Agreement

1. Offer

An offer is the first of the two agreement-ingredients. For a contract to be formed there must be a clear offer made by one party (the offeror) and an unqualified acceptance of that offer, on the same terms, by the other party (the offeree). The test for whether a communication is an offer is predominantly objective.

Would a reasonable person in the position of the offeree understand that the offeror intended to be bound on those terms as soon as the offeree agreed? (Smith v Hughes (1871) LR 6 QB 597; The Leonidas D [1985] 1 WLR 925.) The subjective state of mind of the offeror is irrelevant if the outward appearance of the communication points to a willingness to be bound.

2.1.1 Offer Distinguished from Invitation to Treat

An invitation to treat is a preliminary communication inviting the other party to make an offer. It does not manifest an intention to be bound; it merely opens negotiations. The classification matters because only an offer can be accepted to form a contract. A display, advertisement or price list that looks at first sight like an offer will ordinarily be construed as an invitation to treat, so as to preserve the supplier's freedom to withhold supply (for example, where stock has run out or the prospective customer appears unsuitable).

Four categories of communication are almost always invitations to treat. In each case the final step (the customer presenting goods at the till, the client submitting a tender, the buyer writing to the seller at the advertised price) is the offer; the supplier is then free to accept or reject.

(i) Goods displayed on shop shelves or in shop windows — Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401; Fisher v Bell [1961] 1 QB 394.

(ii) Advertisements of goods or services for sale — Partridge v Crittenden [1968] 1 WLR 1204.

(iii) Price lists or catalogues — Grainger & Son v Gough [1896] AC 325.

(iv) Invitations to tender — Spencer v Harding (1870) LR 5 CP 561.

2.1.2 Exceptions: When an Advertisement or Display Is an Offer

Two situations convert an ordinary invitation to treat into an offer.

The first is the unilateral offer to the world, where the advertiser promises a reward on performance of a specified act. In Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 the Court of Appeal held that an advertisement offering £100 to anyone who contracted influenza after using the smoke ball as directed was an offer accepted by performance; the deposit of £1,000 with the bank to meet any claims put the seriousness of the promise beyond doubt.

The second is an auction advertised 'without reserve': the auctioneer makes a collateral unilateral offer to sell to the highest bona fide bidder, independently of the main contract of sale (Barry v Davies [2000] 1 WLR 1962, confirming Warlow v Harrison (1859) 1 E & E 309).

2.1.3 Bilateral and Unilateral Offers

A bilateral offer seeks a return promise: the offeree accepts by promising to do (or not to do) the act identified in the offer. Almost all commercial contracts are bilateral.

A unilateral offer, by contrast, seeks performance of an act rather than a return promise: the offeror promises to pay (or to do something) in return for the offeree actually performing a specified act. Acceptance in a unilateral contract is effected by performance of the act — no communicated promise is required. Carlill is the classic illustration; everyday examples include reward posters for lost property and commission-by-results arrangements.

2.1.4 Auctions

At a standard auction, the auctioneer's request for bids is an invitation to treat, each bid is an offer, and the contract is formed when the hammer falls and the highest bid is accepted: see s.57(2) of the Sale of Goods Act 1979 and Payne v Cave (1789) 3 TR 148. A bidder may retract their bid at any time before the hammer falls.

At an auction 'without reserve', the auctioneer undertakes a collateral unilateral obligation to sell to the highest bona fide bidder; failure to do so gives the bidder a claim in damages against the auctioneer personally (Barry v Davies).

2.1.5 Tenders

An invitation to submit tenders is normally an invitation to treat; each tender is an offer which the invitor may accept or reject (Spencer v Harding). Two refinements apply.

First, if the invitation states that the invitor binds itself to accept the highest (or lowest) conforming bid, the invitation becomes a unilateral offer, and the highest conforming bid both accepts that unilateral offer and is itself an offer to contract on the stated terms (Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] AC 207). Referential bids ('£100 more than any other bid') are invalid because they would produce contradictory obligations.

Secondly, even where the invitor is not bound to accept any tender, the invitor is bound to consider all conforming tenders submitted in time, on pain of a claim for breach of a collateral contract (Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 1 WLR 1195).

2.1.6 Cross-Offers

A cross-offer arises where two parties simultaneously send identical offers to each other in ignorance of the other's offer. There is no contract: neither offer has been accepted, because each party was proposing, not accepting (Tinn v Hoffmann & Co (1873) 29 LT 271).

