Contracts Offer and Acceptance

Termination by Offeror, Revocation, Direct

A revocation is the retraction of an offer by the offeror. An offeror may revoke by directly communicating the revocation to the offeree (e.g., "I revoke my offer of May 25"). An offer made by publication can be directly revoked only by publication through comparable means (e.g., an offer placed in the Wall Street Journal cannot be revoked by publishing in Better Homes and Gardens).

Merchant's Confirmatory Memo

A merchant's memo confirming an oral agreement that contains different or additional terms is also subject to the battle of the forms provisions.

When is a Rejection Effective

A rejection is effective when received by the offeror.

When is a Termination by Offeror, Revocation, Effective

A revocation is generally effective when received by the offeree. Where revocation is by publication, it is effective when published.

When an Acceptance is Effective, The Mailbox Rul

Acceptance by mail or similar means creates a contract at the moment of dispatch, provided that the mail is properly addressed and stamped, unless: (i) The offer stipulates that acceptance is not effective until received); or (ii) An option contract is involved (an acceptance under an option contract is effective only upon receipt). (iii) If the offeree sends a rejection and then sends an acceptance, whichever arrives first is effective. (iv) If the offeree sends an acceptance and then a rejection, the acceptance is effective (i.e., the mailbox rule applies) unless the rejection arrives first and the offeror detrimentally relies on it.

Acceptance

An acceptance is a manifestation of assent to the terms of an offer.

Acceptance by Unauthorized Means

An acceptance transmitted by unauthorized means or improperly transmitted by authorized means may still be effective if it is actually received by the offeror while the offer is still in existence.

Rejection by an Express Rejection

An express rejection is a statement by the offeree that she does not intend to accept the offer. Such a rejection will terminate the offer.

Termination of Offer

An offer cannot be accepted after it has been terminated. An offer may be terminated by an act of either party or by operation of law.

Limitation on Offeror's Power to Revoke where there is Beginning Performance in Response to a True Unilateral Contract Offer

An offer for a true unilateral contract becomes irrevocable once performance has begun. The offeror must give the offeree a reasonable time to complete performance. Note that the offeree is not bound to complete performance, she may withdraw at any time prior to completion of performance, and there is no acceptance until performance is complete.

Requirements for Real Estate Transactions - Land and Price Terms

An offer involving realty must identify the land and the price terms. The land must be identified with some particularity but a deed description is not required (e.g., "my house in Erewhon" is sufficient if the seller has only one house in Erewhon). Most courts will not supply a missing price term for realty.

Termination by Offeror, Revocation, Indirect

An offer may also be revoked indirectly if the offeree receives: (i) correct information, (ii) from a reliable source, (iii) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer (e.g., after offeror offers to sell his car to offeree, offeree is told by a reliable third party that offeror just sold his car to someone else).

Communication to Offeree Exam Tip

An offer may be a continuing offer, i.e., an offer to form a series of contracts. Watch for facts in which a seller offers to sell to a buyer certain goods for a stated price over a specified time period. Suppose, for example, S agrees to sell widgets to B for one year at $1 per widget up to 100,000 widgets. B orders 10,000 widgets in June. A contract for 10,000 widgets is formed, but the offer remains open. B can accept it multiple times during the year until he reaches 100,000 widgets.

When is an Offer Terminated by Offeree because of a Lapse of Time

An offer may be terminated by the offeree's failure to accept within the time specified by the offer or, if no deadline was specified, within a reasonable period.

Acceptance under Article 2, Offers to Buy Goods for Current or Prompt Shipment

An offer to buy goods for current or prompt shipment may be accepted by either a promise to ship or by a shipment of conforming or nonconforming goods.

Limitation on Offeror's Power to Revoke in Option Contracts

An option is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer (e.g., an offeror offers to sell her farm to an offeree for $1 million and promises to keep the offer open for 90 days if the offeree pays the offeror $1,000 to keep the offer open).

Art. 2, Battle of the Forms, Mirror Image Not applicable Exam Tip

Article 2 changes the common law rule. Thus, for an offer for the purchase or sale of goods, an acceptance with additional terms is still an acceptance and a contract is formed (with or without the new terms). If the offer is for something other than the sale of goods (e.g., land), an acceptance proposing additional or different terms is a rejection and a counteroffer); no contract is formed.

