Legally Speaking: Signing on the dotted line
Late spring is here and the majority of you are well into another flying season, possibly with new jobs and clients – that’s the exciting part of spring and summer.
May 8, 2012 By Neil MacDonald
Late spring is here and the majority of you are well into another flying season, possibly with new jobs and clients – that’s the exciting part of spring and summer. However, new clients mean new contracts, and with new contracts comes the possibility of improperly formed and potentially unenforceable contracts.
|There are established ways of communicating acceptance, and these are usually predicated on social or business norms.
While I have written articles about contracts in the past, it’s always a good idea to review the basics from time to time. At a basic level, a contract is formed when one party makes an offer, and it’s accepted by the other.
We enter into contracts on a daily basis, even though we are not always aware of it. For example, we enter into a contract with a shopkeeper when we buy something from their store. The offer and acceptance rule, however, does not necessarily follow in a way you might expect.
In a store setting, the merchandise is presented as an “invitation to treat.” The buyer walks up to the checkout, with money in hand, and makes the “offer.” The shopkeeper has the option of accepting the offer, completing the contract, or refusing to sell.
It may seem illogical to refuse to sell, but consider a situation where the item has been priced incorrectly – perhaps changed by someone other than the shopkeeper. Should the store be bound by that listed price?
Believe it or not, if the “offer” was made by the shopkeeper, and “acceptance” by the buyer at the cash register, the store would have to be bound by this simple contract!
One of the key factors in the rule regarding a contract is that the acceptance must be communicated to the offeror in order for a contract to form. There are established ways of communicating acceptance, and these are usually predicated on social or business norms. Let’s focus on the business side for now.
Acceptance must be communicated in a method that makes the most business sense within the context of the negotiations. Sometimes, the method of acceptance is set out in the terms of the offer, and if not followed, will result in a situation where a contract is not formed, even though both parties intended for it to be.
Speaking or writing the words, I agree or I accept, is obviously intended to be an acceptance of an offer, but there are also non-verbal, or non-written methods of accepting an offer. For example, a person can accept an offer by performing the task required, as in finding a lost or stolen item.
Generally speaking, an offer can be revoked any time up until the point where it has been accepted. This is the case even if the offeror says it will be open until a particular time, and then revokes their offer before that time expires. Unless you have made an option agreement with respect to the initial offer, you are out of luck once you learn the offer has been revoked.
If no time limit has been set in the offer, it can still expire after a “reasonable” period. Offers are not open forever, and reasonableness depends on the facts of your particular case – and these offers can have a different meaning to different parties you intended to contract with. It’s always a good idea to insist on a timing “clause” within any offer and acceptance negotiations.
Rejecting an offer can take on different forms as well. We all understand someone telling us they do not accept our offer and will reject it, but it’s important to note that a “counter-offer” is often considered a rejection of an offer. It’s a good idea to let the other side know you are exploring different pricing options, and not rejecting the offer outright. Once an offer has been rejected, it cannot later be resurrected by that same person without the agreement of the offeror.
These are simply the initial rules regarding the formation of contracts, and I hope it helps you focus your intentions in the initial stages of negotiations. Most of what I’ve discussed is taken for granted, and, in the normal course of events, everything turns out well. It’s only when things turn ugly that we start to look this closely at contract formation.