The Building Blocks of a Binding Agreement: Acceptance

The Building Blocks of a Binding Agreement: Acceptance


Acceptance of an Offer

The second stage of contract formation is the acceptance of an offer by the offeree. An offeror is the person who makes an offer and the offeree is the person who can create a contract by accepting the offer.[1] The purpose of this article is to provide general information about accepting an offer. This article includes basic concepts relating to accepting an offer, the difference between unilateral and bilateral contracts, complications that arise when accepting contracts, and an explanation of the mailbox rule.

The Basics

An acceptance is a clear and unequivocal articulation of agreeing to another’s offer. The ability of the offeree to accept is determined by the offeror. An offeror can give the power of acceptance to a single person, a specific group of people, a class of people, or anyone that meets the requirements of the offer.[2] The offer will determine whether the offeree can accept by words or performance.[3] Unless the offer states something to the contrary, the offer may be accepted in any reasonable manner.[4] Finally, the offeree still must know of the offer and agree to the terms before accepting.

Unilateral v. Bilateral Contracts

A unilateral contract is a contract where the offeror makes a promise in exchange for an act. [5] An offeree accepts a unilateral contract by performing the requested act. A bilateral contract is where the offeror makes a promise in return for a promise to do something in the future.[6] An offeree accepts a bilateral contract by promising to do something. Unilateral and bilateral contracts have different complications that can affect contract formation. Therefore, it is necessary to determine whether a contract is unilateral or bilateral in nature.

Consider the following examples. Eric wants to have his fence painted by Dan. Eric calls Dan and says, “If, but only if, you paint my fence blue, then I will pay you $150.” This is a unilateral contract because Eric promised to pay Dan once he painted the fence. Alternately, Eric could have said to Dan, “If you tell me you are going to paint my fence, then I will pay you $150.” This is a bilateral contract because Eric has promised to pay Dan in return for Dan agreeing to paint the fence.

In the real world, Eric will probably say, “Dan, will you paint my fence for $150?” Since it is unclear whether this is a bilateral or unilateral contract, the law allows Dan to accept by either painting the fence or promising to paint the fence in the future. In order to accept, Dan must either start painting the fence or tell Eric that he will paint the fence. In such as case, the offer is presumed to anticipate a bilateral contract. In general, where it is unclear what type of response is anticipated, the presumption is that a bilateral contract is anticipated because people generally do not want to be bound unless the offeree to the contract is also bound. [7]

Three Complications of Unilateral Contracts

            First, what happens if the offeree doesn’t know of the offer? Contract law requires that an offeree know of an offer before he can accept it. Thus, if the offeree does not know of the offer, he cannot accept it. For example, Company A, a railroad company, offers a reward to anyone who catches a criminal. Drew apprehends the criminal and brings him to justice. After taking the criminal to the courthouse, he learns that there is a reward for the criminal’s capture. Drew cannot recover because he apprehended the criminal when he did not know of the offer.[8]

            In some circumstances, the offeree can learn of the offer while he is in the process of completing the requested performance. If that happens, then he can still accept the offer. For example, Company A posts a message on the company’s internal website offering a bonus to any employee who completes six months of work. Three months after being hired, Mary learns of the offer. While the bonus may not have been Mary’s initial reason for working, it could be the reason she continues to work for the company. Therefore, if she completes the required six months, then she has accepted the offer by fully performing the requested act.[9]

                A unilateral contract requires no acceptance. The offeree merely performs to make the offer enforceable. However, the offeror must be notified once performance has been completed. The offeree can notify the offeror or at least make a reasonable attempt to do so. Likewise, if the offeror learns that the performance has been complete from another source, that is sufficient to make the offer enforceable.

            While the general principle is that offers can always be revoked, part performance of a unilateral contract makes the offer irrevocable. For example, if Eric makes a unilateral offer to pay Dan $150 if he paints Eric’s fence, then Dan’s commencing the paint job makes the offer irrevocable. The reason for this is self-evident. It would not be fair to allow Eric to revoke the offer when Dan is halfway through painting the fence. [10]   

    Once the offeree has begun performance, he has a reasonable amount of time to complete the job. During this time and until the performance is completed or a reasonable time period has passed, the offer cannot be revoked.