Limitation on Offeror's Power to Revoke where there is Beginning Performance, and the offer is Indifferent as to the manner of Acceptance

As noted above, most offers are indifferent as to the manner of acceptance, and thus, a bilateral contract may be formed upon the start of performance by the offeree. Therefore, once the offeree begins performance, the contract is complete and revocation becomes impossible. But note: Notification of the start of performance may be necessary.

Acceptance under Art. 2, Terms Included

Because Article 2 provides that a contract can be formed even though the terms of the acceptance do not match the terms of the offer, Article 2 also has specific rules for determining what terms are included in the contract in such a case. These rules are dependent on whether both parties to the transaction are merchants.

Rejection of an Option Contract

Because an option is a contract to keep an offer open, a rejection of or a counteroffer to an option does not constitute a termination of the offer. The offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree's rejection.

Promise, Undertaking, or Commitment

For a communication to be an offer, it must contain a promise, undertaking, or commitment to enter into a contract, rather than a mere invitation to begin preliminary negotiations); i.e., there must be an intent to enter into a contract.

Acceptance must be Communicated

Generally, acceptance of an offer to enter into a bilateral contract must be communicated to the offeror, unless the offer provides that acceptance need not be communicated.

Completion of Performance in Unilateral Contract

Most courts hold that an offer to form a unilateral contract is not accepted until performance is completed. The beginning of performance may create an option so that the offer is irrevocable. However, the offeree is not obligated to complete performance merely because he has begun performance, as only complete performance constitutes an acceptance of the offer.

promise, undertaking, or commitment exam tip 1

Most offers are fairly easy to spot, but watch out for language that sounds like an offer but really is an invitation to deal. For example, advertisements often sound like offers but usually are just invitations for people to come in and deal. The more definite the language (e.g., "I'll sell for . . ." or "I'll pay you $10 for . . ."), the more likely the statement is an offer. However, you need to examine the other factors (surrounding circumstances, prior relationship of parties, etc.). Don't be too hasty in your determination.

Acceptance of Offer for Bilateral Contract

Recall that unless an offer specifically provides that it may be accepted only through performance, it will be construed as an offer to enter into a bilateral contract and may be accepted either by a promise to perform or by the beginning of performance (compare offers for true unilateral contracts, which may be accepted only by full performance).

Distinguishing Beginning Performance and Preparations to Perform

Substantial preparations to perform (as opposed to the beginning of performance) do not make the offer irrevocable but may constitute detrimental reliance sufficient to make the offeror's promise binding to the extent of the detrimental reliance.

Auction Contracts

The UCC contains some special rules regulating auction sales. A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in another customary manner. An auction sale is with reserve unless the goods are explicitly put up without reserve. "With reserve" means the auctioneer may withdraw the goods at any time until he announces completion of the sale.

Definite and Certain Terms

The basic inquiry is whether enough of the essential terms have been provided so that a contract including them would be capable of being enforced.

Missing Terms

The fact that one or more terms are left open does not prevent the formation of a contract if it appears that the parties intended to make a contract and there is a reasonably certain basis for giving a remedy. In such a case, the majority of jurisdictions and Article 2 hold that the court can supply reasonable terms for those that are missing.

Termination by Offeree, Operation of Law

The following events will terminate an offer by operation of law: a. Death or insanity of either party (unless the offer is of a kind the offeror could not terminate, e.g., an option supported by consideration). (Death or insanity need not be communicated to the other party); b. Destruction of the proposed contract's subject matter); or c. Supervening illegality.

Method of Acceptance

Unless otherwise provided, an offer is construed as inviting acceptance in any reasonable manner and by any medium reasonable under the circumstances. Any objective manifestation of the offeree's counterpromise is usually sufficient.

Merchant's Confirmatory Memo Exam Tip

Watch for an exam question in which merchant parties have come to an oral agreement and a confirmatory memo is sent with additional or different terms. Despite the fact that there is already a contract at the time the memo is sent, the memo is put through the battle of the forms provisions as if it were an acceptance. Additional terms are put through the material alteration test. Depending on the jurisdiction, different terms are treated either the same as additional terms or knocked out.

