Contracts Outline 3 - Offer and Acceptance, Option Contracts, Mechanics of Acceptance | Study notes Law

Fall 2003 Contracts – Professor Dawson

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Offer & Acceptance

(pp. 403-443)

- R § 17: Requirement for a bargain – manifestation of mutual assent

R § 22: Mode of Assent: Offer and Acceptance

(1) Offer by one party followed by acceptance by the other party

(2) manifestation may be made even if cannot identify the offer/acceptance and even if

moment of formation cannot be determined

R § 24: Offer Defined

Manifestation of the willingness to enter into a bargain, so made as to justify another

person in understanding that his assent is invited and will conclude the bargain.

- can be to a specified person or specified group or class of persons (R § 29)

- Offer can be made by either buyer or seller

- take all with grain of salt, “offer & acceptance” is not as important in contracts today

as it used to be

Lonergan v. Scolnick (1954, California) [ad not an offer]

Parcel of land for sale, question of whether there is offer and acceptance

Go through all communications to see if there is an offer:

Ad (not offer), Π’s letter of inquiry (not offer), Δ’s response to inquiry by form letter (not

offer), Π’s further inquiry (not offer), Δ’s second response (no offer, but Π interprets it as such),

Π then responds with “acceptance” but the land has already been sold (this is an OFFER).

- ad is not offer b/c only one parcel of land, can’t be expected to be held liable to

everyone who did not get opportunity to purchase the land, same deal with the form

letter (only one parcel of land, multiple potential buyers); both are more an “invitation

for an offer”

- have to ask if Π is justified in understanding letter as an offer – no, he isn’t. No clear

offer of terms, haven’t even negotiated price of land

- Π cannot “accept” if there was never an offer

Lefkowitz v. Great Minneapolis Surplus Store (1957, Minnesota) [ad IS an offer]

Store places ad for 3 furs, first come first serve for $1. Man is first to arrive at store and attempts

to buy the fur for $1, but store says no b/c “for women only.” Same thing happens following

weekend, but this time the furs are given a value of $139.50. Man sues for breach of contract.

- Π argues that the ad was offer, by being 1st in line he accepted offer, thus a bargain,

and the store was in breach of the bargain

- Ad was an offer b/c had clear, definite, explicit terms with nothing open for

negotiation (limit of product, only 3 to sell, when run out offer is over, offer made to

first in store)

- Usually, ads are not considered an offer (what do you do when they run out? Can’t be

held liable to all potential buyers); depends on facts of case

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Offer & Acceptance (pp. 403 - 443 )

R § 17: Requirement for a bargain – manifestation of mutual assent R § 22: Mode of Assent: Offer and Acceptance (1) Offer by one party followed by acceptance by the other party (2) manifestation may be made even if cannot identify the offer/acceptance and even if moment of formation cannot be determined R § 2 4 : Offer Defined Manifestation of the willingness to enter into a bargain, so made as to justify another person in understanding that his assent is invited and will conclude the bargain.
- can be to a specified person or specified group or class of persons (R § 29)
- Offer can be made by either buyer or seller
- take all with grain of salt, “offer & acceptance” is not as important in contracts today as it used to be Lonergan v. Scolnick (1954, California) [ad not an offer] Parcel of land for sale, question of whether there is offer and acceptance Go through all communications to see if there is an offer: Ad (not offer), Π’s letter of inquiry (not offer), Δ’s response to inquiry by form letter (not offer), Π’s further inquiry (not offer), Δ’s second response (no offer, but Π interprets it as such), Π then responds with “acceptance” but the land has already been sold (this is an OFFER).
- ad is not offer b/c only one parcel of land, can’t be expected to be held liable to everyone who did not get opportunity to purchase the land, same deal with the form letter (only one parcel of land, multiple potential buyers); both are more an “invitation for an offer”
- have to ask if Π is justified in understanding letter as an offer – no, he isn’t. No clear offer of terms, haven’t even negotiated price of land
- Π cannot “accept” if there was never an offer Lefkowitz v. Great Minneapolis Surplus Store (1957, Minnesota) [ad IS an offer] Store places ad for 3 furs, first come first serve for $1. Man is first to arrive at store and attempts to buy the fur for $1, but store says no b/c “for women only.” Same thing happens following weekend, but this time the furs are given a value of $139.50. Man sues for breach of contract.
- Π argues that the ad was offer, by being 1st^ in line he accepted offer, thus a bargain, and the store was in breach of the bargain
- Ad was an offer b/c had clear, definite, explicit terms with nothing open for negotiation (limit of product, only 3 to sell, when run out offer is over, offer made to first in store)
- Usually, ads are not considered an offer (what do you do when they run out? Can’t be held liable to all potential buyers); depends on facts of case