Three Complications of Bilateral Contracts

            Generally, an offeree must communicate an acceptance to a bilateral contract offer. However, there are some exceptions when silence will be considered acceptance of a bilateral contract.

First, the offeree’s silence can act as acceptance when the offeree renders a service with the expectation of being paid. For example, if Dan offers to pay Eric for 30 dance lessons and, without communicating an acceptance, Eric gives the first few dance lessons to Dan, this could be considered an acceptance to perform all 30 lessons. Dan knows Eric expects to be paid and even if Dan is silent, his conduct shows that he has accepted Eric’s offer. Therefore, the offer is accepted.

Second, if the offer states that silence can be a form of acceptance and it can be shown that the offeree intends to accept, then the offer can be silently accepted.

Third, if because of previous dealings between the parties where silence was considered acceptance. This creates a reasonable expectation that silence will be an acceptance, then also silence can be considered acceptance.

For an acceptance to be valid, it generally must be identical to the offer.[11] This is commonly referred to as the mirror image rule. If the acceptance is not a mirror image of the offer, it is considered a rejection and a counteroffer that can be accepted by the original offeror. For example, Eric asks, “Dan, will you agree to paint my fence blue for $150?” and Dan replies, “Green is a better color. If I paint it green, will you pay me $150?” Eric says, “Okay, I will pay you $150 to paint my fence green,” there’s a binding contract. In this case, Dan did not accept Eric’s first offer, instead he rejected it and made a counter offer, which Eric accepted.

However, the mirror image rule applies only when referring to services or real estate contracts. Contracts for the sale of goods, however, are governed by the Uniform Commercial Code, which is a series of rules written by experts in contract law and have been adopted (in whole or in part) in all 50 states. The UCC changes the “mirror image” rule in the cases of contracts for the sales of goods. The UCC structure is more complex and is the subject of a different presentation, but just keep in mind that the mirror image rule does not apply in cases involving contracts for the sale of goods.

The Mailbox Rule

            The mailbox rule determines when a written acceptance is effective. The mailbox rule provides that when an acceptance is delivered to the postal service or is sent through a similar reasonable medium, such as email, it is effective when dispatched.[12] Other communications that are involved in contract formation, such as offers, rejections and revocations, are effective only upon receipt by the recipient of the communications.

The practical effect is that after the acceptance has been sent, the offeror cannot revoke the offer. For example, if Eric writes to Alex “Alex, if you agree to paint my fence blue, then I will pay you $150.” Alex writes and mails a letter to Eric that says, “Yes, I will paint your fence blue for $150.” Alex has accepted the offer when he mails the letter. At this point, Eric can no longer revoke the offer.

Although the speed of modern communications has decreased the importance of this rule, it should be noted for cases in which emails are delayed in cyberspace (or similar occurrences) that the mailbox rule applies to electronic communications as well.

Acceptance is the second stage in contract formation. Always remember that acceptance and potential complications created by acceptance will differ depending on the type of contract created. 



Footnotes

[1] Arthur Corbin, Offer and Acceptance and Some of the Resulting Legal Relations, 26 Yale L.J. 169, 181-82 (1917).

[2] Restat 2d of Contracts, § 29 (2nd 1981).

[3] Restat 2d of Contracts, § 30 (2nd 1981).

[4] Id.

[5] ARTICLE: MODERN UNILATERAL CONTRACTS ., 63 B.U.L. Rev. 551, 553.

[6] Id.

[7] Restat 2d of Contracts, § 50 (2nd 1981).

[8] Williams v. W. C. S. R.R. Co., 191 Ill. 610, 619-20 (1901).

[9] Restat 2d of Contracts, § 51 cmt. b (2nd 1981).

[10] Restat 2d of Contracts, § 50 cmt. b (2nd 1981).

[11] Restat 2d of Contracts, § 59 (2nd 1981).

[12] Restat 2d of Contracts, § 63 (2nd 1981).