CHAPTER 9

CHAPTER OUITINE TEARNING OBIECIIVES

-REQUIREMENTS OF THE OFFER.TERMINATION OF THE OFFER

-ACCEPTANCE

AFTER READINC THIS CHAPTER, YOU SHOULD BE ABLE TOANSWER THE FOLLOWING QUESTIONS:

I What elements are necessary for an effective offer?

2 What are some examples of nonoffers?

5 In what circumstances will an offer be irrevocable?

4 What elements are necessary for an effectiveacceptance?

5 Can silence ever operate as an acceptance?

11t ' ' ' r. .l[ ls necessltythat makesr aalaws,/ /

Voltaire, 1649 1778(French philosopher and witer)

AGREEMENIA meeting of two or more minds inregard to the terms of a contract;usuallv broken down into twoeventi-an offer by one party to forma contract and an acceptance of theoffer by the person to whom theoffer is made.

251 fTtTfffffirACREEMENT

oltaire's statement that it is "necessity that makes laws" is certainly true in regard tocontracts. In Chapter B, we pointed out that promises and agreements, and the

knowledge that some of those promises and agreements will be legally enforced, are essen-tial to civilized society. The homes we live in, the food we eat, the clothes we wear, thecars we drive, the books we read, tl-re concerts and professional sporting events we

attend-all of these have been purchased through contractuai agreements. Contract law

developed over time, through the common law tradition, to meet society's need to know

with certainty what kinds of prornises, or contracts, will be enforced and the point atwhich a valid and binding contract is formed.

For a contract to be considered valid and enforceable, the requirements listed in

Chapter B must be met. In this chapter, we look closely at one of these requirements,agreement. Agreement is an essential element for contract formation. The parties must

agree on the tenns of the contract. Ordinarily, agreement is evidenced by two events: anoffer and an acceptance. One party offers a certain bargain to another party, who then

accepts that bargain. Because words often fail to convey the precise meaning intended,

the law of contracts generally adheres to the objective theory of contracts, as discussed in

Chapter B. Under this theory, a party's words ar-rd conduct are held to mean whatever areasonable person in tl're offeree's position would think they meant.

As you read through this chapter, keep in mind that the requirement of agreement

applies to all contracts, regardless of how they are formed. Many contracts continue to be

formed in ihe traditional way-through the exchange of paper documents. Increasingly,

contracts are also being formed online-through the exchange of electronic messages or

documents. Although we discuss online contracts to a limited extent in this chapter, wewill look at tl-rem irore closelv in Chauter 17.

I

Il

252 IINIIIUCONTRACTS

OFFERA promise or commitment toperform or refrain from performingsome soecified act in the future.

BACKGROUND AND FACTSW. O. Lucy and J. C. Lucy, theplaintiffs, filed a suit against

A. H. Zehmer and lda Zehmer, the defendants, to compel theZehmers to transfer title of their property, known as the

An offer is a promise or commitment to perform or refrain from performing some speci-fied act in the future. As discussed in Chapter 8, the party making an offer is called the

offeror, and the party to whom the offer is made is called the offeree.Three elements are necessary for an offer to be effective:

I There must be a serious, objective intention by the offeror.

2 The terms of the offer must be reasonably certain, or definite, so that the parties and

the court can ascertain the terms of the contract.

I The offer must be communicated to the offeree.

Once an effective offer has been made, the offeree's acceptance of that offer creates a

legally binding contract (providing the other essential elements for a valid and enforce-

able contract are present).In today's e-commerce world, offers are frequently made online. Essentially, the

requirements for traditional offers apply to online offers as well, as you will read in

Chapter 17.

lntent ionThe first requirement for an effective offer to exist is a serious, objective intention on the

part of the offeror. Intent is not determined by the subiective intentions, beliefs, or

assumptions of the offeror. Rather, it is determined by what a reasonable person in the

offeree's position would conclude the offeror's words and actions meant. Offers made in

obvious anger, jest, or undue excitement do not meet the serious-and-obiective-intenttest. Because these offers are not effective, an offeree's acceptance does not cteate an

agreement.FExAMptE e.il You and three classmates ride to school each day in Julio's new automo-

bile, which has a market value of $ I8,000. One cold morning, the four of you get into the

car, but julio cannot get it started. He yells in anger, "I'll sell this car to anyone for $500!"You drop $500 in his lap. A reasonable person, taking into consideration Julio's frustrationand the obvious di{ference in value behveen the car's market price and the purchaseprice, would declare that Julio's offer was not made with serious and obiective intent andthat you do not have an agreement. E

The concept of intention can be further clarified through an examination of the typesof expressions and statements that are not offers. We look at these expressions and state-ments in the subsections that follow. In the classic case of Lucy t,. Zehmer, presented next,

the court considered whether an offer made "after a few drinks" met the serious-intentrequirement.

Supreme Court of Appeals 6f Virginia, 196Va.493,84 S.E.2d 516 (1954).[****r*x*t*s[t**rg€***f

Ferguson Farm, to the Lucys for $5O000, as the Zehmers hadallegedly agreed to do. Lucy had known Zehmer for fifteen ortwenty years and for the last eight years or so had been anxiousto buy the Ferguson Farm from Zehmer. One nigh! Lucystopped in to visit the Zehmers in the combination restaurant,

255 GIIEmACREEMENT

CASE 9.1-Cont inued

filling station, and motor court they operated. While there, Lucy continued to drink whiskey and engage in light conversation.tried to buy the Ferguson Farm once again. This time he tried a Eventually,.Lucy enticed Zehmer to write up an agreement tonew approach. According to the trial court transcript, Lucy said the effect that Zehmer would sell the Ferguson Farm to Lucy forto Zehmer, "l bet you wouldn't take $50,000 for that place." $50,000. Later, Lucy sued Zehmer to compel him to go throughZehmer replied, 'Yet I would too; you wouldn't give fiftyl' with the sale. Zehmer argued that he had been drunk and thatThroughout the evening, the conversation returned to the sale the offer had been made in jest and hence was unenforceable.of the Ferguson Farm for g5O,OO0. At the same time, the parties The trial court agreed with Zehmer, and Lucy appealed.

