Offer and Acceptance

By David Burrough

In the midst of negotiations for the purchase of a motel parties haggle over price, dates and terms.  We wish to alert you to some of the pitfalls of these pre‑contractual negotiations and agreements.

Negotiations should canvass the five cornerstones of a binding contract as follows:

1.       Offer

2.       Acceptance

3.       Certainty

4.       Consideration

5.       Intention to create legal relations.

During pre‑contractual negotiations it is commonplace that a letter of offer and acceptance is executed by the parties.  The parties reach agreement upon terms of a contractual nature and may also agree that the subject matter of their negotiation is to be dealt with a by a formal contract.  At this point the agreement reached may belong to any of three cases:

(1)     It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.

In cases falling within (1) the parties, having reached finality in negotiating the terms of their bargain, are immediately bound by the agreement and neither party may withdraw.  Although strictly the more formal agreement, once entered into, discharges and replaces the earlier agreement, execution of the document is a matter of formality.

(2)     It may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document.

In cases falling within (2) the parties have also reached finality in negotiating the terms of their bargain, and are immediately bound, but the obligation to perform the contract is postponed until the execution of the formal document.  In carrying out specific performance of such a contract the first step is the ordering of the settlement and execution of a formal contract.

(3)     The case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

Agreements falling into cases (1) and (2) have numerous drawbacks especially for the purchaser.  An error in an offer and acceptance document can render you liable for extra stamp duty if the wrong purchasing entity is named in the contract.  We recommend that you take experienced professional advice prior to signing on the dotted line.