2.1.7 Communication of the Offer

An offer has no legal effect until it is communicated to the offeree; a person cannot accept an offer of which they are unaware. In unilateral contracts this produces the subsidiary rule that a person who performs the specified act in ignorance of the reward cannot claim it (R v Clarke (1927) 40 CLR 227).

However, motive is irrelevant so long as the offer was known to the offeree: a claimant who performs knowing of the reward may recover even if their predominant motive was not to claim it (Williams v Carwardine (1833) 5 C & P 566).

2. Acceptance

Acceptance is the unqualified assent, communicated to the offeror, to be bound by the terms of the offer. It completes the agreement. The law imposes four requirements: (i) the acceptance must correspond with the offer (the mirror-image rule); (ii) it must be made by the offeree, with knowledge of the offer; (iii) it must take a form that the offer permits (including acceptance by conduct where contemplated); and (iv) it must be communicated to the offeror in the manner prescribed or by an equally advantageous method, subject to the postal rule.

2.2.1 The Mirror-Image Rule and Counter-Offers

Acceptance must correspond exactly with the offer. A purported acceptance which seeks to introduce new or different terms is in law a counter-offer; it destroys the original offer and may itself be accepted or rejected by the original offeror.

The leading authority is Hyde v Wrench (1840) 49 ER 132: Wrench offered to sell a farm for £1,000; Hyde replied offering £950; Wrench refused; Hyde then purported to accept the original £1,000 offer; the court held that the £950 counter-offer had extinguished the original offer, which could no longer be accepted.

2.2.2 Battle of the Forms

Where each party seeks to contract on its own standard terms and the parties exchange successive documents ('purchase order', 'acknowledgement of order', 'delivery note'), the 'last-shot' rule usually applies: the contract is formed on the terms of the last document sent before performance, provided the other party then accepts by conduct (Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 WLR 401).

Butler illustrates the analysis: sellers offered on their own terms (including a price-variation clause); buyers replied on their own terms (fixed price), returning a tear-off slip; the sellers signed and returned that slip and delivered the machine. The Court of Appeal held the contract was concluded on the buyers' terms, since signing and returning the tear-off slip accepted the buyers' counter-offer.

More recently the courts have re-affirmed a flexible approach: the question is whether, on an objective construction of the parties' communications as a whole, they have reached agreement and, if so, on whose terms (TRW Ltd v Panasonic Industry Europe GmbH [2021] EWCA Civ 1558; RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG [2010] UKSC 14).

2.2.3 Acceptance by Conduct

Acceptance need not be by words: it may be inferred from conduct where the offer invites performance as acceptance (Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 — a drafted supply agreement was performed by both parties for years without being formally executed; the Lords held the contract had been accepted by conduct). In unilateral contracts the act specified is itself the acceptance (Carlill).

2.2.4 Acceptance by Silence

As a rule, silence cannot constitute acceptance: the offeror cannot impose a contract on an unwilling offeree by stipulating that silence will amount to assent (Felthouse v Bindley (1862) 11 CB (NS) 869).

Two qualifications exist. First, the offeree may validly undertake to be bound unless they reject the offer — this is an 'opt-out' offered by the offeree to the offeror, not the reverse. Secondly, in a limited class of cases conduct combined with inaction may evidence acceptance where there has been a prior dealing between the parties (Rust v Abbey Life Assurance Co Ltd [1979] 2 Lloyd's Rep 334 — long retention of an insurance policy without protest).

3. Communication of Acceptance

Because acceptance completes the contract, the law fixes with precision the moment at which it takes effect. The general rule is that acceptance must actually be communicated to — that is, received by — the offeror. Two exceptions modify the general rule: unilateral contracts (where performance is itself both acceptance and communication) and the postal rule.

2.3.1 The General Rule: Instantaneous Communications

Where the parties use an instantaneous mode of communication (telephone, telex, fax, email, live chat), acceptance takes effect when and where it is received by the offeror, not when sent. The leading case is Entores Ltd v Miles Far East Corp [1955] 2 QB 327 (acceptance by telex; contract formed in London, where the message was printed out).

The rule was re-affirmed by the House of Lords in Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34. Lord Wilberforce observed: 'No universal rule can cover all such cases; they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgement where the risks should lie.' A message transmitted out of business hours is treated as received at the start of the next business day.