Stores used to take advantage of this contract law and do the “bait-and-switch” – advertise one product to lure people into store and then try to sell them something else
Realist approach – the court didn’t like what store did so interpreted ad as offer so they would be liable (but only calculated damages for 2nd^ event where the value of coat was specified, damages = $138.50) Akers v J.B. Sedberry (1955, Tennessee) [termination of Power of Acceptance] Employment contract with time frame, 2 employees “offer” resignation, employer does not accept (question of fact), then “accepts” offer 3 days later.
If it was “employment at will” would not have a case b/c employees could not quit outright – they would be in breach of contract
Have to have understanding of mutual assent; what you say or do has to be interpreted as acceptance of offer by offeree
Power of acceptance terminates after lapse of “reasonable time,” usually by close of conversation or as determined by court
§ 36 indexes different ways offer/power of acceptance terminates
offer is rejected when offeror has reason to believe it has been rejected or not accepted (through words and conduct) R § 36: Methods of Termination of the Power of Acceptance (POA) Power of acceptance may be terminated by: (a) rejection or counter-offer [§ 38 Rejection; § 39 Counter-offer] (b) lapse of time [§ 41 Lapse of time] (c) revocation by offeror [§ 42 Revocation by communication, § 43 indirect commun.] (d) death or incapacity of either party [§ 48 ] § 38: Rejection Manifestation not to accept offer is rejection unless offeree manifests intention to take it under further advisement
once someone rejects an offer, their power of acceptance terminates and they cannot change their mind (cannot bind offeror when acceptor keeps changing mind) Ardente v. Horan (1976, Rhode Island) [counter-offer] House listed for sale, D makes bid of $250K
Where is the offer? o Listing house for sale? No. B/c an “invitation for offers”, an advertised property for sale (same as Lonergan). Advertisement is generally not an offer o Bid for $250K? Maybe. (court views as verbal negotiation) o Sellers verbal “OK” acceptance? Maybe.
The issue of whether there was a valid contract (offer and acceptance) wasn’t raised at trial so Appellate court didn’t consider it
Statute of Frauds – oral contracts for sale of land is unenforceable, so this wouldn’t be official offer and acceptance, needs to be in writing

UCC 2- 205 : signed offer by merchant is not revocable, cannot exceed 3 months (unless stated otherwise) § 25 Option Contract is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer EX: Give me $5 to keep the offer open until Friday at 9:00am.! option contract Classical contract law- option contracts created by using the “seal”, no longer available

an offer for a unilateral contract could be revoked even though offeree had begun performance, as long as performance was not completed before revocation Modern law: First Restatements reversed classical position
2 nd Restatement allows formation of option contract through: partial performance, consideration, or reliance on offer (e.g., general contractors) § 45: Option Contract Created by Part Performance or Tender (1) When offer invites acceptance by performance , an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it. (2) The offeror’s duty of performance under any option contract so created is conditional on completion of the invited performance Drennan v. Star Paving (1958, California) [option contract, reliance] Subcontractor bids on job, but says he made a mistake on the price and wants out. Sub is bound by his offer.
Sub’s bid is an “offer,” but general’s use of offer is not “acceptance”
General relies upon the bid, the sub cannot revoke the offer! creates option contract
Not reciprocal, sub does not “rely” upon the general’s use of the bid (doesn’t know if bid was used, makes same bid to lots of different generals, doesn’t put a lot of time into preparing the bid)
If general has reason to believe there was an error in the bid (unreasonably low), he could not have justifiably relied upon it and it would not be enforced
Courts are reluctant to bind a general to the bids used (say it was acceptance), he is still free to choose who his sub’s will be (don’t have time to negotiate before, may have to negotiate timing of contracts, use minority co’s); but subs are bound by their offer due to reliance
§ 90 (old Restatement) and §87(2)(new restatement): Option contract – offer which induces reliance is irrevocable (still not a contract, but may collect damages)
some courts reject reliance argument when there is evidence general did bid shopping or bid chopping (in bad faith) HYPO: I’ll pay you $1,000 if you climb flagpole and sit there for 30 min. Offer = to pay $1,

