Offer and acceptance are essential to the formation of a valid contract.
In the formation of a contract, one of the dangers which a party will likely encounter is the presence of contract loopholes. The focal point of this article will be offer, acceptance and how to avoid loopholes in contracts.
OFFER
An offer is the starting point of a contract. For a contract to exist, a party must first make an offer to another party. The contract is formed upon the acceptance of the offer by that other party. The party making the offer is referred to as the offeror. The party to whom the offer is made, is referred to as the offeree.
An offer must be unambiguous, unequivocal, precise and must leave no room for speculation as to its real content. An offer must clearly convey that the offeror intends to enter into a contract with the offeree. An offer must be with the clear intention that it shall become binding on the offeror as soon as it is accepted by the offeree.
An offer may be made expressly (by words or in writing) or impliedly (by conduct). For example, a salesperson who offers to sell his goods to a potential customer for a certain price has made an express offer. On the other hand, a bus driver who stops his bus at a bus stop is making an implied offer to a person waiting at the bus stop.
In the case of an express offer, the intention of the offeror is what matters in deciding whether or not a contract exists. While in the case of an implied offer, what matters is what a reasonable person will infer from the conduct of the offeror. In the first example given above, the words spoken by the salesperson to the customer will be looked at to determine whether or not he made an offer. In the second example, the question to be asked will be “what will a reasonable person infer from the stopping of the bus at the bus stop?”
ACCEPTANCE
Acceptance is the element that emphasizes the bilateral nature of a contract. An offer without acceptance can not form a contract. The two elements must co-exist before a contract can come into being.
Acceptance of an offer has been defined to be the reciprocal act or action of the offeree to the offer made by the offeror, in which the offeree indicates his agreement to the terms of the offer.
For an acceptance to be valid it must be clearly communicated to the offeror. This communication must be done through a means by which the law can infer acceptance such as through words spoken or an act done by the offeree or by a person authorised by the offeree. Therefore, an acceptance, like an offer, can be done expressly (by words or in writing) or impliedly (by conduct). As such, silence and mere intention to accept do not constitute acceptance.
It must be emphasized that an acceptance must be in tune with the terms of the offer made. A counter-offer therefore does not constitute acceptance. For example, I offer to sell you a chair for 100 naira and you offer to buy it for 90 naira. Your offer of 90 naira does not mean you have accepted my offer.
Also, an acceptance made subject to the fulfilment of a condition is neither valid nor binding. This is because such an acceptance cannot form a binding contract until that condition has been fulfilled.
An agreement made “subject to contract” means the incidence of liability is postponed until a formal document is drawn up and signed. It is a non-binding agreement. It indicates parties’ intention not to be bound until a formal contract is executed. This is common in contracts for the sale of land.
In addition, a cross offer does not constitute acceptance. A cross offer occurs when two offers that are identical terms, are sent by two parties to each other, each party being in ignorance that the other party has made the same offer. For example, I send you an email offering to sell my chair to you for N100, in ignorance of this email, you send an email to me offering to buy my chair for N100. This does not in any way mean either of us has accepted the other’s offer. It just means there are two identical offers and no acceptance.
CONTRACT LOOPHOLES
Loopholes in contracts constitute of deliberate omissions by a party to a contract and/or ambiguities deliberately imputed by a party to a contract, in order to provide a way out of previously stated requirements. Never be in a hurry to go into a contract. Take your time to carefully read the terms of the contract. If a certain term is ambiguous, insist that it is written in a way that clearly portrays its intention. If you are unsure of or do not know the implication of a certain term, consult a lawyer or a professional in the area concerned for clarification.
Examples of common loopholes to look out for are;
In contracts of employment; Contract terms with “at will” clauses mean your employment can be terminated at will. That is, your employer can sack you at any time even without cause. Further, it means he is not under any obligation to give you prior notice or severance pay. Watch out for this before signing any employment contract!
No specific dates: All contracts should have specific dates of fulfilling all the terms. When will the contract be terminated? When is the payment to be made? In the case of payment by instalment, the dates each instalment is to be made should be clearly written. As such, phrases like “as soon as possible”, are ambiguous and do not give a specific timeline.
Foreign laws: Entering into a contract which is subject to a foreign law requires a high level of caution. This is because some of the rights or protection which you may be ordinarily entitled to under the law of your country, may not be recognized by the foreign law. Make sure you know the provisions of that law regarding the contract before signing the contract. Know the answers to questions like, What rights do I have under the law? What liabilities do I have under the law? In the case of breach by the other party, what reliefs are available to me?
These are just a few loopholes to look out for. The list is endless as loopholes can be framed in various ways.
The best option is to ensure that you involve a lawyer in all your contracts so that you don't fall prey to contract loopholes.
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