The Wally Effect: Acceptance

Professor Treitel:

“Acceptance is a final and unqualified expression of assent to the terms of an offer.”

Hence, acceptance has two essential characteristics.

First, acceptance must be an unconditional assent to the terms of an offer. It must be a mirror image unconditionally reflecting the corresponding offer.

Second, acceptance must be communicated to the offeror.

Acceptance must be unconditional

An attempt to vary the terms of the offer (e.g. changing the price) is a counter-offer, and a counter-offer will terminate the original offer.

In Hyde v Wrench (1840), the defendant offered to sell some land to the plaintiff for £1000. The plaintiff replied stating that he is willing to purchase the said land for £950 which the defendant refused. The plaintiff then wrote to the defendant agreeing to pay £1000 but the defendant still refused to sell. It was held that no contract has been formed between the parties. The plaintiff’s offer for £950 is amounted to a counter-offer, which has effectively terminated the defendant’s original offer of £1000. Where a counter-offer is made, it destroys the original offer so that it is no longer open to the offeree to accept.

However, a distinction must be made between a counter-offer and a mere inquiry for more information. A mere inquiry for more information does not ‘kill-off’ the offer.

In Stevenson v McLean (1880) – The defendant offered to sell the plaintiff 300 tons of iron. The defendant telegraphed to the plaintiff, “40s, net cash, open till Monday.” The plaintiff then telegraphed to the defendant, “Please wire whether you would accept 40 for delivery over two months, or if not longest limit you would give.” The defendant did not respond to the telegram and later sold all the iron to another party. The defendant sent a telegram to the plaintiff said that all the iron had been sold. Prior to receiving that communication, the plaintiff sent a telegram to the defendant at 1.34pm advising acceptance of offer. Subsequently, the plaintiff sued the defendant for non-delivery of iron warrants alleging breach of contract. It was held that the first telegram sent by the plaintiff was not a rejection of the offer but a mere inquiry about whether the terms could be modified.

The acceptance must be communicated to the offeror

According to Powell v Lee (1908), an acceptance has no effect until it was communicated to the offeror.

A response of silence to the offer does not constitute an acceptance: Felthouse v Bindley (1862)

A mere silence is to be contrasted with a situation where the offeree has imposed a burden upon himself if he wants to refuse the offer.

In Re Selectmove (1993), the offeree himself indicates that an offer is to be taken as accepted if he does not indicate to the contrary by an ascertainable time, he in undertaking to speak if he does not want an agreement to be concluded. In other words, the offeree is imposing a burden upon himself to speak if he does not want to accept it. The Court of Appeal accepted that there was a binding contract has been formed.

It shall be noted that in Re Selectmove (1993), it is the offeree has imposed a burden upon himself to speak up. Presumably the principle would not apply to a situation if the offeror has imposed the burden to the offeree, depending on the circumstances.

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Postal Rule

The general rule that an acceptance must be communicated to the offeror is subject to an exception, which is the postal rule.

Under the postal rule, an acceptance takes place when a letter is posted, not when it is received. In other words, as long as your letter of acceptance is dropped into the mail box, a legally binding contract is thereby created.

In Adam v Lindsell (1818) – The defendant wrote to the plaintiff on 2 September offering to sell them a quantity of wool and requiring acceptance by post. The letter was incorrectly addressed and was received on 5 September. The plaintiff immediately posted an acceptance on the same day which reached the defendant on 9 September. If the initial letter had been addressed correctly, a reply should have been received on 7 September. Unfortunately, having not received an acceptance, the defendant sold the wool to a third party on 8 September. It was held that the contract was completed on 5 September, on the date that the acceptance was posted.

In Household Fire Insurance Co Ltd v Grant (1879), the defendant offered to buy shares in the plaintiff’s company. A letter of allotment was posted to the defendant, but it never reached him. It was held that the contract was completed when the letter was posted, acceptance is effective on posting, even though when the letter is lost in the post.

