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BUSINESS LAW
Chapter 3.1 – Proposal and
Acceptance
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LEARNING OUTCOMES
• To understand the significance and importance of offer
and acceptance
 DEFINITION OF CONTRACT

SIMPLE DEFINITION:

AN AGREEMENT BETWEEN TWO OR

MORE PEOPLE WHICH IS LEGALLY
ENFORCEABLE BY ONE PARTY
AGAINST THE OTHER
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Proposal
• An agreement between 2 or more parties is
constituted by a proposal and an
acceptance of it
• ‘Proposal’ bears the same meaning as
‘offer’ in English Law
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Proposal
 An offer or proposal is necessary for the
formation of an agreement
 S2(a) Contracts Act 1950 states that “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 the act or
abstinence, he is said to make a proposal”
 Under the Contracts Act 1950 and English Law,
a proposal or offer is something which is
capable of being converted into an agreement
by its acceptance
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Refer to Page 1 of Contracts Act 1950

Interpretation
2. In this Act the following words and expressions are
used in the following senses, unless a contrary
intention appears from the context:
(a) 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
the act or abstinence, he is said to make a
proposal;
(b) when the person to whom the proposal is made
signifies his assent thereto, the proposal is said to
be accepted: a proposal, when accepted, becomes
a promise;
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PROPOSAL - BASIC
RULES

VERBALLY

IN WRITING

BY CONDUCT
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Proposal
• Can be made to: -
• A specific individual
• A specific group of people
• Whole world
• Can be accepted by anyone provided he fulfils the condition
• If the condition is fulfilled, the offeror must fulfil his part of the agreement
(Carlill v Carbolic Smoke Ball)
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Proposal
 The terms must be specific
◦ Gunthing v Lynn (1831)
The defendant agreed to pay a further sum if it was "lucky".
Held: the offer was too vogue.
 Merely giving information is not an offer
◦ Harvey v Facey (1893)
P telegraphed D - "Will you sell us Bumber Hall Pen? Telegraph
lowest cash price." D replied, "Lowest cash price £900." P purported
to accept the offer.
Held: Price information is merely information. There was no offer to
accept.

◦ Note: If the price is stated in the course of negotiation then the

statement is an offer.
◦ Bigg v Boyd Gibbons (1971)
P offered to purchase a house for £20,000 which D rejected but added
that for a quick sale he would accept £26,000 and gave P a limited
time to reply. P accepted but D refused to sell.
Held: D had made a valid offer.
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Proposal
 A definite offer may be made to a class of persons or to the
world at large
◦ Carlill v Carbolic Smoke Ball Co. (1893)
The manufacturers of a patent medicine published an advertisement
by which they undertook to pay '£100 reward…to any person who
contracts…influenza…after having used the smoke ball three times
daily for two weeks'. The advertisement added that £1,000 had been
deposited at a bank 'showing our sincerity in this matter'. The
claimant read the advertisement, purchased the smoke ball and used
it as directed. She contracted influenza and claimed her £100
reward. The manufacturers argued a number of defences, including
the following: -
 The offer was so vague that it could not form the basis of a contract as no
time limit was specified.
 It was not an offer which could be accepted since it was offered to the
whole world.
Held: the court considered these two defences as follows: -
 The smoke ball must protect the user during the period of use. The offer
was not vague.
 An offer to the public can be accepted so as to form a contract.
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Invitation to Treat
• An invitation to treat is an invitation to people to make
offers/proposals
• Sometimes, it may be difficult to ascertain whether it is an
offer/proposal or invitation to treat
• The importance of the difference is that if an offer is
accepted it will give rise to a binding contract enforceable
through the courts (in most cases)
• However, an invitation to treat is not an offer and the
person responding to such invitation will only be able to
enforce his offer if the other person accepts it
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Examples of Invitation to Treat

• 1. Advertisements: -
• All advertisement, catalogues and brochures
are an invitation to treat (Majumder v Attorney
(1967) and Pattridge v Crittenden (1968))
unless the advertiser commits himself (Carlill v
Carbolic Smoke Ball)
• Even if the word 'offer' is used, the
advertisement is still an invitation to treat
• The circulation of a price list is also an
invitation to treat (Grainger v Gough (1896)).
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PARTRIDGE v CRITTENDAN

FACTS:
•P ADVERTISED IN PAPER - Bramblefinch cocks &
hens ... 25s each
•AN OFFENCE TO SELL OR OFFER FOR SALE A
PROTECTED BIRD
•P CHARGED WITH "OFFERING FOR SALE"
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ISSUE: WAS THERE AN OFFER

FOR SALE?

