Mutual Assent - Offer and Acceptance

Question 1

Mutual Assent in General

Answer 1

For an agreement to be enforced as a contract, there must be mutual assent. In other words, one party must accept the other’s offer.

Whether mutual assent is present will be determined by an objective standard; i.e. did words or conduct manifest a present intention to enter into a contract?

In short, mutual assent is offer and acceptance.

Question 2

The Offer in General

Answer 2

An offer creates a power of acceptance in the offer and a corresponding liability on the part of the offeror. For a communication to be an offer, it must create a reasonable expectation in the offers that the offeror is willing to enter into a contract on the basis of the offered terms.

Factors:

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 offer?

Question 3

Offer - Factors in Determining Promise, Undertaking or Commitment

Answer 3

1) Language
2) Surrounding Circumstances
3) Prior Practice and Relationship of the Parties
4) Method of Communication

Question 4

Offer - Promise Factors - Language

Answer 4

The language used 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.

Question 5

Offer - Promise Factors - Surrounding Circumstances

Answer 5

The 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.

Question 6

Offer - Promise Factors - Prior Practice and Relationship of the Parties

Answer 6

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.

Question 7

Offer - Promise Factors - Method of Communication

Answer 7

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, etc.: Advertisements, catalogs, circular letters, and the like containing price quotations are usually construed as mere invitations for offers.

Question 8

Offers - Definite and Certain Terms

Answer 8

An offer must be definite and certain in its 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.

Question 9

Offers - Terms - Identification of the Offeree

Answer 9

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.

Question 10

Offer - Terms - Definiteness of Subject Matter

Answer 10

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.

The definiteness depends on the subject matter of the contract

Question 11

Offer - Terms - Definiteness - Real Estate Transactions

Answer 11

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 Erehwhon” is sufficient if the seller has only one house in Erewhon).

Most courts will NOT supply a missing pricer term for realty.

Question 12

Offer - Terms - Definiteness - Sale of Goods

Answer 12

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

Question 13

Offer - Terms - Definiteness - Sale of Goods - “Requirements” and “Output” Contracts

Answer 13

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.

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.

It is assumed the parties will act in good faith; hence, there may not be a tender of or a demand for a quantify UNREASONABLY DISPROPORTIONATE to:

i) any state estimate, or
ii) (in the absence of a stated estimate) any normal or otherwise comparable prior output or requirements.

Question 14

Offer - Terms - Definiteness - Employment and Other Services

Answer 14

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.

Question 15

Offer - Terms - Missing Terms

Answer 15

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.

Question 16

Offer - Terms - Missing Terms - Price

Answer 16

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.

Question 17

Offer - Terms - Missing Terms - Time

Answer 17

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.

Question 18

Offer - Terms - Vague Terms

Answer 18

The presumption that the parties’ intent was to include a reasonable term goes to supplying MISSING terms. The presumption CANNOT 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.

Question 19

Offer - Terms - Terms to be Agreed on Later

Answer 19

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.

Question 20

Offer - Terms - Communication to Offeree

Answer 20

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

Question 21

Termination of Offer

Answer 21

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.

Question 22

Termination of Offer - Types of Termination

Answer 22

1) Termination by Acts of Parties
2) Termination by Offeree
3) Termination by Operation of Law

Question 23

Termination - By Acts of Parties - By Offeror

Answer 23

A revocation is the retraction of an offer by the offeror.

An offeror may revoke by directly communicating the revocation to the offer. An offer made by publication can be directly revoked only by publication through comparable means.

An offer may also be revoked INDIRECTLY if the offer 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.

Question 24

Termination - By Acts of Parties - By Offeror - Effective When Received

Answer 24

A revocation is generally effective when RECEIVED by the offeree.

Where revocation is by publication, it is effective when PUBLISHED.

Question 25

Termination - By Acts of Parties - By Offeror - Limitations on Power to Revoke (5)

Answer 25

1) Options
2) Merchant’s Firm Offer Under Article 2
3) Detrimental Reliance
4) Beginning Performance in Response to True Unilateral Contract Offer
5) Beginning Performance- Offer Indifferent as to Manner of Acceptance

Question 26

Termination - By Acts of Parties - By Offeror - Limitations on Power to Revoke - Options

Answer 26

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 offer 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).

Question 27

Termination - By Acts of Parties - By Offeror - Limitations on Power to Revoke - Merchant’s Firm Offer Under Article 2

Answer 27

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, 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).

Question 28

Termination - By Acts of Parties - By Offeror - Limitations on Power to Revoke - Detrimental Reliance

Answer 28

When the offeror could reasonably expect that the offer would rely to her detriment on the offer, and the offer does so rely, the offer will be held IRREVOCABLE AS AN OPTION CONTRACT FOR A REASONABLE LENGTH OF TIME.

Question 29

Termination - By Acts of Parties - By Offeror - Limitations on Power to Revoke - Beginning Performance in Response to True Unilateral Contract Offer

Answer 29

An offer for true unilateral contract becomes IRREVOCABLE ONCE PERFORMANCE HAS BEGUN. The offeror must give the offer 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.

SUBSTANTIAL PREPARATIONS TO PERFORM: Do not make an offer irrevocable but MAY CONSTITUTE DETRIMENTAL RELIANCE.

Question 30

Termination - By Acts of Parties - By Offeror - Limitations on Power to Revoke - Beginning Performance - Offer Indifferent as to Manner of Acceptance

Answer 30

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.

Note: Notification of the start of performance may be necessary.

