Post No.: 0455
A contract is formed only if and when an offer, exactly as stated, is accepted – this is the ‘mirror image rule’. The person who initiates an exchange (the offeror or ‘master of the bargain’) can set the terms of the exchange. Another person (the offeree) can then accept the exchange only if it’s exactly as stated by the offeror.
Exchanges can involve promises (e.g. of a payment or item in the future) and/or a performance (e.g. on the condition of once a payment or item has been received from the other party). No party shall be bound to a promise they never made.
But if an offer is rejected and a counteroffer is made, the original offer will then be off the table and the counteroffer will now be the new, or current, offer. The original offer will no longer stand and the original offeror will not be bound to it anymore, even if the person who makes the counteroffer subsequently wishes to go back and accept that original offer. That’s unless the original offeror voluntarily wishes to renew that original offer, or accept it as a ‘new’ offer made by the other person. In other words, the offering process essentially starts anew whenever a rejection, counteroffer or renewal of offer is made. The person who gives the last (counter)offer i.e. proposes the latest or final terms of the exchange, will become the offeror of the offer and basically whoever finally says, “I’ll take it exactly as currently stated” will be the offeree of the exchange. But a contract won’t have been formed if an alleged agreement was not the way it was intended (e.g. agreeing to look after an expensive object for a sum of money doesn’t constitute agreeing to sell that object for that sum).
It is implicit that an offer must be accepted within a ‘reasonable timescale’ though, although what’s ‘reasonable’ is highly contextual and subjective. Ultimately, the offeror is the master of the bargain and so can reject an acceptance if he/she feels that the opportunity has passed. But it’s good practice to concretely state how long an offer is available for to remove any ambiguity, or to purchase an option to potentially buy an item in the future for a set price within a set timeframe.
We should know by now that oral bargains are real and valid bargains (apart from in a few exceptional cases). The problem is proving their existence if they later become disputed! In which case it’ll become a case of ‘your word against mine’. But if they can be proved to exist then they will legally stand. Still, it helps enormously to get things down in writing. Also, if a contract concerns a loan, for instance, then it’s important to set clear and explicit terms for the repayment schedule, otherwise even though the loan will be legally repayable, the borrower can potentially take as long as he/she would like to pay it back (e.g. in 20 years time!)
Saying, “I’ll think about it” does not count as an acceptance of an offer, hence it’s also good practice to explicitly and formally state that you accept an offer that another party has made to you (and also good practice to make a promise and/or performance in return to make it an enforceable two-way bargain rather than a one-sided promise – read Post No.: 0415 to understand why). This other party won’t have to be bound by their offer otherwise.
That is all unless their offer includes terms that you perform exactly as the offeror stated. For instance, if a bicycle owner offers to give you their bicycle if you bring £100 to them before next week, then they are bound to that deal if you bring £100 to them before next week, just as they stated, regardless of whether you formally or verbally accepted their deal at the time i.e. there was an ‘implied contract’. They also cannot sell the bicycle to someone else before next week, unless they stipulated there was a first-come-first-serve basis or told you the offer was off the table before you fulfilled the terms of the original offer i.e. before you arrived with the £100 in time. If not, then the bicycle is yours, and this someone else who thought they had acquired the bicycle could sue the original bicycle owner for damages.
Now we don’t have to sue people just because we can though! Sometimes it’s not worth the money, time and/or the harm to the future of a relationship.
So an implied contract is an agreement created by virtue of the pattern of the parties’ actions, but hasn’t been explicitly written down or spoken. A contract is assumed to have been made when both parties abide by the implicit contract. For instance, one party has been performing their duties, and the other party has been paying them for it, on an ongoing basis. The fact that the parties involved have an understanding and they both abide by the terms of that understanding is sufficient evidence to establish the existence of a contract. Based on this course of performance, the terms of the bargain remain in place until one party takes affirmative steps to change them. If not, then an arrangement that has been ongoing will be assumed to continue to be ongoing.
In some rare cases during negotiations, a large organisation can promise, or mislead, a person that ‘a promise to make a bargain will be made in good faith’, which causes that person detrimental reliance. For example, telling them, “Maybe if you do this then a deal will be struck” followed by, “Maybe if you do that then a deal will be struck” and so forth, and stringing them along with ever-increasing conditions but no actual deal is ever explicitly struck, thus leaving the person high and dry. In such a case, the person could sue to recover the costs incurred, which is as best as they can get because no concrete promise was ever made by that organisation to give them anything in particular.
A party can sometimes even be held responsible for causing detrimental reliance for verbally saying that they were going to sign a contract in the future, even if the contract hasn’t been officially formed yet. (Again, a verbal agreement is generally technically binding, although trying to prove it if one of the parties denies ever verbally agreeing to anything can be the problem.) Corporation A might think that it is still negotiating a deal, whilst corporation B might think that it is not. Perhaps they’ve both agreed with the major details, including the price, and that a deal is intended to be signed – but the finer details have yet been figured out. Here, although a final binding agreement hasn’t been formed yet and some negotiations are still happening – a deal has been agreed in principle. This means that if corporation A then decides to strike a deal with another corporation C before the agreement with corporation B has been fully finalised and binding, corporation B could sue the newcomer corporation C for damages for interfering with its contractual rights; albeit corporation B still won’t be able to force the deal with corporation A that they had expected.
Another scenario is, if two parties agree in principle to lease a dog kennel, along with all of its major material terms and conditions, then even if the lease is not signed yet, the parties can still claim reasonable reliance on each other’s promise of the lease. Thus if, for example, the lessor expects the lessee to move in tomorrow, and so hires cleaners to clean the kennel in time (cleaners whom they wouldn’t have hired if it weren’t for the expectation and rush to get the kennel ready in time for the lessee), and if the lessee ends up changing his/her mind the next day, then the furry lessor could sue the fuzzy lessee for reliance damages (i.e. the cost of the cleaners). This is because the lessor had the kennel cleaned in reasonable reliance on the lessee’s promise to lease it the next day.
In other words, if contracts have been agreed in principle – even though all of the details haven’t been settled and nothing’s been signed yet – then that is enough to make them already enforceable, at least to recover damages if one side later pulls out and the other side incurs losses that they otherwise wouldn’t have incurred in the process. How deep in the bargaining process is ‘deep enough’ for a contract to have been formed? What are the ‘major’ details and what are only ‘minor’ details? Well the particular context is king here. And, as typical in law, such grey areas will be debated by different lawyers; and the courts have a delicate balancing act to try to achieve a moral, equitable and productive society or civilisation.
Woof. Specific laws might differ depending on what country one is in, but I reckon it’s still an immensely useful exercise to be aware of all of the above types of scenarios because you might possibly find yourself in such a situation one day. And if you do then you might avoid making a costly mistake or realise that you have certain rights on your side that you didn’t know you had!