For an agreement to be enforced as a contract

there must be mutual assent

Acceptance under Article 2, Battle of the Forms Provision

(1) Mirror Image Not Required Article 2 has abandoned the mirror image rule, providing instead that the proposal of additional or different terms by the offeree in a definite and timely acceptance does not constitute a rejection and counteroffer, but rather is effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms. Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants.

whether a communication creates a reasonable expectation

(i) Was there an expression of a promise, undertaking, or commitment to enter into a contract? (ii) Were there certainty and definiteness in the essential terms? (iii) Was there communication of the above to the offeree?

Termination by Offeree

1) Rejection 2) Termination by Operation of Law

method of communication in determining intent

1) Use of Broad Communications Media, the broader the communicating media (e.g., publications), the more likely it is that the courts will view the communication as merely the solicitation of an offer. 2) Advertisements, catalogs, circular letters, and the like containing price quotations are usually construed as mere invitations for offers.

Rejection by a Counteroffer

A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in its terms (e.g., "I'll take the house at that price, but only if you paint it first").

Distinguishing a Counteroffer from a Mere Inquiry

Distinguish between a counteroffer (which constitutes a rejection) and a mere inquiry. An inquiry will not terminate the offer when it is consistent with the idea that the offeree is still keeping the original proposal under consideration (e.g., "Would you consider lowering your price by $5,000?"). The test is whether a reasonable person would believe that the original offer had been rejected.

Price

Except in contracts for real property, the failure to state the price does not prevent the formation of a contract if the parties intended to form a contract without the price being settled. Note that if a contract for the sale of goods is missing a price term, Article 2 provides that the price will be a reasonable price at the time of delivery.

Silence as Acceptance

Generally, an offeree cannot be forced to speak or have her silence treated as acceptance. However, if because of prior dealings or trade practices, it would be commercially reasonable for the offeror to consider silence an acceptance, the court may so find. Also, if the recipient of services knows or should have known that the services were being rendered with the expectation of compensation and, by a word, could have prevented the mistake, she may be held to have accepted the offer if she fails to speak.

Who May Accept

Generally, only the person to whom an offer is addressed has the power of acceptance. One may also have the power of acceptance if she is a member of a class to which an offer has been directed. Generally, an offeree's power of acceptance cannot be assigned. However, if the offeree has paid consideration to keep the offer open (i.e., an option contract was created), the right to accept is transferable.

Notice in Unilateral Contract

Generally, the offeree is not required to give the offeror notice that he has begun the requested performance, but is required to notify the offeror within a reasonable time after performance has been completed. However, no notice is required if: (i) the offeror waived notice); or (ii) the offeree's performance would normally come to the offeror's attention within a reasonable time.

Bilateral Contracts Formed by Performance

If a contract is not formed by the parties' communications, but they begin to perform as if they formed a contract, a contract is formed.

Vague Terms Exam Tip

If a material term is vague or ambiguous, it is not an offer at common law or under the UCC. Watch for terms such as "appropriate," "fair," and "reasonable," which signal a possible vagueness problem.

Limitation on Offeror's Power to Revoke in a Merchant's Firm Offer under Article 2 Exam Tip

If a merchant-offeror states that an offer will stay open for a period beyond the UCC's three-month limit on irrevocability, he will be bound only for three months. Remember that the three-month limitation applies only to offers not supported by consideration. Watch for an offer that looks like a merchant's firm offer but includes some consideration. This is an option contract, and the offer can be held open for as long as the parties specify.

Time

If an agreement does not specify the time in which an act is to be performed, the law implies that it is to be performed within a reasonable time.

Acceptance of Offer for Unilateral Contract

If an offer provides that it may be accepted only by performance (i.e., an offer for a unilateral contract), note the following particular rules: a. Completion of Performance b. Notice

Contracts Involving a Non-merchant, Terms of the Offer that Govern

If any party to the contract is not a merchant, the additional or different terms are considered to be mere proposals to modify the contract that do not become part of the contract unless the offeror expressly agrees.

Contracts Between Merchants, Additional Terms usually included

If both parties to the contract are merchants, additional terms in the acceptance will be included in the contract unless: a) They materially alter the original terms of the offer (e.g., they change a party's risk or the remedies available); b) The offer expressly limits acceptance to the terms of the offer; or c) The offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received.

promise, undertaking, or commitment exam tip 2

If there has been a series of communications between the parties, pay attention to the legal significance, if any, of each statement. For example, if you determine that A's first statement to B is not an offer but rather is merely an invitation to deal, then B's response cannot be an acceptance (because there was nothing to accept). You must then consider whether B's response is another invitation to deal or an offer. Keep checking until you find an offer and an acceptance.

