What is a Contract
Am I Really Liable Because I Signed That Offer?
Contracts – What is an Offer and what is an Acceptance
Countless cases have been reported in law books in respect of this very basic but crucial legal question.
The question is “When is a contract formed?”
Essentially, a contract is formed when an offer is made by one party (the offeror) and is accepted by another party (the offeree). By using this analytical framework of offer and acceptance, we are able to determine when a contract is formed. For example, if you wish to sell your boat for $3 000 to X, you can make him an offer. If X accepts the offer to purchase your boat for $3 000, then a contract is formed on acceptance. Once the contract is formed, you are contractually obligated to sell the boat to X, and X is contractually obligated to pay you $3 000.
Although helpful, the use of offer and acceptance as a means of determining when a contract is formed is not always appropriate. For example, if you purchase from an automatic vending machine, there is no offer and acceptance as illustrated above. Other examples include auction sales, self-service shops and reward offers.
Making a valid offer
It makes sense that an offer must be communicated to the offeree. If you wish to sell your boat to X, you do not make a valid offer until you have communicated the offer to X. It is not valid to make an offer in a way that deems silence by the offeree as acceptance of the offer. For example, it would not be valid to offer to sell your boat to X and say that if you do not hear back from X, you will deem that they have accepted your offer to sell your boat.
Withdrawing an offer
An offer can only be withdrawn prior to acceptance, but a withdrawal will only be effective when it has been communicated to the offeree. For example, if you have made a valid offer to X, but have been subsequently approached by Y who has offered to pay more than X, although you can validly withdraw the offer from X, you must do so before X accepts your offer. This will only be valid, however, if the withdrawal is communicated to X.
Making a valid acceptance
For an offer to be validly accepted, the offeree must both assent to the offer and promise to perform their obligations under the contract. For example, for X to validly accept your offer, s/he must assent to the offer and promise to pay you the proposed $3 000. Generally X must communicate his acceptance to you, but you may discard with this requirement.
An agreement may also be inferred through the conduct of the parties if the conduct is suggestive of mutual assent to the contract. So if X enquires into registration of the boat in his name and organises for the boat to be picked up, it will most likely be inferred that there is a contract between you and X.
When is an acceptance of an offer not an acceptance
An acceptance has to be unconditional, as a conditional acceptance is a rejection of the offer and acts as a counter-offer. This is important, as once an offer has been rejected, it cannot be revived. So if Bill replies by saying that he will buy your boat for $3 000 if you throw in the boat trailer, that will be a counter-offer which has the effect of rejecting your original offer. In this case, if Y subsequently offered to purchase your boat for $4 000, you can sell to Y as your offer to X had been rejected and cannot be revived. If X wishes to revert to your original offer, he may not do so. If Y did not make a more attractive offer, however, and the request for the trailer is reasonable, you can accept the counter offer and a valid contract will be formed.
An offer must be accepted by the person to whom the offer was made. This means that if you offered to sell to X, X’s friend, Z, could not accept the offer after hearing about it from X.
An offer must be accepted within the time stipulated, or if there is no time stipulated, within a reasonable period of time. If you required an acceptance from X within the week, if X purports to accept in a fortnight, the acceptance would not be valid in relation to that particular offer.
Things to look out for
You will be amazed how often we represent car yards that wish to sue a buyer for failing to proceed with an offer to buy the car that they agreed to buy and for which a contract has been signed. Essentially, the buyer is asked to sign an offer after they have viewed the car.
The buyer is not aware that the offer that they are signing, will, when countersigned by the car yard’s manager, constitute a valid contract.
Therefore , it is always advisable not to sign any documents until you have sought legal advice from a lawyer.
This is especially so when it comes to buying homes or businesses. You have to be very clear as to when an offer is made or accepted.
On the lighter side
The devil’s offer
The devil visited a lawyer’s office and made him an offer. “I can arrange some things for you, ” the devil said. “I’ll increase your income five-fold. Your partners will love you; your clients will respect you; you’ll have four months of vacation each year and live to be a hundred. All I require in return is that your wife’s soul, your children’s souls, and their children’s souls rot in hell for eternity.”
The lawyer thought for a moment. “What’s the catch?” he asked.
Question: Has the offer been accepted???