2.3.2 The Postal Rule

Where post is a reasonable means of acceptance, a posted letter of acceptance takes effect as soon as it is properly posted, even if it is delayed in the post or never arrives. The rule originated in Adams v Lindsell (1818) 1 B & Ald 681 and was confirmed in Household Fire and Carriage Accident Insurance Co v Grant (1879) 4 Ex D 216 (acceptance posted but never delivered: contract nonetheless binding). The rationale is that the Post Office acts as the common agent of both parties, so placing the letter in its hands is constructive communication to the offeror.

2.3.3 Limits of the Postal Rule

The postal rule is a narrow exception and does not apply in four situations.

First, it does not apply where post is not a reasonable means of acceptance (for example, a posted reply to a telephoned offer inviting a same-day response).

Secondly, it does not apply where the offer expressly or impliedly requires the acceptance to reach the offeror (Holwell Securities Ltd v Hughes [1974] 1 WLR 155 — an offer requiring acceptance 'by notice in writing to the intending vendor' impliedly excluded the postal rule).

Thirdly, the letter must be correctly stamped and addressed; carelessness defeats the rule (Re London and Northern Bank, ex parte Jones [1900] 1 Ch 220).

Fourthly, the rule does not apply to instantaneous communications or to revocations of offers (Byrne & Co v Van Tienhoven & Co (1880) 5 CPD 344).

2.3.4 Electronic Communications

Email, web-forms and text messages are treated as instantaneous for the purposes of the general rule, though transmission delays mean that the analysis is fact-sensitive. Thomas v BPE Solicitors [2010] EWHC 306 (Ch) held that an email acceptance sent at 18:00 on a Friday took effect when it arrived in the recipient's inbox, not when it was opened the following Monday, because the sender reasonably expected it to be read during business hours.

For business-to-consumer e-commerce, the Electronic Commerce (EC Directive) Regulations 2002 impose additional information-duties on traders (reg 9) and the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 prescribe the information that must be given before a distance contract is concluded.

2.3.5 Prescribed Method of Acceptance

If the offer specifies a particular method of acceptance ('reply by return of post'), a stricter analysis applies. If the offer states that acceptance must be by the prescribed method and no other, any other form is ineffective. If, however, the offer merely indicates a convenient method, an equally expeditious method that fulfils the same purpose will be effective (Manchester Diocesan Council for Education v Commercial & General Investments Ltd [1970] 1 WLR 241). Candidates should read the offer closely to determine whether the method is mandatory or merely indicative.

4. Termination of Offers

An offer is not open indefinitely. Before acceptance, an offer may be terminated in any of five ways: revocation by the offeror; rejection or counter-offer by the offeree; lapse of time; the death of either party; or the non-occurrence of a condition on which the offer depends. Termination means that the offer is incapable of acceptance; a purported acceptance after termination is of no effect.

2.4.1 Revocation

An offeror may revoke the offer at any time before it has been accepted, even if the offeror has promised to keep the offer open for a specified time. The reason is that a promise to keep an offer open is itself unsupported by consideration and is therefore not binding (Routledge v Grant (1828) 4 Bing 653). The offeror who wishes to keep the offer open bindingly must obtain consideration (an option contract) or execute a deed.

Revocation takes effect only on communication to the offeree: an uncommunicated revocation is ineffective (Byrne & Co v Van Tienhoven & Co (1880) 5 CPD 344 — the offeror sent a revocation by post, which crossed the offeree's posted acceptance; the contract was formed by the posted acceptance because the revocation had not yet been received).

Communication may be by a reliable third party: a prospective purchaser who learns from a reliable source that the vendor has sold to someone else cannot thereafter accept (Dickinson v Dodds (1876) 2 Ch D 463). For offers made to the public at large, notice of revocation given through the same channel as the offer is effective even if individual offerees do not see it (Shuey v United States (1875) 92 US 73, consistently applied in England).

In unilateral contracts, the question of when revocation is possible is more delicate: once the offeree has begun to perform the act, the courts will protect them against revocation. In Errington v Errington and Woods [1952] 1 KB 290, Denning LJ held that a father's promise to transfer a house to his son and daughter-in-law when they had paid off the mortgage became irrevocable as soon as they began making the instalment payments. The modern analysis is that an implied collateral contract obliges the offeror not to revoke once performance has commenced, though the offeree is not obliged to complete.