Requirements for Sale of Goods - Quantity Term

In a contract for the sale of goods, the quantity being offered must be certain or capable of being made certain.

"Requirements" Contracts

In a requirements contract, a buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer.

Requirement and Output Contracts Exam Tip

In addition to the words "require," "need," and "produce," certain other terms are clues that the contract is a requirements or outputs contract. On the exam, watch for the following words: "all," "only," "exclusively," and "solely."

"Output" Contracts

In an output contract, a seller promises to sell to a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller.

Employment and Other Services

In contracts for employment, if the duration of the employment is not specified, the offer, if accepted, is construed as creating a contract terminable at the will of either party. For other services, the nature of the work to be performed must be included in the offer.

prior practices and relationship of the parties

In determining whether certain remarks constitute an offer rather than preliminary negotiations, a court will look to the prior relationship and practice of the parties involved.

Acceptance under Art. 2, Moment of Mutual Assent Uncertain

In situations in which it cannot be determined with certainty which specific communication was the offer and which the acceptance but the parties act as though there is a contract, the UCC considers this a binding contract even though the moment of its making is uncertain.

"Requirements" and "Output" Contracts

It is assumed that the parties will act in good faith); hence, there may not be a tender of or a demand for a quantity unreasonably disproportionate to (i) any stated estimate, or (ii) (in the absence of a stated estimate) any normal or otherwise comparable prior output or requirements.

Completion of Performance in Unilateral Contract Exam Tip

Keep in mind that like all offerees, the offeree of a unilateral contract must know of the offer to accept it. If the "offeree" acts without knowledge and learns of the offer later, his acts were not an acceptance. Thus, if A finds O's watch and returns it to O without knowledge of O's reward offer, A has no contractual right to the reward.

Limitation on Offeror's Power to Revoke

Offers can be revoked at will by the offeror, even if he has promised not to revoke for a certain period, except in the following circumstances: a) Options b) Merchant's Firm Offer under Article 2 c) Detrimental Reliance d) Beginning Performance in Response to True Unilateral Contract Offer e) Beginning Performance, Offer Indifferent as to Manner of Acceptance

Terms to be Agreed on Later

Often, an offer will state that some term is to be agreed on at a future date. If the term is a material term, the offer is too uncertain.

Counteroffer as a Rejection Exam Tip

Remember that a counteroffer is both a rejection and a new offer. It terminates the original offer and reverses the roles of the parties: The offeree giving a counteroffer becomes the offeror of a new offer, which the other party may accept or reject. Thus, if A offers to sell his property, Blackacre, to B for $100,000, and B says, "I'll buy it for $90,000," what has happened? A's offer has been rejected and B has made an offer for $90,000, which A may accept or reject. B cannot later say to A, "All right, I'll take Blackacre for $100,000," and accept A's offer. It no longer exists because it was rejected. (Of course, A could accept B's new offer to buy it for $100,000.)

Different Terms that May or May Not be included Exam Tip

Remember that even though a response with different terms can constitute an acceptance under Article 2, there still must be a meeting of the minds or there is no contract. Watch for differences in the price, quantity, or quality terms, they likely indicate that there isn't sufficient meeting of the minds to constitute a contract.

Offeror Termination by Revocation, Effective when Received Exam Tip

Remember that generally a written communication is "received" when it is delivered to a place of business through which the contract was made or another location authorized to receive this type of communication. It does not matter whether the recipient actually reads the communication. Courts will likely apply the same rules to phone messages.

Shipment of Nonconforming goods exam tip

Remember that the accommodation shipment rule applies only when shipment is used as a form of acceptance. Watch out for a fact pattern in which a party accepts an order by promising to ship. He then discovers he lacks the specified goods and ships nonconforming goods as an "accommodation." This is a breach, not an accommodation. There was a contract at the promise to ship. The shipment was not the acceptance; thus, accommodation is not possible.

Mailbox Rule Exam Tip

Remember that the mailbox rule ("effective upon dispatch") applies only to acceptance. It does not apply to other events in the contract setting, such as rejection or revocation.

