Contract Elements: Acceptance

For a contract to be formed, there must be an offer, acceptance, and consideration. In our previous post, we discussed what constitutes an offer. In this post, we’ll be discussing the second element: acceptance.

Recall that an offer must include all the terms of the agreement. If there are terms yet to be negotiated, there is no offer, and no contract can be formed. Whether the offeree’s response constitutes an acceptance depends on a number of factors.

Mirror Image Rule

Acceptance refers to the offeree’s willingness to enter into a contract with the terms set in the offer. To constitute an acceptance, all the terms of the offer must be accepted. This is what is known as the mirror-image rule: the acceptance must mirror all the terms of the offer. In most cases, where there is a written contract, a signature on the contract will constitute an acceptance of all the terms therein.

However, if the offeree modifies or places conditions on any part of the offer (including the terms themselves or the method or timing of acceptance), then the acceptance does not match the offer, and the offeree has not accepted the offer but has rejected it through a counter-offer.

If that occurs, then the first offer has expired through rejection, and the operative offer is the counter-offer made by the original offeree.

Consider the following example:

  • Person A: I will give you $2,000 if you paint my house before the weekend. (Offer)
  • Person B: I will paint your house for $1,800 if you give me through next weekend to do it. (Rejection and counter-offer)
  • Person A: Deal. (Acceptance)

Because Person B changed the terms, the original offer expired through rejection, and the new offer was Person B’s counter-offer. Person A could have continued negotiating, which would have resulted in a new rejection and a new counter-offer. However, Person A accepted, creating a binding and enforceable contract.

Termination of an Offer

An offer does not have an unlimited shelf life. Once made, there is a limited window within which the offeree may accept. The time limit for acceptance may be set by the offeror or it may be inferred by the parties (and the court) based on the elapse of a reasonable time period after the offer, contingent upon the specific circumstances of the offer.

But an offer may also be terminated by something other than the lapse of time. An offeree may reject the offer, after which the offer cannot be resurrected by the offeree.

An offer may also be terminated if either the offeror or the offeree dies or becomes incapacitated.

The offer may also be revoked by the offeror, meaning the offeror takes the offer off the table before it was accepted. A revocation is valid once received by the offeree. This may occur expressly, meaning the offeror conveys his or her intent to withdraw the offer. A revocation is also effective if the offeror says nothing but the offeree discovers through other means that the offer is no longer valid—like if the item offered for sale has already been sold to someone else.

The Mailbox Rule

The timing of the acceptance is sometimes critical to when a contract is formed. This becomes important because a contract is formed once the offer is accepted. In other words, acceptance creates the contract.

A revocation is effective when received by the offeree, but an acceptance is effective when sent by the offeree. That means a revocation could occur first in time but be ineffective because it was not received prior to when an acceptance is sent. This is what is known as the mailbox rule.

Consider the following example:

  • November 1: Person A mails offer to Person B.
  • November 2: Person A mails a revocation of the offer to Person B.
  • November 3: Person B receives Person A’s offer and places acceptance in the mail.
  • November 4: Person B receives the revocation and Person A receives the acceptance.

In this scenario, the acceptance is effective on November 3 (when sent) and the revocation is effective on November 4 (when received). Thus, even though the revocation is sent before the acceptance, the acceptance is nevertheless effective first, so the revocation is ineffective, and a contract was formed on November 3 when Person B placed the acceptance in the mail.

Has an Offer Been Accepted?

For an acceptance to create a binding contract, both the offer and acceptance must be valid (there must also be consideraton, discussed in the next post). For an acceptance to be valid, it must match all the terms of the offer, and it must be sent before the offer is terminated.

 

Zachariah B. Parry is an attorney and founding partner at the law firm Parry & Pfau and is an adjunct professor who teaches torts, contracts, and Nevada practice and procedure for UNLV’s paralegal program. He can be reached at 702-912-4451 or zach@p2lawyers.com.