Contract Law: Offer and Acceptance Explained

Introduction

Offer and acceptance sit at the centre of contract formation. An offer is a clear promise to be bound on stated terms if accepted. Acceptance is the unqualified agreement to those exact terms. Together, they show agreement and create obligations.

This guide sets out what counts as an offer (and what does not), how and when acceptance takes effect, how offers end, and how the rules work with letters, emails, and conduct. You’ll also find the leading cases, practical tips, and a concise checklist.

What You’ll Learn

• How to tell an offer from an invitation to treat
• The difference between unilateral and bilateral offers
• How offers end: revocation, rejection, counter-offers, lapse, and death
• The mirror image rule, enquiries, and the “battle of the forms”
• When acceptance must be communicated and when it need not be
• The postal rule, its limits, and how to exclude it
• Acceptance by conduct and how courts find agreement from behaviour
• Practical steps to reduce disputes in everyday contracting

Core Concepts

Offers and Invitations to Treat

• Offer

  • A definite promise to be bound if accepted, with clear terms and intention to create legal relations.
  • Must be communicated to the offeree.
  • Capacity matters: minors and those lacking capacity may not create binding obligations.

• Invitations to treat (not offers)

  • Displays of goods in shops and self-service stores are invitations to treat: the customer makes the offer at the till.
  • Advertisements are usually invitations to treat, unless they are clearly promises to pay on doing an act (e.g., reward cases).
  • Key case: Pharmaceutical Society v Boots [1953] 1 QB 401 (display is an invitation to treat).

• Practical markers

  • Language such as “subject to contract” generally means no binding contract until formal execution.
  • Tenders and auctions often involve invitations to treat unless expressly stated otherwise.

Unilateral and Bilateral Offers

• Bilateral offers

  • Promise in exchange for a promise. Most sale contracts fall into this category (e.g., “I will sell you my car for £5,000”).

• Unilateral offers

  • Promise in exchange for an act. Acceptance occurs by performing the requested act; no need to notify acceptance unless the offer requires it.
  • Key case: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (public reward-style promise binding on performance).

• Revoking unilateral offers

  • Generally possible before performance starts; more limited once performance is underway.
  • Courts recognise an implied obligation not to revoke once the offeree has started on performance in reliance on the offer.

Ending an Offer: Revocation, Rejection, Counter-offer, Lapse, Death

• Revocation

  • Effective only when communicated to the offeree (not when posted).
  • Can be communicated by a reliable third party.
  • Key cases: Byrne v Van Tienhoven (1880) 5 CPD 344; Dickinson v Dodds (1876) 2 Ch D 463.

• Rejection and counter-offers

  • A rejection ends the offer.
  • A counter-offer rejects the original offer and proposes new terms; the original cannot then be accepted.
  • Key case: Hyde v Wrench (1840) 3 Beav 334.

• Enquiries

  • A mere enquiry about terms does not reject the offer.
  • Key case: Stevenson, Jacques & Co v McLean (1880) 5 QBD 346.

• Lapse and death

  • Offers may expire after a specified deadline or a reasonable time if none is given (e.g., perishable goods or volatile markets may require shorter periods).
  • Death or loss of capacity can end an offer, particularly where personal performance is involved.
  • Example: Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Ex 109 (lapse after delay).

Acceptance: Mirror Image Rule, Battle of the Forms, and Methods

• Mirror image rule

  • Acceptance must match the offer. Any variation is normally a counter-offer.

• Battle of the forms

  • Where businesses exchange standard terms, the party who “fires the last shot” that is accepted by conduct often prevails.
  • Courts look for agreement on essential terms and whose terms are incorporated.
  • Key case: Butler Machine Tool v Ex-Cell-O [1979] 1 WLR 401.

• Specified method of acceptance

  • If an offer prescribes a method and states only that method will do, others will not suffice.
  • If it merely suggests a method, an equally effective method can be valid.

Communicating Acceptance: Silence, Instantaneous Communications, and Risk

• General rule

  • Acceptance must be communicated to the offeror. Silence is not acceptance.
  • Key case: Felthouse v Bindley (1862).

• Instantaneous communications (e.g., telex, telephone, many forms of electronic messaging)

  • Effective when received by the offeror (within office hours); not when sent.
  • Key cases: Entores v Miles Far East [1955] 2 QB 327; Brinkibon v Stahag Stahl [1983] 2 AC 34.
  • Emails: receipt during ordinary business hours is generally effective then; otherwise, at the start of the next business day.

• Fault

  • If the offeror’s fault prevents receipt (e.g., full inbox or wrong number provided), acceptance may still be effective.

The Postal Rule and How to Exclude It

• The postal rule

  • Acceptance is effective on posting, provided post was a contemplated method and the letter is properly addressed and stamped.
  • Key case: Adams v Lindsell (1818) 1 B & Ald 681.

• Limits and exclusion

  • The postal rule does not apply if the offer requires “notice” or actual receipt of acceptance.
  • Parties can exclude it by clear wording (e.g., “effective on receipt only”).
  • Key case: Holwell Securities v Hughes [1974] 1 WLR 155.

• Modern practice

  • The postal rule rarely suits time-sensitive deals. Use clear clauses specifying when acceptance takes effect and acceptable methods.

