Have you ever walked into a convenience store and bought a pack of gum? Perhaps all you did was take out some pocket change and point to the gum you wanted. Although you didn't know it, you just accepted a contractual agreement. Contracts are the legal instruments that allow us to conduct business on an everyday basis. How exactly do contracts work, and how do you know when you've entered into one? Throughout this lesson you will learn about acceptance in contract law, understand the contract offer and acceptance process, and learn about the different types of acceptance. Updated: 11/21/2023
Acceptance is understand as assent by one of the parties to the terms and conditions of an offer. If the acceptance lacks one of the necessary conditions to be valid, then no contractual agreement is formed.
Acceptance is the agreement to an offer resulting in duties, obligations or benefits for one or more of the parties.
Valid acceptance is acceptance that is made by the specified offeree and that meets the conditions of mutual assent (both parties agree to the arrangement), adequate consideration (each party receives a benefit for the promised goods or services of the other party), capacity (both parties are legally capable of entering the agreement), and legality (the agreement, terms and conditions are legal where it is to be enforced).
Acceptance is the agreement to an offer resulting in duties, obligations, or benefits for one or more of the parties. Acceptance can be expressly stated in writing or verbally or implied through action or conduct. In order for acceptance to be valid, certain conditions must be met. These are mutual assent, adequate consideration in a contract, capacity, and legality.
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Contract law is the set of mercantile rules, laws, and practices that govern contracts. The American Law Institute's Restatement (Second) of Contracts defines a contract as, "a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty." A contract is a legal instrument that allows both parties to enter into the arrangement with legal certainty. Courts often have to determine if contractual conditions are valid, how contracts should be enforced, and what damages can be recouped in the case of a breach.
Contract acceptance refers to the act of one party agreeing to the terms proposed by another party as presented in an offer. The acceptance must meet the criteria established by law in order for the contract to be legally binding. If the contract is broken, the "law gives a remedy" by means of a judicial proceeding, such as a lawsuit, for the injured party to seek damages and compensation.
Acceptance in contract law occurs when two parties agree on the terms proposed by one or the other.
Certain conditions must be met in order for the contract to be valid:
A contract can include a penalty clause outlining what damages can be claimed in the case of a breach. If the damages stipulated in the penalty clause are excessive, however, the clause is usually not enforceable in court. If a contract does not contain a penalty clause and a breach occurs, the court can decide three courses of action:
Contract theory stipulates that offer and acceptance are required elements for a contract to exist.
The United Nations Convention on Contracts (UCC) for the International Sale of Goods states that "a proposal for concluding a contract addressed to one or more specific persons constitutes an offer." (article 14.1) An offeror is the person who proposes the offer. In bilateral contracts, the offer must be made to a specified person or group, known as the offeree, to be valid. The Mirror Image Rule establishes that an offeree's acceptance of the terms must mirror the offeror's terms, or be in accordance. If the offeree answers the offer by presenting new terms and conditions, this is considered a counteroffer. For example, in lieu of accepting a contractor's quote of $2,000 for home repairs, an offeree presents a counteroffer of $1,500 with the condition that they procure the materials directly. The contractor can reject or accept this counteroffer or propose a new offer. This process is often referred to as negotiation.
The United Nations Convention stipulates rules for revoking an offer. An "offer becomes effective when it reaches the offeree," but "may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer." (Article 15) An offer can be revoked at any point before acceptance is given unless an expiration date is provided, or the offer is presented as irrevocable. If the offeree rejects the offer, then the offer becomes null regardless of whether the expiration term has concluded or if the offer was irrevocable. The Uniform Commercial Code's Section 2-206 states, "An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods." In other words, when a merchant receives a purchase order for goods, the UCC considers this to be an invitation to accept an offer. If the purchase order is fulfilled, either through shipping the requested goods or promising to ship the requested goods, this is considered implied acceptance that would create a valid contractual agreement.
While most US states adopt the Uniform Commercial Code as the basis for offering and accepting a contract, an offeror can stipulate the conditions under which an offer can be accepted so long as they are legal. The offeror can stipulate that the acceptance is in writing, given by a certain date, or that it is only valid once it is received in person. If these conditions are not met, then the offer is not contractually binding even if the offeree assents to the agreement. The exception to these conditions is silent acceptance, in which the offeror stipulates that if no action is taken then the offer is accepted. Inaction is generally regarded as an invalid indication of acceptance in court. Some states, such as California, stipulate that if a person receives unsolicited merchandise in the mail and decides to keep it, this will not constitute acceptance of an offer. The merchandise would be considered an unconditional gift, and the person receiving it would not be obliged to return or pay for it. Though it is contrary to implied acceptance, the ruling was put into place to prevent consumer abuse by exhorting payment for unsolicited merchandise.
