This is intended to be a brief overview of offer and acceptance I'm using to prepare for my exam. I am not making any representations that this information is correct, coherent, etc.
First, some definitions...
Contract - an agreement the law will enforce
Offer - something that creates the power of acceptance
Acceptance - assent to the terms MADE IN THE MANNER required by the offer
Second, applicable sections of the UCC and Restatements...
UCC 1-103: If the UCC is silent, common law controls
UCC 2-204: Allows courts to provide gap-fillers (gap fillers are outlined around 2-305-310)
UCC 2-205: Defines and sets guidelines for "firm offers"
UCC 2-206(1)(b): If manner of acceptance isn't stated, offeree may accept by promise or performance
UCC 2-207: Battle of the Forms
R2d 26 - manifestation of willingness is not an offer
Now, for the notes...
Objective theory – look at the intent of a reasonable person. Courts aren’t mind readers, so they look to the manifestations of each party’s intentions. This allows the courts to view the situation objectively, rather than try to put themselves in the mind of each party. In most circumstances, we look to what a reasonable person in the shoes of the other party would conclude his intent was. In other words, if someone is joking, and the other party (based on his experience, education level, etc.) would be reasonable to not understand that, then the court will find that there was an offer.
Example: If A says to B, “I will sell you my farm for $500.” and B says, “Deal.” Later, if B can show that A’s lack of business sense or tone of voice would have caused B to reasonably conclude that A was serious, then the court will treat A as having intended to contract.
Even if A produces someone who says that he definitely intended to joke, it wouldn’t matter.
* But if A can prove that B knew it was a joke but was trying to force a sale anyway, then there is no mutual assent and no contract.
* Similarly, if a party has a secret intent that the other party doesn’t know about, it’s irrelevant.
The objective theory is also used to determine the meaning of the terms of a contract.
If a transaction is one that would normally be considered a businessy type of transaction transaction, it’s presumed that the agreement is legally enforceable. But if it's a social situation, it wouldn't be.
Example: Lucy v. Zehmer Lucy offers Zehmer $50K for their farm, and the Zehmers write out a statement that say “We agree to sell Lucy the farm complete for $50000, title satisfactory to buyer.” When the Zehmers fail to go through with the sale, Lucy sues. The Zehmers say they were drunk and joking, and they thought Lucy was joking, too. Also, they claim that they told Lucy they didn’t intend to sell it. The court held that the Zehmers were bound, even if they did not subjectively intend to sell and were only joking. The evidence indicates that Lucy took them seriously and he wasn’t unreasonable in doing so.
The one exception to this is when both parties explicitly manifest their intent not to be bound.
Example: Balfour v. Balfour Husband promises to pay certain monthly payments to Wife. Later, they separate, and wife demands monthly payments. The court held that agreements between family members living together amicably are presumed to not have been intended to have been legally enforceable. But if they weren’t living together amicably (e.g. were separated), the court will usually intend it to have been enforceable. Also, if Husband and Wife had explicitly agreed that they intended it to be legally enforceable, then the court would have recognized the contract.
Subjective theory – look at the intent of the individual people. Subjectivists look to whether there is a "meeting of the minds." This is obviously pretty easy to get out of later because a party could argue they had something different in mind. We're looking to whether the intention of the party rather than just conduct.
Classical contract law showed a preference for clear rules (formalism) over general standards. Traditional law was relatively indifferent to morality or social policy.
Mutual assent is reached through the offer and acceptance. This doesn’t mean the parties have to have been in agreement, subjectively, only that they had to act in way that would cause a reasonable person to believe they were in agreement (objective theory). Additionally, the parties don’t have to agree to all terms of the contract, only to the major terms of the contract. Nevertheless, they must have intended to contract.
Example: Ray v. William G. Eurice – A party is bound to a signed document that he has read with the capacity to understand it, absent fraud, duress, and mutual mistake
Facts: The Rays (P) sought to build a house in Baltimore County. They solicited estimates from several builders and Eurice & Bros. (D) submitted an estimate of $16,000.