2.4.2 Rejection and Counter-Offer

A rejection destroys the offer, as does a counter-offer (Hyde v Wrench, above). The offeree cannot 'unreject' an offer: once rejected it is incapable of acceptance unless renewed by the offeror. A mere request for information is not a rejection (Stevenson, Jaques & Co v McLean).

2.4.3 Lapse of Time

An offer lapses at the end of any time-limit stated in the offer; if no time-limit is stated, it lapses after a reasonable time. What is reasonable depends on the subject-matter: an offer to sell perishable goods or rapidly fluctuating shares lapses within days or hours, while an offer to sell land may remain open for weeks (Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Exch 109 — an offer to buy shares, not accepted for five months, had lapsed).

2.4.4 Death

The death of the offeree terminates the offer: an offer is personal to the offeree and cannot be accepted by their personal representatives (Reynolds v Atherton (1921) 125 LT 690, affirmed (1922) 127 LT 189).

The death of the offeror is more nuanced: if the contract contemplated personal performance, death terminates the offer; where performance is not personal, the offer may be accepted in ignorance of the offeror's death and will bind the estate (Bradbury v Morgan (1862) 1 H & C 249).

2.4.5 Failure of a Condition

An offer may be expressly or impliedly conditional on the continued existence of a state of affairs. If that state of affairs ceases to exist before acceptance, the offer lapses (Financings Ltd v Stimson [1962] 1 WLR 1184 — an offer to buy a car on hire-purchase was impliedly conditional on the car remaining in the same condition; when the car was stolen and damaged before acceptance, the offer had lapsed).

5. Key Notes (Chapter Summary)

The following summary table consolidates every concept and authority examined in this chapter. Treat it as a revision checklist — you should be able to state each rule and give the leading authority from memory.

6. MCQ Practice — Five SQE-Style Questions

Each of the following five questions mirrors the style, length and difficulty of the SQE1 FLK1 single best answer questions. Attempt each question closed-book, write down your answer, then turn to the answer key. The answer key explains why each option is correct or incorrect — read every explanation in full.

A. The store is bound to sell at £200 because the display was an offer accepted by the customer picking up the television.

B. The store is bound to sell at £200 because, in consumer transactions, the marked price is always binding on the retailer.

C. The store is not bound to sell at £200 because the display of goods in a shop is an invitation to treat; the customer made the offer at the till and the store was free to reject it.

D. The store is not bound to sell at £200 because there is no contract at all until money has physically changed hands.

E. The store is bound to sell at £200 because a unilateral contract was formed when the customer picked the television up from the shelf.

A. A binding contract was formed on 9 March because the postal rule applied when the buyer posted the letter.

B. No binding contract was formed because the offer, properly construed, required the acceptance to reach the seller by 10 March, which excluded the postal rule.

C. A binding contract was formed on 10 March because that is the latest date the seller could reasonably have expected acceptance.

D. A binding contract was formed on 12 March when the letter of acceptance was received, because the postal rule never applies to contracts for the sale of land.

E. A binding contract was formed on 11 March because the seller was still bound by the original offer until revocation was communicated.

A. No contract exists because the email of 5 June was a counter-offer that terminated the original offer.

B. A contract exists because the email of 5 June was a request for information that did not reject or terminate the offer, so the distributor's acceptance on 10 June was effective.

C. No contract exists because the manufacturer revoked the offer by refusing to reply to the distributor's email.

D. A contract exists because the manufacturer promised to keep the offer open for two weeks and is therefore bound not to revoke it.

E. No contract exists because an offer cannot be accepted by email where the original offer was in writing on paper.

A. The owner is not bound to pay because a unilateral offer may be revoked at any time before complete performance.

B. The owner is not bound to pay because the notice was an invitation to treat.

C. The owner is bound to pay because once the neighbour commenced performance of the act required by the unilateral offer, the owner lost the right to revoke before the neighbour had a reasonable opportunity to complete.

D. The owner is bound to pay because the neighbour acquired a right to the reward as soon as the neighbour saw the notice.

E. The owner is not bound to pay because the revocation was posted in the same manner as the original offer.

A. The contract is on the seller's terms because the seller's quotation was the first document and established the framework of the deal.

B. The contract is on the buyer's terms because the buyer's purchase order was a counter-offer which the seller accepted by signing and returning the acknowledgement slip.

C. There is no contract because the parties never objectively agreed on the same terms.

D. The contract is on a mixture of both parties' terms, with inconsistencies resolved by trade custom.

E. The contract is on the seller's terms because the seller performed by delivering the goods.