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Contract Law: Offer and Acceptance

OFFER AND ACCEPTANCE

Agreement requires two parties; the process of forming a contract is through offer and acceptance. A valid contract comes into existence when the offer is accepted and all other requirements are met. Until acceptance, the offer can be revoked. There are 3 key aspects to a valid contract: 1 making an offer, 2 accepting an offer, and 3 concluding an offer.

MAKING AN OFFER

An offer is the declaration by the offeror of their intention to enter into a contract and the terms the contract will contain.

ACCEPTING AN OFFER

Acceptance is the offeree’s declaration of their intention to enter into the contract, with the terms matching those in the offer. Once accepted, the contract comes into place; acceptance is the point at which the offer and acceptance process yields a binding contract.

CONCLUDING THE CONTRACT

It is crucial to determine when and where the contract is concluded to know when it becomes legally binding. In South Africa, several theories exist; the general rule is Information Theory: a contract is created when and where the offeror is informed that the offeree has accepted. Further discussion on timing and place follows in later outcomes.

REQUIREMENTS FOR A VALID OFFER

An offer must be 5 things: 1 Complete, 2 Clear, 3 Made with the intention of creating a contract, 4 Communicated to the offeree, 5 Current (not lapsed, rejected or revoked).

DETAILS OF THE VALID OFFER REQUIREMENTS

  • 1 Completion: the contract must contain all the terms the offeror wants; the offeree must understand these terms so that on acceptance the contract can take effect.

  • 2 Clarity: the offer must not be ambiguous; key terms include the type of contract, the aim, the amount involved, and the time of performance.

  • 3 Contract intention: the offeror must intend to be bound; otherwise disputes may arise. Consider: Advertisements, Rewards, Auctions.

    • Advertisements: generally not offers; they are invitations to do business unless the surrounding circumstances show an intention to be an offer.

    • Consumer Protection Act: a supplier cannot charge more than the displayed price; price is the maximum unless an error applies.

    • Rewards: advertisements offering a reward are offers to the public and the offeror must perform if the reward requirements are fulfilled.

    • Auctions: two types exist—without reserve (highest bid wins) and with reserve (minimum price; bids are offers to sell; the auctioneer can accept or reject).

  • 4 Communication: the offer must be communicated to the offeree; without communication, acceptance cannot occur.

  • 5 Current: the offer must remain open for acceptance; it can lapse, be rejected, or be revoked. If no time is stated, open for a reasonable period. Lapse may occur due to death, loss of capacity, or impossibility. A rejected offer ends the offer; a counter offer creates a new offer with roles swapped; revocation can occur before acceptance if communicated.

REQUIREMENTS FOR A VALID ACCEPTANCE

An acceptance must be: 7 elements: 1 Made by the intended offeree, 2 Offeree knew about the offer prior to acceptance, 3 Clear and unambiguous, 4 Correspond with the terms of the offer, 5 Made within the prescribed time, 6 Made in the prescribed manner and place, 7 Completed through communication to the offeror.

ADDITIONAL ACCEPTANCE REQUIREMENTS

  • Source: Acceptance must come from the intended offeree; exception is when the offer is to the general public.

  • Awareness: The offeror cannot accept an offer if they do not know about it.

  • Clarity: Acceptance must be unequivocal and may be in writing, oral, or non-verbal; it must clearly state acceptance; if uncertain, assess whether a reasonable person would regard it as acceptance. Silence is generally not acceptance unless both parties agree.

  • Compliance: Acceptance must comply with the terms; any deviation creates a counter-offer.

  • Timelines: Accept within any deadline; if none, within a reasonable time.

  • Form: The offeror may prescribe the required form; failure to follow may cause lapse.

  • Communication: Acceptance becomes complete when the offeror becomes aware of it; otherwise the offeror may revoke.

DETERMINING WHEN AND WHERE A CONTRACT HAS BEEN CONCLUDED

  • POSTAL CONTRACTS (Expedition Theory): A contract is formed when and where the acceptance is posted, provided that the conditions are met: (i) the offeror permitted postal communication, (ii) permission was explicit or implied, (iii) acceptance was posted to the correct address, and (iv) the postal service is functioning. If any condition is missing, Information Theory applies.

  • Information Theory: If conditions for expedition are not met, the contract is formed at the time and place the offeror reads the acceptance. The offeror can revoke before acceptance.

  • TELEPHONIC CONTRACTS: Information Theory applies; acceptance occurs when the offeror hears the acceptance.

  • ELECTRONIC COMMUNICATIONS: Under the Electronic Communications and Transactions Act, 2005, data messages are covered; the contract is concluded when the offeror receives the acceptance.

OPTIONS

An option is a contract where the offeror agrees to keep the offer open for a specific period. Normally, the offeror may revoke the offer, but an option makes it irrevocable for that period. If an option exists, the offeror cannot revoke until the option expires or the offeree rejects. When an option is in play, there are two contracts: the main contract to be entered into and the option contract.

RIGHT OF FIRST REFUSAL

A right of first refusal is a contract in which one person agrees that if they ever decide to enter a particular type of contract, they will make an offer to the other person first. It is not an offer but a guarantee of first consideration. Example: tenants and landlords. If the holder receives an offer, they may accept or reject. If accepted, a contract exists; if rejected, the offer may be made to others. If the offeror later amends terms after rejection, the rights holder must still be offered the amended terms. In sales, this is known as a right of pre-emption.