Then, P hired an architect and requested a final bid from D. On Jan 9, P and D went over the architect’s plans, which were 7 pages long. D actually vetoed some of the architect’s plans at that point. Agreed on changes were written by P. On Feb 14, D submitted a proposed contract to build the house for $16,300. This document had many differences from what P and D had agreed to on Jan 9. P notified D that he would prepare the formal contract. The contract only referred to the 9 January document, not the 14 Feb document. A clause in the contract stated that deviations from the specifications were to be made only in the event that specified items were unavailable after reasonable diligence by D. D said he only agreed to sign as long as the contract referred to the 14 Feb document and no specs were attached. The contract actually referred to a 5 page document the Ps made on Feb 14th, but were really just rewritten versions of the Jan 9 contract. During the contract signing, they went over the contract item by item. The D’s helped give information to the FHA, and they used the memorandum of specs from Feb 14. The contract was signed, P obtained a mortgage, and the parties agreed upon a start date. The mortgage loan was settled on April 9, and D said they would start construction in the middle of May.
On May 8, Eurice called Ray and Eurice threw drawings on the floor. Eurice said he’d never seen the drawings and wasn’t going to live up to the contract. Eurice realized that to build to the specs, it would cost more than they estimated. Also Ray was probably a pain in the neck.
Ray says the specs may not have been attached to the contract but were discussed at time of signing. Eurice did not really show how it would be possible that they didn’t know about the specs. They said they received them later in the mail. Eurice said the signing for the loan is not related to the building plans and is just a common part of what they do. Ray thought the specs mentioned in the contract were the 3 page specs, not the 5 page specs.
Eurice then claimed that he could not build the house according to the specification as submitted and that construction of the house would cost an additional $1000. P filed suit. The trial judge found a mistake regarding the specifications and ruled that there was no contract because there had been no meeting of the minds. P appealed.
Issue: How is the parties’ intent to enter into a contract determined?
Holding: The intent to enter into a contract is determined from the objective intent of the parties as determined from the surrounding circumstances. A party is bound by the signed document that he has read with the capacity to understand, and in the absence of fraud, duress, or mutual mistake. The mistake in this case was unilateral, not mutual. Eurice had no logical basis for believing the specifications were different than the ones in the contract. The proper measure of damages is the cost in excess of the contract price that would be incurred by Ray in having the house built.
The court held that in this case there was no need to decide if there had been a mistake on the part of either of the parties. Absent fraud, duress, or mutual mistake, a party who signs a written contract with or without reading it is bound by his signature. The court held that even if D had been negligent in his understanding of the terms of the contract, he would be bound. The test for assent is objective and not subjective. Intent is determined from what a reasonable person in the position of the parties would have thought it meant. Eurice wrongfully breached his contract with Ray and Ray was entitled to the difference between the cost agreed upon and the cost to complete the house.
Notes: The appellate court may have believed that the Eurice’s were lying, but it’s the job of the trial court to get to the bottom of the truth. The appellate court is bound by the findings of fact of the trial court. The appellate court’s decision is consistent with the belief that the Eurices are lying, so it works out in the end, but that’s because the court subscribed to the objective theory.
We live in a world where most people don’t read contracts. Should you be bound by the standard ts and cs that you agree to? Should you be held to the same standard as a person who couldn’t read? Under the objective theory, the cost to contract for illiterate may be higher for some than for others.
Was there a meeting of the minds between Ray and Eurice? Normally we would assume the Eurices have a bargaining advantage, but did they in this case? Does there need to be a meeting of the minds to have a contract?
The purpose of this case is to tell the objective and the subjective theories. Subjective theory: the minds of the parties have to meet, and the point at which they do is the time the contract is created. The objective theory is more like “what does the evidence say?”
Despite disparity in power, as long as there was no fraud, etc. we still hold the person liable for what they’ve signed.
Mere expressions of present intention do not constitute promises.
Offer and Acceptance in Bilateral Contracts
Mutual assent almost invariably takes place through an offer and acceptance. In most cases, an offer will contain a conditional promise and will propose that the other party accept the proposal by making a promise in return.
Unilateral Contracts – In some instances, the offer will propose an exchange of the offeror’s promise for the offeree’s act. The most common example of this is the Brooklyn Bridge example: A says to B, “I will give you X dollars if you walk across the Brooklyn Bridge.”
Option – this is both the offer to contract and a contract in which the offeror promises to keep the offer open for a certain time.
An offer must be more than simply an opinion, it must be a promise or commitment. We use the objective standard here. Also, we use the objective test for preliminary negotiations. Solicitations of bids cannot be accepted and are only a basis for preliminary negotiations. An example of this is is A writes to B and says: “I want to sell my car, and I will accept $5000 for it.” B should have reasonably understood that A was merely soliciting bids. Additionally, a statement of future intent is usually not considered an offer.