::

f N THE W0RDS 0F THE C0URT . . . BUCHANAN,J. lust icel del iveredtheopinionof thecourt .

**r<*

In his testimony,Zehmer claimed that he "was high as a Georgia pine," and that thetransaction "was just a bunch of hvo doggoned drunks bluffing to see who could talk thebiggest and say the most." That claim is inconsistent with his attempt to testif, in greatdetail as to what was said and what was done.

The appearance of the contract, the fact that it was under discussion for forty minutesor more before it was signed; Lucy's objection to the first draft because it was written inthe singular, and he wanted Mrs. Zehmer to sign it also; the rewriting to meet that objec-tion and the signing by Mrs. Zehmer; the discussion of what was to be included in thesale, the provision for the examination of the title, the completeness of the instrument that*",

"".",rt.d, the taking possession of it by Lucy with no request or suggestion by either

of the defendants that he give it back, are facts which furnish persuasive evidence that theexecution of the contract was a serious business transaction rather than a casual, jesting

-rla.J as defendants now contend.

In the field of contracts, as generally elsewhere, we must look to the outward expressionof a person as manifesting his intention rather than to his secret and unexpressed intention.The law imputes to a person an intention corresponding to the reasonable meaning of his*oldr*"ld*r.ts. lEmphasis added ]

Whether the writing signed by the defendants and now sought to be enforced by thecomplainants was the result of a serious offer by Lucy and a serious acceptance by thedefendants, or was a serious offer by Lucy and an acceptance in secret fest by the defen-dants, in either event it constituted a binding contract ofsale behveen the parties.

DtClSl0N AND REMEDY rtresupremecourtof Virginia IMPACT 0F THIS CASE 0N T0DAY'S IAW rtrs isadetermined that the writing was an enforceable contract and clossic cose in controct law because it illustrotes so cleorly the

reversed the ruling of the lower court. The Zehmers were objective theory of controcts with respect to determining

required by court order to follow through with the sale of the whether o serious offer wos intended. Today, the courtsFerguson Farm to the Lucys. continue to opply the objective theory of controcts ondffi.ffi routinely cite Lucy v. Zehmer os o significont precedent inff i WHAT lF THE FACTS WERE DIFFERENT? thi, o,eo.#ffi Suppose thot the day after Lucy signed the purchoseagreementfortheform,hedecidedthothedidnlwontitofter RETEVANT WEB SITES fo locqteinformotionontheWeboll, and Zehmer sued Lucy to pertorm the controct Would this concerning fhe Lucy v. Zehmer decision, go to this text's Web sitechonge in the focts alter the court's decision that Lucy ond of www.cengage.com/blaMbll , seled "Chapter 9," ond click onZehmer hod creqted on enforceoble contract? Why or why not? "URLs for Landmarks!'

@

254 MiIilUCONTRACTS

EEfilillFm An opinion is not anoffer and not a contract term.Coods or services can be "oerfect"in one party's opinion and "poor"in another's.

fk':lfinqfiTNif Advertisements arenot binding, but they cannot bedeceptive.

Expressions of Opinion An expression of opinion is not an offer. It does not demon-

strate an intention to enter into a binding agreement. ITEXAMPLE 9.2-l Hawkins took his son

to McGee, a physician, and asked McGee to operate on the son's hand. McGee said that

the boy would be in the hospital three or four days and that the hand wotid probably heal

a few days later. The son's hand did not heal for a month, but nonetheless the father did

not win a suit for breach of contract. The court held that McGee did not make an offer

to heal the son's hand in three or four days. He merely expressed an opinion as to when

lhe hand would heai . l E

Statements of Future Intent A statement of an intention to do something in the future

is not an offer. lEExA-tvtpt-r e.tl If Arif says, "I plan to sell my stock in Novation, Inc., for $ ] 50

per share," a contract is r-rot created if |ohn "accepts" and tenders $150 per share for the

stock. Arif has merely expressed his intention to enter into a future contract for the sale of

the stock. If John accepts and tenders the $150 per share, no contract is formed, because

a reasonable person ivould conclude that Arif was only thinking about selling his stock,not promising to sell it. E

Preliminary Negotiations A request or invitation to negotiate is not an offer; it only

expresses a willingness to discuss the possibilif of entering into a contract. Examples are state-ments such as "Wiil you sell Forest Acres?" and "l wouldn't sell rny car for less than $8,000."A reasonable person in the offeree's position wouid not conclude that such a statement indi-

cated an intention to enter into a binding obligation. Likewise, when the government and pri-

vate firms need to have construction work done, they invite contractors to submit bids. The

inyitation to submit bids is not an offer, and a contractor does not bind the government or pri-

vate firm by submitting a bid. (The bids that the contractors submit are offers, however, and

the government or private firm can bind the contractor by accepting the bid.)

Advertisements, Catalogues, and Circulars In general, advertisements, mail-order cata-logues, and circular letters (meant for the general public) are treated as invitations to nego-

tiate, not as offers to form a contract.Z FTxAMPIE ,.dl You put an ad in the classified section

of yor-rr local newspaper offering to sell your guitar for $275. Seven people call and"accept" yor-rr "offer" before you can remove the ad from the newspaper. If the ad weretruly an offer, you would be bor-rnd by seven contracts to sell your guitar. Because initialadvertisements are treated as invitations to make offers rather than offers, however, you wilihave seven offers to choose from, and you can accept the best one withor,rt incurring anyl iabi l i ty for the s ix you reject . E

Although most advertisements and the like are treated as invitations to negotiate, this

does not mean that an advertisement can never be an offer. On some occasions, courtshave construed advertisements to be offers because the ads contained definite terms thatinvited acceptance (such as an ad offering a reward for the return ofa lost dog).