HELD:
ADVERTISEMENT MERELY AN
INVITATION TO TREAT
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Normal Advertisements
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Advertisements Offering Rewards

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Catalogues and Brochures

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Examples of Invitation to Treat

 2. Display of goods: -
◦ Display goods in a self-
service shop (with a
price tag on it) is an
invitation to treat.
(Pharmaceutical Society
v Boots (1952))
◦ Display of goods in a
shop window is also an
invitation to treat (Fisher
v Bell (1961)).
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DISPLAY OF GOODS

BOOTS’ CASE

FACTS:
•BOOTS HAD A SELF-SERVICE PHARMACY
•LAW PROHIBITED SALE OF PRESCRIBED
MEDICATION UNLESS UNDER "SUPERVISION OF A
PHARMACIST"
ISSUE: WHETHER GOODS ON DISPLAY AN OFFER?

HELD: DISPLAY OF GOODS ONLY AN INVITATION TO

TREAT - CUSTOMERS "OFFERED" TO BUY GOODS
WHEN TOOK GOODS TO COUNTER - CONTRACT
MADE WHEN THAT OFFER WAS ACCEPTED
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DISPLAY OF GOODS

FISHER v BELL

FACTS: IT WAS AN OFFENCE TO SELL OR OFFER FOR SALE A FLICK

KNIFE. B PUT A FLICK KNIFE ON DISPLAY IN HIS SHOP WINDOW WITH
A PRICE TAG ATTACHED
HE WAS CHARGED WITH OFFERING FOR SALE

HELD: DISPLAY OF FLICK KNIFE MERELY AN INVITATION TO TREAT,

NOT AN OFFER
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Examples of Invitation to Treat

• 3. Company prospectuses.
• When a company wishes to raise capital by selling
shares to the public, it must issue a prospectus (an
invitation to treat).
• Potential investors apply for shares (the offer) and the
directors then decide who to allot shares to (the
acceptance)
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Examples of Invitation to Treat

◦ 4. Invitation of tenders
◦ A tender is an estimate submitted in response to a
prior request
◦ When a person tenders for a contract he is making an
offer to the person who has advertised a contract as
being available
◦ 5. Auction
◦ At an auction sale the call for bids by an auctioneer is
an invitation to treat
◦ The bids are offers
◦ The auctioneer selects the highest bid and
acceptance is completed by the fall of the hammer
◦ S10 Auction Sales Enactment (Chap 81 of the
Federated Malay State) states “a sale by public
auction shall be complete when the auctioneer
announces its completion by the fall of the
hammer”
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AUCTIONS

ADVERTISEMENT OF AN AUCTION IS A MERE

PROCLAMATION

THE CALL FOR THE BID – AN INVITATION TO

TREAT

THE BID – AN OFFER

THE FALL OF THE HAMMER - ACCEPTANCE

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TENDERS

A CALL FOR TENDERS IS

"AN INVITATION TO TREAT"

THE TENDER IS THE OFFER

THE AWARDING OF THE TENDER IS

THE ACCEPTANCE
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VENDING MACHINES
(NOT AN INVITATION TO TREAT)

THORNTON v SHOE LANE PARKING

FACTS: T DROVE INTO A CAR PARK BEFORE STOPPING AT A RED
LIGHT WHICH TURNED GREEN ONCE HE HAD PUT MONEY INTO A
MACHINE AND IT HAD ISSUED A TICKET TO HIM.

ISSUE: WHAT CONSTITUTED OFFER & ACCEPTANCE HERE?

HELD: OFFER MADE BY THE PROPRIETOR OF THE MACHINE

HOLDING IT READY TO RECEIVE MONEY. ACCEPTANCE TOOK PLACE
WHEN THE CUSTOMER PUT THE MONEY INTO THE SLOT.
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OFFER MUST BE
COMMUNICATED TO
THE OFFEREE
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Communication of Offer/Proposal
 The communication of a proposal is complete
when it comes to the knowledge of the person to
whom it is made (s4(1) Contracts Act 1950)
 This means that an offer or proposal is effective
once it is communicated to the offeree by the
offeror
 It is the same for by telephone, fax, face-to-face,
post
 The communication of an offer or a proposal is
deemed to have been made by an act or
omission of the party proposing by which he
intends to communicate the proposal or which
has the effect of communicating it (s3 Contracts
Act 1950)
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Communication of Offer/Proposal
 A proposal made in words (oral or written) is
said to be expressed. If a proposal is made
other than in words (e.g. by conduct), it is
said to be implied (s9 Contracts Act 1950)
 An offer should be differentiated from an
option
 An option is merely an undertaking to keep
the offer open for a certain period of time
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Revocation of Offer
• S5(1) Contracts Act 1950 – an offer can be
revoked at anytime before the communication
of its acceptance is complete
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OFFER MAY BE REVOKED AT

