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So last week’s Draw the Law was all about what is an option, which was very much a part of the offer side of forming a contract. Today is all about acceptance.  I know it sounds easy, right? All you have to do is accept the offer and you are done, you have a contract!
Yes, normally that is the case, but as with anything with the law accepting an offer is not always so straightforward.

What is Acceptance?

Lawyers have a very specific idea of what acceptance is in contract law.  An acceptance is the offeree’s voluntary, communicated asset to the terms and conditions of the offer.  What the heck is assent?  Assent is some kind of act or promise of agreement.  Therefore, generally, a valid acceptance will require that the offeree assents to every material term as what is in the offer (this will make more sense when discussing invoices and counteroffers).

Is there a Proper Way to Accept an Offer?

As with a lot of contract law there are no magic words. You need not say, “I hereby formally accept this agreement from this day henceforth,” or something else as ridiculous. You can say, “It’s a deal.” More importantly, you can send that via mail, e-mail, and fax – it’s so long as your acceptance is done through reasonable means.  The only method not allowed for acceptance is silence, BUT remember that actions can constitute acceptance. Thus you can be speechless, but accept the offeror’s offer by following what the terms were. Often times this leads to implied contracts (as opposed to expressed).

Example of an Implied Contract: Mistaken Invoice

Let’s say you run a shave ice store.  Let’s say that one day you receive a box of slippers and an invoice.  You did not order them.  Typically, you do not have to pay for things you did not order.  There is no contract at this point.

However, you are a shrewd business owner and see an opportunity. You unpack the slippers and display them in your store.  You advertise them as authentic slippers to go with your authentic shave ice to the tourists.

Now, there might be a contract. Why? Clearly, you have accepted the offer of the invoice price of the slipper.  Your actions indicated that you accepted what was sent by the misplaced order.  This is an implied contract, where it seems that whatever they offer was (the price of the slippers) you accepted by using them to sell.

Acceptance, Timing is Everything

Due to modern convenience we have forgotten about snail mail.  Yes, e-mail has made our lives easier (and yet complicated).  However, understand that acceptance is controlled by the mailbox rule, which states that: an offer is accepted by mail when you put the letter in the mailbox, NOT when it is received.

Why is this important? Because the mailbox rule also applies to e-mail acceptance. So once you hit “Send” there is no buyer’s remorse argument.  So long as you can show you typed in the correct e-mail address, your acceptance is effective when the e-mail is sent (even if it somehow winds up in the recipient’s spam or junk mail folder).  The true gravity of this rule is not felt until you realize that the offeror can revoke at any time, BUT cannot revoke once the offer has been accepted. There are many court cases where the offeree accepts the offer, but due to delay of receiving the acceptance the offeror invalidly revokes. The offeror must honor the acceptance.

Can you Change That?

Yes, you can control the terms of acceptance. You can direct the method of acceptance and define when acceptance is, the mailbox rule is a default rule, therefore when your document remains silent on these matters a court will rely on it in a contract dispute.

Bottom line: The Offeror controls the Method of Acceptance

Thus the use of options, specifying how acceptance is to be made are all in the offeror’s court.  There is no contract until the offeror gets proper acceptance.  Therefore, time is always ticking (even if an option is taken out, as time is money) for the offeree to figure out what to do with an offer.  While they can accept, they can also reject it and counteroffer, and that is all a part of the negotiating process.  So come back next week for rejection and counteroffer.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Last week, we started our great journey of contracts, which for a small business owner or startup you are actually entering many of them and you may not know it. For those of you readers that have read my blog and those that have attended my seminars I will repeat it until I die or they change the law, a contract is NOT a piece of paper. It is a promise or a series promises, and because of that a contract consists of numerous components. Currently, we are discussing offer and acceptance. Two key concepts that will lead to the formation of a contract. You can kind of consider them as parents. Last week’s post was on offers, and today’s post extends that concept out (literally) by discussing options

What is an Option?

An option is an agreement that needs consideration (i.e. money or something else of value) to hold an offer open for a certain period of time. You can consider it a mini-contract. It’s purpose is to hold open an offer and some valuable consideration (such as money) is given for that exchange of time. The time component also need not necessarily be tied to a specific date in time, BUT an event. To see how this concept works follow the example:

Let’s say you are in the market to buy a shave ice store. One day you see a store being sold for $20,000 in a prime location. However, you want to see if you can negotiate to get it for a lower price or get the owner to throw in more stuff for his asking price.

