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What is Offer and Acceptance in Australia?

An Overview on Offer and Acceptance in Australian Contract Law

In contemporary Australian contract law, the approach to finding an agreement is to determine the presence of offer and acceptance. Involving a clear offer by the offeror and an unqualified assent to the offer from the offeree, the legal concept of offer and acceptance is viewed as foundational to contract-making. In the absence of an agreement, there is no contract.

In this article, we address the frequently asked questions on the meaning of offer and acceptance in Australian contract law:

Why is offer and acceptance important in the formation of a contract?

The contemporary approach to offer and acceptance developed during the 19th century with the emergence of classical contract theory. Contracts began adopting a new form of being regularly reduced to writing (Stoljar, 1955-1956). The process of writing transformed the idea of contract-making as separate and distinct parts. Emerging from this was an importance placed on the communication of offer and acceptance. Stoljar (1955-1956, p.455) aptly observes that during that period, “the one natural and convenient method of establishing whether the parties had expressed a mutual consent or agreement was to ask whether one party had made an offer which the other had definitely accepted”.

A contract may be characterised as a promise that the law will enforce. During the process of contract formation, offer and acceptance forms a crucial part. In summary, the legal elements of a contract are briefly examined: Offer and Acceptance, Consideration, Intention to Create Legal Relations, Capacity, Certainty, and Formalities.

Legal ElementsSummary
Offer and AcceptanceOffer and Acceptance should be communicated by the offeror and offeree to form an agreement.
ConsiderationConsideration is an exchange between parties of something that has legal value. When valuing consideration, consideration should be sufficient but need not be adequate.
Intention to Create Legal RelationsThere should be an intention to create legal relations between the contracting parties. An intention to create legal relations is determined objectively.
CapacityContracting parties should have contractual or legal capacity to enter into a contract. If a party does not have contractual or legal capacity, the contract may be at risk of not being legally binding.
CertaintyThe contract should be sufficiently certain and complete as to its essential terms.
FormalitiesCertain types of contracts may be required to comply with formality requirements depending on the jurisdiction of each state or territory in Australia. Formality requirements may entail certain kinds of contracts to be in writing.

For further information about the legal concept of contract-making:

What is an offer?

In contemporary contract law, an offer is characterised in the language of willingness as “an expression of willingness to enter into a contract on specified terms” (Robertson & Paterson, 2020, p. 58). However, an offer does not create legal obligations. Rather, an offer gives another person power to create legal obligations (Corbin, 1917). Adopting similar views, an offer is also described as a communication by an offeror to an offeree of “a willingness to contract on certain terms” (Carter, 2018, p.48). 

Therefore, an offer’s legal significance is found in an offeree’s power to form a contract through acceptance of that offer (Carter, 2018).

How is an offer communicated?

An offer is made if the person making it indicates that an acceptance is invited and will conclude the agreement between the parties (Robertson & Paterson, 2020, p. 58). The offer should be a communication indicating “a willingness by the alleged offeror to be bound without further negotiation as to the terms of the proposed contract” (Carter, 2018, p. 49).

How is an offer assessed?

An offer is assessed from the position of a reasonable person as an offeree. It has been suggested that the relevant inquiry is whether the reasonable person would view that “an offer was intended, and that a binding agreement would be made upon acceptance” (Robertson & Paterson, 2020, p. 59). Therefore, an objective test is applied to determine whether an offer is made (Seddon & Bigwood, 2023). The Court objectively determines an offeror’s intention based on the parties’ outward behaviors, rather than their subjective intentions (Robertson & Paterson, 2020; Seddon & Bigwood, 2023).

Can an offer be made to the world?

An offer may be made to the world. It can be restricted to identified persons, or certain classes of persons, however, there is not a limit to the number of people the offer can be made (Carter, 2020). In the well-known English Court of Appeal decision in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 involving an advertisement in various newspapers, Bowen LJ (1893, p.268) framed the scope of an offer in this dispute, as:

“…an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contact with anybody who comes forward and performs the condition? It is an offer to become liable to anyone who, before it is retracted, performs the condition.”

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Can an offer be terminated? 

An offer can be terminated, and not be available for acceptance depending on the circumstances, including: lapsing of time, rejection by the offeree, revocation by the offeror, or failure of a condition.

Does an offer terminate if the offer lapses?

An offer that is open for acceptance for a period of time may lapse after period expires. If a period of time is not stated, then the offer may lapse after a reasonable time though reasonable time will depend on the circumstances.

Does an offer terminate if the offer is revoked?

An offeror may withdraw or revoke an offer before acceptance. An exception arises if there is an option made available by the offeror. The revocation is effective when the revocation is communicated to the offeree.

Does an offer terminate if the offer is rejected by an offeree?