The plaintiff in the following case argued that an ad on a Web site constituted an offer,which l-re accepted.

1. Hawkins v. Mccee,84 N.H. 114, 146 A. 611 (1929).

2. Restatement (Second) of Contracfs, Section 26, Comment b.

United States District Court, Western District of New Yorh - F.Supp.2d -(2Oo7).

BACKGROUND AND FACTS daily f nternet news service, and publishes Science, a scholarlyjournal. An ad on the Science NOW Web site asks for "newstips" and states that each tip will be investigated for its

L*ffi"""f The American Association forthe Advancement of Science (AAAS) maintains Science NOW a

CASE 9.2-Cont inued

suitability as an item for Science NOW or an article for Science.In response to the ad, Erik Trell, a professor and physician,submitted a manuscript in which he claimed to have solved afamous mathematical problem, popularly known as Beal'sConjecture. AAAS decided that Trell's manuscript containedneither news nor a solution to Beal's Conjecture and declined

DECISI0N AND REMEDY rtre court sranted thedefendants' motion and dismissed the plaintiffs complaint.Science NOW's ad for "news tips" was not an offer, but aninvitation for offers.

lN THE WORDS 0F THE COURT . . . JzHNr. ELFvtN, D.J. [DistrictJudge]

***** * * Resolution of this issue requires consideration of principles of contract law that

are not limited to the law of any one state * * x [and] implicate questions of contract

law deeply ingrained in the common law of England and the States of the Union. It isupon these principles that the Court will examine this issue.

With respect to the formation of a contract, the Court finds that the relevant facts arecontained in paragraphs 26 through 28 of fTreli's] Amended Complaint. In thoseparagraphs, plaintiff alleges that

(&\AS provides a daily news service, Science NOW, as

one of its Wbb products," that "in one of its Internet fadvertisements] for fnews]tips," Science NOW indicated that "its news team would investigate any tip submittedthat was suitable for an item in Science NOW and that the same might even lead toa story in ihe prini version of defendant AMS's Science magazine" and that in responseto this advertisement, "plaintiff submitted his manuscript to defendant ScienceNOW entitled 'Reproving Fermat's Last Theorem: also confirming Beal's and relatedcon jectures."'

Having reviewed the Amended Complaint, the Court finds that, upon the facts asalleged in the Amended Complaint, this claim must be dismissed because no contractwas formed. Quite simply, the Court finds that the advertisement for "news tips" on theScience NOW Web site cannot be construed as an offer * 'r' {' Statements that urgemembers of the general public to take some action in response thereto, as is clearlydepicted in the Amended Complaint herein, are commonly characterized as advertise-ments. Adyertisements are not offers-they invite offers. Likewise, responses to advertise-ments are not acceptances-they are offers. At best, it was Trell's submission of themanuscript that was the offer, which Trell clearly admits defendants declined to accept.This is the controllinglaw. The Court finds no distinction requiring a different analysis orresult merely because the advertisement was soliciting ideas (i.e., "news tips") rather thangoods, or because it was communicated over the Intemet as opposed to through television,radio or newspaper advertisement [Emphasis added.]

There is a very narrow and limited exception to this rule, bui it is rarely applied andonly in exceptional circumstances where the advertisement clearly communicates anoffer that is definite, explicit and leaves nothing open for negotiation. There is nothingalleged in the Amended Complaint which could reasonably be construed to apply thisexception.

255EIE@ACREEMENT

to publish it. Trell filed a suit in a federal district court againstAAAS and others, alleging, among other things, breach ofcontract. Trell asserted, in part, that the Science NOW adwas an offer, which he accepted with his submission of amanuscript. The defendants filed a motion to dismiss thisclaim.

F0R CRITICAt ANAtYSIS-TechnologicalConsideration shoutd the court hove made an

exception to the rule opplied in this cqse becouse the od wosposted on the Internet? Why or why not?

@

Price Lists Price lists are another form of invitation to negotiate or trade' A seller's price

list is not an offer to sell at that price; it merely invites the buyer to offer to buy at that

price. In fact, the seller usually puts "prices subiect to change"_on the price list. Only in

rare circumstances will a price quotation be construed as an offer.

Should promises of prizes mdde in ads ond circulors olways be enforced? Businesses and

other organizations commonly promote their products or services by offering prizes, rewards,

and the lik" fo, the performance of specific actions. Ordinarily, these ads for prizes present few

problems. At times, though, people perform whatever is necessary to win an advertised prize

only to learn that the offer was made in jest-that is, the ad's sPonsor had no real intention of

giving anyone the prize. For example, Pepsico launched an ad campaign that said consumers

iorlJ use "Pepsi Points"-which could be found on specially marked packages of Pepsi or Pur-

chased for ten cents each-to obtain T-shirts and other merchandise with the Pepsi logo. One

of the ads featured a Harrier fighter jet, which was listed at 7 million Pepsi Points. When a con-

sumer, John Leonard, raised $700,000, purchased 7 million Pepsi Points, and laid claim to the

prize, however, PepsiCo contended that the Harrier jet in the commercial was "fanciful" and

that the offer was made in jest'

In the lawsuit that followed, the court agreed, stating that "no objective person could rea-

sonably have concluded that the commercial actually offered consumers a Harrier jetl'5 Yet

Leonard obviously did draw that conclusion, and in a number of other cases, individuals have

undertaken serious efforts to win nonexistent prizes. Some claim that not enforcing such prom-

ises is unfair to individuals who rely on the promiset as John Leonard did in this case'

Auctions In an auction, a seller "offers" goods for sale through an auctioneer, but this is

not an offer to form a contract. Rather, it is an invitation asking bidders to submit offers. In

the context of an auction, a bidder is the offeror, and the auctioneer is the offeree' The offer

is accepted when the auctioneer strikes the hammer. Before the fall of the hammer, a bid-

d", ,n"y revoke (take back) her or his bid, or the auctioneer may reject that bid or all bids'

Typicaily, an auctioneer will reject a bid that is below the price the seller is willing to accept'-

When the auctioneer accepts a higher bid, he or she reiects all previous bids. Because

rejection terminates an offer (as will be discussed later), those bids represent offers that have

been terminated. Thus, if the highest bidder withdraws his or her bid before the hammer

fa1ls, none of the previous bids is ieinstated. If the bid is not withdrawn or reiected, the con-

traci is formed ,"her't the auctioneer announces' "Going once, going hvice, sold!" (or some-

thing similar) and leh the hammer fall.

