I. A. Mutual assent

d. Effect of additional or different terms-- mirror image rule vs battle of the forms

1) Common-law mirror-image rule The acceptance must mirror the terms of the offer. Any change to the terms of the offer, or the addition of another term not found in the offer, acts as a rejection of the original offer and as a new counteroffer. Mere suggestions or inquiries, including requests for clarification or statements of intent, made in a response by the offeree do not constitute a counteroffer. A conditional acceptance terminates the offer and acts as a new offer from the original offeree. 2) UCC rule—acceptance contains additional or different terms The UCC does not follow the mirror-image rule. Additional or different terms included in an acceptance of an offer do not automatically constitute a rejection of the original offer. Generally, for a sale of goods, an acceptance that contains additional or different terms with respect to the terms in the offer is nevertheless treated as an acceptance rather than a rejection and a counteroffer. An exception exists when the acceptance is expressly conditioned on assent to the additional or different terms, in which case the acceptance is a counteroffer. UCC § 2-207(1). Whether the additional or different terms are treated as part of the contract depends on whether one of the parties is a merchant. a) Both parties are not merchants When the contract is for the sale of goods between nonmerchants or between a merchant and a nonmerchant, a definite and seasonable expression of acceptance or written confirmation that is sent within a reasonable time operates as an acceptance of the original offer. This is true even if it states terms that are additional to or different from the offer, unless the acceptance is made expressly conditional on the offeror's consent to the additional or different terms. The additional terms are treated as a proposal for addition to the contract that must be separately accepted by the offeror to become a part of the contract. UCC § 2-207(2). b) Both parties are merchants—battle of the forms EXAM NOTE: The MBE has consistently tested the situation in which both parties to the contract are merchants. In this situation, remember that a contract exists under the terms of the acceptance, unless (i) the terms materially alter the agreement, (ii) the offer expressly limits the terms, or (iii) the offeror objects to the new terms within a reasonable time after notice of the new terms is received. When both parties are merchants, the parties often use sales forms that might not be designed for the particular sale in question. As a consequence, the acceptance often contains different and additional terms. In this "battle of the forms" over whose terms will form the basis of the contract, the rules may vary depending on whether the terms are additional terms or different terms. i) Acceptance includes additional terms An additional term in the acceptance is automatically included in the contract when both parties are merchants, unless: i) The term materially alters the original contract; ii) The offer expressly limits acceptance to the terms of the offer; or iii) The offeror has already objected to the additional terms, or objects within a reasonable time after notice of them was received. If any one of these three exceptions is met, the term will not become part of the contract, and the offeror's original terms control. UCC § 2-207(2). "Materially Alter": Examples of terms found to have materially altered the original contract include a warranty disclaimer, a clause that flies in the face of trade usage with regard to quality, a requirement that complaints be made in an unreasonably short time period, and terms that surprise or create hardship without express awareness by the other party. Terms that usually do not materially alter the contract include fixing reasonable times for bringing a complaint, setting reasonable interest for overdue invoices, and reasonably limiting remedies. ii) Acceptance includes different terms The courts in different jurisdictions disagree as to the result when different terms are included in the merchant offeree's acceptance. A few jurisdictions treat different terms the same as additional terms and apply the rule described above. Most, however, apply the "knock-out" rule, under which different terms in the offer and acceptance nullify each other and are "knocked out" of the contract. When gaps are created after applying the knock-out rule, the court uses Article 2's gap-filling provisions to patch the holes. (See § I.A.2.a.3.c. Missing terms, above.) c) UCC rule—acceptance based on conduct If the offer and purported acceptance differ to such a degree that there is no contract, but the parties have begun to perform anyway (i.e., demonstrated conduct that recognizes the existence of a contract), then Article 2 provides that there will be a contract, and its terms will consist of those terms on which the writings of the parties agree, together with any supplementary terms filled in by the provisions of the

1) Intent

A statement is an offer only if the person to whom it is communicated could reasonably interpret it as an offer. It must express the present intent of a person to be legally bound to a contract. As noted above, the primary test of whether a communication is an offer is based on the objective theory of contracts; i.e., whether an individual receiving the communication would believe that he could enter into an enforceable deal by satisfying the condition.

