The DCFR recognises the differing approaches in national legal systems,­ commenting in its Principles that any model law ‘may need to go beyond the general contract law of some Member States and impose positive duties to give information to the uninformed party’.103 This suggestion is reflected in Chapter 3 of Book II, which imposes certain duties of disclosure on business parties in relation to intended contracts with consumers.104 The drafters have, however, shied away from imposing such duties between parties of presumed equal bargaining strength and knowledge, so that business-to-business and entirely private contracts do not fall within the ambit of the provisions. Given differing national practice, extending duties of disclosure to such cases may well have appeared too radical. In relation purely to insurance contracts, the Principles of European Insurance Contract Law (PEICL) suggest a number of specific duties to warn on the part of the insurer, as well as a duty of disclosure on the prospective insured.105

3.  Offer and acceptance

(a)  Offer and acceptance as conditional promise

Given the definition of promise proposed in Chapter 1, both an offer (including a counter-offer) and an acceptance could be characterised as conditional promises, in that each can be described as a promise of performance made on the condition of, or given in exchange for, a pledge of counter-performance by the other party.106 The type of condition involved relates not simply to performance by the other party, but also to the obligatory effect of the undertaking. In other words, the condition is suspensive of the obligation, because no obligation is intended unless and until a coun- ter-pledge of performance (the other party’s promise) is forthcoming.

Of course, in the classic case of an exchange of offer made by A and an acceptance of that offer by B, acceptance will normally follow on chronologically after the offer, so that the sequence of events might be described as follows:

103DCFR, Princ. 8.

104DCFR, Arts. II.-3:101–9. More specific provisions relating to pre-contractual duties to warn are found at Arts. IV.C.-2:102 (service contracts) and IV.C-6:102 (design contracts).

105PEICL, Arts. 2.101 (insured’s duty of disclosure), 2.202–3 (insurance company’s duties to warn).

106Or, in the case of the offer of a gratuitous contract, as a promise given on the condition of an acceptance by the other party.

Stage 1: A’s offer, issued first, is classifiable as a promise, the obligatory nature of which is conditional upon a valid acceptance, also a promise, being given by B in return.

Stage 2: The offer is followed by the issuing of B’s acceptance. But need this be seen as a conditional promise? Given that A’s counter-pledge of performance, contained in A’s offer, has already been received by B, any condition on B’s part that A make such a pledge of performance seems redundant. B’s acceptance could thus be seen as an unconditional promise, immediately binding on him. On the other hand, as it may be rather arbitrary who issues the offer first and who subsequently the acceptance, it may be simpler to maintain the view that both parties make conditional promises, and to say that each undertaking is given in exchange for, and thus on the condition of, the ­other’s undertaking.107

Not all contracts though are formed by a process of an offer followed by an acceptance. Can the conditional promise characterisation be maintained in respect of other types of formation scenario? What, for instance, of a case where each contracting party signs a contractual document previously prepared by a third party? In such a case it seems no less plausible to describe each party as having made a conditional promise to the other. Indeed, it seems easier to do so in the absence of separate documents of offer and acceptance which follow chronologically on each other.

It is not difficult to see why, in a late scholastic intellectual climate where promise was still the dominant analysis of voluntary undertakings, and where an acceptance was widely seen as essential to a binding promise, the two-stage approach to the undertaking of a voluntary duty was thought amenable to describing not only the formation of promises but subsequently the negotiation process leading to a contract. An enforceable promise and a contract could both be described as accepted promises, the only difference being that a contract usually imposed duties on the promisee as well (duties specified in the offer’s promise as conditions for the promise). One must add the caveat ‘usually’, because if there is no requirement of mutual consideration, then evidently it is possible to have a gratuitous contract.

107Fried maintains the view that each party makes a conditional promise, though his explanation gets overly complicated when he asserts that B’s acceptance, as a conditional promise, must itself be accepted, something which he explains automatically and implicitly occurs when it is communicated to A, as A has bound himself to accept it when he issued the offer: see Fried, Contract as Promise, p. 48.

(b)  The traditional offer and acceptance model as a unilateral dictation of terms

The traditional conception of contract formation described in the previous section, which sees offer and acceptance as conditional promises, and in terms of which an offeror proposes all the contract terms and the offeree simply agrees to or rejects them, is a very unilateral model of contract formation in that it puts the power to dictate the content of the obligation proposed in the hands of one party. To be sure, negotiation can come in, but, every time a counter-offer is made, the circumstances are treated as if a new promise of performance has been offered by the party making the proposed changes to the terms. An offeree must agree absolutely to the undertaking proposed by the offeror, or else there is no contract. There is no room for any active alteration to the proposal, or the offeree is treated as having rejected the offeror’s promised performance and is rather said to be making a new offer himself.

