Offer and acceptance

Lore & Background

Offer and acceptance are fundamental to contract formation. An offer is defined by Guenter Treitel as 'an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed.' The Restatement (Second) of Contracts similarly emphasizes 'manifestation of willingness to enter into a bargain.' Offers may take various forms—letter, advertisement, fax, email, verbally, or even conduct—as long as they communicate the basis on which the offeror is prepared to contract. Traditionally, common law treated advertisements as unable to contain offers, but this view is considered less forceful in jurisdictions today. Whether a valid offer exists is a legal question. Courts in some jurisdictions use the 'objective test,' explained in Smith v. Hughes, focusing on how a reasonable person would view the situation rather than the party's subjective intentions. An offer must contain key terms; for example, in some jurisdictions, sale of goods contracts require delivery date, price, terms of payment, and a detailed description. An offer must be serious; an obvious joke cannot become an offer, as seen in Leonard v. Pepsico, Inc., where a military aircraft offered for Pepsi Points was deemed a joke. The 'mirror image rule' requires acceptance to be exact; any modification constitutes a counter-offer, which kills the original offer, as in Morton v 4 Orchard Lane Trust. A unilateral contract is created when someone offers to do something 'in return for' performance of an act, as in Carlill v Carbolic Smoke Ball Co. An invitation to treat is not an offer but an indication of willingness to negotiate, such as displaying goods for sale or holding a public auction. An offeror may revoke an offer before acceptance, but revocation must be communicated; however, an offer may not be revoked if encapsulated in an option or if it is a 'firm offer.'

Reader's Guide

Offer and acceptance remain central to contract law, providing a structured framework for determining when parties have reached agreement. The classical approach, though modified by developments in estoppel, misleading conduct, misrepresentation, unjust enrichment, and power of acceptance, still underpins contract formation analysis. The objective test, as articulated in Smith v. Hughes, ensures that courts assess offers based on how a reasonable person would interpret them, rather than subjective intent. This principle is critical in cases like Lucy v. Zehmer, where jesting about selling a farm resulted in a binding contract. The mirror image rule reinforces the need for precise acceptance, while the distinction between offers and invitations to treat (e.g., display of goods, auctions) clarifies when negotiations begin. Unilateral contracts, exemplified by Carlill v Carbolic Smoke Ball Co., illustrate acceptance through conduct. The ability to revoke an offer before acceptance, subject to exceptions like option contracts, balances flexibility with certainty. Overall, offer and acceptance provide a predictable method for analyzing contractual intent, though courts increasingly consider broader equitable doctrines.

Did You Know?

• An offer must be serious; in Leonard v. Pepsico, Inc., a military aircraft offered for Pepsi Points was deemed a joke and not a valid offer.
• The 'mirror image rule' requires acceptance to be exact; any modification constitutes a counter-offer that kills the original offer.
• In Carlill v Carbolic Smoke Ball Co., a unilateral contract was formed when the offeree performed the act stipulated in the offer (using the remedy and contracting the flu).
• An invitation to treat, such as displaying goods for sale or holding a public auction, is not an offer but an indication of willingness to negotiate.

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