Offer and acceptance 

A contract requires agreement. Australian law tests that agreement objectively: not what a party privately intended, but what a reasonable person in the other party's position would have understood from their words and conduct. This matters more than it first appears — a party who did not subjectively intend to contract may still be bound, and a party who says they meant something else will rarely be heard.

The traditional analysis breaks agreement into an offer and an acceptance. It is a tool, not a straitjacket: courts sometimes find agreement without being able to point cleanly at one of each, particularly in negotiations conducted over time.

What makes something an offer

An offer is a statement of the terms on which the maker is prepared to be bound, communicated with the intention that it will become binding on acceptance. Two features distinguish it:

• It is complete enough to be accepted. If essential terms are missing, there is nothing definite for the other party to accept.
• It contemplates being bound without further negotiation. The maker is not inviting discussion; they are ready to be held to it.

Offer or invitation to treat?

An invitation to treat invites offers rather than making one. The distinction decides who is the offeror, and therefore who can accept and who can withdraw.

The usual examples are worth knowing because they recur:

• Goods displayed in a shop are ordinarily an invitation to treat. The customer makes the offer at the counter; the retailer accepts it. This is why a mispriced item on a shelf does not, without more, bind the shop.
• Advertisements are usually invitations to treat, because they are addressed to the world and rarely contemplate being bound to every reader.
• Auctions work in a particular way: the auctioneer's call for bids is an invitation to treat, each bid is an offer, and the fall of the hammer is acceptance.

The exception that proves the rule is the advertisement so specific, and so evidently serious, that it is properly read as an offer to anyone who performs its terms — the classic unilateral contract, where acceptance is by performance rather than by promise, and notification of acceptance is not required. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256¹ is the canonical illustration: an advertisement promising £100 to anyone who used the product as directed and still caught influenza was held to be a genuine offer to the world, accepted by performing the stipulated conduct.

Acceptance

Acceptance is unqualified assent to the terms of the offer, communicated to the offeror. Three points do most of the work in problem questions:

1. It must match the offer. A purported acceptance that introduces new terms is a counter-offer, which rejects the original offer and puts a fresh one in its place. The original offer is then no longer available to accept. A mere inquiry about terms is not a counter-offer — the distinction is whether the response is conditional.
2. It must be communicated. Silence does not ordinarily amount to acceptance, and an offeror cannot stipulate that it will. A party is not bound merely by failing to reject.
3. It must be made in response to the offer. A person who performs the act required by an offer in ignorance of it has not accepted it.

When acceptance takes effect

The general rule is that acceptance is effective when and where it is received by the offeror. Instantaneous communications — telephone, and by extension most electronic methods — follow this rule.

The postal acceptance rule is the historical exception: where post is the contemplated means of acceptance, acceptance is effective when the letter is posted, not when it arrives. The rule places the risk of loss or delay on the offeror. It is narrow, it can be excluded by the terms of the offer, and it does not apply where its application would produce an inconvenient or absurd result. Electronic transactions legislation in each Australian jurisdiction now addresses the timing of electronic communications, and should be consulted rather than assumed.

Termination of an offer

An offer cannot be accepted once it has ended. It ends by:

• Revocation by the offeror, which is effective on receipt and may be made at any time before acceptance — even where the offeror promised to keep the offer open, unless that promise was itself supported by consideration.
• Rejection, including by counter-offer.
• Lapse, after the time stated or, if none, a reasonable time.
• Failure of a condition to which the offer was subject.
• Death of either party, in most circumstances.

Applying this in a problem question

Work in order, and say which party is which:

1. Identify each communication and classify it: offer, invitation to treat, counter-offer, inquiry, acceptance, or revocation.
2. Fix the moment of agreement, if there is one — and be prepared to say there is none.
3. Check that acceptance was communicated, and if it was posted, address whether the postal rule applies and whether it was excluded.
4. Apply the objective test throughout. What a party says they intended is not the question.

Formation is only the first step. Agreement does not produce a contract without consideration and an intention to create legal relations, and even a properly formed contract may be affected by the terms incorporated into it.

Where the authority sits

The principles above are settled common law, developed through decided cases rather than statute. When you cite them, cite the case in which the principle was stated and note the court — the High Court of Australia's decisions bind all Australian courts, while intermediate appellate decisions carry considerable weight but are not binding across jurisdictions.

For the timing of electronic communications, the relevant electronic transactions legislation in the applicable jurisdiction governs, and the general law is read subject to it.