Forming a contract: offer, acceptance and the machine

1. The problem to open with

Put this on the screen and ask for a show of hands before you say anything about the law.

Ask three questions: Is there a contract? When, if so, was it made? Does it matter that no person at Brightbyte ever saw the order? Take a vote on each, and write the numbers on the board. You will come back to them in section 6. The point of the vote is that students already have strong instincts, and the course is about how to turn an instinct into an argument.

2. Offer and invitation to treat

An offer is an expression of willingness to contract on certain terms, made with the intention that it becomes binding as soon as it is accepted. The test is objective: not what the speaker privately meant, but what a reasonable person in the other party’s position would take them to mean. An invitation to treat is different: it is an invitation to others to make offers. The law needs the distinction because, if every advertisement or price tag were an offer, a shop with one item left could be bound to dozens of people.

Three illustrations belong in every course. First, goods displayed in a shop window or with a price on the shelf are generally an invitation to treat, so that the customer makes the offer at the till and the shop is free to accept or refuse. Second, most advertisements are invitations to treat. Third, the exception: a clear promise made to the world at large, with its performance requested, can be an offer that anyone can accept by performing, as in the famous smoke-ball case.

Now ask the question that matters for the laptop problem: is a web page showing a price an offer or an invitation to treat? Both answers are defensible, and courts and legislatures have come out differently. The shop-window analogy points towards an invitation to treat, which protects the shop from a pricing error. The counter-argument is that an online shop with a ‘Buy now’ button has set up a system that is designed to conclude contracts without any further human step, which looks more like an offer. Do not give the answer yet.

3. Acceptance and communication

An acceptance must be a final and unqualified agreement to the offer’s terms. A reply that adds or changes terms is a counter-offer, which ends the original offer. A request for information is not a counter-offer. Silence is not acceptance: an offeror cannot impose a contract by saying ‘if I hear nothing, I will take it that you agree’.

As a general rule, acceptance must be communicated to the offeror. Two qualifications matter here. First, the postal rule: where post is a reasonable means of acceptance, the acceptance takes effect when it is posted, not when it arrives. It is an exception, justified by convenience, and courts have kept it narrow. Second, for instantaneous communications, such as telephone and telex, the general rule applies: the contract is made when and where the acceptance is received. The courts adapted that rule to later technologies with some flexibility, because the question is who should bear the risk of failed communication.

Ask your students what happens with email. They will say ‘instantaneous’ and wait for you to confirm it. Ask them what happens when the email goes to a spam folder, or when the server is down, or when the acceptance is a click that is registered on a machine the offeror controls. Most will realise that ‘instantaneous’ hides several moments: sending, delivery, availability and reading. The law has not always said which one counts, and an honest lecture says so.

4. Terms, notice and the click

A party who signs a contract is generally bound by its terms, whether or not they read them, absent fraud or misrepresentation. A party who does not sign is bound by terms only if reasonable notice of them was given before or at the time the contract was made, not afterwards. The classic illustration is a ticket handed over after the contract has been made at a car-park barrier, which cannot add terms.

Online, the same questions return in new forms. A click-wrap agreement requires the user to click ‘I agree’ before proceeding, and courts have generally enforced them where the terms were available. A browse-wrap agreement says that using the site means accepting its terms, which are reached by a link in a footer. Courts have been more cautious with browse-wrap, and have refused to enforce terms where the user had no reasonable notice of them, as in a well-known American case on software downloads. The principle is the one you have just taught: assent is judged objectively, and notice must come before the contract.

This is the right place for a short digression for your students’ benefit: the habit of not reading terms is nearly universal, and the law mostly tolerates it. A lawyer’s habit must be the opposite.

5. When a machine does the agreeing

Contracts are made every second by systems that no person watches: online shops, ticket machines, trading platforms and, increasingly, software agents acting for a user. The question for students is how a body of law built on the idea of two minds meeting copes when one or both of the minds is a program.

The answer in most systems is not a new theory of the ‘electronic person’. It is the old one: the system acts on behalf of a person or business, which is treated as having the intention that the system was set up to carry out. International instruments reflect this. For example, a United Nations convention on electronic communications in international contracts says that a contract formed by automated systems, or by a person and an automated system, is not to be denied validity or enforceability solely because no person reviewed each action. Notice what this does and does not say: it removes one objection, but it does not tell you whose intention counts when the machine does something nobody expected.

That is the question in the pricing-error and trading-glitch cases. Courts have had to decide whose knowledge and intention matters when an algorithm executes a trade at an obviously wrong price, and when to assess it: at the time of the transaction, or at the time the system was programmed. Ask your students to read the Singapore Court of Appeal’s decision in a cryptocurrency-trading case and the older Singapore decision on a mispriced online listing; they raise the issue in its sharpest form. Do not rely on a summary, including this one, for what those cases decided.

6. Back to the laptop

Return to the board with the votes. Walk through the analysis in the order a lawyer would.

• Is the listing an offer or an invitation to treat? Argue both. If it is an invitation to treat, Amira’s click is the offer, and the question becomes whether Brightbyte accepted it.
• Was the automatic email an acceptance, or only an acknowledgement? Read it: ‘We have received it and will process it shortly’ looks like an acknowledgement, and shops’ terms usually say so expressly. The facts you want next are the shop’s terms and the wording at checkout.
• If the listing was an offer, then Amira accepted it by clicking and paying, and the contract was made at 9.02 a.m. Then a later cancellation is a breach, unless the shop can avoid the contract for some other reason such as mistake.
• Does it matter that no person at Brightbyte saw the order? Under the principle in section 5, the machine acted for Brightbyte, so the absence of a human reviewer is not by itself a defence.
• What is the most important missing fact? The checkout wording and Brightbyte’s terms, which may state that a contract is formed only on dispatch.

Notice the shape of the answer. It does not announce ‘there is a contract’ or ‘there is no contract’. It says what turns on what, and what is still needed. That is how you should expect your students to write, and it is also what AI tools most often fail to do.

7. The AI workshop (25 minutes)

What to expect, so that you can guide the debrief. Several errors recur in AI answers to formation problems. They often declare the web page an offer, or an invitation to treat, without noticing that the question is open. They apply the postal rule to email as if it were settled. They treat the automatic email as an acceptance without reading what it says. They state a confident conclusion without listing the facts they would need. And they may name cases that do not exist or attribute to a real case something it did not decide. Your students should find some of these. If their answer is perfect, ask them how they know.

8. Closing (5 minutes)

Return once more to the three votes. Ask how many students would now change their answer, and why. Then give them the one-page handout below. The message to leave them with is simple: the rules of offer and acceptance have not changed, but the moments at which they apply have multiplied, and the person who checks the chronology wins the argument.

Student handout: checking an AI’s analysis of contract formation

• Write the chronology yourself before you read the AI’s answer: who did what, in what order, by what means.
• For every rule the AI states, find it in a case, statute or textbook. If you cannot, mark it as unverified.
• For every case it names, find the case. If you cannot find it, treat it as invented until you can.
• Look for words like ‘always’, ‘never’ and ‘clearly’. Ask whether the authority really says that.
• List what the AI assumed. Does the problem actually give you those facts?
• Ask what the other side would argue. If the AI did not give you that, ask for it.
• Write your own conclusion in your own words, including what is still uncertain and what you would need to find out.

Verify before you teach

These are the authorities this lecture relies on or points to. They are well known, but you must read them yourself before you teach them, and check any detail you repeat. The ‘use’ column says what this lecture uses each one for, not a complete statement of what it decided.