When we look at price quotations from businesses, that’s a little different. If the quantity is clear, courts may consider it an offer. Also, if the quote is part of a advertisement, internet page, mass mailing, it will probably not be considered an offer. If it uses the term offer, that might tip the scale in the offer direction. If it reserves the proposer the power to close the deal, then it won’t be considered an offer. Most ads aren’t considered offers because they aren’t specific enough (they would have to give information about a particular number of units available or a particular manner in which they will be served). And, generally, if it’s a close call, the courts don’t find an offer.
For a contract to be formed, the parties must reach mutual assent of all the essential terms of the agreement (parties, subject matter, time for performance, price).
Contracts involve some element of the future. Bilateral contracts involve an exchange of promises.
Example: Lonergan v Scolnick – There is no meeting of the minds, and, therefore, no enforceable contract, where communications between the parties do not evidence a definite offer and acceptance.
In March, 1952 Scolnick placed an ad in a newspaper that he had 40 acres of land for sale. On March 26, 1952 Scolnick wrote a letter to Lonergan (in response to his inquiry of the property) giving directions to the property and stating that his rock bottom price was $2,500 for the land. Scolnick also informed Lonergan that the letter was a "form letter." On April 7, 1952, Lonergan wrote Scolnick asking for a legal description of the property so that he could be sure that he was looking at the correct land and asking about a certain escrow agent – is that an intent to make an offer? In that letter Lonergan described the land. On April 8, 1952 Scolnick responded by letter stating that by Lonergan's description he had found the correct property. Scolnick also advised Lonergan that if he wanted to purchase the property that he had better act quick as Scolnick expected a buyer within the week. On April 12, 1952 Scolnick sold the property to a third party for $2,500. Lonergan received Scolnick's letter dated April 8th on April 14th. On April 15th, Lonergan wrote Scolnick a letter thanking him for confirming that Lonergan was on the right property and advised him that he would open an escrow account and proceed to purchase the property. On April 17th Lonergan placed $100 into an escrow account with the remainder to be due. Escrow was to close by May 15, 1952. On April 28, the land was worth $6081, so P is claiming a loss of $3581.
Judge in lower court said that letter was an offer, but it was conditioned upon prompt acceptance by Lonergan. Lonergan delayed his answer and prompt action was required according to the offer. Scolnick was entitled to a judgment because they did not enter into a contract. There can be no contract without a meeting of the minds. Lonergan argued that he accepted the offer by mailing the letter and starting an escrow and he was given a reasonable time to accept on April 8.
Holding: there is no meeting of the minds and no enforceable contract where communications between the parties do not evidence a definite offer and acceptance. Until there is a definite offer and acceptance, the parties are only negotiating, which creates no binding relationship between them.
The meeting of the minds is normally evidenced by offer and acceptance, and this ad was only a solicitation of offers for the property, and none of the letters passed back and forth constituted acceptance. Scolnick’s final letter made it clear that he would accept the first valid offer tendered. Scolnick hadn’t made a firm offer, so it was just negotiations, not a contract. From the statement in Scolnick’s letter, Lonergan should have known that he wasn’t being given time to accept. Because there was no offer, there was no acceptance, and therefore, no meeting of the minds of the parties, so no enforceable contract was formed.
P only intended the discussion to be preliminary. The language used by D in the letters shows that more assent by P was necessary. The way D framed his letter—selling to first comer, P should have known he wasn’t being given extra time to accept.
Advertisements
Restatement 26 – manifestation of willingness is not an offer
Advertisements are not usually offers unless clear that there’s no room for negotiation.
Example: Izadi v. Machado Ford – If an offer is conveyed by the objective reading of an advertisement, it does not matter that the advertiser may subjectively have not intended for its chosen language to constitute a binding offer.
Izadi attempted to purchase a 1988 Ford Ranger by offering Machado Ford 3,595 in cash and an unspecified tradein for which he expected to receive 3000 pursuant to an ad Machado Ford placed in the newspaper. (He thought they would offer $3000 for any trade-in, regardless of its real value. The dealership said there was small print that referred to the $3000 deal only applying to different cars and was based on them getting a trade-in that was worth 3000.) Machado refused Izadi’s offer and and his interpretation of the ad, and Izadi sued Machado Ford claiming breach of contract, fraud, and statutory violations involving misleading advertising.