According to Re London & Northern Bank, ex parte Jones (1900), the postal rule does not apply if the letter was not properly stamped, addressed and posted. The postal acceptance rule will not allow a contract to be concluded by posting the acceptance where the letter is incorrectly addressed by the offeree. The offeror may accept the risk of delay occasioned by the post but not the carelessness of the offeree.

In LJ Korbetis v Transgrain Shipping BV (2005), the offeree attempted to accept an offer by tax. However, there was a clerical error and it was never actually received. The court held that communication had not actually taken place and the offeree should have checked to see if their acceptance had been received.

The postal rule is subject to several limitations:

The mode of communication must not be instantaneous
It must be reasonable to use the post
The postal rule must not be ousted by terms of the offer

The mode of communication must not be instantaneous

In the instantaneous communication (e.g. electronic means such as email and fax), acceptance takes place when and where the message is received. Postal rule does not apply in such circumstances.

In Entores v Miles Far East Corporation (1955), the plaintiff in London made offer by telex to the defendant in Netherlands which the defendant accepted by telex sent from Netherlands received in London. The plaintiff sued the defendant for breach of contract. Since the acceptance was only final after it was received in London, therefore it was held that the contract was completed in England and not in the Netherlands.

This principle was confirmed in Brinkibon Ltd v Stahag Stahl (1983), where it was suggested that, during normal office hours, acceptance takes place when the message is printed out not when it is read. If the acceptance was received not on normal office hours, the acceptance only takes place when it has been read. However in this case the House of Lords accepted that communication by telex may not always be instantaneous, for example, when received at night or when the office is closed. Lord Wilberforce mentioned that, “No universe rule could cover such cases; they must be resolved by reference to the intention of the parties, by sound business practice, and in some cases, by a judgment of where the risk should lie.”

There is no universal rule of acceptance in cases on instantaneous communication; they must each be decided based on the intention of the parties and the circumstances of the particular cases. One of the considerations that shall be taken into account is that if the post was sent within or outside office hours. since the recipient business can be expected to supervise its machines during office hours.

It must be reasonable to use the post

In Henthorn v Fraser (1892), Lord Hershell views that the circumstances are such that “it must have been within the contemplation of the parties that, according to the ordinary uses of mankind, the post might have be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.” Further, he suggested it would be reasonable to use the post where the parties live at a distance from each other.

It is arguable that it is difficult to construe, particularly in commercial transactions where time is of essence, which post is reasonable means of communication which connects both communicating parties, who are situated at polar opposites of the world, at the twinkling of an eye. It would also be unreasonable to accept by post, to an offer made by speedier means such as the telex or the telephone.

In other words, the question of whether postal rule is applicable is depending on the circumstances of the given case.

The postal rule must not be ousted by terms of the offer

The operation of postal rule could be excluded by the offeror, either expressly or impliedly. For example, an offer may require the actual communication of acceptance to the offeror. In such circumstances, the postal rule will not apply.

In Holwell Securities Ltd v Hughes (1974), it was excluded by the offeror requiring ‘notice in writing’. It was held that there was no valid contract even though offeree has posted his agreement, because actual communication was required owing to the requirement of notice. The offeror can always require actual communication of the acceptance to him which will oust the operation of the postal rule.

Revocation of acceptance

In relation to the question of whether an acceptance could be revoked by actual communication before the letter is delivered, there is no directly English authority on this point.

In the New Zealand case Wenkheim v Arndt (1873), it was held that once a letter is posted, the offer is accepted; there is no provision in law for revoking an acceptance.

However in the Scottish case Countess of Dunmore v Alexander (1830), this case appears to permit a revocation but it was an unclear decision. A strict application of the postal

It shall be noted that these two cases are not legally binding in UK. The question must therefore be answered primarily as a matter of principle.

According to Professor Treitel, "the issue is whether the offeror would be unjustly prejudiced by allowing the offeree to rely on the subsequent revocation."

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Please read the disclaimer (at the top of the page) before proceeding.

Please do not take this note as the sole and only sources to study. It is only a guidance which may assist you in drawing out the full picture of the particular area of law. It is never meant to be a comprehensive text.

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The Wally Effect

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Acceptance