You then find out there is another store on the market, but it is not in a prime location. However, you feel that if you cannot negotiate with the first shave ice store owner you could be satisfied with the second one. So you go to the second shave ice store owner and pay an option of $800.00. This option states that in the event that the second store owner receives an offer in the next two months you have the right to match that offer. This is known as right of first refusal. In this way you can negotiate with the first store owner, knowing that you have a backup plan if the negotiations fall through.

Option Payment is Not Refundable

Generally, the payment for an option is not refundable. It’s not a down payment or a deposit. The payment for an option is what you give to keep the offer open. Sometimes an offeror will apply the payment for the option to the asking price. It just depends on negotiating.

A Word on Advertisements and Offers

I know you are probably thinking that many advertisements you see are options or at the very least offers. However, this should be a refresher for those of you who have stuck with Draw the Law for this past year. Starting a business means you have to advertise, and if you are a retailer or someone similar you generate interest by creating deals in advertisements. Does that make it an offer? Like all great things in the law, is it depends. However, generally speaking, an advertisement is not held to be an offer, rather courts interpret them as “an expression of intent to see.”

Now here comes the exception because in law we love to make exceptions within exceptions. If a merchant makes a written offer to trade in goods that the merchant regularly conducts business in and in the written offer it states that it will remain open for a set amount of time the merchant will be unable to revoke the offer during the time.

Therefore, if a slipper seller says in their written offer that you can buy a box of slippers for 50% off for the next 3 weeks. He cannot 2 weeks later revoke the offer. It must stay in effect for 1 week more. The offeree need not pay anything to keep the offer open.

Looking toward Next Week

Now that we have gone through offers, we are going to talk about the other side, acceptance. So I hope you accept my offer to come back and find out more about contract law!

If you enjoyed this post be sure to “Subscribe” today!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Thank you for the great response from photographers and models to last week’s Draw the Law on Rights of Publicity and Copyright. Today we will return back to basic contract issues and we will begin the discussion of Offer and Acceptance.
You can kind of think of offer and acceptance as giving birth to a contract baby. Without either you do not get a contract. With that being said, as with many things with the law, is not that simple. So, I will discuss offer today, options next week, acceptance the following, and wrap-up with rejection and counter-offer the first full week of March.

What is an Offer?

Operationally, an offer is made by an offeror to the offeree. The definition of an offer is: “an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed”, which is the offeree. As many of you retailers, small business owners, and the like there are no magic words to an offer. It can be as simple as, “you will pay me $6.00 for each of these slippers.” There is no invitation to bargain or negotiate in that statement, only that if you want the slippers you must pay $6.00 for each one.

What are Requirements of a Valid Offer?

In order for the offer to be effective the offeree must receive it. In addition, it must be clear (1) who is making the offer; (2) what the subject matter is for the offer; (3) if it is related to good, what is the amount to be sold; and (4) what is the price of the offer.

Example in detail: Going back to the slippers offer. First, who are the parties? In an oral contract, where the two parties may be face-to-face that might be clear. However, if written many times the document will state the full name of the parties, and if they are a part of an organization its proper legal name and address.

The subject matter is the slippers. However, what if there were tons of slippers? Thus short descriptions, SKUs, and similar identifiers are used in a written contract to ensure that both sides know what is being talked about, which is easier for goods than services.

Let’s say when the offeror said “these slippers” he waved his arm at boxes of slippers, but really was thinking 1 crate. Thus, it would be good to state that it is for 1 box of slippers containing thirty slippers.

Finally, if it were the case it was 1 box of slippers at $6.00 each slipper, the final price would be $180.00. Once again, if this is a written, these are all things that should be spelled out for the offer to be valid.

How Long if an Offer Valid?

Not indefinitely, unless the offeree has an irrevocable option. The offeror is the master of the offer, they can leave the offer open as long or as short as they want. It can be a day or a year.  Unless, there is an option an offer expires when:

  1. the time to accept is over – which is either stated in the offer or a “reasonable” amount of time has passed; or
  2. the offeror cancels the offer; or
  3. the offeree rejects it; or
  4. the offeree makes a counteroffer; or
  5. the offeror dies or becomes incapacitated; or
  6. there is a change of law that makes the contract illegal or something destroys the subject matter.

Last Word: The Offer is only the Beginning

Generally, as most savvy businesspeople know, the offer is only the beginning before we even get to a contract. In terms of offers, while the offeror can revoke (cancel) the offer ay anytime before acceptance, the reality is that there are exceptions to any rule, which I will get to next week with options and an exception that applies to merchants.

If you enjoyed this post be sure to “Subscribe” today!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.