The traditional model described above is quite different to the DCFR (and PECL) conception, where core terms can be distilled from negotiations and others omitted. Thus, in the DCFR, the traditional approach to formation of contract – that any alterations to an offer by the offeree kill off the offer – is modified, so that it is only a response which ‘states or implies additional or different terms which materially alter the terms of the offer’108 which amounts to a rejection of the original offer and hence constitutes a new offer. Where alterations or additions are not material, they become part of the contract unless the offer limited acceptance strictly to its terms, the additions or alterations are objected to by the offeror without undue delay, or the offeree itself seeks assent from the offeror to the additions or alterations.109 A not dissimilar approach is proposed in the DCFR for standard form negotiations, though here the change from the traditional model is even more radical, a contract being formed from the terms in the conflicting terms which are ‘common in substance’.110 These model provisions are almost identical to those previously proposed in the PECL.111

108 DCFR Art. II.-4:208(1). 109 DCFR Art. II.-4:208(2), (3).

110The ‘common in substance’ test seems fraught with difficulty, given its vague formu­ lation. There is no attempt in the provisions of the DCFR to explain the notion of ‘substance’, though the official commentary to the Article states that the idea ‘conveys that it is identity in result not in formulation that counts’. That clarification dodges the question of how one resolves disputes about what result was intended, and indeed the official commentary observes that ‘what is “common in substance” will not always be easy to decide’.

111PECL Arts. 2:208 and 2:209.

This new approach to contract formation is a much more genuinely consensual one. It will strike many as radical, perhaps too radical, because we remain largely wedded to contract formation thinking which derives from the older promissory paradigm described earlier, a paradigm which sees offeror and counter-offeror as making a promise to contract on certain terms, the promissory undertaking being given on the condition that it is the exact terms offered, and only those, to which the promisor will be bound. Only if the new view displaces the older approach will the contract formation process have moved from a conception which, despite the oft repeated emphasis on agreement and consensus, continues to rest upon the promissory idea, to something more genuinely cooperative and mutual.

(c)  Distinguishing offer from conditional promise

The fact that, as discussed in the previous section, a contractual offer can be characterised in promissory terms is not without attendant difficulties. These are particularly evident in cases where conceivably something might either be an enforceable unilateral promise or else an offer, and a determination is required as to which analysis must be adopted. This problem is most acute in a system like Scots law where unilateral promise is recognised as a separate form of valid obligation, though, as in most systems some instances of unilateral promise are exceptionally enforced, it is not a uniquely Scottish problem.112 Wherever the possibility of seeing something either as a unilateral promise or as an offer exists, how can one tell whether a particular statement is intended as an immediately binding unilateral promise (albeit a conditional one), an offer requiring an acceptance before any obligation is constituted, or perhaps even a statement which is intended as neither of those things?

Consider, for instance, the following case. An insurance company, whose client has allegedly injured a third party, writes formally to the third party saying: ‘We accept that our client is liable for the damages you have suffered. We will pay damages, to be assessed when we receive details of your injuries.’ Is this an offer to pay damages, a unilateral promise to do so, or simply a non-contractual and non-promissory admission of liability?113

112It will be recalled from Ch. 3 that Pufendorf discussed the question in his De iure naturae et gentium: see p. 134.

113The example is based on the facts of the Scottish case Van Klaveren v. Servisair UK Ltd [2009] CSIH 37. In that case, the court held that the statement was a mere extra-judicial

What factors should determine the nature of such a statement?114 Does one look at the ordinary meaning of the words used, the objective impression conveyed to a third party observer, or the subjective effect produced by such words in the mind of the hearer? If there is a presumption against unilateral promise, then cases of ambiguity might be resolved in favour of an offer analysis (assuming that the statement is capable of constituting an offer), but whether something is an ambiguous case presupposes that the rules for interpreting the statement in question provide no clear answer, and this itself suggests that there are clear rules in force. That may not, in a particular legal system, be so. Apart from judicial statements that it is the intention of the party which is crucial in determining whether an offer or a promise is intended115 (hardly especially helpful, given that it will usually be precisely such intention which is doubtful), it seems sensible to suggest that the context of the statement will be important (a mercantile context for the statement making it more likely that an offer rather than a promise was intended), as well as whether the condition attached will bring any direct benefit to the maker of the statement (if it does, this again suggests that an offer is more likely to have been intended).116

Clearly in most systems, where a promise cannot give rise to a binding obligation without any acceptance being given to the promise, the need to distinguish a promise from an offer is much less pressing. If no unaccepted promise is binding, then a promise can only ever be an offer and one must look to see if the offer has been clearly and unequivocally accepted. Where exceptions to such an approach arise, then they will apply only to clearly delineated types of statement, such as the offer of reward (where an acceptance is usually presumed from conduct).

admission of liability, not productive of any civil obligation, and so could be withdrawn prior to commencement of legal proceedings before the courts.

114A rule, for instance, that a unilateral undertaking must be in a particular form (in deed form, for instance), does not necessarily determine the outcome: the lack of the correct form may preclude the statement from being a binding unilateral promise, but it does not then follow that the statement was meant as an offer, capable of acceptance.

115See, for instance, Morton’s Tr v. Aged Christian Friend Society of Scotland (1899) 2 F 82, per Lord Kinnear at 85.

116In Smith v. Oliver 1911 SC 103, (1910) 2 SLT 304, in relation to the question of whether the statement of a woman pledging money to a church on condition of certain works being undertaken in accordance with her wishes was a promise or an offer, Lord Dunedin said ‘so far as mutual contract is concerned, the lady was getting no benefit except in the sense in which anybody may be said to get something when anything is done in which he is interested’ (1911 SC at 111). The court, influenced by this idea that the woman had not acted with any reciprocal benefit being given to her in mind, favoured a promissory rather than a contractual analysis of the statement.