LESSON 3: Elements of a valid contract (ii)

ACCEPTANCE

LAW OF CONTRACTS I (SLS 1102)

Course instructor: Ms. Sussie Mutahi ([email protected])

 Lesson (3) outline
1. Overview: Elements of a valid contract

2. Acceptance: A definition

3. Offer must still be in force

4. Acceptance must be unconditional

5. Acceptance must be communicated

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ESSENTIALS OF A VALID CONTRACT

OFFER ACCEPTANCE CERTAINTY INTENTION CAPACITY CONSIDERATION

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1 ACCEPTANCE: A DEFINITION
 “
ACCEPTANCE IS THE ABSOLUTE AND
UNCONDITIONAL INDICATION BY THE
OFEREE OF THEIR INTENTION TO BE
BOUND BY THE TERMS OF AN OFFER.

”
Smith, Stephen, Atiyah’s Introduction to
the Law of Contract, Clarendon Law
Series, 6, 2006, 50.

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ELEMENTS OF ACCEPTANCE

The offer must The The

still be in acceptance acceptance
force(capable must be must be
of acceptance) unconditional communicated

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2 THE OFFER MUST BE AVAILABLE FOR
ACCEPTANCE
Recap: Termination of an offer
Upon the lapse of the time Where the offer is rejected Upon the death of the
specified in the offer by the offeree offeror

Upon the death of the Withdrawal of offer

Failure of a precondition
offeree

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3 THE ACCEPTANCE MUST BE
UNCONDITIONAL
 Acceptance must be unconditional
Principle:
An acceptance must
correspond to the
terms of the offer. Offer
This principle is also
referred to as the
‘mirror image rule.’

Acceptance

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 Counter offers
An alleged acceptance which varies the terms of the offer constitutes a counter-offer.
The effect of a counter-offer is to extinguish/terminate the original offer because the original
offer is effectively rejected by the offeree.

Hyde v Wrench (1840) 3 Beav 334.

The defendant offered to sell some land to the claimant for £1,000 and the claimant replied by offering to
purchase the land for £950. The defendant refused to sell for £950. So the claimant then wrote to the defendant
agreeing to pay the £1,000 but the defendant still refused to sell. It was held that there was no contract
between the parties. The claimant’s offer of £950 was a counter-offer which killed off the defendant’s original
offer so as to render it incapable of subsequent acceptance .

See the Court of Appeal’s decision in NIC Bank Limited v Victor Ochieng Oloo [2018] eKLR
The Respondent indicated his willingness to pay an outstanding debt to the Appellant on condition that the
Appellant would waive the accrued interest and charges. The Appellant responded that it had agreed with the
proposed loan repayment terms but would not waive the accrued interest and charges. The Respondent did not
reply to this communication. The Appellant took the Respondent to court on allegations that it had refused to
pay the debt amount even after undertaking to do the same. The court found that the Appellant had rejected
the Respondent’s offer and that there was therefore no contract in existence.
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 Mere requests for information
 A request by an offeree to be supplied with additional information relating to the
offer does not amount to a counter-offer. Stevenson, Jacques and Co v McLean
(1880) 5 QB 346, p 349 (Reading List)
 The introduction of a new term which would anyway be implied by the contract
does not also amount to a counter-offer. Lark v Outhwaite [1991]2 Lloyd’s Rep
132, 139 (Reading List)
 If the offeree is simply inquiring whether the offeror will modify his terms, he is
not necessarily making a counter- offer. See the Court of Appeal’s decision in
Attorney General v Halal Meat Products Limited [2016] eKLR, where the
proposal for a different valuation amount was found to constitute an inquiry into
the modification of terms and not a counter-offer.

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 Negotiation and battle of forms
• Where parties have lengthy negotiations, it may be difficult to tell when
acceptance takes place.
• Often companies might prefer to use standard term contracts to save on time.
• Each new offer introduces a counteroffer which can be accepted by the offeree.
• The general rule is that the last shot (the last offer) accepted by the offeree
wins.
• In British Road Services v Arthur V Crutchley [1968] 1 All ER 811 the plaintiffs delivered some whisky to the
defendants for storage. The BRS driver handed the defendants a delivery note, which listed his
company’s ‘conditions of carriage’. Crutchley’s employee stamped the note ‘Received under [our]
conditions’ and handed it back to the driver. The court held that stamping the delivery note in this way
amounted to a counter-offer, which BRS accepted by handing over the goods. The contract therefore
incorporated Crutchley’s conditions, rather than those of BRS.
• See also: Butler v Ex-Cell-O Corp (England) Ltd [1979] 1 WLR 401 (Reading List)

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4
THE ACCEPTANCE MUST BE
COMMUNICATED
 Acceptance must be communicated
General Rule:
For an acceptance to be valid, it must be communicated to the offeror

Notes:
Where an acceptance is drowned out by an aircraft flying overhead, so that the
offeror does not hear the response, it has been held that the acceptance has not
been communicated per Denning J in Entores v Miles Far East Corp [1955] 2 QB 327.

