The general rule to determine where and when a contract has been concluded is the offer and acceptance theory. This theory states that a contract is formed when one party (offeror) makes an offer to another party (offeree) and the offeree accepts that offer. The moment of acceptance is considered the point at which the contract is concluded.
In terms of determining the place of contract formation, the general rule is that a contract is formed at the place where acceptance is communicated to the offeror. This is known as the receipt rule.
For example, if an offer is made by letter and the offeree accepts the offer by mailing a letter of acceptance, the contract is formed at the place where the letter of acceptance is received by the offeror. This is because the offeror is not bound by the contract until the offeror has received and accepted the offeree’s offer.
However, there are a few exceptions to the receipt rule:
- If the offeror specifies a place of acceptance in the offer, the contract will be formed at that place, even if the offeror receives the acceptance in a different place.
- If the parties agree to a different place of acceptance, the contract will be formed at that place.
- If the contract is formed through instantaneous communication, such as email or instant messaging, the contract will be formed at the place where the offeror is located when the acceptance is received.
The offer and acceptance theory in the digital age
The advent of electronic communication has raised some new challenges for the application of the offer and acceptance theory. For example, if an offer is made by email and the offeree accepts the offer by replying to the email, when is the contract formed?
In general, courts have applied the receipt rule to email contracts, meaning that the contract is formed at the place where the offeror receives the acceptance. However, there are a few factors that courts may consider when determining when the offeror received the acceptance, such as:
- The time zone difference between the parties.
- Whether the offeror’s email server was down at the time the acceptance was sent.
- Whether the offeror had set up any filters on their email account that would have prevented them from receiving the acceptance.
Other theories of contract formation
In addition to the offer and acceptance theory, there are a few other theories of contract formation that have been developed over the years. However, these theories are not widely accepted and are generally only applied in limited circumstances.
One such theory is the mailbox rule. This theory states that the contract is formed when the offeree mails their acceptance, even if the offeror never receives it. This theory is based on the idea that the offeree has done everything they need to do to accept the offer by mailing their acceptance.
Another theory of contract formation is the reliance theory. This theory states that the contract is formed when the offeree relies on the offeror’s offer and suffers a loss as a result of that reliance. This theory is based on the idea that the offeror should be held accountable for the offeree’s losses if the offeror has led the offeree to believe that a contract exists.
Conclusion
The offer and acceptance theory is the general rule to determine where and when a contract has been concluded. However, there are a few exceptions to this rule, such as when the parties agree to a different place of acceptance or when the contract is formed through instantaneous communication.
Courts will generally apply the receipt rule to email contracts, meaning that the contract is formed at the place where the offeror receives the acceptance. However, there are a few factors that courts may consider when determining when the offeror received the acceptance, such as the time zone difference between the parties and whether the offeror’s email server was down at the time the acceptance was sent.
Other theories of contract formation, such as the mailbox rule and the reliance theory, are not widely accepted and are generally only applied in limited circumstances.