Contract Law – Acceptance and Intent

For a contract to be valid, there are a number of requirements it must meet, which we will be studying in this series of blog posts. Clear requirements help to avoid people entering unknowingly into contracts or thinking that they have made a contract when it is only an informal agreement. In my last blog post, we started looking at contract formation, focusing on the difference between an offer and an invitation to treat. In this blog post, we will be looking at the next step in the process, which is acceptance of the offer made. We will also look at the intent needed by both parties to enter a contract and be bound by it.

Before we look at acceptance and intent, we will quickly review what is meant by an invitation to treat and an offer. An invitation to treat is what it sounds like – it is simply an invitation for someone to make an offer for the goods or services that will be the subject of the contract. Making an invitation to treat is not the same as an offer and does not bind someone to accept any subsequent offer, it just indicates that they are open to offers and willing to sell. A price tag in a shop is actually an invitation to treat, so the retailer is not obliged to sell for this amount.

An offer, however, is legally binding, provided the party making the offer intends to be bound by it. This is the first stage in contract formation and requires one party to, for example, offer a certain amount of money for some goods. Thinking again about shops, the price tag represents the invitation to treat, with the actual offer being made by the customer at the till. The staff member there is then free to accept or reject the offer on the shop’s behalf.

In some situations, the offer may already be there for a purchaser to accept. For example, a parking ticket machine is an offer rather than an invitation to treat. Paying for a ticket accepts the offer and creates the contract.

Acceptance

For a contract to arise, the other party must accept the offer made. There are three conditions for this to create a valid contract; firstly, the acceptance must be communicated to the one making the offer and they must receive this for it to be binding on the parties. Acceptance cannot be through silence, but it can be made through conduct. For example, if a party carries out services as if there is a contract, it can be taken as acceptance.

If the parties communicate by post, the postal rule will apply, meaning that a correctly addressed and stamped envelope will be treated as valid acceptance from when it is placed in the post box. However, the postal rule can be excluded in a contract.

The second condition is that the acceptance must match the offer exactly. The accepting party can’t change the terms and still accept the offer; this would be making a counter-offer which would then destroy the original offer.

Finally, acceptance must be certain. The terms of the contract should be clear to anyone looking objectively at the negotiations. For example, they should be able to tell what goods or services will be supplied and how, as well as the terms of any payment, such as the amount and frequency of instalments. If there is uncertainty as to how the contract would be performed, it is unlikely acceptance can be valid.

Intent

The next element of a contract that must be present is the intention to create legal relations. Both parties must have this to make a binding contract. Not every agreement is legally binding, as most never come with the intention to be so. You may have a moral obligation to honour an agreement made casually, but not a legal one. This can be seen most obviously by looking at the difference between a social agreement and a commercial agreement, both of which we will look at below.

With social agreements, there is a presumption that there is no intent to create legal relations, to avoid parties being bound by what they only intended as a casual arrangement. However, this presumption can be rebutted by, for example, a written agreement. It may also be rebutted if the parties were separated at the time of the agreement or if there is a third party involved.

On the other hand, there is a presumption in commercial agreements that the parties do intend to be bound by the terms agreed. As before, this presumption can be rebutted if it is clear the parties did not intend to create a contract. For example, the agreement may contain a binding in honour only clause, which would mean there is no intention to be legally bound.

Wrapping Up

I hope that this helps you to understand these areas of contract law. In my next blog post, we will be looking at the requirements of consideration and capacity, so come back in two weeks for that!

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