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Form of communication: Where mode of acceptance is prescribed
1. Where the form of acceptance is prescribed, the offeror will not be bound
unless the acceptance is communicated in that prescribed form.
o In Frank v Knight (1937) O.Q.P.D 113 the court held that where the offeror had
required for the acceptance to be sent to a particular place, where the same was
sent elsewhere it was not binding upon the offeror.
o In Financings Ltd v Stimson [1962] 1WLR 1184 the offeror was held not to be
bound by an oral acceptance, when he had required for it to be in writing.
Notes:
 The offeror, may by his conduct appear to have waived the requirement for a particular
mode of acceptance if he acquiesces to the mode used by the offeree.
 In instances where the offeree employs an alternative form of acceptance that is equally
effective or more effective than the stipulated method, courts have departed from a
strict application of the rule. see Manchester Diocesan Council for Education v
Commercial and General Investments ltd [1970] 1 WLR 242 (Reading List)
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 Form of communication: Acceptance by silence
2. General Rule:
Acceptance will not be inferred from the offeree’s silence.
Felthouse v Bindley (1862) 11 CB (NS) 869.
The claimant and his nephew negotiated for the sale of the nephew’s horse to the
Claimant. It was agreed that in the event that the Claimant did not hear again from his
nephew, he would consider him to have accepted to sell him the horse for £30 15s.
Although the nephew did not respond to the offer, he had accepted the same and even
instructed the auctioneer not to sell the horse as it had already been sold to the Claimant.
When the auctioneer mistakenly sold the horse, the claimant sued him for conversion. The
auctioneer in his defence argued that there was no contract in existence as the Claimant’s
offer to buy the horse from his nephew had not been accepted. The court upheld this
argument on the basis that silence did not amount to an acceptance of the offer.

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Form of communication: Acceptance in ignorance of the offer
3. General Rule:
Where a person, ignorant of an offer performs the acts required by the
offer, they are not entitled to sue on contract.
Gibbons v Proctor (1891) 64 LT 594
A reward had been advertised for information leading to the arrest or conviction of the
perpetrator of a particular crime and the plaintiff attempted to claim the reward, even
though he had not originally known of the offer. He was allowed to receive the money,
when it came out that he had known of the offer when the information was given to the
police.

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 EXCEPTIONS TO THE COMMUNICATION RULE
Exception 1: Unilateral contracts
Unilateral contracts do not require for acceptance to be communicated.
Revisit Carlill v Carbolic Smoke Ball [1983] 1 QB 256

Exception 2: Offeror’s fault

Where the offeror is prevented from receiving the offeree’s acceptance by
his/her own fault, the communication rule is suspended.
Where the offeror does not get the words of acceptance on telephone, and he
does not request for the offeree to repeat. See Entores v Miles Far East Corp
[1955] 2 QB 327.

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 EXCEPTIONS TO THE COMMUNICATION RULE
Exception 3: The postal rule
General rule
A postal acceptance takes effect as soon as the letter is posted Adams v Lindsell
(1818) 1 B. & Ald. 681
Exceptions
a) Where it is unreasonable to use post
The court has held it unreasonable to use the post in instances where the postal
services are disrupted Bal v Van Standen [1902]TS 128 or where thew offer is made
by telex, email or telephone Quenerduaine v Cole (1883) 32 WR 185

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 EXCEPTIONS TO THE COMMUNICATION RULE
Exception 3: The postal rule
b) Instantaneous methods of communication
Where acceptance is made by an instantaneous mode of communication such as telephone,
email, then the postal rule does not apply.
Entores v Miles Far East Corp [1955] 2 QB 327
The plaintiffs were a London company and the defendants were an American corporation with agents in
Amsterdam. Both Companies had telex machines, which allow users to type in a message, and have it
almost immediately received and printed out by the recipient’s machine. The plaintiffs in London telexed
the defendants’ Amsterdam agents offering to buy goods from them, and the agents accepted, again by telex.
The court case arose when the plaintiffs alleged that the defendants had broken their contract and wanted to
bring an action against them. The Court of Appeal held that because telex allows almost instant
communication, the parties were in the same position as if they had negotiated in each other’s presence or
over the telephone, so the postal rule did not apply and an acceptance did not take effect until it had been
received by the plaintiffs. Because the acceptance had been received in London, the contract was deemed to
have been made there, and so the legal action could go ahead.

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Any questions?

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 GROUP ASSIGNMENTS: FIRMS 1 & 2
FIRM 1:
Nalichandra Shah v Health First International Limited [2015] eKLR

Firm 2:
Bubaki Investment Company Ltd v National Land Commission & 2 others [2015] eKLR

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Thanks!
Any questions?

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Credits
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● Photographs by Unsplash

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