mind by either party.
Sample examination question
Cyril, a stamp dealer, had a rare Illyrian five cent blue for sale. He wrote to Davina, a
collector who specialises in Illyrian stamps, asking whether she would be interested
in purchasing it. Davina wrote in reply, ‘I am willing to pay £500 for the ‘blue’; I
will consider it mine at that price unless I hear to the contrary from you and will
collect it from your shop on Friday next week.’
Advise Davina as to the legal position:
a. if Cyril disregarded Davina’s letter and sold the stamp to Eric for £600
b. if Cyril put the stamp on one side in an envelope marked ‘Sold to Davina’ but
2 2
Note: in two-part questions Davina decided that she no longer wished to buy it.
such as this you must answer
both parts unless instructed
clearly that candidates are to
answer either a or b.
22