For a legally binding contract to be formed there must be an offer and acceptance. One person, called the “offerer” expresses an offer on certain terms while another person called the “offeree” expresses acceptance of those terms. Other than the offer and acceptance, other elements that make up a legally binding contract are
The offer and acceptance arrangement signifies that both parties are thinking in the same direction. Developed in the 19th century, the offer and acceptance system has now been weakened by trends in the law of estoppel, unjust enrichment, misinterpretation, and misleading conduct.
An offer is expressed when one party is willing to enter into a contract with another party on certain terms while intending that the contract becomes binding once the other party accepts it. An offer states the terms which the offeror does not mind being bound by. It signifies the offeror’s intention to be bound by certain and definite terms contained in the contract as presented to the offeree.
An offer may take various forms, including email, fax, a newspaper advertisement, a letter, or conduct. Whatever the form, the most important factor is the offer is clear about the terms on which the offeror is ready to contract.
The courts use a criteria known as ‘the objective test’ to determine whether a valid offer has been expressed or whether the offeror and the Offeree have agreed on the terms contained in the contract. Normally the party’s own subjective intentions are not sufficient for deciding whether a valid offer has been expressed, instead the issue is judged based on how a reasonable person would analyse the situation.
For an offer to be an effective basis for a binding contact contracts, it must include the key terms which must be part of that particular contract. For example, an offer for a sale of goods contract must at least include the price, delivery date, a description of the type or condition of the service, and the terms of payment including a detailed description of the item which is being the offered and the date payment is to be made. In this example, if the offer of sale does not contain the minimum requirements, it will be considered by the courts to be an advertisement rather than a legal offer.
An acceptance is the offeree’s expression of willingness to be bound by the terms contained in the offer. For there to be an agreement, both parties must have made clear their intention to enter into the contract. In a situation where one party breaches a contract claiming that there was no intention to be bound by the terms of the contract, a test may be applied whereby the view of a reasonable bystander on whether the party seemed to be willing to enter the contract will be considered.
For an acceptance to be binding, it must be explicitly expressed by the offeree to the offeror. Before an offer is accepted, it can be withdrawn by the offeror. In the legal context, there is no such thing as an acceptance by silence, however, this does not necessarily apply to a unilateral contract where the offeror implies a waiver of communication. In a unilateral contract, explicit agreement may not be needed for the contract to be binding, rather, there will be another factor which makes the contract binding as determined by the court. While acceptance can be inferred from conduct, the offeree would normally be required to express acceptance via the method which the offeror considers to be as effective as the specified method. In some cases, the offeree would have to express acceptance using the exact method prescribed by the offeror, particularly when the offeror indicates that acceptance must be by that method alone.
The only party who can accept an offer is the one to whom the offer has been made, that is, the offeree. Normally, an offeree will not be bound if another party accepts the offer from the offeror without their consent. The exception to this is the law of agency which may permit an agent to act on behalf of the offeree. It is possible for an offeree to within a reasonable time, ratify a contract which has been accepted on their behalf.
Like in any other contract, the real estate contract is based on the offer and acceptance. The offer and acceptance would normally be based on elements such as the price of the property and its identity. While the major provisions form the basis of the contract, it is possible to have more terms, such as the party responsible for paying for the title insurance, inspection and financing contingencies, and the personal property accompanying the sale.
In a real estate contract, it is important that the offer or counteroffer is accepted before it expires. If the contract is accepted beyond the provisions of the acceptance process and the terms of the offer, a seller or buyer might be able to dodge their obligations as provided in the contract.
In a situation where the seller and the buyer are not able to come to an agreement on the terms, there will be no contract. But once they are able to come to an agreement, the contracts would become enforceable.
Traditionally, a realtor would have to physically deliver a signed contract to the other party, however, the signature of one party can now be electronically delivered to the other party such as via fax and email. Both methods are acceptable provided the offer or counteroffer does not prescribe a specific method of delivery, in which case the specified method would be the only acceptable method of delivery.
In of the legal context, a counteroffer indicates that the first offer has been rejected while a new one and has been made. Once the seller makes a counteroffer, the original offer from the buyer is considered rejected and void.
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