Bsusiness Lawyers Toronto Barrie

Operating Problems & Contract Formation

Contract Offer & Acceptance Generally

A contract is a promise or set of promises regarding future behaviour that is enforceable at law. A contract is formed when the parties to the contract manifest mutual assent to an exchange and consideration, usually by means of a process called offer and acceptance. Under the common law, the mere use of electronic means of offer or acceptance should not in itself prevent formation of a valid and enforceable contract. Under the common law, an offer is a manifestation of a party' s willingness to enter into a bargain, made so the offeree is justified in understanding that the offeree' s assent is invited and will conclude the bargain.

An offer creates a power of acceptance in the offeree (who might be an individual or class of persons) as well as a corresponding duty on the part of the offeror. There are usually no formalities required for an offer to exist; it may be made by words or by acts, in any manner sufficient to show agreement. Whether such an expectation exists depends upon the facts and circumstances of a particular case, but generally, the wider the audience, the more likely a communication (such as advertisements of goods or services) will be considered a solicitation of an offer, rather than as an offer. Of course, it is possible to make an offer through an advertisement, but there must usually be some express language of commitment or some invitation to take action without further communication.

To be effective, an offer must be sufficiently definite in the expression of its essential terms so that the nature and extent of the parties' obligations can be determined. Under the common law, the terms must be reasonably certain, which means that the terms provide a basis for determining the existence of a breach and for giving an appropriate remedy. Absolute certainty, however, is not required; reasonable terms may be supplied to fill the gaps. Even so, the more structured and definite a communication, the more likely it is that a court will construe the communication as an offer. The more terms the parties leave open, the less likely that it will appear that they intended to enter into a binding agreement.

Naturally, for an offer to become a binding contract it must be accepted by the offeree; acceptance transforms the offeror' s promise to act (or not to act) into a contract. To effectuate an acceptance, an offeree must usually communicate the acceptance to the offeror. Acceptance by silence is ordinarily not effective as an acceptance, but may be effective in certain circumstances. An offeror is often called the master of the offer, meaning that the offer can only be accepted by the party or parties to whom it is made and, if the offer specifies a particular means for acceptance, acceptance must be made in such manner. Under the common law, an electronic acceptance responding to an offer inviting such acceptance should be effective.

Between merchants, the additional terms may become part of the contract that is formed upon acceptance. In contracts between a merchant and a non-merchant or between non-merchants, however, the contract is formed based only on the non-varied terms; the additional terms are construed as proposals for addition to the contract. For a valid contract to be formed, the offer must still be in effect at the time that acceptance becomes effective. An offer is rendered ineffective if, among other options, it was rejected by the offeree or, revoked by the offeror, or if the offeree makes a counteroffer. In any of these cases, then, the offeree loses the power of acceptance and a purported acceptance will be ineffective.

The issue of whether and when a contract was formed is primarily important when a dispute between the parties arises, and one seeks to deny the existence of a contract while the other seeks to enforce the agreement. In order to give some predictability to the resolution of such disputes, rules were developed to answer the question of whether and when a contract had been formed. In the world of the electronic communication and electronic commerce, the rapidity of communications makes the timing of the effectiveness of an acceptance an even more critical issue.

Other Rules of Contract Formation

In a real-time negotiation, offer and acceptance are essentially effective upon communication, as there is no lapse of time between the sending of a communication and its receipt by the other party. When parties are not able to instantaneously communicate, the mailbox rule provides that an acceptance is operative at the time it is posted, i.e., put out of the possession of the offeree. The mailbox rule applies if the acceptance is lost or delayed in transmission or never reaches the offeror, unless the offeree has not exercised reasonable diligence to insure that the transmission reaches the offeror. The Internet raises unresolved questions about how the mailbox rule should be applied to electronic communications. In the ideal situation, communications on the Internet can be transmitted quickly worldwide, regardless of distance. As such, it can be argued that the mailbox rule should not apply to Internet communications in the same way that it would not apply to other forms of substantially instantaneous communication. However, transmissions on the Internet may sometimes be slowed or delayed by computer or telecommunications failures, or by heavy Internet traffic or usage. In such cases, Internet transmissions could take hours or days to reach the intended recipient. Also, transmissions could arrive out of order. In such instances, it can be argued that the mailbox rule should be applicable to communications over the Internet.

The timing of the contract formation can be important when computers are used in contracting, or when computer hardware, software, equipment, or services are the subject of the contract or transaction. At common law, the offeror may revoke an offer until such time that an offeree accepts it. Upon acceptance, an offeror can no longer revoke an offer and an offeree cannot retract its acceptance. In contrast to the mailbox rule' s provision that an acceptance is effective upon sending, a revocation of an offer is effective upon receipt by the other party. Thus, once an acceptance has been sent, an offeror' s subsequent revocation of the offer would be ineffective under the mailbox rule. Similarly, if an offeree sends an acceptance before a revocation is received, a contract would still be formed. An offeree who changes his mind after sending an acceptance and subsequently sends a rejection of the offer is still bound by the contract created upon dispatch of the acceptance.