Offer and Acceptance in contract law notes & cases

Welcome again to the series of notes on Contract Law in Tanzania.

In this post, we shall take a closer look at the most important aspect of the formation of a Contract which is the Offer and Acceptance

These notes will cover;

• Meaning of Offer and Acceptance
• When an offer is made?
• Characteristics of an Offer
• Making an Offer under various Situations
• Revocation of an Offer
• Communication of Acceptance of an offer
• Mode and Communication of an Offer or Proposal
• etc

Let’s get started

Previous topic

• Introduction to contract law

The Meaning of an Offer

Section 2(1) (a) of the Law of Contract Act of Tanzania, Cap 345 R.E 2019 (LCA), refers Proposal or offer to a situation when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence.

As discussed in the previous post on the Introduction to Contract Law, the word “Offer” is used synonymously with the word “Proposal”. So don’t panic or confuse yourself when you come across a word “offer” because in other terms is also called “Proposal”, they are used interchangeably.

In simple terms, an offer is an expression of willingness to do something or not to do something from one party to the other party.

For example;

Imagine you’re at a farmer’s market, eyeing a basket of juicy apples. The vendor notices your interest and says, “I’ll sell you a dozen apples for $5.” In this scenario, the vendor’s statement (“I’ll sell you a dozen apples for $5”) is an offer.

It’s a clear indication of their willingness to enter into a contract to sell you apples at a specified price.

By making the offer, the vendor indicates their intention to be legally bound by the terms if you accept. They’re not just casually mentioning the price; they’re inviting you to enter into a contract with them.

The Meaning of an Acceptance

Section 2(1) (b) of the LCA provides that when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted, and a proposal, when accepted, becomes a promise.

In simpler terms, when someone offers something and the other person agrees to it, that agreement is called acceptance.

Here’s an explanation using the farmer’s market scenario:

Let’s say you respond to the vendor’s offer by saying, “I’ll take them.”

This response demonstrates your acceptance of the offer. You’re agreeing to buy a dozen apples for $5, as proposed by the vendor.

When an offer is made?

A proposal or offer is made when a buyer makes a proposal to the seller, or the seller makes a proposal to the buyer, and the buyer accepts the terms of such offer or vice versa.

Let us take a look at the following example, where John is offering to sell his iPhone to Michael.

John: Hello Michael, I heard that you lost your phone yesterday, and you are looking forward to buy a new phone, Well, to just give you some heads up, I am selling my iPhone 15, in case you are interested.

Michael: I am fine John, For How much do you intend to sell your phone?

John: I am selling it for 2,500,000 Tanzanian Shillings. (To this point John has already made an offer to Michael)

Michael: Well, that is a generous offer, I would like to buy it, but truthfully speaking for now I only have 2,350,000 cash, so maybe we could compromise? (This is a Counter-Offer made by Michael)

John: 2,350,000 sounds Fine to me, so we have a deal?

Michael: Yes, We have a deal, I will come to your place later so that we can wrap it up, it was nice doing business with you.

John: Thank You, the Pleasure is mine My friend Michael, see you Later at my place.

From the above example, you have been able to see that John offered or proposed to sell his iPhone 15 to Michael, and Michael generously accepted the offer, even though he proposed a counteroffer which was also accepted by John.

An act of Michael accepting the Proposal made by John changes the status of the proposal to become a promise, and the Promises made to each by Michael and John, suffices such arrangement to be called an agreement. (Refer to Section 2(1) (d) and (e) of the LCA)

Another situation that may arise here is a cross-offer.

A cross-offer occurs when two parties make identical offers to each other simultaneously, resulting in a mutual exchange of promises.

Essentially, each party proposes the same terms to the other, forming a meeting of the minds and potentially leading to the formation of a contract.

For example:

John: “I offer to sell my laptop to Michael for 2,500,000”
Michael: “At the same time, I offer to buy a laptop from John for 2,500,000.”

In this scenario, both parties are making offers that mirror each other’s terms, creating a cross-offer situation. If both parties accept each other’s offers, a contract is formed. However, if only one party accepts the offer while the other does not, there is no mutual agreement, and therefore, no contract is formed.

In the case of Tinn v. Hoffman (1873) LR 29 Ch D 271, the court dealt with the concept of cross-offers and the formation of a contract.

