Contracts 101 – Part 6: The Acceptance
Disclaimer: I’m not a lawyer and I have no claim that this advice should be taken as legal advice in replacement of seeking out professional help. What I hope to do is educate you over a series of small posts about what constitutes a contract and you should be able to figure out when you might need to see a real lawyer. Although this series is in the Australian context many of the principles apply in other countries.
In Part 5 of the Contracts 101 series the first part of an agreement, the offer, was discussed along with the four rules of an offer and the distinguishing of an offer from a mere invitation to treat. An offer exists with the intention to be legally bound to a contract, otherwise it is an invitation to treat. The second part of an agreement is the acceptance and it is equally important to understand the nine rules of acceptance and related precedents. The nine rules of acceptance state:
- Must be in reliance on the offer… R v Clarke (1927)
- It must be complete and unqualified… Niesmann v Collingridge (1921)
- Conditional assent is not acceptance, it must be unconditional
- It must be clear and certain
- It may be express or implied… Felthouse v Bindley (1862)
- It may be retrospective
- Counter-offer kills the original offer… Hyde v Wrench (1840), and makes a new offer… Trollope & Colls Ltd & ors. v Atomic Power Constructions Ltd (1963) – Battle of the Forms.
- It must be communicated… Brambles Holdings Ltd v Bathurst City Council (2001), although silence does not constitute acceptance… Felthouse v Bindley (1862); Carlill v Carbolic Smoke Ball Co (1893)
- The method of acceptance may be prescribed by the offerer… Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd (1994); Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd (1995)
A number of precendents have also been set to define the boundaries of acceptance:
- Acceptance may take the form of an act… Carlill v Carbolic Smoke Ball Co (1893)
- Acceptance in the form of a promise and not performance of an act must be communicated to the offerer – may be word of mouth, writing or conduct.
- Acceptance can be made only by the party to whom the offer was made.
- The existence of the offer must be known to the person accepting it.
- Communication of acceptance must be in a regular and authorised manner… Powell v Lee (1908)
- The offer must be accepted within a reasonable period of time… Empirnall Holdings Pty Ltd v McMahon Paull Partners Pty Ltd (1988)
- Acceptance by conduct… Brambles Holdings Ltd v Bathurst City Council (2001)
- Where acceptance constitutes an act no communication is required, unless the terms of the offer require it… Empirnall Holdings Pty Ltd v McMahon Paull Partners Pty Ltd (1988)
- Acceptance must follow conditions stated in the contract, if any… Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957)
- When the words used are Subject to Contract the contract is not valid until drafted and signed… Masters v Cameron (1954); Bridle Estates Pty Ltd v Myer Realty Pty Ltd (1977). However, if terms have been reached and the parties intend to be bound then the contract is binding from the initial agreement… Godecke v Kirwan (1973)
- The Postal Acceptance Rule states that if acceptance by post is contemplated by both parties then it is valid acceptance the moment the letter is posted… Henthorn v Fraser (1892); Household Fire & Carriage Accident Insurance Co Ltd v Grand (1879). Unless it is stipulated otherwise… Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd (1994); Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd (1995). If the communication is by fax or telex the postal acceptance rule does not apply. If it is email communication then acceptance is from the time they log into the system. And it could be argued that SMS is similar to email in this regard.
In summary of the first element of the contract – the agreement – there is an offer (as distinguished from an invitation to treat) and an acceptance. An offer has four rules and acceptance has a further nine rules. The take-away point of this discussion about the agreement element of the contract is that as a business operator you need to be very careful about your wording and intentions (implied or otherwise) when you negotiate or discuss work related issues. One large area of concern you should be aware of is that the lawyers will come and sieze access to your internal emails and they might reveal evidence that you were at the time intending to be bound (making an offer) whether or not you realised the ramification at the time. Internal discussion is as serious as external discussion.
One interesting point worth exploring in relation to the offer and acceptance is the Battle of the Forms that ensues to ascertain where the actual offer was made and where that particular offer was accepted. In the next installment of the Contracts 101 series (Part 7) a brief introduction to the Battle of the Forms through a synopsis of Butler Machine Tool Co Ltd v Ex-Cell-O Corporation England Ltd (1977) should provide at least enough insight to further personal enquiry.
It may also be worth your while to read Formation of Contracts by Email – Is it Just the Same as the Post? by Sharon Christensen in the QUT Law & Justice Journal via the Austlii database.
Note: Resources used for this series are identified in the first installment – Contracts 101 – Part 1: Outline.
Installments in Contracts 101
- Contracts 101 – Part 1: Outline
- Contracts 101 – Part 2: Which Contract?
- Contracts 101 – Part 3: The Six Elements
- Contracts 101 – Part 4: The Agreement
- Contracts 101 – Part 5: The Offer
- Contracts 101 – Part 6: The Acceptance
- Contracts 101 – Part 7: Battle of the Forms
- Contracts 101 – Part 8: Consideration
- Contracts 101 – Part 9: Capacity
- Contracts 101 – Part 10: Legality of Object
- Contracts 101 – Part 11: Possibility of Performance
- Contracts 101 – Part 12: Genuine Consent
- Contracts 101 – Part 13: Promissory Estoppel
- Contracts 101 – Part 14: Ending the Contract
- Contracts 101 – Conclusion: Protect your Business