Tiaditionally, auctions have been either "with reserve" or

"without reserve." In an auction with reserve, the seller

(through the auctioneer) may withdraw the goods at any time

beforelhe auctioneer closes the sale by announcement or by

the fall of the hammer. All auctions are assumed to be auc-

tions with reserye unless the terms of the auction are explic-

itly stated tobe without reserve.In an auction without reserve'

the goods cannot be withdrawn by the seller and must be sold

to the highest bidder. In auctions with reserve, the seller may

reserve the right to confirm or reject the sale even after "the

hammer has fallen." In this situation, the seller is obligated to

H

A $27 million Horrier fighter iet thot

wos offered as o prize in PePsiCo's"Drink Pepsi-Get Stuff" od compoign'

Although the iet was o fanciful iest to

PepsiCo, one consumer took the offer

seriously ond attempted to fulfill the

terms of the prize. ls PepsiCo's "offer"

of the jet enforceoble? (Paul Friel/

Creative Commons)

3. Leonardv.PepsiCo, 88 F.Supp 2d 116 (S.D.N.Y. 1999); af fd 210 F3d 88 (2d

Cir. 2000).

257@@ACREEMENT

In on oudion, such os this one inBoonville, Missouri, is the portyselling the goods the "offeror" forpurposes of contract lovti Why orwhy no2 (AP Photo/l. C. Patterson)

notifi, those attending the auction that sales of goods made during the auction are notfinal unti l confirmed by the seller.a

Agreements to Agree Tiaditionally, agreements to agree-that is, agreements to agree tothe material terms of a contract at some future date-were not considered to be bindingcontracts. The modern view, however, is that agreements to agree may be enforceable agree-ments (contracts) if it is clear that the parties intend to be bound by the agreements. In other

words, under the modern view the emphasis is on the parties' intent rather than on form.

lrExAMnErsl Nter a patron was injured and nearly drowned on a water ride at SixFlags Amusement Park, Six Flags, Inc., filed a lawsuit against the manufacturer that haddesigned the ride. The defendant manufacturer claimed that there was no binding con-tract between the parties, only preliminary negotiations that were never formalized into acontract to construct the ride. The court, however, held that a faxed document specifyingthe details of the water ride, along with the parties' subsequent actions (beginning con-

strr-rction and handwriting notes on the fax), was sufficient to show an intent to be bound.Because of the court's finding, the manufacturer was required to provide insurance for thewater ride at Six Flags, and its insurer was required to defend Six Flags in the personal-injury lawsuit that arose out of the incident.5 B

Increasingly, the courts are holding that a preliminary agreement constitutes a bindingcontract if ihe parties have agreed on all essential terms and no disputed issues remain tobe resolved.6 In contrast, if the parties agree on certain major terms but leave other terms

open for further negotiation, a preliminary agreement is binding only in the sense that the

parties have committed themselves to negotiate the undecided terms in good faith in aneffort to reach a final agreement.-

4. These rules apply under both the common law of contracts and the Uniform Commercial Code, or UCC. See

ucc 2-328.5. Six Flags, Inc. v. Steadfast lnsurdnce Co., 471 F.Supp.2d 201 (D.Mas. 2007).

6. See, for example, Tractebel Energy Marketing,lnc. v. AEP Power Marketing,lnc.,487 F.ld 89 (2d Cir. 2007); and

Fluorine On CaIl, Ltd. t. Fluorogas Limited,No.01-CV-186 (W.D.Tex. 2002), contract issue affirmed on appeal at

380 F.ld 849 (5th Cir. 200'1).

7 See, for example, MBH, Inc. t lohn Otte Oil & Propane, lnc.,727 N.W.2d 238 (Neb.App. 2007); and Barrand r.

Whataburger, Inc., 211 S.W 3d I 22 (Gx.App. - Corpus Christi 2006).

258IINIIUilCONTRACTS

To avoid potential legal disputes, be cautious when drafting a memorandumoutlining a preliminary agreement or understanding with another party. lf all themajor terms are included, a court might hold that the agreement is binding eventhough it was intended to be only a tentative agreement. One approach to avoidbeing bound to the terms of a preliminary agreement is to include in the writingnot only the points on which the parties agree, but also all of the points ofdisagreement. Alternatively, a party might add a note or disclaimer to thememorandum stating that, although the parties anticipate entering a contract inthe future, neither party intends to be legally bound to the terms that werediscussed. That way, the other party cannot claim that an agreement has alreadybeen reached on all essential terms.

lr.l

In the following case, the dispute was over an agreement to settle a case during a trial. Oneparty claimed that t1re agreement formed via e-mail was binding, and the other party claimedit was merely an agreement to agree or to work out the terms of a settlement in the future.Can an exchange of e-mails create a complete and unambiguous agreement?

Appeafs Court of Massachusetts, 71 Ma_ss.App.Ct.29,878 N.E.2d 952 (2008).