Acceptance = by performance ! an option contract if begin to perform, so once climb the flagpole, offer cannot be revoked [§45, option contract created by part performance]

doesn’t work when seek acceptance by promise, doesn’t make sense b/c you either have the promise or not, no partial promise
when offeror seeks acceptance by performance, offeror is in control of the situation and offeree assumes all the risk - §45 gives some protection
when acceptance is by promise, don’t need the extra protection b/c it is considered a binding contract as soon as the promise is given HYPO: Ask B to deliver 100 widgets at certain time. The only performance asked for is delivery of the goods. B then collects/manufacturers 100 widgets, but the offer is revoked before delivery.
§45 – option contract formed by preparing to perform (tendering or beginning performance)
§87 – option contract through reliance, induced action, action = preparing to perform Mechanics of Acceptance (pp. 444-505) When dealing with offer and acceptance, have to ask if acceptance should be by promise or by performance (either can be specified, or it could be left open)
if by performance, option contract is created as soon as performance is begun or has been tendered (preparing to begin)
if promise, acceptance is effective as soon as it is dispatched Adams v. Lindsell (1818) [acceptance by mail] Non-delivery of wool. Seller offered wool (unusual, offer is usually from buyer) and was seeking acceptance by promise. S sent letter to wrong address, B doesn’t get it for a few days and even though they sent response out immediately, S had already sold wool to someone else.
When is acceptance effective? Sending or dispatching acceptance makes it effective, even if offeror isn’t aware of the acceptance
Have to chose a rule – either effective on dispatch or upon receipt
§63: (unless stated otherwise) acceptance is effective as soon as dispatched, put out of offeree’s hands; but acceptance under an option contract isn’t effective until received [only when acceptance sought by promise, only way it makes sense]
Offeror can dictate the terms of the offer, including method of acceptance, also has responsibility of following up on the offer (haven’t heard from you …) In face-to-face interactions, acceptance occurs instantaneously, as long as there is manifestation of mutual assent. It is assumed that other party understands it as acceptance. Klockner v. Green (1969, New Jersey) [acceptance by performance]

(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy (Certainty) Business people do not follow formal contract procedures, UCC releases us from details/technical rules of a contract (offer and acceptance) when goods are involved Bishop v. Eaton (1894) [acceptance by performance] Loan guarantee by Harry’s brother. Bishop co-signs the promissory note with Harry. 3 years later, Harry hasn’t paid note so Bishop does, but Harry’s brother had said he would reimburse him.

Offer by Harry’s brother in letter (loan him the money and I’ll cover it)
Acceptance by performance of co-signing the loan (but letter saying this was never received by brother, offeror)! offeror doesn’t know offeree accepted
If offer seeks performance and you perform, a contract is formed §54: Acceptance by Performance; Necessity of Notification to Offeror (1): No notification is necessary, unless offeror requests such notification (2): BUT, if offeree has reason to know that the offeror has no adequate means of learning of performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless: offeree tried to notify , he learns of performance within reasonable time, the offer says notice is not required. §56: Acceptance by Promise; Necessity of Notification of Offer It is essential to acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably. Subjective Acceptance: International Filter v. Conroe Gin, Ice, & Light (1925, Texas) Conroe manufactures water purifiers. They “propose” (but court doesn’t see this as offer, invitation for offer) to furnish water softeners to Intl Filter. “Becomes a contract when accepted by purchaser (really the offer) and approved (accepted) by executive officer”.
Offer happens in very convoluted way, agent for IF has form and fills in blanks and when Thompson (Conroe’s manager) signs it, it becomes Conroe’s offer to buy
Courts are reluctant to bind manufacturers to an obligation to sell (what if they don’t have enough? Are they liable to everyone who wanted to buy?)
I.F. responds with “O.K.”, then Conroe wants out and says in defense that there was no acceptance (“OK” didn’t count, not acceptance in way they invited) and notification of acceptance was required.
Court says there was acceptance, and thus there is a binding contract unless notice of acceptance was required and that communication was not made
Acceptance = meeting of the minds
Notice = merely relates to the acceptance (a pre-existent fact); no particular form required unless parties have said so
Letter would indicate to a “reasonably prudent person” notice of acceptance

