Offer and Acceptance

• Author: John D. McCamus
• Pages: 31-91

31

CHAP TER 2

OFFER AND

ACCEPTANCE

A. I NTRODUC TION

The analytical fr amework for determining whether or not the parties

have reached a mutual understand ing on the terms of their agree-

ment is referred to as the law of offer and acceptance. The basic idea

running through the law of offer and acceptance is that the parties

will be held to have reached an agreement when they have formed a

mutual intention to enter into a bargain with each other and, further,

are in agreement as to the term s of that bargain. It is only then th at

the parties h ave reached a true consensus ad idem or “meeting of the

minds,” which, in theory at least, is an indispensable requirement for

the formation of an agreement. In the calculus of offer and acceptance,

the communications of the parties must have created an “offer” that

sets out the offeror’s willingness to enter into an agreement on certain

terms; this is then matched with a corresponding agreement or “ac-

ceptance” forthcoming from the other party, the offeree, which also

communicates a willingness to enter into an agreement on the prof-

fered terms. The acceptance must precisely match t he terms of the offer,

a proposition often referred to as “the mirror im age rule.” A purported

acceptance that indicates d ifferent terms cannot create the required

consensus. Under the orthodox ana lysis, the offeree must intend to

accept the offer.1 Thus, the fact that two parties send out identical

1 See, however, the disc ussion of rewards in Sect ion B(1)(b), below in thi s chapter.

THE LAW OF CONTR ACTS32

offers, one to another, would not create the requisite consensus.2 The

rules of offer and acceptance, then, est ablish the analy tical mechanism

whereby the common law attempts to identify fact situations in which

the parties have reached agreement and distinguish them from situa-

tions in which parties have merely negotiated unsuccessful ly toward

that end.

Application of the offer and acceptance analysis requires an exam-

ination of the communications between the negotiating parties w ith a

view to isolating communications that constitute an offer in the requi-

site sense and a correspond ing acceptance. The detailed rules articul ate

the basic tests for isolating offers from other forms of communication

and for identifying genuine acceptance s. Further, they prescribe such

requirements as exist for the communication of the initial offer and

the acceptance. They also determi ne whether and when offers may be

revoked. E ach of the se topics wil l be considered b elow. Althoug h there

are many factual circumstances in which the application of these r ules

is quite straightforward, t here are also many situations, including fairly

common transactiona l patterns, in which their application is subtle and

contentious. Moreover, as we shall s ee, application of the concepts of

offer and accepta nce in partic ular fac t situations i s often ea sily man ipu-

lated to produce the particular analyst’s desired outcome. In a complex

fact situation, var ious plausible candidates for the c ategory of offer or

acceptance may emerge. In applying the analy tical framework, then,

it will often be importa nt to assess the pract ical implications for the

parties of determi ning whether a particular point in time i n a course of

negotiations is the moment when a consensus should be considered to

have been reached.

The test for determining whether either part y intended to com-

munic ate an of fer or an ac ceptance is object ive and doe s not rest on the

subjective intentions of the parties. Thus, in determining whether the

offeror has communicated an offer to the offeree, the question to ask

is whether the offeree reasonably understood the communications, by

word or conduct, of the offeror to constitute an offer.3 If so, the offeree

is able to accept the offer. The fact that the offeror may not have sub-

jectively intended to enter an agreement is irrelevant. Si milarly, the test

of an intention to accept is whether the offeror reasonably under stood

2Tinn v. Hoffman & Co. (1873), 29 L.T. 271.

3 See, for example, Singh v. British Columbia Hydro and Power Author ity, 2001

BCCA 695, leave to appeal to S.C.C. ref used, [2002] S.C.C.A. No. 45. And see

Allied Marine Transport Ltd. v. Vale do Rio Doce Navegacao S. A., [1985] 1 W.L.R.

925 at 936 (C.A.), Goff L.J. For an illustration in t he context of a unilateral con-

tract, see Goldthor pe v.Logan, [1943] 2 D.L.R. 519 (Ont. C.A.).

Offer and Acceptan ce 33

that the communications of the offeree constituted an acceptance.4 If

so, the contract is formed. This approach is often referred to as the

“objective theory of cont ract format ion.”5 The objective theory protects

the reasonable expections of a party reasonably relying on the other

party’s objective manifestation of assent, thereby avoiding the risk that

might otherwise accrue of that party detr imentally relying on its belief

in the existence of an agreement. The objective theory does not create

an agreement where neither party believes that a contract has been cre-

ated. In such a case, there are no rea sonable expectations to protect and

no risks of detrimenta l reliance to avoid. In such a case, the objective

theory would serve no purpose. It does apply where one person reason-

ably believes, on the basis of the other par ty’s communications, that a

contract has been formed.

In the course of this analysis it will be useful to distinguish, from

time to time, between bilatera l contracts and unilatera l contracts. A

bilateral contract is an ag reement constituted by an exchange of prom-

ises. A simple illustration of a bilateral contract would be a contract

for the purchase and sale of goods under wh ich the seller promises

to deliver the described goods on a stipulated date and the purchaser

promises to pay the agreed pr ice for the goods at that time. Such an

agreement would typically be formed by the utterance of an offer to

sell by the seller or to buy by the buyer followed by the other party’s

communicat ion of an acceptance of t hat offer. A unilatera l contract, on

the other hand, is constituted by a promise given in exchange for an

act. A unilateral contract i s typically formed by the communication

of an offer that indicates th at the offeror is prepared to be bound by

certain promise s if the offeree performs a stipulated act. In such a case,

performance of the stipulated act will constitute the acceptance of the

offer. Offers of rewards are a commonplace illustration of the phenom-

enon. An offer in the form, “I will pay you f‌ive hundred dollar s if you

climb to the top of the f‌lagpole,” is an offer of an agreement pursuant

to which the offeror will be bound to pay a cert ain amount of money

only if the offeree performs a pa rticular act. A more real istic illustra-

tion is the offer of a reward for a provision of information concerning

4UBS Securities Ca nada Inc.v. Sands Brothers Canada , Ltd., 2007 ONC A 405,

leave to appeal to S.C.C. ref used, [2007] S.C.C.A. No. 386. See also Heming way

v. Desire2Learn Inc. (2008), 68 C.C.E.L. (3d) 207 (Ont. S.C.J.) [Hemingway];

Vollmer v. Jones (2007), 36 R.F.L. (6th) 340 (Ont. S.C.J.); Ventura Land Co. Inc.v.

F. & L. Erb Holdings Ltd., 2007 MBQB 297; Ball v. Hardy (2006), 45 R.P.R. (4th)

14 (Ont. C.A.).

5 For a classic statement of t he theory, see Smith v.Hughes (1871), L.R. 6 Q.B. 597

at 607 (Div. Ct.), Blackburn J.