Facts of the Case:

• Mr. Tinn, an English merchant, sent a letter to Mr. Hoffman, a German merchant, offering to sell iron to him.
• Unbeknownst to Mr. Tinn, Mr. Hoffman had sent a letter on the same day to Mr. Tinn offering to buy iron from him at the same price per ton.
• Both letters crossed each other in the mail and arrived at the respective recipients’ addresses on the same day.

Issues:

• The main issue in the case was whether a contract had been formed between Mr. Tinn and Mr. Hoffman due to the exchange of identical offers.

Decision:

• The court held that there was no contract between Mr. Tinn and Mr. Hoffman because the offers constituted mere cross-offers.
• Since both parties had sent their letters at the same time, neither party had the opportunity to accept the other’s offer before sending their own.
• As a result, there was no mutual assent or meeting of the minds necessary to form a contract.

Legal Significance:

• Tinn v. Hoffman is significant because it established the principle that cross-offers do not result in a contract.
• For a contract to be formed, there must be a valid offer and acceptance, indicating a meeting of the minds between the parties.
• In cases of cross-offers, where both parties make identical offers to each other simultaneously, there is no opportunity for one party to accept the other’s offer before sending their own, leading to a lack of mutual assent and thus no contract.

Characteristics Of an Offer

1. For a proposal to be effective, it must have been made willingly. That is the proposer must Express his willingness to be bound by the terms of a proposal
2. The terms of the proposal must be clear and set.
3. Another thing is final expression. One other characteristic of a proposal is that it should be final and explicitly agreed by the parties of their willingness to be bound by the terms of a proposal if the proposal is accepted.

Making an Offer Under Various Situations

The following is how an offer is made in the following situations;

Offer in Unilateral Contract

In a unilateral contract situation, an offer is made when one party promises to do something in exchange for the performance of a specific act by another party. The offeror commits to providing something of value (usually a reward or benefit) if the offeree performs the specified action.

Here’s how an offer is made in a unilateral contract:

1. Clear Promise or Statement of Intent: The offeror must make a clear promise or statement indicating their intention to offer a reward or benefit in exchange for a specific action.
2. Performance-Based Condition: The offer typically includes a performance-based condition, meaning that the offeree must perform a specific act to accept the offer. Until the offeree performs the required action, there is no obligation on the part of the offeror.
3. Communication of Offer: The offer must be communicated to the offeree in a way that allows them to understand the terms and conditions of the offer, including what action they need to perform to accept it.
4. No Requirement for Acceptance: Unlike bilateral contracts, where acceptance is necessary to form a contract, in a unilateral contract, the performance of the specified action by the offeree constitutes acceptance of the offer.
5. Revocability: In most cases, the offeror can revoke the offer at any time before the offeree performs the required action. Once the offeree begins performance, however, the offer becomes irrevocable because it would be unfair to allow the offeror to revoke the offer after the offeree has already started performing.

Example:

• Offer: “I promise to pay $100 to anyone who finds and returns my lost dog.”
• Offeree’s Acceptance: The offeree accepts the offer by finding and returning the lost dog.
• Contract Formation: A contract is formed once the offeree performs the specified action (finding and returning the lost dog), and the offeror is obligated to fulfill their promise (paying $100).

In unilateral contracts, the focus is on the performance of the offeree rather than on mutual promises or exchanges. Once the offeree performs the required action, a contract is formed, and the offeror is bound to fulfill their promise.

One notable case that illustrates the formation of a unilateral contract is Carlill v. Carbolic Smoke Ball Company (1893).

Facts of the Case:

• The Carbolic Smoke Ball Company advertised a product called the “Carbolic Smoke Ball” in newspapers, claiming that it could prevent users from contracting influenza.
• The advertisement stated that the company would pay £100 to anyone who used the smoke ball as directed and still contracted influenza.

Issue:

• Mrs. Carlill purchased a Carbolic Smoke Ball and used it according to the instructions but still contracted influenza. She sued the company for the £100 reward.