c. Acceptance

An acceptance is an objective manifestation by the offeree to be bound by the terms of the offer. The offeree must communicate the acceptance to the offeror. Only a party to whom an offer is extended may accept or, if the offer is extended to a class, a party who is a member of the class may accept. An offeree must know of the offer upon acceptance for it to be valid. In addition, the offeree must communicate the acceptance to the offeror. Commencement of performance of a bilateral contract operates as a promise to render complete performance. Restatement (Second) of Contracts § 62. 1) Bilateral versus unilateral offer The offeror can detail the manner of proper acceptance. A bilateral contract is one in which a promise by one party is exchanged for a promise by the other. The exchange of promises is enough to render them both enforceable. An offer requiring a promise to accept can be accepted either with a return promise or by starting performance. Commencement of performance of a bilateral contract operates as a promise to render complete performance. A unilateral contract is one in which one party promises to do something in return for an act of the other party (e.g., a monetary reward for finding a lost dog). Unlike in a bilateral contract, in a unilateral contract, the offeree's promise to perform is insufficient to constitute acceptance. Acceptance of an offer for a unilateral contract requires complete performance. Once performance has begun, the offer is irrevocable for a reasonable period of time to allow for complete performance. Restatement (Second) of Contracts § 62. EXAM NOTE: The offeree of a unilateral contract can accept only an offer that he is aware of. In other words, if the offeree does not become aware of the offer until after acting, then his acts do not constitute acceptance. 2) Means of acceptance The offeror is master of the offer and can dictate the manner and means by which an offer may be accepted. For example, the offeror can require the offeree to accept in writing or to accept by means of a phone call. Unless the offeror specifically requires the offeree to accept in a particular manner or by using a particular means, the offeree can accept in any reasonable manner and by any reasonable means. UCC § 2-206(1)(a). A means of acceptance is reasonable if it was used by the offeror, used customarily in the industry, or used between the parties in prior transactions. Restatement (Second) of Contracts § 65. Even if the acceptance is by unauthorized means, it may be effective if the offeror receives the acceptance while the offer is still open. a) Silence Generally, silence does not operate as an acceptance of an offer, even if the offer states that silence qualifies as acceptance (or, more likely, implied acceptance), unless: i) The offeree has reason to believe that the offer could be accepted by silence, and he was silent with the intent to accept the offer by silence; or ii) Because of previous dealings or patterns of behavior, it is reasonable to believe that the offeree must notify the offeror if the offeree intends not to accept. b) Shipment of goods If the buyer requests that the goods be shipped, then the buyer's request will be construed as inviting acceptance by the seller either by a promise to ship or by prompt shipment of conforming or nonconforming goods. If the seller ships nonconforming goods, then the shipment is both an acceptance of the offer and a breach of the contract. The seller is then liable for any damage caused to the buyer as a result of the breach. If, however, the seller "seasonably" notifies the buyer that the nonconforming goods are tendered as an accommodation, then no acceptance has occurred, and no contract is formed. The accommodation is deemed a counteroffer, and the buyer may then either accept (thereby forming a contract) or reject (no contract formed). 3) Mailbox rule An acceptance that is mailed within the allotted response time is effective when sent (not upon receipt), unless the offer provides otherwise. The mailing must be properly addressed and include correct postage. EXAM NOTE: Keep in mind that the mailbox rule applies only to acceptance, and therefore it almost exclusively applies to bilateral contracts (when there is one promise in exchange for another promise), because unilateral contracts require action as acceptance. a) Rejection following acceptance If the offeree sends an acceptance and later sends a communication rejecting the offer, then the acceptance will generally control even if the offeror receives the rejection first. If, however, the offeror receives the rejection first and detrimentally relies on the rejection, then the offeree will be estopped from enforcing the contract. b) Acceptance following rejection If a communication is sent rejecting the offer, and a later communication is sent accepting the contract, then the mailbox rule will not apply, and the first one to be received by the offeror will prevail. The offeror need not actually read the communication for it to prevail. c) Revocations effective upon receipt Offers revoked by the offeror are effective upon receipt. d) Irrevocable offer The mailbox rule does not apply if the offer is irrevocable, as is the case with an option contract, which requires that the acceptance be received by the offeror before the offer expires. Restatement (Second) of Contracts § 63(b), cmt. f. e) Medium If the acceptance is via an "instantaneous two-way communication," such as telephone or traceable fax, it is treated as if the parties were in each other's presence. Restatement (Second) of Contracts § 64. 4) Notice a) Unilateral contract In a unilateral contract, an offeree is not required to give notice after performance is complete, unless he has reason to know that the offeror would not learn of performance within a reasonable time, or the offer requires notice. If notice is required but not provided, the offeror's duty is discharged, unless: i) The offeree exercises reasonable diligence to notify the offeror; ii) The offeror learns of performance within a reasonable time; or iii) The offer indicates that notification of acceptance is not required. Restatement (Second) of Contracts § 54(2). b) Bilateral contract An offeree of a bilateral contract must give notice of acceptance. Under the mailbox rule, because acceptance becomes valid when sent, a properly addressed letter sent by the offeree operates as an acceptance when mailed, even though the offeror has not yet received the notice. Under the UCC, notice is required within a reasonable time if acceptance is made by beginning performance and failure to do so will result in a lapse of the offer. UCC § 2-206(2).