The Mailbox Rule establishes that acceptance is valid once it has been posted by mail, email, or fax machine even if the offeror has not yet received it, or never ends up receiving it. This rule originated from an 1818 British common law case in which the courts found that a presumption of acceptance by the offeror could create business liabilities. In the name of protecting business interests, the rule was instated to provide merchants with more legal security when conducting business. The Mailbox Rule is debated in modern times and whether it should apply to instantaneous communications such as email and fax. The lag in receiving a mailed acceptance, which could delay business and commerce, is in stark contrast to the instantaneous communication provided by email and fax.
If acceptance is made on the condition of some modified or new conditions, this can be taken as conditional acceptance so long as the modified conditions do not materially change the original offer. For example, a caterer includes a cocktail service with their wedding package. The cocktail service is originally stated as lasting from 5-10 p.m. The client accepts the offer with the caveat that the cocktail service lasts from 6-11 p.m. This would be considered conditional acceptance because the shift in hours would not materially change the original offer. The fine line between conditional acceptance and a counteroffer is often debated in court. The general consensus is that if an offeror assents to an acceptance with modified conditions and does not object to those conditions in a reasonable amount of time, then the agreement is contractually valid even if discrepancies later arise about those conditions.
Signing a contract.
Express acceptance is when an offer is accepted through unambiguous signals, either verbally or in writing. A handshake deal between neighbors to attend to overgrown weeds is verbal express acceptance while signing a rental agreement would be express written acceptance.
Implied acceptance is when acceptance is understood to be given by the offeree through action or conduct. In an offer to work, perhaps painting a neighbor's fence, for example, if the offeree does not explicitly state acceptance yet shows up on Saturday morning and begins painting the fence, the offeror can reasonably believe that the offeree accepted the offer.
Acceptance in contract law is predicated on the existence of an offer. An offer and acceptance are two fundamental elements for a contract to exist. Contract acceptance must meet the conditions of mutual assent, adequate consideration, capacity, and legality in order for a contract to be legally binding. The rules for extending an offer, as well as withdrawing or revoking it, are contingent on relative actions in time. An offer is valid for a reasonable amount of time after it is made by an offeror unless a timeframe is established for the offer to expire, or it is initially presented as irrevocable. Per the Mirror Image Rule, the acceptance of an offer must mirror the proposed terms and conditions. In the case of receiving unsolicited merchandise, such as in California, the receiving person could keep the merchandise as an unconditional gift since they did not accept nor assent to the offer before receiving it. If the specified offeree accepts the offer but with different conditions, this would be considered a counteroffer and a rejection of the original offer. The original offer would then be null, and any expiration time or irrevocable condition would be void. An offeree can answer the offeror with a conditional acceptance, in which they tentatively accept the offer with modified but not materially different conditions.
Express acceptance is the direct and explicit acceptance of an offer, either in writing or by a verbal agreement. Implied acceptance is the implicit acceptance of an offer through conduct or action. Per the Uniform Commercial Code, a merchant shipping goods after receiving a purchase order is considered to be implied acceptance that creates a valid contractual agreement. Per the Mailbox Rule, an acceptance is valid once it is posted in the mail even if the offeror does not receive it, and any resulting legal obligations or consequences are binding. Exceptions to the Mailbox Rule are still being debated in courts, such as email and fax since these are more instantaneous forms of communication and require less lag time to receive the acceptance.
So you are walking down the street and notice a basket full of seven kittens in a pet shop window, along with a sign that states, 'Kitten Sale - $10 Today Only.' Naturally, you want a few extra cats, and this is a great deal, so you decide that you're going to take them all home.
You walk in and meet with the shop owner who accepts your $70, and wrangles the felines for their final journey home. This seems like a simple transaction, but it actually represents the three elements of a contract that create a binding agreement - offer, acceptance and consideration.
An offer is an open call to anyone wishing to accept the promise of the offeror and generally, is used for products and services. Acceptance occurs when an offeree agrees to be mutually bound to the terms of the contract by giving consideration, or something of value like money, to seal the deal. Keep in mind that acceptance follows the mirror image rule, in that acceptance is valid if the product or service rendered is exactly what was contained in the offer. We will come back to that in a moment.
There are a few more elements that are equally important, but deal with the legalese of contract law, like mutually agreeable terms, meaning the terms of the contract are something both parties are willing and able to fulfill. There is also capacity, which requires that each party to a contract be of sound mind (free of mental illness or intoxication) and be of legal age. And there is also legally acceptable terms. This means the contract cannot have any promises that are unlawful or illegal to perform.