Acceptance by Conduct

• Conduct can show agreement where parties act as if bound, even without a signed document.
• Examples include delivery, payment, or starting performance in line with a draft contract.
• Key case: Brogden v Metropolitan Railway (1877) 2 App Cas 666.
• Caution: “Subject to contract” wording usually prevents a binding agreement until formal execution, despite conduct, unless clearly waived.

Key Examples or Case Studies

• Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

  • Context: Reward-style newspaper advertisement promising £100 for catching influenza after using a product as directed.
  • Rule: A unilateral offer to the world is binding on performance; no separate notification required.
  • Application: Promotional promises with clear terms and deposited money can be enforceable.

• Pharmaceutical Society v Boots [1953] 1 QB 401

  • Context: Self-service sale of medicines.
  • Rule: Display of goods is an invitation to treat; the customer makes the offer at the till; acceptance occurs at the cashier’s discretion.
  • Application: Shop displays do not compel sale at the displayed price.

• Hyde v Wrench (1840) 3 Beav 334

  • Context: Buyer made a counter-offer for land after rejecting the seller’s price.
  • Rule: A counter-offer terminates the original offer.
  • Application: Keep negotiations clear; a change of terms usually means the original offer is gone.

• Byrne v Van Tienhoven (1880) 5 CPD 344

  • Context: Offer and later revocation crossed in the post.
  • Rule: Revocation is effective when communicated, not when posted.
  • Application: Use fast, confirmed delivery for revocations to avoid being bound.

• Dickinson v Dodds (1876) 2 Ch D 463

  • Context: Offeree learned from a reliable third party that the offeror had sold to someone else.
  • Rule: Revocation can be communicated by a reliable third party.
  • Application: Information from a trustworthy source can end an offer.

• Felthouse v Bindley (1862) EWHC CP J35

  • Context: Attempt to accept by silence in a family sale of a horse.
  • Rule: Silence does not amount to acceptance.
  • Application: Always communicate acceptance unless the offer clearly dispenses with notice (e.g., unilateral offers).

• Entores v Miles Far East [1955] 2 QB 327; Brinkibon v Stahag Stahl [1983] 2 AC 34

  • Context: Telex communications across borders.
  • Rule: Acceptance by instantaneous methods is effective when received; time and place depend on reasonableness and office hours.
  • Application: For emails and messaging, set out when acceptance takes effect and office hours.

• Butler Machine Tool v Ex-Cell-O [1979] 1 WLR 401

  • Context: Conflicting standard terms between seller and buyer.
  • Rule: The “last shot” often prevails; courts examine documents and conduct to identify the contract and incorporated terms.
  • Application: State clearly which terms govern, and confirm acceptance explicitly.

• Adams v Lindsell (1818) 1 B & Ald 681; Holwell Securities v Hughes [1974] 1 WLR 155

  • Context: Postal acceptances and options requiring “notice in writing”.
  • Rule: Postal rule makes acceptance effective on posting, but express “notice” requirements can exclude it.
  • Application: To avoid uncertainty, specify “effective on receipt” and acceptable methods.

• Brogden v Metropolitan Railway (1877) 2 App Cas 666

  • Context: Parties traded on draft terms without a signed contract.
  • Rule: Acceptance can be inferred from conduct.
  • Application: Your actions can bind you. Use “subject to contract” if you do not intend to be bound yet.

Practical Applications

• Before you make an offer

  • Use clear wording and definite terms. Avoid ambiguity.
  • State how acceptance must be given and any deadline (and say if only that method will do).
  • Add “effective on receipt” to prevent the postal rule applying.

• While negotiating

  • Use “subject to contract” until you are ready to be bound.
  • Label any document that is not a binding offer as “proposal” or “invitation to treat”.
  • Treat questions as enquiries, but be explicit if you intend to reject.

• Managing revocation and expiry

  • Revoke by a fast, reliable method, and obtain confirmation of receipt.
  • Consider appointing an agent or using recorded delivery to evidence communication.
  • Include automatic expiry dates to prevent stale offers.

• Avoiding a battle of the forms

  • Identify whose terms apply in the order acknowledgment.
  • Use a clear precedence clause and require signed acceptance of your terms.
  • If you receive a counter-offer, accept or reject it explicitly to avoid uncertainty.

• Emails and electronic tools

  • Set out when an email acceptance is effective and your office hours.
  • Use read receipts and acknowledgements where possible.
  • For time-critical deals, insist on phone confirmation followed by email.

• Unilateral offers and promotions

  • Draft precise conditions and any caps or time limits.
  • Say whether notice of performance is required, if you want to avoid automatic binding on performance alone.

• Evidence and record-keeping

  • Keep all drafts, correspondence, purchase orders, and delivery notes.
  • Confirm key points in writing after calls to avoid disputes about what was said.

Summary Checklist

• Offer vs invitation to treat: is there a clear promise to be bound?
• Terms: definite, certain, and communicated to the offeree
• Acceptance: unqualified and mirrors the offer (no new terms)
• Counter-offer vs enquiry: has the original offer been killed?
• Revocation: communicated to the offeree (or via a reliable third party)
• Lapse: check deadlines and whether a “reasonable time” has passed
• Communication rules: silence is not acceptance; instantaneous methods effective on receipt
• Postal rule: applies only if post is contemplated; exclude it with “effective on receipt” or “notice”
• Unilateral contracts: performance equals acceptance unless notice required
• Conduct: actions can create a contract even without signatures
• Battle of the forms: confirm whose terms govern and how they were accepted

Quick Reference