a. Offer

An offer is an objective manifestation of a willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree. In other words, it is a communication that gives power to the recipient to conclude a contract by acceptance. 1) Intent

1. Objective theory of contracts

In contract law, intent is determined by the "objective theory" of contracts and not by the subjective intent or belief of a party. The objective theory is key to determining whether an offer or acceptance is valid. Whether a party intends to enter into a contract is judged by outward objective facts, as interpreted by a reasonable person. The intent of a party is what a reasonable person in the position of the other party would believe as a result of that party's objective manifestation of intent. Thus, when the other party knew or should have known that the party lacked the intent to enter into a contract, a contract is not formed, whereas the party's mere subjective lack of intent is not sufficient to prevent the formation of a contract. When words express the intent of the parties, the contract is an express contract. When conduct indicates assent or agreement, the agreement is considered implied in fact.

e. Auction contracts

The UCC has special rules for auction sales. 1) Goods auctioned in lots If goods in an auction sale are offered in lots, each lot represents a separate sale. 2) Completion of a sale An auction sale is complete when the auctioneer announces its end, such as by the fall of the auctioneer's hammer or in any other customary way. When a bid is made contemporaneously with the falling of the hammer, the auctioneer may, at her discretion, treat the bid as continuing the bidding process or declare the sale completed at the fall of the hammer. 3) Reserve and no-reserve auctions In a reserve auction, the auctioneer may withdraw the goods any time before she announces completion of the sale. An auction is with reserve unless specifically announced as a no-reserve auction. In a no-reserve auction, after the auctioneer calls for bids on the goods, the goods cannot be withdrawn unless no bid is received within a reasonable time. In either type of auction, a bidder may retract her bid until the auctioneer announces the completion of the sale. A retraction, however, does not revive earlier bids. 4) When the seller bids When an auctioneer knowingly accepts a bid by the seller or on her behalf, or procures such a bid to drive up the price of the goods, the winning bidder may avoid the sale or, at her option, take the goods at the price of the last good-faith bid prior to the end of the auction. There are two exceptions to this rule, which are that (i) a seller may bid at a forced sale and (ii) a seller may bid if she specifically gives notice that she reserves the right to bid.

