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Acceptance Theory and Mutual Manifestation of Assent

Compare and contrast traditional offer and acceptance theory with the theory of mutual manifestation of assent. With the view to having a coherent theory of agreement, which theory is preferable and why or in what circumstances.

I. Introduction

The volume and the complexity of economic transactions in the modern life have imposed the formulation of a detailed documentation, which has as major role the provision of evidence for the parties' intentions. In this way, the contract has become a necessary tool for the successful completion of an agreement having the power to bind the parties in front of the law. Moreover, after having examined for its validity, it provides evidence as for the intention of the parties to be legally bound and to proceed to the realization of a series of actions in the way that is described in the document.

Because of the disputes that usually occur in a contractual agreement, a lot of effort has been made towards the analysis and the explanation of the circumstances, the validity and the real content of this kind of agreement. Trying to find a general accepted interpretation of the real intentions of the parties, the modern legal theory has proceeded to the separation of the contractual principles to those, which are related with the contract formation, and those, which deal with the contract interpretation.

The first part of the analysis, the contract formation, refers to the existence or not of intention to the parties to be legally bound in an agreement, the content of which defines the obligations and the rights of each one of the participating parties. The second part, the contract interpretation, has as main task the understanding and the explanation of the content of an agreement (which has previously examined for its validity and have been proved that it completes the legal standards of a contract).

The present paper examines the two most known theories related with the contract formation; the theory of offer and acceptance and the theory of mutual manifestation of assent.

The above analysis will try to find which of these theories presents the most coherent behaviour when the agreement refer to the real world (i.e. in existing contracts that have been put under examination for their validity and their content).

II. The theory of offer and acceptance

A. Analysis and content of the theory

In order for the theory of offer and acceptance to operate, it is necessary that a fact or a series of facts take place between two persons. First of all we must have an offer i.e. a proposal of agreement from one party (the offeror), which have to be directed towards the other party (the offeree). The intention of the offeror to proceed to an agreement (even if the intention to make an offer) is not prerequisite for the validity of the offer. From the moment that the offer was addressed to the offeree, begins to exist as a separate legal act. As soon as, the offeree receives the offer, it's on his/her hand to accept or to refuse it. If the offeror didn't mean to make the offer (or he/she didn't understand that his action could have legal consequences) and the offeree answer positive to it, then the former is bound by the offer even against his real intentions. On the other hand, the offeree is bound to the agreement, from the moment he receive the offer and act in a manner that under logical explanation can lead to the assumption that he/she accepted the offer. In other words, for both parties the real intention for agreement is not absolutely necessary. The existence of intention, which can be assumed in realistic terms by the behaviour and the acts of either of the parties, can formulate a binding agreement.

B. Problems related with the application of the theory

The application of the theory of offer and acceptance is depended from a number of elements. First of all there must be evidence for the offer done and for the acceptance that followed it. This means that in cases of absence of proofs either of the offer and the acceptance, the above theory cannot operate. In case of Macrobertson Miller Airline Services v. Commissioner of State Taxation (1975) the court stated: the offer in writing, which is accepted orally, or by conduct does not become an agreement or memorandum of agreement within the meaning of the Stamp Act (par. 12 of the decision). However, the court accepts that if the offeree proceed to the agreement (thinking of it as a valid one) and the offeror act in a way that shows his intention to be bound by the agreement, then the former absence of written proof can be 'healed and a valid contract begin its existence. In the specific case, it was considered that the ticket that has been issued to a passenger and has been accepted by him orally or by conduct, is not an agreement or a memorandum of agreement. The contract, according to the Court, arises when the passenger presents the ticket and embarks on the carriage (p.15 of the decision).

We have to notice here that when the evidence of the contracted agreement presents elements of uncertainty regarding the final realization or not of the specific agreement, only the Court, which decides for the existence or not of a valid contract, can solve the problem. In the case of Brambles Holdings Limited v. Bathurst City Council (2001) the Court had to decide whether a letter constitute contractual offer which can vary an existing contract creating furthermore a new contract between the parties of the first agreement. Another problem in the above case was the analysis of the language of the offer, i.e. in cases that this language presents ambiguous elements.

The Court had also to decide for the subjects that could be examined during a hearing for a contractual dispute as well as when this hearing could be held, i.e. in which stages of the contractual agreement.

According to the rules applied in the above case, the pre contractual conduct can only be accepted when it is going to help the explanation of the terms included in the contract, its valid creation and its real aim. The prerequisite for a pre-contractual contact to take place is that the content of the contract can be characterized as ambiguous. After the creation of a contract a permission can be granted for a post-contractual conduct but the subject that will be examined will refer to whether a contract have formed or not, and in no case which was the meaning of the contract (paragr. 23-26). The decision of the Court if a contract has been formulated or not (and subsequently the obligations and the rights of the parties) is based to objective criteria and not to the personal beliefs of the parties. The Court will examine first if all the objective terms of a valid contractual agreement have taken place and if this is extracted as proven (by the examination of the evidence according to the relevant law provisions) then the parties are considered as bound by the agreement and the Court orders all the necessary measures for the contract to be executed in accordance with its content.