An offer may terminate on rejection by the offeree. When an offer has been rejected, it is generally regarded as not being available for acceptance. However, it is available for the offeree to make a counter-offer after rejecting an offer. Making a counter-offer may also be viewed as an implied rejection of an offer (Carter, 2018).

Does an offer terminate if there is failure of a condition?

An offer may be made subject to an express or implied conditions. The condition may be that an offer is open if certain state of affairs or happening of events are obtained, and that if the state of affairs or event do not eventuate, then the offer automatically lapses.

What is the difference between an offer and invitation to treat?

An offer that can form into a contract through acceptance is distinguishable from an invitation to treat (Seddon & Bigwood, 2023). An invitation to treat is described as treat covers all aspects of the negotiation process before a final offer. Others described, an offer is often distinguished from an invitation to treat which is an invitation to others to make offers or enter into negotiations (Robertson & Paterson, 2020). Therefore, “anything that is said to invite a bargaining response rather than an acceptance, is an invitation to treat” (Seddon & Bigwood, 2023, para 3.18).

What is an option?

An option is a promise that an offer that may be kept open if consideration is exchanged for that promise. In contemporary contract law, there are two competing theories in the characterisation of an option. An option may be viewed as an “an irrevocable offer that may be accepted…during the period specified” (Seddon & Bigwood, 2023, para 3.68).  Alternatively, an option may be viewed as a conditional contract that becomes fully binding when the condition is satisfied through the exercise of that option.

What is acceptance?

An acceptance is generally viewed as an unqualified assent to the terms of an offer (Robertson & Paterson, 2020). On acceptance of an offer, a contract is formed. To assess acceptance, the conduct of an offeree should be viewed objectively. The objective test is viewed from the position of a reasonable person as an offeror, and whether the offeree’s words or actions can be perceived as accepting the offer (Seddon & Bigwood, 2023).

Does acceptance have to be communicated to the offeror?

Generally, acceptance is effective when an offeree accepts the terms of an offer, and this is communicated to an offeror.  Assessed objectively, acceptance is shown by the offeree’s unequivocable outward manifestation of assent.

Is there a requirement for knowledge?

Acceptance cannot be performed if the offeree is not acting on the faith of an offer. Even when there is performance of an act, if the act is made without reliance on an offer, then this will not lead to formation of contract (Carter, 2018). Other legal scholars agree that a contract cannot be made if a “purported acceptance was made in ignorance of [an] offer” (Seddon & Bigwood, 2023, para 3.40).

This principle of reliance and knowledge is also reflected in judicial opinion. In the High Court decision of Crown v Clarke (1927) 40 CLR 227 involving a reward for supply of information, Higgin J (1927, p. 241) stated, “[t]here cannot be assent without knowledge of the offer; and ignorance of the offer is the same thing whether it is due to never hearing of it or to forgetting it after hearing”.

Can acceptance be communicated by silence?

Generally, an offeror cannot arbitrarily state an offeree’s silence as a prescribed method of acceptance. An offeree’s intention to accept an offer should be unequivocal, as mere silence may be equivocal and unclear.  

Notwithstanding, there are exceptions to the general rule as the Court may accept silence as acceptance in some circumstances. In the New South Wales Court of Appeal decision in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, the facts involved a party taking the benefit of a services, whilst remaining silence with the knowledge of the offer that the service should be paid. McHugh JA (1988, p. 535), shared the view that:

“Where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid in accordance with the offer, it is open of fact to hold that the offer was accepted according to its terms.”

Can there be prescribed modes of acceptance from the offeror?

An offeror may prescribe a method for acceptance to be communicated. If a prescribed method is made, then communication of acceptance may be limited to that prescribed method.

Bibliography

  • Carter, J. (2018). Contract Law in Australia (7th ed). LexisNexis.
  • Corbin. (1917). Offer and Acceptance, and Some of the Resulting Legal Relations. The Yale law Journal, 26(3), 169-206.
  • Robertson, A., & Paterson, J. (2020). Principles of Contract Law (6th ed). Thomson Reuters.
  • Seddon, N. & Bigwood, A. (2023). Cheshire & Fifoot Law of Contract. LexisNexis.
  • Stoljar, S. (1955-1956). Offer, promise and agreement. Northwestern University Law Review, 50(4), 445-456.

Implied Terms | Enforceable Contract | Frustration | Legally Binding Agreement | Termination | Express Terms | Consideration | Intention to Create Legal Relations | Certainty | Repudiation | Privity | Classification of Terms | Contract Law (Theories) | Causation | Remoteness | Damages |

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Authored by:
Ben Franklin, Managing Partner (LIV Accredited Specialist – Property Law), &
Matthew Tran, Lawyer.

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