Holding: An allegedly binding offer must be viewed as a whole and it must be decided whether to disregard inconsistent or conflicting provisions. If you look at the offer as a whole, a reasonable person would interpret it the way Izadi did. He thought the ad contained an unqualified 3000 offer, and accepted it. It looks like Machado didn’t want to extend that offer, but they wanted to pull bait and switch. Given how tiny the print of the exclusionary clause was, it it difficult to reach any other conclusion. There was persuasive authority that deliberately misleading advertising intentionally leads the reader to the conclusion that ao offer exists, so we say a binding offer has been created.
Note: if Izadi knew the ad was misrepresenting information or not precise, and he wanted to take advantage of it, he would not be able to recover.
When you look at the ad as a whole, it seems that it was offering the $3000. Look at the words as a whole, they have a communal existence. The fine print doesn’t have the same effect as the big words. So, the ad looks like an unqualified $3000 offer. The rule is "what would a reasonable person think?" This was kind of a bait and switch ad, so it was a breach of contract. It seems like the fact that a bait and switch exists supports the idea that the seller has made an offer since they are trying to make an offer to get the customer to the lot.
Counteroffer – R39 and R59 – substituted offer is a counteroffer
2-207 states that an acknowledgement with different terms is still an acknowledgement unless it states that additional terms must be expressly agreed to. More on the battle of the forms in a different post.
Example: Normile v. Miller – A prospective purchaser does not have the power to accept a counteroffer after receiving notice of its revocation by accepting the counteroffer within the time period specified in the prospective purchaser’s original offer.
Facts: D (Miller) put a piece of real estate up for sale. Plaintiffs Normile and Kurniawan made an offer (on the condition it was accepted by 5pm Aug. 5th 1980); Miller made a counteroffer, but signed the contract for purchase and initialed her changes to the ts and cs. Plaintiffs N&K considered the offer, but their agent, Byer, thought they rejected it and found another buyer, Plaintiff Segal. N and K thought they had time to think about the offer. Plaintiff Segal made an offer (similar to the Miller’s earlier counteroffer) that Miller accepted on the 5th. After this, at 2 pm, the agent told N&K that the defendant had revoked her offer (he said "You snooze, you lose; the property has been sold"). Prior to 5 pm, N&K had signed and initialed the counteroffer and put down the deposit.
Issue: Did the time limit in the initial offer create an option? Also, "If a seller rejects a prospective purchaser's offer to purchase but makes a counteroffer that is not accepted by the prospective purchaser, does the prospective purchaser have the power to accept after he receives notice that the counteroffer has been revoked?"
Holding: No and no.
A prospective purchaser does not have the power to accept a counteroffer within the time period specified in the prospective purchaser’s original offer. The original offer and its terms were rejected when Miller made her qualified or conditional acceptance, which became a counteroffer. Normile did control the time for acceptance of his original offer, but he could not control the time for acceptance of the counteroffer. That counteroffer was a completely new offer and it didn’t incorporate the original offer’s time of acceptance term. If the terms of an offer are changed or qualified, there is no meeting of the minds and therefore, no contract. Here, the first offer was rejected, and the counteroffer did not include a time limitation or a valid option supported by consideration, whereby it would remain open. Thus, when Miller sold the property to Segal, she revoked her counteroffer to Normile and Normile was put on notice of this revocation by the broker. Normile’s failure to accept the counteroffer prior to its revocation precluded him from creating an enforceable contract based on the counteroffer. An option is a K by which an owner agrees to give another the exclusive right to buy property at a fixed price within a specified time. The counteroffer didn’t include a specified time! This is very important.
After the prospective purchaser receives notice of the counter offer and doesn’t accept it, they can’t accept after they receive notice that the counteroffer has been revoked. P’s did not manifest attempt to accept counteroffer made by D.
The question in these two cases is whether an offer was created.
“If you mow my yard, I will give you $20” – offer for a unilateral contract. What if the kid mows your yard first and then asks you for $20? There was no meeting of the minds, so there’s no contract. (Unless he's in the habit of mowing your yard and you're in the habit of paying him.)
Did the sale of the land to someone else act as a revocation of an offer?
I think the answer here is yes, but I need to fill this in with more info.
A note about authorities...