But notice not even required in this case because of language used in contract, “when accepted by … and approved by …” – seems to dispense with notification
Structure of this offer/acceptance gives one side all of the power (b/c technically I.F. prepared the offer, Conroe turned it into “offer” by signing it but the terms were set out by I.F.) R § 56: Acceptance by Promise; Necessity of Notification to Offeror Except as stated in §69 (acceptance by silence) or where the offer manifests a contrary intention (offeror can request acceptance any way he wants), it is essential to an acceptance by promise (not performance) either that (1) the offeree exercise reasonable diligence to notify the offeror of acceptance or (2) that the offeror receive the acceptance seasonably. EX: Give you $100 if you promise to deliver bike on Friday. Seeking a promise, so have to use reasonable diligence to notify of the promise, if don’t tell offeror – they don’t know you have promised. R § 54: Acceptance by Performance; Necessity of Notification to Offeror (1) Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such and acceptance effective unless the offer requests such a notification. (2) If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance, with reasonable promptness and certainty, the contractual duty of the offeror is discharged UNLESS: (a) the offeree exercises reasonable diligence to notify the offeror of acceptance (try to notify them) (b) the offeror learns of the performance within a reasonable time (even if by someone else), OR (c) the offer indicates that notification of acceptance is not required EX: Will pay $100 IF you deliver bike on Friday. Now seeking acceptance by performance. Doesn’t want your promise you will deliver it, just wants you to deliver the bike at stated time. If you say “ok, I promise” it is NOT acceptance and there is no binding contract. Have to provide the type of acceptance asked for (if it is specified in the offer). HOLMAN ERECTION CO v ORVILLE MADSEN & SONS (1983) Holman is subcontractor, Madsen is general contractor.
Case is different from Dresden b/c the subcontractor is the one suing this time, in Dresden it was the general.
General rule: General relies upon sub’s bid, so sub cannot revoke offer; but general is not bound by use of sub’s bid
Bid = offer (option contract)
use of bid ≠ acceptance (no contract, no option contract, general not bound): o General relies on sub’s bid (not vice versa) o Nature of the bidding process (collect lots of bids in very short amount of time, if your proposal is accepted, are limited to numbers you proposed/bids you used, not

There is NO RULE that says you have to reject if you do not accept. Generally, silence is not acceptance. Q: If silence is acceptance, at what point does offeror lose power to revoke? How do they know when offer has been accepted? Note cases:
in insurance applications, ins companies are considered to “have a duty” to respond to application within reasonable time
if act as though have “a standing order for product,” silence = acceptance
if you take control of goods (accept the shipment), you have to pay for them
taking item (newspaper) out of post office = acceptance Negative option plan: propose to send merchandise to plan subscribers and they have to say they don’t want it, otherwise silence is acceptance (music and book clubs).
NOT silence as acceptance because consumer contracts in advance for these terms (consideration is the “bonus” of joining); company has to have full disclosure of plan’s terms (under FTC rules), and minimal regulations (like requiring at least 10 days to return rejection) Acceptance by click: CASPI v MICROSOFT NETWORK (1999) Regarding on-line subscriber agreement.
It is permissible to include “forum selection clause” b/c it was a valid contract
Microsoft makes “offer”, Click = acceptance
Not unconscionable b/c there is not a lack of meaningful choices (can choose to go with another company, don’t have to have Microsoft)
What other options are there? Have to look towards regulation to limit scope of subscriber agreements (like when they got involved in automobile warranties)
It is a legal contract, so courts can’t get involved

Contracts Outline 3 - Offer and Acceptance, Option Contracts, Mechanics of Acceptance, Study notes of Law

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