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How contracts are formed (Part 2)

May 23, 2012

Part 1 of this blog went into some detail about contract offers, which is one of the requirements for the formation of a binding contract. However, to complete the contract, that offer must be accepted…  

So how can an offer be accepted? A signature is probably the most obvious method of acceptance. If a dispute arises between parties, evidence of a valid signature is the easiest way to prove that the contract and its terms were accepted.  

More generally, acceptance need only be communicated in order to be effective. Unless the offer actually specifies the method of acceptance, then acceptance can be communicated in any way you see fit. This could be by telephone, post or e-mail. We probably wouldn’t recommend homing pigeon or Morse Code, though we’d love to hear from anyone who’s tried!   The risks of allowing any method of acceptance are obvious. Records of telephone calls often aren’t written down, post can get lost and e-mails may never be received. This is why it’s always important to ensure that, in any offer, the method of acceptance is specified (written and signed probably being the safest method, although not always the most convenient). At the very least, you know what to look out for. Any attempt to accept an offer in another manner will not be valid and you can refuse acceptance.  

It’s also worth noting the impact of negotiations (whether this is in a business or consumer context), where offers will be made by both parties, often a multitude of times. A counter-offer amounts to a rejection of the original offer, so no contract will be formed. The counter offer then becomes the new offer, which itself can be accepted.  

When it comes to forming binding contracts, the importance of having everything in writing cannot be overstated. Unfortunately, this is an all-too-common scenario when clients call with a problem: “Well no, there’s no written contract, and now they are refusing to deliver, or refusing to pay, etc.” We understand that sometimes things move quickly and putting a written contract in place is sometimes too costly or time consuming. However, relying solely on a verbal offer or acceptance is always running a higher risk of a dispute, becomes it can be very difficult to clearly show exactly what was agreed in the contract. This is not to say that having something in writing will solve all problems, but it should at least present some certainty as to the terms of the offer or when a contract was accepted.  

If you have concerns about the validity of any contracts you may have entered into, then give us a call!