b. Termination of offers

An offer can be accepted only when it is still outstanding (i.e., before the offer is terminated). Offers can be terminated in the following ways. 1) Lapse of time in offer If the offer specifies a date on which the offer terminates, the offer terminates at midnight on that date. If the offer states that it will terminate after a specified number of days, the time starts to run from the time the offer is received. If the offer does not set a time limit for acceptance, the power of acceptance terminates at the end of a reasonable period of time. 2) Death or mental incapacity An offer terminates upon the death or mental incapacity of the offeror. An exception exists for an offer that is an option, which does not terminate upon death or mental incapacity because consideration was paid to keep the offer open during the option period, and the offer is therefore made irrevocable during that period. Compare accepted offer: If an offer has been accepted, death of the offeror does not automatically terminate the contract. The contract may be enforceable unless there is some reason, such as impracticability, that justifies discharge of the contractual obligation. 3) Destruction or illegality An offer involving subject matter that is destroyed is terminated. Similarly, an offer that becomes illegal is terminated. 4) Revocation In general, an offer can be revoked by the offeror at any time prior to acceptance, even if the offer states that it will remain open for a specific amount of time. A revocation may be made in any reasonable manner and by any reasonable means, and it is not effective until communicated. A revocation sent by mail is not effective until received. If the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer is automatically revoked (i.e., a constructive revocation occurs). Example: On day 1, A mails an offer to B. On day 2, A mails a revocation to B. If B receives the offer and accepts before receiving the revocation, a contract is formed. Receipt defined: At common law, a written revocation, rejection, or acceptance is received when it comes into the possession of the person addressed or the person authorized to receive it on his behalf, or when it is deposited in some place he has authorized for deposit for this or similar communications. Restatement (Second) of Contracts § 68. Under the UCC, a person receives notice when: (i) it comes to that person's attention or (ii) it is duly delivered in a reasonable form at the place of business or where held out as the place for receipt of such communications. Receipt by an organization occurs at the time it is brought to the attention of the individual conducting the transaction or at the time it would have been brought to that individual's attention were due diligence exercised by the organization. UCC§1-202. The offeror's power to revoke an offer is limited by the following items. a) Option (promise not to revoke) An option is an independent promise to keep an offer open for a specified period of time. Such a promise limits the offeror's power to revoke the offer until after the period has expired, while also preserving the offeree's power to accept. If the option is a promise not to revoke an offer to enter a new contract, the offeree must generally give separate consideration for the option to be enforceable. If the option is within an existing contract, no separate consideration is required. b) UCC firm offer rule Under the UCC, an offer to buy or sell goods is irrevocable if: i) The offeror is a merchant; ii) There is an assurance that the offer is to remain open; and iii) The assurance is contained in a signed writing from the offeror. No consideration by the offeree is needed to keep the offer open under the UCC firm offer rule. UCC § 2-205. i) Time period If the time period during which the option is to be held open is not stated, a reasonable term is implied. However, irrevocability cannot exceed 90 days, regardless of whether a time period is stated or implied, unless the offeree gives consideration to validate it beyond the 90-day period. ii) "Merchant" defined For purposes of this rule, a merchant includes not only a person who regularly deals in the type of goods involved in the transaction, but also any businessperson when the transaction is of a commercial nature. UCC § 2-104(1), cmt. 2. EXAM NOTE: Provisions of the UCC requiring a signed writing may be satisfied by an electronic record and electronic signature. The Uniform Electronic Transactions Act (UETA), adopted in most states, provides that an electronic signature cannot be denied legal effect solely because it is in electronic form. c) Promissory estoppel (detrimental reliance) When the offeree reasonably and detrimentally relies on the offeror's promise prior to acceptance, the doctrine of promissory estoppel may make the offer irrevocable. It must have been reasonably foreseeable that such detrimental reliance would occur in order to imply the existence of an option contract. The offeror is liable to the extent necessary to avoid injustice, which may result in holding the offeror to the offer, reimbursement of the costs incurred by the offeree, or restitution of the benefits conferred. (See § I.C.4. Promissory Estoppel, infra.) d) Partial performance If the offer is for a unilateral contract, the offeror cannot revoke the offer once the offeree has begun performance. Once performance has begun, the offeree will have a reasonable amount of time to complete performance but cannot be required to complete the performance. A unilateral contract is not formed until performance is complete. Commencement of performance of a bilateral contract operates as a promise to render complete performance. Restatement (Second) of Contracts § 62. Whether the contract is unilateral or bilateral, the offeree must have had knowledge of the offer when she began performance. 5) Revocation of general offers A "general offer" is an offer made to a large number of people, generally through an advertisement. A general offer can be revoked only by notice that is given at least the same level of publicity as the offer. So long as the appropriate level of publicity is met, the revocation will be effective even if a potential offeree does not learn of the revocation and acts in reliance on the offer. Restatement (Second) of Contracts § 46. Note that if a person has actual knowledge of the intent to revoke but did not see the notice, then the revocation will be effective as to such person. 6) Rejection by offeree An offer is terminated by rejection. In other words, the offeree clearly conveys to the offeror that the offeree no longer intends to accept the offer. A rejection is usually effective upon receipt. An offeree cannot accept an offer once it has been terminated. A counteroffer acts as a rejection of the original offer and creates a new offer. An exception exists for an option holder, who has the right to make counteroffers during the option period without terminating the original offer. EXAM NOTE: Remember that a counteroffer is both a rejection and a new offer. Examine the offeree's statement closely. It may be a rejection, but it may also be only an inquiry (e.g., "Is that a 2005 model car?") or merely indecision (e.g., "Maybe not, but I should ask my wife first."), in which case the offer remains open. 7) Revival of offer A terminated offer may be revived by the offeror. As with any open offer, the revived offer can be accepted by the offeree. For example, if A offers to paint B's house for $500, and B rejects the offer, then A can revive the offer by stating that the offer remains open. B can change her mind and accept.

A. Mutual assent

Mutual assent occurs upon acceptance of a valid offer to contract. 1. Objective theory of contracts 2. Offer and acceptance

2) Knowledge by the offeree

The offeree must have knowledge of the offer in order to have the power to accept the offer.

2. Offer and acceptance

a. Offer b. Termination of offers c. Acceptance d. Effect of additional or different terms-- mirror image rule vs battle of the forms e. Auction contracts