The second essential element to create a binding contract after an offer is made is acceptance. An offer must be accepted to create a valid contract. If an offer is made by the offeror (the party making the offer) and it is rejected by the offeree (the party responding to the offer), there is no contract. Acceptance is a ‘meeting of the minds’ where the parties agree to shared terms of a contract.
There are several other details that ensure a contract is validly entered into to have effect. We have listed a few with some examples below.
- Silence does not constitute acceptance. Acceptance must be communicated to the offeror.
In Felthouse v Bindley (1862) 142 ER 1037, a man offered to buy his nephew’s horse and stated in his offer that if he did not hear back, he would take that to mean the horse was sold to him. The nephew did not communicate any acceptance, hence was not bound to sell the horse.
- The offeree must notify the offeror of their acceptance.
For example, if an agreement is signed internally within an office, this does not constitute acceptance. If the parties to the agreement do not communicate the terms of their offer and acceptance, such as if the parties sign different contracts, there is no valid contract.
- Acceptance can be communicated in many ways.
Acceptance is typically achieved by performing the act asked for by the offeror, however there is no given way of how to accept an offer. There does not necessarily have to be a handshake to “seal the deal”. Each case is contextual and depends on the offer and the conduct itself. For example, if an offeror made an offer to provide a train ticket to Melbourne, and the offeree printed the ticket and boarded the train, this could constitute acceptance of the offer.
- Acceptance must refer to the offer.
The offeree must be aware of the offer and accept the said offer. In Crown v Clarke (1927) 40 CLR 227, a prisoner tried to claim a reward for information he provided in order to discharge himself. He could not claim this offer however, because at the time that he provided the information, he was unaware of the reward.
- Acceptance must be made by someone that has the authority to communicate the acceptance.
For example, if an offer was made by a company to a board of directors, and an employee overhears the discussion and communicates the board’s acceptance of the offer to the company, this would not constitute valid acceptance as the employee did not have the authority to do so (see Powell v Lee (1908) 99 LT 284).
- A counter-offer is not acceptance.
If the offeree responds to the offeror with an alternative offer, they have not accepted the offer and there is no contract. The offeree has made a new offer. If there was an error in the offeree’s statement of acceptance, this does not constitute a counter-offer. If there was an error but it is clear the offeree intended to accept the terms of the offer, this may still constitute a valid contract. If someone makes an offer and it does not correspond with what the offeree is accepting, it does not constitute acceptance.
The technicalities of contracts can be complicated and result in unintended legal consequences.