@o

BACKGROUND AND FACTSBasis Technology Corporation

created software and provided technical services forAmazon.com, Incls, Japanese-language Web site. Theagreement between the two companies allowed for separatelynegotiated €ontracts for additional services that Basis mightprovide to Amazon. At the end of 1999, Basis and Amazon

a. In the search box on the right, enter "71 Mass.App.Ct. 29," and click on"Searchi' On the resulting page, click on the case name.

lN THE WORDS 0F THE C0URT . . . stKoRA, J. pudgel

entered into stock-purchase agreements. Later, Amazonobjected to certain actions related to the securities that Basissold. Basis sued Amazon for various claims involving thesesecurities and for failing to pay for services performed by Basisthat were not included in the original agreement. During thetrial, the two parties appeared to reach an agreement to settleout of court via a series of e-mail exchanges outlining thesettlement. When Amazon reneged, Basis served a motion toenforce the proposed settlement. The trial judge enteredjudgment against Amazon, which appealed.

; ; ; ;" the evening of March 27, afterthe third day of evidence and after settlement

discussions, Basis counsel sent an e-rnail with the following text to Amazon counsel:

fAmazon counsel] -This e-mail confirms the essential business terms of the settlementbetween our respective clients * * *. Basis and Amazon agree that they promptly will take

all reasonabie steps io memorialize in a written agreement, to be signed by individuals

authorized by each party, the terms set forth below, as well as such other terms that are rea-

:":":tt_".:.*ary

to make these terms effective.

fAmazon counsel], please contact me first thing tomorrow morning if this e-maii does notaccurately summarize the settlement terms reached earlier this evening.

See you tomorrow morning when we report this matter settled to the Court.

At7:26 A.M. on March 24, Amazon counsel sent an e-mail with a one-word reply:"correct." Later in the morning, in open court and on the record, both counsel reported

the result of a settlement without specification of the terms.

CASE 9.5-Cont inued

On March 25, An'razon's counsel sent a facsimile of the first draft of a settlement agree-ment to Basis's counsel. The draft comported with all the terms of the e-mail exchange,

""1T*1r"me implementing and boilerplate fstandard contract provisionsl terms.

[Within a few days, though,] the parties were deadlocked. On April 21, Basis served itsmotion to enforce the settlement agreement. Amazon opposed. * {< *( The motion andopposition presented the issr,res whether the e-mail terms were sufficiently complete andO.Ufrj"_a*rm an agreement and whether Amazon had intended to be bound by them.

We examine the text of the terms for the incompleteness and indefiniteness charged byAmazon. Proyisions are not ambiguous simply because the parties have developed differentintfft:t:ons of them. IEmphasis added.]

We must interpret the document as a whole. In the preface to the enumerated terms,Basis counsel stated that the "e-mail confirms the essential business terms of the settle-ment behveen our respective clients," and that the parties "agree that they promptly willtake all reasonable steps to memorialize" those terms. Amazon counsel conciselyresponded, "correct." Thus the "essential business terms" were resolved. The parties werepr"_""fdj"g to "memorialize" or record the settlement terms, not to create them.

To ascertain intent, a court considers the words used by the parties, the agreementtaken as a whole, and surrounding facts and circumstances. The essential circumstanceof this disputed agreement is that it concluded a trial.

* * * As the trial judge explained in her memorandum of decision, she"terminated" the trial; she did not suspend it for exploratory negotiations. She did so inreliance upon the parties' report of an accomplished agreement for the settlement of theirdisoute.

xxxx

In sum, the deliberateness and the gravity attributable to a report of a settlement, espe-cially during the progress of a trial, weigh heavily as circumstantial evidence of the inten-tion of a party such as Amazon to be bound by its communication to ihe opposing partyand to the court.

259GI@ACREEMENT

WHAT IF THE FACTS WERE DIFFERENT?Assume thot the qttorneys for both sides had simply

hod o phone conversation that included oll of the terms towhich they actually agreed in their e-mail exchonges. Wouldthe court have ruled differently? Why or why not?

DECISI0N AND REMEDY rne Appeals court ofMassachusetts affirmed the trial court's finding that Amazonintended to be bound by the terms of the March 23 e-mail.That e-mail constituted a complete and unambiguous statementof the parties' desire to be bound by the settlement terms.

@

Def in i tenessThe second requirement for an effective offer involves the definiteness of its terms. Anoffer must have reasonably definite terms so that a court can determine if a breach has

occurred and give an appropriate remedy.6An offer may invite an acceptance to be worded in such specific terms that the contract

is made definite. kExnmFiE esl Marcus Business Machines contacts your corporation and

8. Restatentent (Second) of Contracfs, Section 33. The UCC has relaxed the requirements regarding the definiteness

ofterms in contracts for the sale ofgoods. See UCC 2-204(3).

260 IMCONTRACTS

To view the terms of asample contract, go to the"forms" pages of the 'Lectric LawLibrary atand select one of the types ofcontracts listed there to review

REVOCATIONIn contract law the withdrawal of anoffer bv an offeror, Unless the offer isinevocible, it can be revoked at anytime prior to acceptance withoutliability.

offers to seil "from one to ten MacCool copying machines for $1,600 each; state number

desired in acceptance." Your corporation agrees to buy hvo copiers. Because the quantity

is specified in the acceptance, the terms are definite, and the contract is enforceable. El

Communicat ionA third requirement for an effective ofTer is communication-the offer must be commu-

nicated to the offeree lgExnMpTE r.i l Tolson advertises a reward for the return of her lost

cat. Dirlik, not knowing of tl-re reward, finds the cat and returns it to Toison. Ordinarily,

Dirlik cannot recover the reward because an essential element of a reward contract is that

the one who claims the reward must have known it was offered. A few states would allow

recovery of the reward, but not on contract principles-Dirlik would be allowed to

recover on the basis that it would be unfair to deny him the reward just because he did

not know about it. E

The communication of an effective offer to an offeree gives the offeree the power to trans-

form the offer into a binding, legal obligation (a contract) by an acceptance. This power

of acceptance does not continue forever, though. It can be termir-rated by action of the

parties or by operation of law.

