ACCEPTANCE RULES

ACCEPTANCE RULES to help in Managing Contractual Risk

As a buyer you haven’t been paying attention to contract delivery since the contract was created a year ago. Your supplier has not been delivering what is required as per the standards you agreed on, and yet your procurement department has been paying its monthly invoices for the last year.

How do you think the courts will regard this, should the matter go before courts?

Contracts work in rather simple way, that is, offer plus acceptance will give you agreement, but acceptance isn’t just a matter of yes, there are a number of things you need to understand about it. In fact let’s talk about acceptance rules.

RULE ONE: It is only acceptance if the offer is still in force

Supposing a document says “this offer is to be left over until Friday, 9am.” This means that any acceptance coming after Friday 9am, doesn’t qualify as a valid acceptance since the offer will have lapsed. 

Remember once acceptance is complete, the offer is irrevocable.

RULE TWO: Acceptance must be absolute and unqualified

In order for it to qualify as an effective acceptance you must accept all the terms of the offer.

If for instance, M offered Land to N at $280. N replied accepting and enclosing $80 with a promise to pay the balance by monthly instalments of $50 each. Does this constitute a contract? This was the case in Neal v. Merrett (1930)W.N. 189 , in this case there is no contract since there is no an unqualified acceptance.

The point here is that a conditional acceptance is not an acceptance.

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RULE THREE: Acceptance must be communicated in some manner

Regarding the issue of how the communication is to be done you need to understand that it can be expressed, in which case both parties are aware that the other party said yes to it, or it can be implied, that is, derived from the behavior of the parties.

In connection to the above there are two things to note

#1 On principle, an unexpressed acceptance or an unmanifested assent to an offer does not result in a contract

Let’s say your company offered by letter to buy 20 laptops from  ABC Ltd at $200 per laptop saying, “if I hear no more about the laptops, I shall consider them mine at $200 per laptop” ABC did not reply, but went ahead and told their auctioneers not to sell those laptops since they were sold to you. The auctioneer went ahead and sold the laptops, and now you are suing the auctioneers.

What is the likely outcome in this case?

This was the case in Felthouse v.Bindley (1862) 11 C.B. (N.S) 869 In which it was held that the claim against the auctioneer had to fail because the offer had not been accepted. The same will apply to your case against ABC Laptops Ltd on similar grounds.

From this you can tell that silence is not acceptance and that is the general rule, which by the way is subject to the following exceptions:

• The offeree gives the offeror the impression that silence will be considered an acceptance e.g.

“if you do not hear from me within a week, you can assume I have accepted your laptop offer”

• If the relation between the parties is such that it is not expected that the offeree reply.
• If the offeror prescribes or indicates a particular method of acceptance and the acceptor accepts it in that way, there will be a contract, even though the offeror does not know of the acceptance.

#2 If the offer is one which is to be accepted by being acted upon (acceptance by performance), no communication of the intention to accept is necessary, unless communication is stipulated for in the offer itself.

This is what happened in the case at the beginning of this article, the supplier kept on supplying and since the buyer kept paying, the assumption was that the buyer was ok with the goods based on their silence.

Think of an offer of reward to find a missing dog.  Such an offer is accepted by finding the dog and it is unnecessary before beginning to search for the dog to give notice of acceptance of the offer.

RULE FOUR: Acceptance subject to contract

An acceptance “subject to contract” as one of the acceptance rules, normally means that the parties do not intend to be bound until a formal contract is prepared and signed by them.

For instance

C and D signed an agreement for the purchase of a house by D “subject to a proper contract” to be prepared by C’s solicitors and approved by D’s solicitors, but D refused to sign it. Held: there was no contract as the agreement was only conditional. Chillngworth v. Esche (1924) 1 Ch 97

Conclusions

Remember contracts start with offers which have to be accepted and the issue of acceptance is governed by acceptance rules which will vary depending on how the acceptance was made. If you prefer the acceptance to be expressed then always make it a condition when making the offer.

In case you have questions don’t hesitate to let me know.