ANY TIME BEFORE
ACCEPTANCE
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Revocation of Offer
Routledge v Grant (1828)
D offered to buy P's house stating that his offer is open for
only 6 weeks. Within 6 weeks he withdrew his offer.
Held: D could withdraw his offer before acceptance. D
was not obliged to keep the option opened for 6 weeks,
as there was no consideration.
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Revocation of Offer
• According to s6 Contracts Act 1950 a proposal is
revoked: -
a) By the communication of notice of revocation
b) By the lapse of the time prescribed in the proposal
c) The offeree makes a counter-offer
d) Offeror dies/mental disorder
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Revocation of Offer
• S6 (a) Contracts Act 1950 - by the
communication of notice of revocation
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 Revocation is not effective until it is received (communicated).

BYRNE & CO. v VAN TIENHOVEN

FACTS:
1 OCT - OFFER POSTED
8 OCT - REVOCATION POSTED
11 OCT - OFFER RECEIVED
11 OCT - TELEGRAPH OF ACCEPTANCE
POSTED CONTRACT MADE
(15 OCT - LETTER OF ACCEPTANCE POSTED)
20 OCT - LETTER OF REVOCATION RECEIVED

ISSUE: WHETHER THE REVOCATION POSTED ON 8 OCT. WAS

EFFECTIVE FROM TIME OF POSTING?

HELD: REVOCATION MUST BE ACTUALLY COMMUNICATED

TO THE OFFEREE BEFORE THE OFFER CAN BE TREATED AS
EFFECTIVELY REVOKED.

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• Revocation can be communicated either by the offeror or by the

relevant third party.
DICKINSON V DODDS
FACTS:
• DODDS OFFERED TO SELL SOME PROPERTY TO DICKINSON
•OFFER ‘OPEN’ TILL FRIDAY
•ON THURSDAY:
 PROPERTY SOLD TO ANOTHER.
 DICKINSON INFORMED BY A RELIABLE 3RD
PARTY OF SALE.
•NEXT MORNING DICKINSON ATTEMPTED TO
ACCEPT OFFER

ISSUE: HAD REVOCATION OF THE OFFER BEEN EFFECTIVELY

COMMUNICATED?
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HELD:
REVOCATION EFFECTIVE AS IT HAD BEEN COMMUNCIATED
THROUGH A RELIABLE SOURCE.