Terminat ion by Act ion of the Part iesAn offer can be terminated by the action of the parties in any of three ways: by revocation,

by rejection, or by counteroffer.

Revocation of the Offer The offeror's act of withdrawing an offer is referred to as

revocation. Unless an offer is irrevocable, the offeror usually can revoke the offer (even if

he or she has promised to keep the offer open), as long as the revocation is communicated

to the offeree before the offeree accepts. Revocation may be accomplished by an express

repudiation of the offer (for example, with a statement such as "l withdraw my previous

offer of Octob er 17"'1or by the performance of acis that are inconsistent with the existence

of the offer and that are made known to the offeree.

IEExAMpLE e.sl Ceraldine offers to sell some land to Gary. A week passes. and Cary, who

has not yet accepted the offer, learns from his friend Konstantine that in the meantime

Geraldine has sold the property to Nunan. Gary's knowledge of Geraldine's sale of the land

to Nunan, even though he learned of it through a third party, effectively revokes Geraldine's

offer to sell the land to Gary. Geraldine's sale of the land to Nunan is inconsistent with the

continued existence of the offer to Gary, and thus the offer to Gary is revoked. EiThe general rule followed by most states is that a revocation becomes effective when

the offeree or the offeree's agent (a person who acts on behalf of another) actually receives

it. Therefore, a letter of revocation mailed on April I and delivered at the offeree's resi-

dence or place of business on April 3 becomes effective on April 3.

An offer made to the general public can be revoked in the same manner in which the

offer was originally comn'iunicated. lfixAMFLEe.tl A department store offers a $10,000reward to anyone providing information leading to the apprehension of the persons who

burglarized its downtown store. The offer is published in three iocal papers and in four

papers in neighboring communities. To revoke the offer, the store must publish the revo-

cation in all seven papers for the same number of days it published the offer. The revoca-

tion is then accessible to the general public, and the offer is revoked even if some

oarticular offeree does not know about the revocation. E

Irrevocable Offers Nthough most offers are revocable, some can be made irrevocable.Increasingly, courts refuse to allow an offeror to revoke an offer when the offeree has changedposition because of justifiable reliance on the offer (under the doctrine of detrimentalreliance, or promissory estoppel, which will be discussed in Chapter l0). In,some circum-stances, "firm offers" made by merchants may also be considered irrevocable. We will discussthese offers in Chapter lB.

Another form of irrevocable offer is an option contract. An option contract is createdwhen an offeror promises to hold an offer open for a specified period of time in return fora payment (consideration) given by the offeree. An option contract takes away the offeror'spower to revoke an offer for the period of time specified in the option. If no time is spec-if ied, then a reasonable period of t ime is implied. ITEXAMTIE erol Suppose that you are inthe business of writing movie scripts. Your agent contacts the head of development at NewLine Cinema and offers to sell New Line your new movie script. New Line likes yourscript and agrees to pay you $25,000 for a six-month option. In this situation, you (through

your agent) are the offeror, and New Line is the offeree. You cannot revoke your offer tosell New Line your script for the next six months. After six months, if no contract has beenformed, New Line loses the $25,000, and you are free to sell your script to another moviestudio. E

Option contracts are also frequently used in conjunction with the sale of real estate.FEXAMpiEll tl You agree with a landowner to lease a house and include in the lease con-tract a clause stating that you will pay $15,000 for an option to purchase the propertywithin a specified period of time. If you decide not to purchase the home after the speci-fied period has lapsed, you lose the $15,000, and the iandlord is free to sell the propertyto another buyer. []

Rejection of the Offer by the Offeree If the offeree rejects the offer, the offer is termi-nated. Any subsequent attempt by the offeree to accept will be construed as a new offer,giving the original offeror (now the offeree) the power of acceptance. A reiection is ordi-narily accomplished by words or by conduct indicating an intent not to accept the offer.

26r EInE@ACREEMENT

OPNON CONTRACTA contract under which the offerorcannot revoke the offer for astipulated time period. During thisperiod, the offere can accept orreject the offer without fear that theoffer will be made to anotherperson. The offeree must giveconsideration for the option (theirrevocable offer) to be enforceable.

A billboard offers o reward for thecapture of the killer of this woman'shusbond. How con this offer berevoked? (AP Photo/Denis Poroy)

j

262 IWiIilECONTRACTS

Flf#ffiIl rhe way in which aresponse to an offer is Phrased candetermine whether the offer isaccepted or rejected.

COUNTEROFFERAn offeree's response to an offer inwhich the offeree rejects the originaloffer and at the same time makes anew offer.

MIRROR IMAGF RUIEA common law rule that requiresthat the terms of the offeree'sacceptance adhere exactly to theterms of the offeror's offer for avalid contract to be formed.

For answers to somecommon questions aboutcontract law, go to-the Web site of theLegal Information Netrruor( Inc., at

The offeree's power to transform an offer into a binding, legal obligation can be termi-

d by operation of law if any of four conditions occur: lapse of time, destruction of the

,p.iFt. subject matter, death or incompetence of the offeror or offeree, or superuenlngiilegality of the proposed contract.