Another point that needs to be clarified in the offer and acceptance theory is the exact content of the contract that has been created after a series of forms exchanged between the parties. The main problem is, when these forms include different terms and conditions, which will be exactly the valid agreement. Will this question be answered by using the priority of the latest term or by the examination of the terms that each party proposed (with the validity of the ones that seemed to have been accepted by each party)? In the case of Butler Machine Tool Co Ltd v. Ex-Cell-O Corporation (1977) the main problem was the definition of the exact terms that were contained in a contractual agreement between them especially after an exchange of forms with different terms between the parties. In the above case the Court decided that the acceptance of an offer, which contains terms, that modify the ones of the offer, can alter the content of the offer in a way that in the final contract the terms will be those of the offer but modified in accordance to the acceptance.

The above difficulties that usually follow the application of the theory of offer and acceptance can be confronted with the provision of sufficient evidence when contracting and the effort to keep track of all the proposals that arise during the negotiation process.

III. Theory of mutual manifestation of assent

A. Analysis of the theory - applications

The contractual agreement between two parties can be achieved mainly by two ways: the first one is the offer and acceptance method (which is described above) and the second one is the mutual manifestation of assent. According to the second theory - which, like the first one, refers to the stage of the formation of a contract - the construction of a contract can be realized by the mutual decision of two parties to proceed to an agreement under the terms that the two parties also decide mutually. The agreement as a whole is usually included in a single document, the main characteristic of which is the manifestation of the intention of the parties to be bound under a mutually decided net of terms, having the stated rights and obligations.

The above theory can be characterized as the 'plain' and 'main' theory of a contractual agreement. The basis of every contract is the mutual decision of the parties and their intention to be bound in a pre-decided agreement. The theory can take place in every occasion that the intention of the parties is being expressed at the same point of time and at that moment their decision is formulated in a contractual agreement with a sole legal action (the construction of the contract). We have to notice here that, because of its nature, this theory tend to apply in complex contractual agreements, i.e. when the terms have to be analytically explained and stated due to their number and their construction.

B. Problems related with the application of the theory - comparison with offer and acceptance theory

The theory of mutual manifestation of assent is usually used when the parties can proceed to a mutual decision and create a document, which will include all the terms, the rights and the obligations related to the agreement. However, this type of contractual behaviour is less applicable to the occasions that each of the parties tries to impose their own terms and to alter the final agreement until the last stage of the whole procedure. The exchange of forms between the parties has the purpose to achieve the satisfaction of the interests of one party against the interests of the other one. The above theory cannot be applicable under these circumstances and the theory of offer and acceptance can be used instead to ameliorate the completion of the transaction (in any case, for the disputes that may will be arisen, the Courts can provide a solution).

On the other hand, the theory can face difficulties when referring to the change of one or more of its terms and conditions. The mutual decision of the parties is necessary to proceed to an alteration of the first agreement and there is no space for claims based on exchange of forms which could modify the contract even by the initiatives of the one party (this could be happen when the other party does not respond properly expressing its intentions - offer or acceptance can be assumed after the realization of some logical facts, as it was explained before). Under these terms, the position of the parties is more difficult as in every occasion that a modification of an agreement is considered necessary; this has to be with the mutual decision of the parties when the first contract was characterized as constructed under a mutual manifestation of assent.

We have to notice that the modification of a valid contract can in any stage take place by a document sent by the one party and accepted by the other. But when it was declared primarily - i.e. in the first agreement - that any modification could only happen with a document signed by both of the parties - which is often the case in contracts made by mutual decision of the parties - then the previously described methodology of forms sent by each of the parties cannot be followed (in the case that both of the parties have sent to each other forms containing exactly the same modifications, the prerequisites of the legal modification of the first agreement may have been completed).

Conclusion

The two theories seem to have common elements at least in their role. Both of them are being used to explain the nature and the extension of the obligations and the rights of the parties that have come to a contractual agreement. They are also creating the legal basis for the exploitation of the intentions and the aims of the parties involved in a contract. Although they have both strengths and weaknesses, the superiority of the theory of mutual manifestation of assent can be characterized as obvious.

While trying to verify the existence of a contract, the first logical step is to examine the fulfillment of all the requirements related with its validity. The application of the theory of mutual manifestation of assent should be a priority and in case that this theory was proved as not applicable, the use of the offer and acceptance theory could - as a last available choice - justify the involvement of the parties in an agreement.

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