(IN THIS CASE THE PROMISE TO KEEP THE OFFER OPEN TILL
FRIDAY WAS NOT BINDING BECAUSE NO CONSIDERATION HAD
BEEN GIVEN FOR IT. A BINDING PROMISE TO KEEP AN OFFER
OPEN IS KNOWN AS AN OPTION ).
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Revocation of Offer
• S6 (b) Contracts Act 1950 –
• By the lapse of the time prescribed in the proposal.
• All offers last for a specified time only.
• It then expires and cannot be accepted.
• Sometimes an offeror does not specify how long the offer will be kept open.
• If so, the courts will have to decide a reasonable length of time it should be kept
open.
Ramsgate Victoria Hotel v Montefiore (1866)
D offered to purchase shares but did not specify how long his offer would last. P
accepted after 5 months, by letter. D, meanwhile, refused to pay.
Held: D's offer was only for a reasonable period. 5 months was more than that
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Revocation of Offer
• S6 (c) Contracts Act 1950
• The offeree makes a counter-offer.
• A counter-offer revokes the original offer.
• It will have the effect of terminating the original offer and substituting for the original offer,
the counter-offer.
• Thus, the original offeror whose offer has been terminated by the offeree's counter-offer
can accept or reject the offeree's counter-offer.
Hyde v Wrench ((1840)
D made an offer to sell his house for £1000. P purposely accepted at £950 but when D
refused, P accepted the original offer of £1000.
Held: The counter-offer terminated the original offer. There was nothing to accept.
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Revocation of Offer
• S6 (d) Contracts Act 1950
• Offeror dies/mental disorder
• If know – offer is terminated
• If do not know, offer still open
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Revocation of Offer
 The effect of revocation in the case of a
potentially 'unilateral' contract’, such as in the
Carlill's case, is not straightforward
 Where the offer has been made to the whole
world, as for example where a reward has been
offered in a newspaper for the return of a lost
dog, a revocation will probably be effective as
against anyone who has yet to start looking for
the dog, provided it is given the same publicity
as the original offer of the reward
 However, if someone has started to perform the
act requested in the offer, the offer cannot be
revoked.
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Revocation of Offer
 Errington v Errington (1953)
A father bought a house for his son and his
daughter-in-law to live in. The father paid the
deposit of one-third of the purchase price and
borrowed the balance from the building society. He
told his son and daughter-in-law that if they paid the
mortgage he would convey the house to them when
all the instalments had been paid. The Court of
Appeal held that the father's offer could not be
revoked provided the son and daughter-in-law
continued to make mortgage payments. Once the
offeree has acted on the offer and embarked upon
the prescribed course of conduct the offer cannot be
revoked.
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Acceptance
• S2(b) Contracts Act 1950 – “when a person
to whom the proposal is made signifies his
assent thereto, the proposal is said to be
accepted: a proposal, when accepted,
becomes a promise”
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Acceptance
• Acceptance can be made by conduct, orally
and of course in writing
• For acceptance by conduct see Carlill's
case where the response to the challenge
to use smokeball constituted acceptance
• Also see reward cases
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Acceptance
 Conditions: -
◦ Absolute and unconditional (s7(a) Contracts
Act 1950)
 An acceptance must be an unqualified acceptance of
the terms of the offer. If the terms of the offer are
varied or qualified the acceptance is not valid. It is in
fact a counter-offer.
Neale v Merret
The offer was to sell land at £280. P purportedly
accepted enclosing £80 and promising to pay the
rest by instalments of £50.
Held: It was implied that the term £280 meant cash
and not instalments. The 'acceptance' was not valid
because it was qualified.
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RULES OF
ACCEPTANCE
MUST BE ABSOLUTE &
UNQUALIFIED

MUST BE IN THE EXACT TERMS OF

THE OFFER
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Acceptance
• S7(b) Contracts Act 1950 provides that
acceptance must be expressed in some
usual and reasonable manner, unless the
offeror prescribes the manner in which it is to
be accepted
• If the offer stipulates the mode of
acceptance, then acceptance must take
place according to the method specified
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MODE OF COMMUNICATION

IF PRESCRIBED MUST BE STRICTLY COMPLIED

WITH
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MODE OF COMMUNICATION

IF NOT PRESCRIBED
USUAL AND REASONABLE
MANNER
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Acceptance
• Acceptance may be made by performance
of the condition of a proposal, or the
acceptance of any condition for a reciprocal
promise which may be offered with a
proposal (s8 Contracts Act 1950 and
Carlill’s case)
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Acceptance
• All offers last for a specified time only. It then
expires and cannot be accepted
• Sometimes an offeror does not specify how long
the offer will be kept open. If so, the courts will
have to decide a reasonable length of time it
should be kept open (Ramsgate Victoria Hotel v
Montefiore (1866))
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Communication of Acceptance
 The general rule is that acceptance must be
communicated, i.e. must reach the offeror (s3 Contracts
Act 1950)

Dickinson v Dodds (1876)

The buyer made a purported acceptance by delivering a
letter of acceptance for an offer to sell a house. But the
seller was not at home.
Held: The acceptance was not valid because it had not
reached the offer.
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Communication of Acceptance
 In the business environment, where the mode of
communication is non-instantaneous (fax & telex),
communication reaches only when it appears on the
offeror's printer/machine during normal office hours.
 If the mode of communication is by telephone,
acceptance takes place once the offeror hears the
acceptance.
 If the offeror does not hear due to bad line etc, then
there is no acceptance.
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INSTANTANEOUS COMMUNICATIONS

AGREEMENT ONLY
MADE WHEN THE YES
MESSAGE IS
RECEIVED
(EFFECTIVELY GENERAL RULE
THAT ACCEPTANCE MUST BE
COMMUNICATED APPLIES)
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ENTORES LTD. v MILES FAR EAST CORP.

FACTS: PLAINTIFF IN LONDON &

DEFENDANT IN AMSTERDAM MADE AN
AGREEMENT VIA TELEX

ISSUE: WHERE WAS THE CONTRACT

CONCLUDED?