Decision:

• The court held that there was a unilateral contract between Mrs. Carlill and the Carbolic Smoke Ball Company.
• The advertisement constituted an offer to the world at large, including Mrs. Carlill, with clear terms and a promise to pay £100 to anyone who performed the specified action (using the smoke ball) and contracted influenza.
• Mrs. Carlill accepted the offer by performing the required action (using the smoke ball) and fulfilling the condition of the contract (contracting influenza).
• Since Mrs. Carlill had performed the act requested by the offeror, she was entitled to the £100 reward.

Offer In Auction Sell

In an auction sale, the process of making an offer differs slightly from the typical one-on-one negotiation scenario.

Here’s how an offer is made in an auction:

1. Auctioneer’s Announcement: The auctioneer, who acts as the agent of the seller, begins by announcing the item or items up for sale. This announcement serves as an invitation for potential buyers to make offers.
2. Bid by Potential Buyer: When a potential buyer wishes to make an offer on an item, they indicate their bid by raising their paddle, nodding, or making some other gesture as per the auction rules.
3. Offer to Purchase: By indicating their bid, the potential buyer is essentially making an offer to purchase the item at the announced price (or the current highest bid).
4. Competing Bids: Other potential buyers may also make offers by bidding against the initial bidder. Each bid represents a new offer to purchase the item at a higher price.
5. Acceptance by Auctioneer: The auctioneer accepts the highest bid by declaring “Sold!” or some other indication, signifying that the highest bidder’s offer has been accepted by the seller.
6. Binding Contract: When the auctioneer accepts the highest bid, a binding contract is formed between the highest bidder (buyer) and the seller. The highest bidder is obligated to purchase the item at the price of their bid, and the seller is obligated to sell the item to the highest bidder.

It’s important to note that in auction sales, the auctioneer has the discretion to accept or reject bids and to withdraw items from sale if bids do not meet the seller’s reserve price or other conditions. Additionally, auction rules and terms may vary, so participants should familiarize themselves with the specific auction procedures before participating.

Barry v. Davies (2000) EWCA Civ 235: In this case, the Court of Appeal of England and Wales considered the legal principles governing auction sales and the formation of contracts. The court emphasized that in an auction sale, the auctioneer acts as the agent of the seller and invites offers from potential buyers. Each bid made by a potential buyer is considered an offer, and the acceptance of the highest bid by the auctioneer forms a binding contract between the highest bidder and the seller.

In Barry v. Davies, the court clarified that the acceptance of a bid occurs when the auctioneer brings down the hammer or otherwise indicates acceptance, and at that moment, a binding contract is formed between the highest bidder and the seller. The court also discussed the importance of auction rules and terms in governing the auction process and ensuring fairness and transparency for all participants.

Offer In Tenders

A person may advertise that he will sell certain goods by tender or he may invite tenders to execute works, the advertisements or the invitation does not normally amount to a proposal it is a merely invitation to the general public to make proposal.

In tendering processes, offers are made through a structured and formalized procedure where organizations or individuals invite bids or proposals for the provision of goods, services, or works.

Offer vs Invitation to treat

An invitation to treat is an invitation for others to make offers or enter into negotiations. It is not a definite proposal but rather an invitation to make an offer.

Key characteristics of an invitation to treat include:

1. Lack of Intention to be Bound: The party issuing the invitation does not intend to be bound by any resulting offers until they are accepted.
2. Indefiniteness: The terms are not definite or specific enough to constitute a valid offer.
3. Invitation for Offers: It invites others to make offers or begin negotiations.

Examples of Invitation to Treat:

• A store displaying goods with price tags is inviting customers to make offers to purchase those goods. The price tag is not an offer but an invitation for customers to make offers to buy the item at that price.
• Advertisements, catalogs, and displays in shops are generally considered invitations to treat. For example, when a store advertises “50% off all winter coats,” it is inviting customers to come to the store and make offers to purchase coats at a discounted price.

Understanding the distinction between an offer and an invitation to treat is essential for determining when a legally binding contract is formed in commercial transactions.

The following cases will help you understand more;

Conclusion

I trust that the concepts elucidated here have been comprehensible and enlightening.

Please don’t hesitate to share your thoughts or pose any questions you may have regarding this discussion. Your feedback is greatly valued and encouraged.

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This post was originally written by Kelvin John and edited, fact-checked, and enhanced by Isack Kimaro.

Other topics

• Consideration in Contract Law
• Vitiating Factors in Contract