Thursday, March 25, 2010

Contract Formation - How to Accept the Offer

I just posted on what makes a valid contractual offer in Pittsburgh, PA, here.

If a valid offer has been extended the next step in formation of a contract is acceptance of that offer. Again, this is not as simple as it may appear. The law always seems to impart an extra couple layers of complexity. This is just another of the myriad reasons lawyers get a bad rap.

At its most basic, an acceptance is a clear indication that one agrees to be bound by the terms of the offer.

But the validity of acceptance doesn't end there. The acceptance must be given within the time specified by the offer, or within a reasonable time if none is specified (determining what's reasonable is what juries get underpaid to determine). Also, the person to whom the offer was directed is the only person who may accept the offer.

Things can get complicated when the parties have had past contractual dealings. If the parties have had previous interactions where certain methods of acceptance have become customary, then such will constitute a valid acceptance (even if under normal circumstances the words/actions would not constitute valid acceptance). An example of this would be starting the requested performance upon receipt of the offer, rather than first sending formal notice of acceptance.

One other critical point to keep in mind when analyzing contract formation is that an acceptance must not change the terms of the offer. An "acceptance" that imposes any additional conditions is not valid. If the acceptance changes the terms of the offer, it will be considered a counter-offer. A counter-offer can only create a contract if it is specifically and validly accepted by the other party.

You would think that such problems with contractual formation only arise in small informal situations. Amazingly, this is not the case. We have handled numerous cases in which agreements for services worth several hundred thousand dollars were entered into on a handshake and a general understanding of contractual obligations. Regardless of the stakes, it is always important to understand the basic elements of contract formation when entering into any type of agreement. Share this post :
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