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What Is Acceptance in Contract Law? - Definition, Rules & Examples

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  • 0:07 Binding Elements of a Contract
  • 1:44 Means of Acceptance
  • 4:26 Mailbox Rule
  • 6:35 Summary
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Instructor: Kat Kadian-Baumeyer

Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses.

There are essentially six elements in a contract. Once an offer is made, the next element is acceptance. Offer and acceptance combined with consideration make for the glue that creates a binding contract.

Binding Elements of a Contract

So you are walking down the street and notice a basket full of seven kittens in a pet shop window, along with a sign that states, 'Kitten Sale - $10 Today Only.' Naturally, you want a few extra cats, and this is a great deal, so you decide that you're going to take them all home.

You walk in and meet with the shop owner who accepts your $70, and wrangles the felines for their final journey home. This seems like a simple transaction, but it actually represents the three elements of a contract that create a binding agreement - offer, acceptance and consideration.

An offer is an open call to anyone wishing to accept the promise of the offeror and generally, is used for products and services. Acceptance occurs when an offeree agrees to be mutually bound to the terms of the contract by giving consideration, or something of value like money, to seal the deal. Keep in mind that acceptance follows the mirror image rule, in that acceptance is valid if the product or service rendered is exactly what was contained in the offer. We will come back to that in a moment.

There are a few more elements that are equally important, but deal with the legalese of contract law, like mutually agreeable terms, meaning the terms of the contract are something both parties are willing and able to fulfill. There is also capacity, which requires that each party to a contract be of sound mind (free of mental illness or intoxication) and be of legal age. And there is also legally acceptable terms. This means the contract cannot have any promises that are unlawful or illegal to perform.

Ways Acceptance Can Be Conveyed

Generally speaking, acceptance occurs when the offeree expressly accepts the offer made by the offeror, like paying the asking price for the kittens. This binds both parties to the agreement. You cannot return the kittens, and he cannot demand them back without getting into some type of legal tangle. However, there are other means of acceptance in contract law. Let's explore a few ways in which offer and acceptance occurs sans an expressed agreement: a purchase order and the mailbox rule.

The Uniform Commercial Code, or UCC, is a body of rules that govern the sale of goods and other commercial transactions in the United States and looks at the use of a purchase order as an invitation to accept an offer. To elaborate, when a company issues a purchase order, what they are really doing is making a written, expressed promise without consideration to purchase products or services from another company that require prompt shipment. Since consideration is necessary to make a contract binding, the UCC made a rule that, although consideration is not exchanged in a purchase order for immediate shipment of goods, it remains acceptance.

An example may help. Jack's Fruit Company received a purchase order from Yummy Plum Smoothie Shack for the delivery of 100 cases of red plums. Jack has accepted the offer to purchase based on the purchase order in action, as demonstrated when Jack's farmer picked and packed the fruit and immediately sent the shipment out to Yummy's. Upon receipt of the plums, Yummy's accepted the fruit, and it is expected that it will be paid for either on the spot or according to the terms of the original purchase order.

Here is where the mirror image rule applies. When Yummy's received the plums, they must be exactly what was ordered. If the shipment contained peaches or avocados, the contract is void, and Yummy's is not responsible to accept or exchange consideration for the fruit, because it is not what was expected. On a side note, in some states, merely sending a product to another person does not constitute offer and acceptance.

Maybe this will make things more clear. Suppose you receive a new cookbook in the mail. Not sure where the cookbook came from, you further investigate that a culinary magazine you subscribe to is the sender. You never ordered this book nor do you wish to pay for it. If you live in California or other states with similar laws, you can keep the book without payment. It is considered an unconditional gift under the UCC, giving you the right to do with this book what you please. Re-gifting is always a good idea! Acceptance may also be conveyed to the offeror through mail or even email. With technology far surpassing laws to protect those who enter into a contract, the mailbox rule may extend to include such transmissions as email.

Let me explain. The mailbox rule applies when a valid offer is sent by mail, email or fax machine to the offeree within an established timeline. To simplify this, an offeror can send an offer to an offeree stating specific terms and conditions. By placing this offer in the mailbox with appropriate postage, it will be considered a valid offer. The offeree, in turn, may accept the offer by communicating the acceptance in writing. It is valid once placed in the mailbox for return to the offeror.

Although the mailbox rule does not fully recognize email as a form of acceptance, it is becoming more acceptable. There is still much deliberation about whether an email is an instant form of communication, like a courier or even a telegraph or fax. However, in many cases, it is considered a way of acceptance.

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