When Is a Contract Enforceable – Offer and Acceptance
Black and Davison
If you own or operate a business, you enter into contracts on a regular basis, perhaps many times every day. In this series of blogs, we’ll look at the elements of a valid and enforceable contract:
- An agreement — There must be offer and acceptance
- Consideration — Both parties must give something or promise to refrain from doing something they have a right to do
- Capacity — Both parties must have the legal capacity to enter into the agreement
- Volition — The parties must voluntarily agree to the terms of the contract
- Legality — The subject matter must be legal
The first requirement of a valid and enforceable contract is that there must be an agreement. There must be at least two parties, but there’s no upper limit to the number of parties to a contract.
An agreement requires two things—an offer and an acceptance. Though there are certain types of contracts that must be in writing to be enforceable—we’ll address this in a later blog on the Statute of Frauds—most oral offers are sufficient and can be accepted orally, forming a binding contract. There are some situations where what appears to be an offer may not be an offer:
- Where the offer is clearly made in jest — “I’ll pay you million dollars for that sandwich”.
- Where the language is clearly exploratory — “Would you consider $500 for that guitar?”
Under contract law, the terms of the offer must be clear and definite, such that a reasonable person would know what his or her obligations would be under the agreement.
As a general rule, a valid offer remains open until revoked by the person making the offer. A counteroffer, though, legally revokes the original offer and becomes a new offer, with new terms. In addition, if the offer states a specific time within which it must be accepted, the offer is no longer valid once that period expires.
Acceptance of an Offer
To accept an offer, a person must clearly communicate acceptance of its terms and a willingness to be bound. A person cannot accept an offer that has been revoked. Acceptance can be made orally or in writing, unless the terms of the offer require a specific form of acceptance. Once the offer has been accepted, it cannot be revoked.
In most instances, in what is referred to as a bilateral contract, the person accepting the offer promises to abide by the terms of the offer. However, the law recognizes what is known as a “unilateral” contract, essentially the exchange of a promise for an act. A reward is the classic example of a unilateral contract—a promise of a payment of money for the return of a lost item is enforceable when the act is performed, and does not require any other form of acceptance of the offer.