Question 31

Termination - By Acts of Parties - By Offeree - Rejection (4)

Answer 31

1) Express Rejection
2) Counteroffer as Rejection
3) Effective When Received
4) Rejection of Option

Question 32

Termination - By Acts of Parties - By Offeree - Rejection - Express Rejection

Answer 32

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

Question 33

Termination - By Acts of Parties - By Offeree - Rejection - Counteroffer as Rejection

Answer 33

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.)

Counteroffer is both a rejection and a new offer.

Distinguish from an 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.

Question 34

Termination - By Acts of Parties - By Offeree - Rejection - Effective When Received

Answer 34

A rejection is effective when RECEIVED by the offeror.

Does not mean that the offeror has to read the rejection;.

Question 35

Termination - By Acts of Parties - By Offeree - Rejection - Rejection of Option

Answer 35

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.

Question 36

Termination - By Acts of Parties - By Offeree - Lapse of Time

Answer 36

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 time.

Question 37

Termination - By Operation of Law (3)

Answer 37

1) Death or insanity of either party. Need NOT be communicated to the other party.
2) Destruction of the proposed subject matter; OR
3) Supervening illegality.

Question 38

Acceptance - Who May Accept

Answer 38

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 transferrable.

Question 39

Acceptance - Generally

Answer 39

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

Question 40

Acceptance - Offeree Must Know of Offer

Answer 40

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.

Question 41

Acceptance - Of Offer for Unilateral Contract

Answer 41

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.

1) Completion of Performance;
2) Notice

Question 42

Acceptance - Of Offer for Unilateral Contract - Completion of Performance

Answer 42

Most courts hold than 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 irrevovable.

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.

An offeree of a unilateral contract MUST KNOW OF THE OFFER to accept it. (e.g. Dog reward).

Question 43

Acceptance - Of Offer for Unilateral Contract - Notice

Answer 43

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;
ii) the offeree’s PERFORMANCE WOULD NORMALLY COME TO THE OFFEROR’S ATTENTION within a reasonable time.

Question 44

Acceptance - Of Offer for Bilateral Contract

Answer 44

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.)

Question 45

Acceptance - Of Offer for Bilateral Contract - Generally, Acceptance Must be Communicated

Answer 45

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.

Question 46

Acceptance - Of Offer for Bilateral Contract - Generally, Acceptance Must be Communicated - Silence as Acceptane

Answer 46

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.

Question 47

Acceptance - Offer for Bilateral Contract - Method of Acceptance

Answer 47

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 counter promise is usually sufficient.

Question 48

Acceptance - Offer for Bilateral Contract - Method of Acceptance - Offers to Buy Goods for Current or Prompt Shipment

Answer 48

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.

Question 49

Acceptance - Offer for Bilateral Contract - Acceptance Must Be Unequivocal

Answer 49

Traditional contract law insisted 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.

Question 50

Acceptance - Under Article 2 - Offers to Buy Goods for Current or Prompt Shipment

Answer 50

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.

Question 51

Acceptance - Under Article 2 - Offers to Buy Goods for Current or Prompt Shipment - Shipment of Nonconforming Goods

Answer 51

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.

The Accommodation shipment rule applies only when shipment is used as a form of acceptance. Where a party accepts an order by promising to ship, a contract exists at the time of the promise. Th shipment is not acceptance and thus; ACCOMMODATION IS NOT POSSIBLE.

Question 52

Acceptance - Under Article 2 - Battle of the Forms Provisions - Mirror Image Not Required

Answer 52

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 contract terms become part of the contract depends on whether or not both parties are merchants.

Question 53

Acceptance - Under Article 2 - Battle of Forms Provision - Terms Included

Answer 53

Because Article 2 provides that a contract can be formed even through 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 insect a case. These rules are dependent on whether both parties to the transaction are merchants.

Question 54

Acceptance - Under Article 2 - Battle of Forms Provision- Terms Included - Contracts with Nonmerchant - Terms of Offer Govern

Answer 54

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.

Question 55

Acceptance - Under Article 2 - Battle of Forms Provision - Terms Included - Contracts between Merchants - Additional Terms Usually Included

Answer 55

If BOTH parties to the contract are merchants, ADDITIONAL terms in the acceptance will be included in the contract unless:

i) They MATERIALLY ALTER the original terms of the offer (e.g. they change a party’s risk or the remedies available);
ii) The offer EXPRESSLY LIMITS ACCEPTANCE To the terms of the offer; OR
iii) the OFFEROR HAS ALREADY OBJECTED to the particular terms, or OBJECTS WITHIN A REASONABLE TIME after notice of them is received.

Question 56

Acceptance - Under Article 2 - Battle of Forms Provision - Terms Included - Contracts between Merchants - Different Terms May of May Not Be Included

Answer 56

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.

Question 57

Acceptance - Under Article 2 - Battle of Forms Provision - Terms Included - Merchant’s Confirmatory Memo

Answer 57

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

Question 58

Acceptance - Under Article 2 - Battle of Forms Provision - Conditional Acceptance

Answer 58

When an acceptant is made expressly conditional on the acceptance of new terms, it is a REJECTION of the offer. It can be considered a counteroffer only to the extent that the original offeror may expressly assent to the new terms and thus form a contract. It is not considered a counteroffer that may 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.

Question 59

Acceptance - Under Article 2 - Moment of Mutual Assent Uncertain

Answer 59

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.

Question 60

Acceptance - Bilateral Contracts Formed by Performance

Answer 60

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.

Question 61

Acceptance - When Effective - The Mailbox Rule

Answer 61

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. mailbox rule applies) UNLESS THE REJECTION ARRIVES FIRST AND the offeror DETRIMENTALLY RELIES on it.

Question 62

Acceptance - When Effective - The Mailbox Rule - Acceptance by Unauthorized Means

Answer 62

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.

Question 63

Auction Contracts

Answer 63

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.