Basics of Contracts: Offer and acceptance
(Once again..this entire article does not constitute legal advise. It does not represent the views/opinions/advise of the organisation I work for..blah blah.. c’mon…we should all know this by now yes?)
Last week I discussed the generalities of contracts for an overview of how contracts work. To recap; not everything on your contract is enforceable. Vice versa, if something is not written on a contract does not mean it is not enforceable and verbal contracts are very much contracts as well.
This week, we’ll start with the bedrock of the formation of a contract – the offer and an acceptance.
We make plenty of promises with each other everyday, but what constitutes a contract and what does not? It all boils down to this: an offer must be made, the other party must communicate acceptance of the offer and money must be exchanged for the offer.
That’s all. Simple isn’t it?
You see, it all comes down to this logic: that two parties want to bind themselves in a legal manner. They would have made correspondence and come to an agreement. (There are some legal arguments that say there is no need even for a strict offer and acceptance, but that is a bit much for a layman’s understanding)
But we all know life cannot be so simple… otherwise, what do we pay lawyers for right?
So here’s a question: Can a contract arise without communicating acceptance? What if a client asks you to start work, without first giving you a contract. Can you enforce payment?
The answer is: It is possible to seek payment. This is understood as acceptance by conduct. If you have been asked to do things, or act as if the arrangement had been agreed… then a contract would be deemed to have been formed.
So if your client had not signed any contract with you, but asked you to do this and that…arrange for photoshoot, start mockups for a website etc… it does constitute a contract. When push comes to shove, you can at the very least demand payment for part performance (known as “quantum meruit” in legalese).
Several years ago, I had a client who asked me to do a lot of work developing a website. Two weeks into development he wanted the mechanisms, look and feel of the site changed completely. I refused to take the new orders and refused to refund him his deposit. He was furious, but it would have been unfair for me to acqueiese to his demands. It cost my business time and money working on the agreed concepts. To take the project in a different direction requires termination of the existing contract and a new one negotiated.
Oh, he was furious… he didn’t have a contract signed with us and threatened to sue. When clients get angry, they invent all sorts of legal concepts convenient to them. If I had went his way, I would have done my staff a very big disfavour, because they had suffered detriment as well. Always stick to the rule of law, don’t get shoved around by circumstance.
All this… all this must come with a disclaimer. There is such a thing as unilateral amendment clauses. Be careful of these. I will discuss them at the end of this article.
Anyway, there are other ways that a contract can arise without acceptance. Think about the concept of a poster for a lost dog, reward $2000 if found. It is not possible for the owner to wait to accept phone calls from every resident in an estate agreeing to a contract. Go and find the damn dog, if you find it the money is yours. These are called “unilateral contracts”, but these have little application in the business of freelancing.
In Singapore, we’re all very impatient people. We make phone calls to freelancers, call for a verbal quote and assume that a job had been arranged. This is unsafe and unprofessional practice.
Here’s a real life scenario I read on Facebook from a performing artist:
Qn: Someone called me over the phone and asked me how much I would charge to perform a concert. I gave him a rough idea and now he wants to hold me to the price. Is that a contract?
Ans: Unlikely. An offer must be a clear communication that you will sell a product/service at a price. Casual communication on the phone is merely an “invitation to treat”. You’re prepared to negotiate, but it is not an offer yet. Generally speaking, advertisements are not an offer and are invitations to treat. For commercial work, the clearest communication of an offer is the quotation.
You must have read of how some websites have made mistakes in publishing prices online. To figure out whether or not this is an offer or an invitation to treat, requires some investigation into whether or not the site is a store or a point of information.
To be safe, always practice giving quotations…and put an expiry date to the price on the quotation.
Ok, on to the next scenario:
Qn: My client was very eager to start a project, but had went silent for a few days. Can I proceed with work? Even better, what if I have a clause that says “This project will be deemed accepted if no communication is heard from by the 15th of XXXX.” Have I found a hack to the contract?
Ans: There are two lessons to be learnt here.
1.) The general principal is, you cannot accept an offer by silence.
2.) The Courts have enough argument to make that clause invalid. Inserting clauses that are ambiguous, over-protects one party or is unclearly written puts that clause at risk.
Qn: My client had accepted the offer, but sent me an email that disagreed with the price. Can I start work on the project?
Ans: Best not to start work yet. When a counter-offer is given, it destroys the original offer. You must accept that before a contract is formed.
Ok, we’ll do one last question and that should just about cover some of the more common scenarios seen in offer and acceptance.
Qns: Can me or my client change our minds after an offer had been accepted? Can we alter clauses later?
Ans: Generally no, BUT this can be provided for. So unless provided for, no party may change clauses on a contract without the acceptance of the other. You may not unilaterally change a contract. If you want to do so, you can insert clauses that allow for this.
Look out for words that sound like: “We may change our payment terms, job scope, requirements and/or other terms and conditions of this Agreement in the future. Unless this Agreement or applicable law specifies otherwise, we will give you thirty (30) days prior notice of any significant change to this Agreement.”
These clauses if agreed to, are binding and are hard to escape. If you must have these clauses (they can be positively useful actually), please practice good business ethics not let the other party suffer.
There is a lot, a lot, a lot more about offer and acceptance that is not discussed here. What I’m trying to do is just to provide a brief overview and some fundamental knowledge. There are a million other scenarios, many ways to deviate from standard principals, new legislation written and arguments tested in ways we never thought of. That’s why lawyers read so much and that is also why you pay them so much 🙂
The problem with our attitude to contracts, is that we see them as a mere handshake. Or worse, a magical document that enables us to start work. A contract is a serious agreement between two parties and no agreement can take place without lots of conversation, a bit of arguing and some give and take.
To have a sustainable contracting relationship, both purchaser and vendor must discuss each clause one by one. Consider the implications, roles and responsibilities each party bears. Give time for each other to think through and respond. Never hurry through the process of a contract.
Next week, we’ll talk a little bit more about these things called “Implied Terms”. Terms that are not written in a contract, but binding nevertheless.