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3/4 W01/March 2017 Award in General Insurance

D Offer and acceptance

A contract comes into existence when one party makes an offer which the other accepts unconditionally.
One party makes an
offer which the other This statement seems straightforward enough and the following sections show how offer and acceptance
accepts works in practice.
unconditionally
D1 Unconditional acceptance

It is easier to see how unconditional acceptance works by looking at an example. Consider the following
conversation:
3
Chapter Example 3.1

Bill (from ABC Insurer): ‘On the basis of your proposal form I can offer you cover, subject to driving being restricted
to the named persons you have listed, for US$700’
Tom: ‘I accept.’

In this example, Tom’s acceptance does not alter any of the terms of Bill’s offer. The acceptance is said
to be unconditional. A contract is formed, subject to the other essential elements being present.
To be effective, acceptance must be the final and unqualified agreement to the offer.

D2 Conditional acceptance

If new terms are introduced, the so-called acceptance (in the example Tom’s reply) becomes a new offer
(a counter-offer) which is open to be accepted or rejected by the person who made the original offer (in
the example, Bill).
Now consider an alternative response by Tom.
Example 3.2
Bill (from ABC Insurer): ‘On the basis of your proposal form I can offer you cover, subject to driving being restricted Reference copy for CII Face to Face Training
to the named persons you have listed, for US$700’’
Tom: ‘I accept, so long as I can have ‘any driver’ cover.’

In this case, a contract has not been formed as Tom has not unconditionally accepted the offer. Not until
Bill accepts Tom’s counter-offer, without further conditions, is a contract formed. A counter-offer
operates as a rejection of the original offer: Hyde v. Wrench (1840).
Hyde v. Wrench (1840)
The defendant, Wrench, offered to sell his farm to the claimant, Hyde, for £1,000. The claimant in turn
offered £950, which was refused. The claimant later increased his offer to £1,000, but this was also
refused by the defendant.
It was held that there was no contract because the counter-offer acted as a rejection of the original offer
to sell at £1,000.

Question 3.1

Ellen has lost her dog and has offered a reward for its safe return. Jayne finds and returns the dog. Jayne is not
aware of the reward. Do you think Ellen is contractually bound to pay Jayne a reward? Give your reasons.

D3 Postal acceptance

The general rule is that the contract is made when the acceptance is received by the offeror (the person
making the offer). However, where the parties have agreed to use the postal system as the method of
communication, acceptance is complete at the point when the letter of acceptance is posted.

This rule applies even if the letter is delayed, or is lost or destroyed in the post and never reaches the
offeror: Household Fire Insurance Co. v. Grant (1879).
Household Fire Insurance Co. v. Grant (1879)
Grant applied for shares in the Household Fire Insurance Company. The insurance company posted the
letter accepting his offer, but it never arrived. The court decided that the offer had been accepted when
the acceptance was posted, so there was a valid contract.