Restatements – secondary authority – black letter law of contracts. The first authority in a contract case is always the contract itself. The parties have, in effect, created their own law. First, look to the letter of the contract. Objectivists look almost exclusively to that, and if you’re a subjectivist, you look to the letter to indicate what the parties thought. In terms of authority, if it applies, you look to the statute. In our case, we look to the UCC. Court decisions are important because courts are bound by that, and often when judges are trying to understand what the law is, they look to the restatements. Some of the sections of the restatements are more important than others—so I think look for the ones that are often cited (45 is one, I think). The restatements are thought to be a classic view of K doctrine.
An offer is detailed in section 25 in the first restatement and section 26 in the second restatement. An offer is a communication to an offeree which creates the power of acceptance in the offeree. Anything else falls short. The problem with ads is they become characterized as invites for an offer rather than the offer itself. The question is whether or not a legally enforceable offer is created.
When does an offer expire? If it’s not spelled out in the offer, within a reasonable time.
Contract law is a creation of the industrial revolution with the purpose of increasing flow of commerce within the western world. The law will bend over backwards to make contracts as opposed to breaking them, and this is especially true of the UCC. That notion should offend you if you’re an objectivist. It seems unfair to make a contract where one wasn’t clearly intended.
What is an acceptance? Performance equals acceptance in a unilateral contract. In order to create a contract, there must be acceptance. What is required to constitute acceptance? In a classical sense, it’s just a statement that you accept. Prior to acceptance, you have unlimited ability to revoke the offer. As long as it is a live offer that hasn’t been accepted, modified, etc. it may be revoked.
Mailbox rule – acceptance is effective when sent, not when it’s received. It really doesn’t matter if it’s received. How can it be a contract if the offeror didn’t know?
Options – the offeror leaves an offer open for a certain period of time. Kind of a contract within a contract. An option vests the power of acceptance in the offeree. In other words, it terminates the power of revocation in the offeror. This is an exception to the standard rules. And it must be supported by an independent consideration. So, to put this in practical terms, X says to A, I will sell you my car for $500, delivery and payment on Saturday. The offer may be revoked on Friday. Does revocation have to be communicated to the offeree in order to be effective? Yes. The only way A can have the offer remain open would probably be to put down a deposit and have the little contract made.
The most important point in contract law is the expectation of damage rule – basically, if you have a loss, you get cash. It looks forward instead of backward, like torts. It tries to imagine what your damage would be.
What is the effect if there’s a counter-offer? The first offer is dead, and then A would become the offeror and X would become the offeree.
Revoking an offer
When an offeror has taken steps inconsistent with the offer, and those steps are known to the offeror, it withdraws the offer. The right to revoke applies even when the offeror has promised not to revoke (ex: Dickinson v. Dodds). When an offer is made to the general public, it is terminated by another general notification equal to that of the offer.
Irrevocable offers (options and firm offers) – if an offeror promised to keep an offer open in exchange for consideration – even a non-conforming acceptance will not revoke the offer, and mailbox rule does not apply.
Hypos...
1. A says to B, "I'm planning on selling my car for $1000." B pulls out a check and says, "I accept." Is there a contract?
No. A's statement was only an intent to contract in the future. An offer requires the present intent to contract, and desire to create the immediate power of acceptance within the offeree.
2. Now suppose A says, "I'm planning on selling my car." B says, "Would you take $1000?" A says, "I accept." Is there a contract?
No because B is only making in invitation to begin negotiations. There was no commitment to be bound immediately, and that's what acceptance requires.
3. C, intending to joke, tells D, "I will sell you my enriched uranium for $1." D didn't know how much enriched uranium was going for and didn't get the joke, so she said, "I accept." Is there a contract?
There probably is. If a reasonable person in D's place would have no reason to know that enriched uranium was usually more expensive and C was joking. Under the objective theory of contracts, the fact that C reasonably appears to be making an offer is enough. But if D knew C was joking (even if a third party wouldn't have known) or knew that C played tricks like this all the time, there would be no valid offer and no enforceable contract. In other words, C can ot have had actual or constructive knowledge of the joke.
4. The art supply store advertises on the internet, "3' by 5' canvases, for sale at $5 each." Ellie walks into the store and says, "I accept." Is there a contract?
No because mass market ads (whether circulars, fliers, internet, etc.) are usually considered invitations for offers because they do not contain sufficient words of commitment to sell.
5. Now assume the ad reads, "Sale--May 1 only--25 3' by 5' canvases left. Were $20, now $5. First come, first served." Now is there a contract?
Yes because the offer specified a quantity, price, person (first come), and manner. In other words, it was a commitment to enter into a deal and created an immediate power of acceptance.
