Offer and acceptance are the essential elements of a contract. In either case, it should be done out of one's free will and with an intention to enter into a legally binding agreement.

What Is an Offer?

When someone expresses his or her willingness to enter into a contract on certain terms and intends to form a binding contract if the other party accepts it, such expression of willingness is called an offer.

The expression of willingness can be in various forms like a letter, email, fax, or even conduct. However, it is important that the person communicates the terms on which he is willing to enter into a contract.

Whether or not the person making an offer has the intention of entering into a contract is judged objectively. It doesn't matter whether the person has real intentions. It's enough if, based upon the circumstances of the case, it can be reasonably made out that he intended to form a binding contract.

A party can either expressly make an offer, or it can even be implied by its conduct. An offer can be made to a specific person, a group of persons, or even the world at large (for example, announcement to offer a reward).

An offer is different from an invitation to treat, where a party merely invites offers, which can be accepted or rejected by it. For example, an advertisement is not an offer; it's only an invitation to treat. If it were an offer, then the advertiser would have to supply the product to everyone accepting the “offer”, irrespective of the stock he holds. Similarly, an auction is also an invitation to treat, where each bid received by the auctioneer is an offer.

What Is an Acceptance?

If a person agrees to all the conditions of an offer made to him without placing any counter-condition, the communication of such assent to the offerer is called an acceptance, provided it's done with the intention of accepting the offer.

Sometimes, the conduct of the offeree may constitute expression of acceptance. In such cases, it would be no defense to say that the party did not intend to enter into a legally binding agreement. Courts often refer to the correspondence between the parties while deciding whether an acceptance has occurred.

It's important that the offeree accepts the offer unconditionally. If he makes a counteroffer, the original offer becomes irrelevant.

For example, when you list an item on eBay with a “buy now” price, with an option to sell it for the best offer, every bid placed on your item constitutes a counteroffer. If you accept a counteroffer, this becomes the basis of the contract of sale.

A contract does not become effective unless the offerer receives a communication of acceptance from the offeree. The communication may be instant or at a later point in time, say for instance, through email or post.

Although signing a contract is a common way of accepting an offer, there are various other ways of acceptance. For example, if you offer a contractor to paint your home for a certain sum of money and make some advance payment to him, the receiving of advance payment itself amounts to an acceptance by the contractor.

Rules of Acceptance

  • There must be communication of acceptance from the offeree's side.
  • You can withdraw an offer any time before it's accepted.
  • Only the person to whom the offer is made can accept it. You are not bound by an acceptance made by someone else on behalf of the offeree without his authorization.
  • You may do away with the requirement of communicating the acceptance; sometimes this may be obvious from the construction of the contract.
  • If an offer requires a specific method of acceptance, it cannot be accepted through a less effective method than what's specified.
  • Silence does not constitute an acceptance.
  • According to the “mirror image rule”, you must accept an offer in its entirety, without any changes. Modifying the offer in any manner constitutes a counter-offer and nullifies the original offer.
  • The offeree can, however, request for information; such request does not amount to making a counter-offer. You can draft an inquiry in a way that it adds to the original offer without nullifying it.
  • Usually, companies use a standard form contract in business.
  • In all cases where the contracting parties have contemplated acceptance via post, the contract is created at the moment you post the acceptance.

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