HELD: CONTRACT WAS MADE WHERE THE

ACCEPTANCE WAS RECEIVED

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E-MAIL & SMS

PROBABLYACCEPTANCE IS NOT MADE
UNTIL THE OFFEROR OPENS THE E-
MAIL OR READS THE SMS
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Communication of Acceptance
• As stated earlier, acceptance must be communicated (s3
Contracts Act 1950)
• There must be some act on the part of the offeree to
indicate his acceptance
• An acceptance must be made by some positive act. Mere
silence is not acceptance.
• In Fraser v. Everett (1889), Wood, Acting CJ, held that
there is no rule of law like the saying “Silence gives
consent”.
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ACCEPTANCE MUST BE
COMMUNICATED

FELTHOUSE v BINDLEY

FACTS: P OFFERED TO BUY A HORSE FROM HIS NEPHEW AT A GIVEN

PRICE SAYING "IF I HEAR NO MORE ABOUT HIM I CONSIDER HIM
MINE AT THAT PRICE". HIS NEPHEW DID NOT REPLY

ISSUE: DID HIS NEPHEW’S SILENCE AMOUNT TO ACCEPTANCE?

HELD: NO, ACCEPTANCE MUST BE COMMUNICATED

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Exceptions
• There are 3 exceptions to the rule that
acceptance must be communicated:
• Offeree benefitted when he could have rejected the
offer
• Where performance is acceptance (Carlill's case and
reward cases).
• Where the mode of communication specified is the post.
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Exceptions
• However, if the offeree benefits when he has the time to
reject the offer, silence may acceptance
• Example: A proposer sent food to the promisee,
prescribing that payment for the food need to be paid if
the promisee accepts the proposal by consuming the said
food. In this situation the act of consuming the food
amounted to an acceptance even if the promisee kept
silent (not communicating his acceptance to the
proposer).
• This principle was held in Weatherby v. Banham (1832)
Exceptions
• The postal rule of acceptance is stated in s4(2)(a) Contracts Act 1950
and Illustration (b) to s4 Contracts Act 1950
• According to the postal rule of acceptance, if both parties have
agreed to use post as a mode of communication, then acceptance
takes place the moment the letter is posted provided the letter is be
properly stamped and correctly addressed
• Adams v Lindsell (1818)
D made an offer to sell goods requiring an answer 'in the course of
post'. P wrote back accepting the offer. The letter of acceptance was
lost and delayed. In the meantime, D sold the goods to someone else.
Held: The acceptance was made when P posted the letter in the post
box and not when it reached the offeror. There was a valid contract

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AGREEMENT IS CONCLUDED WHEN THE

ACCEPTANCE IS POSTED

AND NOT WHEN IT IS RECEIVED

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Exceptions
• This is called the postal rule. This rule is subject to one
exception. This is where the offeror specifies that the
acceptance must be 'in writing'.
Holwell Securities v Hughes (1974)
D offered P an option to purchase land to be exercised by
notice in writing. The letter of acceptance was lost in the
post.
Held: The postal rule did not apply. 'Notice in writing'
meant that it must reach the vendor.
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Postal Rule of Revocation

• It can be revocation of offer or acceptance
• Revocation takes effect the moment the letter is received
and not when it is posted (s4(2)(b) Contracts Act 1950)
• Note:
• If by post:
• When the letter is posted, revocation is complete for the offeree
• When the letter reaches the offeror, the revocation is complete for the
offeror (s4(3) Contracts Act 1950)
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ACCEPTANCE MUST BE IN RELIANCE
ON THE OFFER

R v CLARKE
FACTS: REWARD FOR THE ARREST & CONVICTION OF MURDERER. C
ARRESTED FOR MURDER. TO SAVE HIMSELF GAVE INFORMATION
THAT LED TO THE ARREST OF Y

ISSUE: WAS C ENTITLED TO THE REWARD?

HELD: C GAVE INFORMATION TO CLEAR HIMSELF AND NOT IN

RELIANCE ON REWARD. ACCEPTANCE MUST BE IN RESPONSE TO THE
OFFER

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COMMUNICATION OF ACCEPTANCE BY AGENT MUST BE
AUTHORISED

POWELL v LEE

FACTS: P had applied for a Headmaster’s post. The School

Board passed a resolution appointing P to the position but
did not notify him of the decision, though he was told
unofficially by a member of the Board. The Board later
appointed someone else as Headmaster.

ISSUE: WAS THERE AN EFFECTIVE ACCEPTANCE

OF P’S OFFER ?

HELD: NO CONTRACT. ACCEPTANCE CAN ONLY BE

COMMUNICATED BY AN AUTHORISED PERSON
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Revocation of Acceptance
• An acceptance may be revoked at anytime before the
communication of acceptance is complete (s5(2)
Contracts Act 1950)
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QUESTIONS