Lapse of Time An offer terminates automatically by law when the period of time specified

in the offer has passed. If the offer states that it will be left open until a particular date, then

the offer will terminate at midnight on that day. If the offer states that it will be left open for

a number of days, such as ten days, this time period normally begins to run when the offer is

actually received by the offeree, not when it is formed or sent. When the offer is delayed(through the misdelivery of mail, for example), the period begins to run from the date the

offeree would have received the offer, but only if the offeree knows or should know that

the offer is delayed.loI-ExAMFLE e.rsl Suppose that Beth offers to sell her boat to fonah, stating that the offer

will remain open until May 20. Unless Jonah accepts the offer by midnight on May 20,

the offer will lapse (terminate). Now suppose that Beth writes a letter to Jonah, offering to

As with a revocation, a rejection of an offer is effective only when it is actually received by

the offeror or the offeror's agent. InExAMpLET.lrl Growgood Farms mails a letter to Campbell

Soup Company offering to sell carrots at ten cents a pound. (Of course, today, such offers

tend to be-sent electronically rather than by mail, as will be discussed in Chapter l7')

Campbell Soup Company could reject the offer either by sending or faxing a letter to

Growgood Far*s expressly ref ecting the offer or by mailing the offer back to Growgood, indi-

cating"an intent to rejeci it. Alternatively, Campbell could offer to b_uy the carrots at eight

cents'per pound (a counteroffer), necessarily reiecting the original offer' E

Merely inquiring about an offer does not constitute reiection. lrEXAMPLE rls"l A friend

offers to buy yo.rr DVD movie collection for $100. You respond, "ls this your best of{er?"

or "Will you pay me $375 for it?" A reasonable person would conclude that you did not

re ject the offer but merely made an inquiry for further consideration of the offer. You can

still accept and bind yor-rr friend to the $300 purchase price. When the offeree merely

inquires as to the firmness of the offer, there is no reason to presume that she or he intends

to reject it. E

Counteroffer by the Offeree A counteroffer is a rejection of the original offer and the

simultaneous making of a new offer. lEEx[rvtpl-?gJa I Burke o{fers to sell his home to Lang' for $270,000. Lang responds, "Your price is too high. I'll offer to purchase your house for

$250,000." Lang's response is called a counteroffer because it rejects Burke's offer to seli ai

$270,000 and creates a new offer by Lang to purchase the home at a price of$250,000. EAt common law, the mirror image rule requires that the offeree's acceptance match

the offeror's offer exactly. In other words, the terms of the acceptance must "mirror" those

of the offer. If the acceptance materially changes or adds to the terms of the original offer,

it wil l be considered not an acceptance but a counteroffer-which, of course, need not

be accepted. The original offeror can, however, accept the terms of the counteroffer and

create a valid contract.Y

Terminat ion by 0perat ion of Law

9. The mirror image rule has been greatly modified in regard to sales contracts. Section 2-207 ofthe UCC provides

that a contract is formed ifthe offeree makes a definite expression ofacceptance (such as signing the form in the

appropriate location), even though the terms ofthe acceptance modify or add to the terms ofthe original offer (see

Chapler I 8\ .10. Restatement (Second) of Contracts, Section 49.

sell him her boat if jonah accepts the offer within hventy days of the letter's date, whichis May l. ]onah must accept within twenty days after May I, or the offer will terminate.Suppose that instead of including the date May I in her letter, Beth had simply written to

Jonah offering to sell him her boat if Jonah accepied within twenty days. In this instance,

fonah must accept within twenty days of receiving the letter. The same rule would applyif Beth r-rsed insufficient postage and ]onah received the letter ten days late without know-ing that it had been delayed. If, however, Jonah knew that the letter was delayed, the offerwould lapse hventy days after the day he ordinarily would have received the offer had Bethused sufficient postage. El

If the offer does not specif, a time for acceptance, the offer terminates at the end of aredsonable period of time. A reasonable period of time is determined by ihe subject matterof the contract, business and market conditions, and other relevant circumstances. An offerto sell farm produce, for example, will terminate sooner than an offer to sell farm equipmentbecause farm produce is perishable and subject to greater fluctuations in market value.

Destruction of the Subiect Matter An offer is automatically terminated if the specificsubject matter of the offer is destroyed before the offer is accepted. For example, if Bekinsoffers to sell his prize cow to Yatsen, but the cow is struck by lightning and dies beforeYatsen can accept, the offer is automatically ierminated. (Note that if Yatsen accepted theoffer just before lightning struck the cow, a contract would have been formed, but,because of the cow's death, a court would likely excuse Bekins's obligation to perform thecontract on the basis of impossibii i ty of performance-see Chapter 14.)

Death or Incompetence of the Offeror or Offeree An offeree's power of acceptance isterminated when the offeror or offeree dies or is deprived of iegal capacity to enter intothe proposed contract, unless the offer is irrevocable.ll A revocable offer is personal to bothparties and normally cannot pass to a decedent's heirs or estate or to the guardian of amentally incompetent person. This rule applies whether or not one party had notice ofthe death or incomoetence of the other ps1y. lrrxntvtrl-Frte I Kapola. who is quite i l l .writes to her friend Amanda, offering to sell Amanda her grand piano for only $400. Thatnight, Kapola dies. Tl-re next day, Amanda, not knowing of Kapola's death, writes a letterto Kapola, accepting the offer and enclosing a check for $400. Is there a contract? No.There is no contract because the offer automatically terminated on Kapola's death. E

Supervening Illegality of the Proposed Contract A statute or court decision that makesan offer illegal automatically terminates the offer. FEXAMFIE e.fl Acme FinanceCorporation offers to lend Jack $20,000 at l5 percent interest annually, but before )ackcan accept, the state legislature enacts a statute prohibiting loans at interest rates greaterthan I2 percent. In this situation, the offer is automatically terminated. (If the statute isenacted after Jack accepts the offer, a valid contract is formed, but the contract may stillbe unenforceable-see Chapter I l. ) E

An acceptance is a voluntary act by the offeree that shows assent, or agreement, to theterms of an offer. The offeree's act may consist of words or conduct. The acceptance mustbe unecuivocal and must be communicated to the offeror.

26IEI@AGREEMENT

AC€EPTANCEA voluntary act by the offeree thatshows assent, or agreement, to theterms of an offer; may consist ofwords or conduct.

ll. Restatement (Second) of Contracts, Section 48. If the offer is irrevocable, it is not terminated when the

offeror dies.

