3-28-2016 | by Benjamin Fleshman
Understanding the ins and outs of contract negotiations requires at least a working knowledge of some of the guiding principles behind contract common law. Understanding these principles can help you when drafting and negotiating contracts. Below is an introductory guide to some common law doctrines, particularly the mirror image rule, to guide you through the contract lifecycle process.
The Mirror Image Rule
The mirror image rule is a common law principle of contracts. It states, simply, that an acceptance must be on the same terms as the offer in order to have a contract. In practice, it’s really very straightforward. You’ve probably been using this principle since childhood, but didn’t realize it.
Suppose you propose to sell your neighbor your old car. You tell him that it comes with a new radio that you’ve just installed, a fresh paint job, and brand new tires. At this point, for there to be an agreement, he has to accept the terms as they are offered to him.
He can choose to counter offer and request that you first replace the headlights, and then he will be the car, but this means that he does not accept your agreement. You can elect to accept his offer, at which point you have agreed to the terms as they were proposed and the mirror image rule takes effect. If you don’t agree, then there is no agreement.
Caveat Emptor (Let the Buyer Beware)
Though certain actions do indeed void contracts, in the case of caveat emptor, the burden of making sure that the transaction is equitable for the purchaser is placed on the purchaser. If the deal is not favorable for the purchaser, that fact does not void the agreement. In order for an error to be considered “operative” in the contract, however, and void the whole thing, it must be an error of fact and not of judgment. A good example is if you go purchase a car for $25,000, when it was really only worth $12,000, that is an error of judgment and not of fact, so the error does not render the sale or contract invalid.
Posting Rule (Mailbox Rule)
Another common law term, the posting or mailbox rule is a way of determining when a contract has been formed when the parties involved have been communicating and negotiating via mail. The general gist of the rule is that an acceptance of the contract, when mailed before a revocation of the proposed terms is received in the mail, is considered to be the acting judgment.
As an example, suppose John sends a contract in the mail to Suzy on Monday. On Tuesday, however, John has decided that he does not want to go through with the contract and sends a revocation letter in the mail. Meanwhile, Suzy has perused the proposal, signed it, and on Wednesday she sends it back to John. Thursday, she receives the revocation in the mail.
This doesn’t matter, though, because she agreed to the terms of the contract before the revocation was received, and the contract is therefore valid.
These days, however, the mailbox rule is not commonly invoked. Why? Because most contracts are moving to a digital stage. Managing your contracts online has made the posting rule obsolete. Instead of sending contracts in the mail, your company can negotiate contracts online in real time, even with people across the world. Offers and counteroffers can be weighed, considered, written into the contract, and agreed upon. Available information abounds to avoid embarrassing purchases that harm you or your company. Essentially, switching to an online contract management system simplifies your life when dealing with contract common law.