Contract Law

What Makes a Contract Valid?

Offer and Acceptance

To prove that a contract is valid there must be facts identifiable as an offer and as the acceptance of that offer.

 

A mere ongoing relationship of trust and cooperation is not going to qualify as a contract. There needs to be a definite commencement to the contractual aspect to the relationship with the recognition of rights and obligations evident. This is especially important when enforcing contracts implied by conduct. The parties’ intentions must mirror each other, which is referred to as the meeting of minds.

 

The acceptance of a contract needs to be manifested somehow. The test of whether the offeree has accepted depends on how a reasonable bystander would judge their conduct. This is dealt with in Empirnall Holdings v Machon Paull Partners[1] where an architectural firm hired a builder, but the architects refused to sign the written contract. The builders agreed to continue without signatures anyhow. By the time of appeal the only question left was whether there was a valid contract contained in the written but unsigned terms.

 

The court ruled that mere silent acceptance is insufficient to create a contract. There must be an external manifestation of assent. After a reasonable period, silence is seen as rejection. There can be no binding by default of a person by another because of the principle of freedom of contract. But under some circumstances silence can amount to acceptance. Customs of a trade, the course of dealing or the previous relationship of the parties may have this effect.

 

The Postal Rule

Where an offeror issues an offer to be accepted by post, the date of the acceptance is the date on which the offeree sent their acceptance. If the offeror sent a further letter revoking the offer, this is dated by when the offeree received it. The same principle will apply to modern electronic communications of all sorts.

 

[1] Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523.