Offer and acceptance
Contract Law

An offer is a promise to do, or not to do something that is capable of acceptance by another person. When an offer is accepted by another person, provided that the other 3 legal requirements for a contract are made out, a legally binding contract is formed. An offer is made by an offeror to an offeree. It may only be accepted by a person who knows that it exists.

When an offer is made, it may (1) lapse; (2) be rejected; or (3) be revoked prior to acceptance [subject to any conditions attached to the offer]; or (4) a counteroffer may be made, which automatically rejects the offer preceding it. These events are important in the context of contract disputes as it is the order of events that determines the extent of any contractual relationship between the parties in the circumstances. For instance if an offer is met by a counteroffer, the original offer cannot form part of the contract, as it has been implicitly rejected at law. One then moves to the counteroffer to ascertain whether that ‘revised offer’ has been accepted. If it has, then that will form the subject matter of the contract; if not, one moves to the next event in time to ascertain whether or not a binding contract has been formed, and so on.

An invitation to treat should be distinguished from an offer. An invitation to treat is an invitation for someone to make offers in respect to the particular goods or services. An invitation to treat thus cannot be accepted to form a legally binding contract.

Invitations to treat and offers should be differentiated from a declaration of intention, which is a statement that offers will be invited in the future.

Acceptance

Acceptance of an offer creates a legally binding contract provided that any persisting prerequisites are satisfied. An offer may be accepted any means, however if the offer specifies the means by which it must be accepted, then only that method will suffice to perfect the formation of the contract.

Acceptance is usually communicated either orally or in writing. It may be inferred by the conduct of the parties. It is not open for the offeror to say that the offer will be treated as accepted by the offeree unless he hears differently from them. Mere silence and inaction is inadequate to constitute an acceptance.

Acceptance must take place while the offer is in force, namely that it has not been revoked or allowed to lapse. It must be on the same terms as the offer. Where there is a variance between the offer and the purported acceptance, the purported acceptance is treated as a counteroffer.

Furthermore, acceptance must be unconditional; that is to say for example if some further step is required, then the communication will not be considered an acceptance. For instance, if the offeree states the acceptance is subject to contract, the communication cannot be considered an acceptance as another step would be required to properly form the contract. Lastly, the acceptance must be communicated to the offeror. Communications (email, facsimile, SMS message or text message) are equally effective from the time they are received by the offeror. Acceptance made by letter may be considered effective when the letter was posted, rather than when it was received by the offeror (the ‘Postal Acceptance Rule’).