Offeree Must Know of the Offer

The offeree must know of the offer in order to accept it, and this is true whether the offer is for a bilateral or unilateral contract. Thus, if A sends B an offer and B sends A an offer unaware of A's offer (i.e., a crossing offer situation), no contract is formed, even if the offers contain the same terms.

Vague Terms

The presumption that the parties' intent was to include a reasonable term goes to supplying missing terms. The presumption can not be made if the parties have included a term that makes the contract too vague to be enforced (e.g., an agreement to split profits on a "liberal basis"). However, uncertainty can be cured by part performance that clarifies the vague term or by acceptance of full performance.

Shipment of Nonconforming Goods

The shipment of nonconforming goods is an acceptance creating a bilateral contract as well as a breach of the contract unless the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation. The buyer is not required to accept accommodation goods and may reject them. If he does, the shipper is not in breach and may reclaim the accommodation goods, because her tender does not constitute an acceptance of the buyer's original offer.

Definiteness of Subject Matter

The subject matter of the deal must be certain, because a court can enforce a promise only if it can tell with reasonable accuracy what the promise is.

Different Terms May or May Not be Included

There is a split of authority over whether terms in the acceptance that are different from (as opposed to in addition to) the terms in the offer will become part of the contract. Some courts treat different terms like additional terms, and follow the test set out above in determining whether the terms should be part of the contract. Other courts follow the "knockout rule," which states that conflicting terms in the offer and acceptance are knocked out of the contract, because each party is assumed to object to the inclusion of such terms in the contract. Under the knockout rule, gaps left by knocked out terms are filled by the UCC.

Identification of the Offeree

To be considered an offer, a statement must sufficiently identify the offeree or a class to which she belongs to justify the inference that the offeror intended to create a power of acceptance.

Communication to Offeree

To have the power to accept, the offeree must have knowledge of the offer. Therefore, the proposal must be communicated to her.

Acceptance must be unequivocal

Traditional contract law insists on an absolute and unequivocal acceptance of each and every term of the offer (the "mirror image rule"). At common law, any different or additional terms in the acceptance make the response a rejection and counteroffer.

Offers to Buy Goods for Current or Prompt Shipment

Under Article 2, an offer to buy goods for current or prompt shipment is construed as inviting acceptance either by a promise to ship or by current or prompt shipment of conforming or nonconforming goods.

Limitation on Offeror's Power to Revoke in a Merchant's Firm Offer under Article 2

Under Article 2: (i) if a merchant); (ii) offers to buy or sell goods in a signed writing); and (iii) the writing gives assurances that it will be held open (e.g., "this offer will be held open for 10 days," "this offer is firm for 10 days," "I shall not revoke this offer for 10 days"), then the offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed three months).

Offer creates

power of acceptance in the offeree and a corresponding liability on the part of the offeror

Conditional Acceptance

When an acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer. The conditional acceptance is essentially a new offer, and the original offeror may form a contract by expressly assenting to the new terms. However, the offer that results from a conditional acceptance cannot be accepted by performance. If the parties ship or accept goods after a conditional acceptance, a contract is formed by their conduct, and the new terms are not included.

Limitation on Offeror's Power to Revoke where there is Detrimental Reliance

When the offeror could reasonably expect that the offeree would rely to her detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time.

Termination by Offeree, Rejection

a) Express Rejection b) Counteroffer as Rejection c) Effective When Received d) Rejection of Option

Termination by Acts of Parties

a. Termination by Offeror, Revocation (1) Direct (2) Indirect b. Termination by Offeree

surrounding circumstances in determining intent

circumstances surrounding the language will be considered by courts in determining whether an offer exists. For example, if a statement is made in jest, anger, or by way of bragging, and it is reasonably understood in this context, it will have no legal effect.

for communication to be an offer

it must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms

Language in determining intent

may show that an offer was or was not intended. Technical language such as "I offer" or "I promise" is useful, but it is not necessary. Phrases such as "I quote," "I am asking $30 for," and "I would consider selling for" tend to be construed merely as invitations to deal rather than offers. Although price quotations generally are not offers, they can be if given in response to an inquiry that contains a quantity term.

mutual assent

one party must accept the other's offer determined by an objective standard, did the words or conduct manifest a present intention to enter into a contract