Generally speaking, acceptance occurs when the offeree expressly accepts the offer made by the offeror, like paying the asking price for the kittens. This binds both parties to the agreement. You cannot return the kittens, and he cannot demand them back without getting into some type of legal tangle. However, there are other means of acceptance in contract law. Let's explore a few ways in which offer and acceptance occurs sans an expressed agreement: a purchase order and the mailbox rule.
The Uniform Commercial Code, or UCC, is a body of rules that govern the sale of goods and other commercial transactions in the United States and looks at the use of a purchase order as an invitation to accept an offer. To elaborate, when a company issues a purchase order, what they are really doing is making a written, expressed promise without consideration to purchase products or services from another company that require prompt shipment. Since consideration is necessary to make a contract binding, the UCC made a rule that, although consideration is not exchanged in a purchase order for immediate shipment of goods, it remains acceptance.
An example may help. Jack's Fruit Company received a purchase order from Yummy Plum Smoothie Shack for the delivery of 100 cases of red plums. Jack has accepted the offer to purchase based on the purchase order in action, as demonstrated when Jack's farmer picked and packed the fruit and immediately sent the shipment out to Yummy's. Upon receipt of the plums, Yummy's accepted the fruit, and it is expected that it will be paid for either on the spot or according to the terms of the original purchase order.
Here is where the mirror image rule applies. When Yummy's received the plums, they must be exactly what was ordered. If the shipment contained peaches or avocados, the contract is void, and Yummy's is not responsible to accept or exchange consideration for the fruit, because it is not what was expected. On a side note, in some states, merely sending a product to another person does not constitute offer and acceptance.
Maybe this will make things more clear. Suppose you receive a new cookbook in the mail. Not sure where the cookbook came from, you further investigate that a culinary magazine you subscribe to is the sender. You never ordered this book nor do you wish to pay for it. If you live in California or other states with similar laws, you can keep the book without payment. It is considered an unconditional gift under the UCC, giving you the right to do with this book what you please. Re-gifting is always a good idea! Acceptance may also be conveyed to the offeror through mail or even email. With technology far surpassing laws to protect those who enter into a contract, the mailbox rule may extend to include such transmissions as email.
Let me explain. The mailbox rule applies when a valid offer is sent by mail, email or fax machine to the offeree within an established timeline. To simplify this, an offeror can send an offer to an offeree stating specific terms and conditions. By placing this offer in the mailbox with appropriate postage, it will be considered a valid offer. The offeree, in turn, may accept the offer by communicating the acceptance in writing. It is valid once placed in the mailbox for return to the offeror.
Although the mailbox rule does not fully recognize email as a form of acceptance, it is becoming more acceptable. There is still much deliberation about whether an email is an instant form of communication, like a courier or even a telegraph or fax. However, in many cases, it is considered a way of acceptance.
Using Jack's Fruit Company and Yummy's as an example, let's say that Jack's emailed Yummy's offering plums at a price of five dollars a case. Once the email is received, according to the receipt date and time, it is an offer. Yummy's received the email and immediately emailed Jack's back requesting a large shipment to be sent immediately. Jack's cannot rescind the offer; acceptance has been made via email. Jack's could say they never received the email; however, the court will look at a couple of things: the date that Yummy's sent the email accepting the fruit and the time and date that Jack's received the email, according to the Internet.
Again, the courts are working hard to catch up on technology. This was just an example of how some courts may view the exchange between Jack's and Yummy's. Since each court works differently, it is best to understand your local court ruling on the use of the mailbox rule in acceptance.
To end this lesson, the three binding elements of a contract include:
There are three more elements of a contract that are specific to making the contract legal, like mutuality, capacity and legally acceptable terms.
Acceptance, in detail, happens when an offeree agrees to be mutually bound to the terms of a contract. It can be a written acceptance, like a contract for real estate or through a purchase order. It can even be through the mail.
The mailbox rule applies when a valid offer is sent by mail, email or fax machine to the offeree within an established timeline. As noted, not all courts recognize email as a form of communication that conveys offer and acceptance. It is important to check with your local courts for the rules on this.
When an offer is accepted, it follows the mirror image rule, meaning performance of the contract must be exactly as the offer stated. There can be no change to the terms, like sending Yummy's avocados instead of plums. On a final note, accepting a book you receive in the mail that you did not order does not always constitute acceptance. In some states, it is considered an unconditional gift.
Once you have finished this lesson, you should be able to:
