Acceptance: The 2nd Element Needed in Order to Constitute a Binding Contract

In my 1st blog dealing with contracts, I covered 1st element of a contract which is “Offer”.

As I noted there are 5 basic elements needed in order to constitute a binding contract. These elements are: (1) offer; (2) acceptance; (3) consideration; (4) mutuality of obligation meaning both parties must be bound to perform their obligations; (5) competency and capacity to enter into a contract.

Today, we will deal with the 2nd element, “Acceptance”. “Acceptance” is defined as:

An express act or implication by conduct that manifests assent to the terms of an offer in a manner invited or required by the offer so that a binding contract is formed. The exercise of power conferred by an offer by performance of some act. The act of a person to whom something is offered or tendered by another, whereby the offeree demonstrates through an act invited by the offer an intention of retaining the subject of the offer.In essence, “acceptance” is one person’s compliance with the terms of an offer made by another. It occurs in the law of insurance when an insurer agrees to receive a person’s application for insurance and to issue a policy protecting the person or company against certain risk, such as fire or theft.

Another form of acceptance is when a person is offered a gift by someone, and that person keeps the gift, this is that person’s acceptance of the gift.

“Acceptance” also can occur when a bank pays a check written by its customer has a checking account with the bank.

In business, between merchants, which in many instances is governed by the Uniform Commercial Code (UCC) a buyer by accepting the goods, though they may not be exactly what had been ordered from the seller, in effect is telling the seller that the buyer is going to keep the goods even though they are not what was originally ordered. The customer by failing to reject the goods or by doing something to the goods inconsistent with the seller’s ownership of them, such as selling the goods to a customer of the buyer demonstrates another form of acceptance.

“Acceptance” can either be “expressed, or implied. And “expressed” acceptance occurs when one clearly and explicitly agrees to an offer or agrees to pay a draft that is presented for payment. An “implied” acceptance is one that is not directly stated but is demonstrated by acts indicating a person’s ascent to the offer. And “implied” acceptance occurs in a case where shopper selects an item in a supermarket and then pays the cashier for it. Here, the shopper’s conduct indicates that the customer has agreed to the supermarket owner’s “offer” to sell the item for the price stated on it.

In today’s society, when a tremendous amount of “shopping” occurs online, when you click the “Place Your Order” button on Amazon.com or tell the cabdriver where you want to go, or hand a $10 bill to the cashier at the movies, you are accepting an offer to enter into a contract. All of these actions, despite the lack of formality, communicate acceptance: an unconditional willingness to be bound by the other party’s offer. Acceptances a necessary part of the legally binding contract: if there’s no acceptance, there’s no deal, no contract.

There is no “Acceptance” if one party disputes whether the other accepted an offer.

  1. One party’s response to an offer doesn’t communicate a readiness to be bound. (“Sounds good, let me   think about it.”);
  2. The response has strings attached. (“I’m willing to do it if you’ll pay me $10,000 more.”) or
  3. The offer is based on lies. (“You said you had title to the car.”)

or, if the person making the offer indicates how the other party must accept it–“Call me with your response before Saturday”–then the other party must accept under those conditions to create a contract. In this example, accepting on Sunday will not create a contract.

In the example cited above, a legal argument can be made that there was no “acceptance” therefore no contract.

Then, we also face the issue of “Conditional Acceptance and Counteroffers. When one party responds to an offer with additional conditions or qualifications, the response is generally considered to be a counteroffer, not an acceptance. A counteroffer isn’t an acceptance because it materially changes the terms of the proposed contract. Legally, a counteroffer is considered a rejection of the original offer and the proposal of a new offer in its place.

Example a homeowner asked a landscaping company to tear out shrubs, cut down trees etc. for the sum of $1000 and the landscaper replies, “okay, but only if you pay for my supplies, and nursery items upfront”. Here, the gardener has made a counteroffer. The homeowner must accept the counteroffer in order for an agreement to be formed, before there’s an acceptance of the contract.

You can also have a “Acceptance by “Actions”. Acceptance isn’t always communicated by words; sometimes actions suffice. For example, if a buyer places an order to buy goods at a certain price, and the seller responds by shipping the goods, the seller’s actions signal acceptance of the offer. However, silence by itself–that is, if one party doesn’t say or do anything–rarely constitutes acceptance. That principle is derived from a 19th century English contract case in which a man offered to buy a horse and stated that unless he heard otherwise from the seller, “I consider the horse mine.” The British court ruled that his assumption didn’t create a contract; the other party’s acceptance had to be clearly expressed.

Acceptance of goods that weren’t ordered may also create a binding contract except when a consumer receives unsolicited merchandise. For example, in California, the receipt of unsolicited merchandise is an unconditional gift, which the recipient need not return or pay for.

Finally, we must deal with the issues of “Open Offers and Options. Parties that want some time to consider an offer–for example, for a home purchase–can enter into an option agreement. In an option agreement, one party pays for the exclusive right to accept an offer during a fixed period. This gives the potential buyer an opportunity to consider the deal without having to worry that someone else will snap it up–or that the terms of the deal will change–in the meantime.

Similar to open offers or options, “cooling-off rules” allow consumers to back out of certain kinds of contracts within three days of entering the agreement.

In my next blog, we will be dealing with the 3rd element needed to make a contract, “Consideration”.

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