Offer, Acceptance

Offer and acceptance are two important creatures in a contract because they are the only two constituents of a valid contract that are action (or inaction) based and generally objective – consideration and intent are very abstract while capacity is defined clearly in legalese. Therefore, it is important to have a good understanding of the two.

According to my understanding, the most important ingredient of the two is the intention behind the action or inaction – not the words. That said, the wording is still important as it can show intent.

An offer can only be made if the other party knows about it – whether through an advertisement, direct communication, etc. So, an offer uttered in the privacy of a bedroom without being made known to anyone else, is not an offer. For most start-ups, this may not be a problem as they tend to market themselves heavily these days, via social networks.

The next thing is that an offer needs to be clear. Now, some start-ups may struggle with this as they may still be trying to find out what it is that they’re selling. But besides that, it is not generally an issue to clearly communicate the intent of selling a product or service in exchange for certain amount of money.

The only critical thing is to differentiate an offer from an ITT. It is done based on intent – whether the person issuing the offer intends for someone to enter into a contract upon accepting the offer. So, if we clearly communicate that the quoted price is negotiable, this constitutes an ITT as we’re soliciting offers to buy.

An acceptance must also be communicated to the party making the offer – whether through a written letter, phone call, etc. The catch here is that a posted acceptance is legal on the date it is sent while it can be retracted any time before it is received. So, someone can legally mail an acceptance while still reserving the legal right to cancel it via a phone call any time before the letter arrives. This is the reason why getting something receive-stamped and signed-for is critical.

Also, an acceptance must be clearly differentiated from a request for more information, and a counter-offer. The only difference between them seems to be the wording of the intent – whether the party issuing the acceptance wishes to be bound into a contract upon the communication.

If someone issues a PO changing the terms of payment, that would generally constitute a counter-offer and it would require the party making the offer to accept the new payment terms. If someone sends a letter asking if they could make payment in instalments instead, that would generally constitute a request for information.

There is one thing to be careful about offer and acceptance is that the final terms must be agreed upon by both parties without change. If any party makes unilateral changes, that constitutes a counter-offer.

A contract does not generally need to be written down as a verbal contract is still a contract. Unfortunately, verbal contracts are more difficult to prove and that is why a written contract is generally preferred, even if it is just written down on a single sheet of paper with very little legalese.

Depending on how close a business relationship is, one can also enter into a legal contract verbally followed up by a written contract merely for formalisation. If this is not the intent, it must be clearly communicated during the verbal exchange that things are subject to contract i.e. things only take effect from the date of signing the contract.

However, even written contracts must be worded carefully as a wrongly worded contract may render the contract void. An example is if the contract contains terms that explicitly bar a party from suing the other party in case of a breach, etc. Those kind of terms would not be accepted even if both parties signed off on it.

The good thing about studying contract law is that there is a lot of case law to support it. I have just made a list of cases that I need to read for Contract and it is a really long list. Also, there are plenty of illustrations in the statute as well, which serves to clarify some of the legal points.

PS: The only criticism that I have of Pn Izura’s teaching is that she’s teaching Contract as a really dry subject that is just exam focused. However, this may just be because we’re still at the early stages of Contract and things may get more exciting later, when we handle breaches and remedies.

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Shawn Tan

Chip Doctor, Chartered/Professional Engineer, Entrepreneur, Law Graduate.

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