264 TNNMCONTRACTS

EE[IEEGtrf when an offer isrejected, it is terminated.

This photo shows a letter from o

DVD club that wos sent to o club

member. lf the iecipient (offeree)

does nothing, has he or she

occepted the offer7 WhY or whY not?

Unequivocal AcceptanceTo exercise the power of acceptance effectiveiy, the offeree n'rust accept unequivocalll'.

This is the minor image rule previously discussed. If tl-re acceptance is sub ject to new con-

ditions or if the terr-r-rs of the acceptance materially change tl-re original offer, the accep-

tance may be cleemed a counteroffer that implicitly rejects the original offer.

Certain terms, when aclded to an acceptance, will not qualif, the acceptance suffi-

ciently to constitute rejection of the offer. l*ExAM+ll ,l8l Suppose tl-rat in response to an

art dealer's offer to sell a painting by a well-known artist, the offeree replies, "l accePt;

please send a written contract." Tlie offeree is requestir-rg a written--contract but is not rnak-

ing it a condition for acceptar-rce. Therefore, the acceptance is effective u'ithout the writ-

ten contract. In contrast, if the offeree replies, "l accept lf you send a written contract," the

acceptance is expressly conditioned on the request for a writing, ar-rd the statemer-rt is not

an acceptanc. blt, counteroffer. (Notice how in-rportant each worcl isl)12 E

Si lence as AcceptanceOrdinarily, silence cannot constitute acceptance, even if the offeror states, "By your

silence and inaction, you will be cleemed to have accepted this offer." This general rule

applies because ,rr o*.r". should not be put under a burden of liabiliq' to act affirma-

tiveli, in order to reject an offer. No considlration-that is, nothing of value-has passed

to the offeree to impose such a liability.

In some instances, however, the offeree does have a duty to speak; if so, his or her

silence or inaction wil l operate as an acceptance. Silence n-ray be an acceptance when an

offeree takes the benefit of offered services even though he or she had an opportunity to

reject them and knew that they were offered with the expectation of cornpensation.

IffiExAMP-LEr:Trl John, a college student who earns extra income by washing store wtn-

ao*r. i"or on tl-re winclow of a store and catches the attention of the store's manager. )ohn

poinh to the windorv and raises his cleaner, signaling that he wili be washing the windou''

Th. ,-r-r^r.rg.r does notl'ring to stop him. Here, the store manager's_silence constitutes an

acceptance, and an implied-in-fact contract is cleated. The store is bor-rnd to pay a reason-

able value for John's r ' rork. E

"ir t-,"d it, f*t*" 9, in regard to sales contracts, the UCC provides that an acceptance may sti l l be effective

evcn ifsome terms are added. The new tenns are simpll ' treatecl as proposals for additions to the contract, urless both

parties are merchants. If the parties are merchants, the additioral terms (rvith some exceptions) becomc part of thc

contract IUCC 2 207(2)1.

-Hf*-#nLlf-N--***,X,n-sE'#li, j,i;'

r*4_qdr.ti*.!.

h*. ** it*t :#ad r?'tlr*lr++"1*r k g{, l+r-, ;ir*

fdq+B ' -{

265 G![EmACREEMENT

fil:Ifil':ffli!'llifl A bilateral contract ;sa promise for a promise, and aunilateral contract is performancefor a oromise.

MAITBOX RUIEA rule providing that an acceptanceof an offer becomes effective ondispatch (on being placed in anofficial mailbox), if mail is, expresslyor impliedly, an authorized means ofcommunication of acceptance to theofferor.

!

!illI

Silence can also operate as an acceptance when the offeree has had prior dealings withthe offeror. If a merchant, for example, routinely receives shipments from a supplier andin the past has always notified the supplier when defective goods are rejected, then silenceconstitutes acceptance. Also, if a buyer solicits an offer specifuing that certain terms andconditions are acceptable, and the seller makes the offer in response to the solicitation,the buyer has a duty to reject-that is, a duty to tell the seller that the offer is not accept-able. Failure to reject (silence) wil l operate as an acceptance.

Communicat ion of ArceptanceWhether the offeror must be notified of the acceptance depends on the nature of the con-tract. In a bilateral contract, communication of accepiance is necessary because accept-ance is in the form of a promise (not performance), and the contract is formed when thepromise is made (rather than when the act is performed). Communication of acceptanceis not necessary, however, if the offer dispenses with the requirement. Also, if the offer canbe accepted by silence, no communication is necessary.

Because a unilateral contract calls for the full Derformance of some act. acceDtance isusually evident. and notif ication is unnecessary. Nevertheless. exceptions do exist, such aswhen the offeror requests notice of acceptance or has no way of determining whether therequested act has been performed. In addition, sometimes the law (such as Article 2 of theUCC) requires notice of acceptance, and thus notice is necessary.

Mode and Timel iness of AcreptanceAcceptance in bilateral contracts must be timely. The general rule is that acceptance ina bilateral contract is timely if it is made before the ofTer is terminated. Problems mayarise, though, when the parties involved are not dealing face to face. In such situations,the offeree should use an authorized mode of communication.

The Mailbox Rule Acceptance takes effect, thus completing formation of the contract,at the tir-ne the offeree sends or delivers the communication via the mode expressly orimpliedly authorized by the offeror. This is the so-called mailbox rule, also called thedeposited acceptance rule, which the majority of courts uphold. Under this rule, if theauthorized mode of communication is the mail, then an acceptance becomes valid whenit is dispatched (placed in the control of the U.S. Postal Service)-not when it is receivedby the offeror. The mailbox rule was formed to prevent the confusion that arises when anofleror sends a ]etter ofrevocation but, before it arrives, the offeree sends a letter ofaccep-tance. Thus, whereas a revocation becomes effective only when rI is receiyed by theofferee, an acceptance becomes effective on dispatch (when sent, even if it is neverreceived), provided that an authorized means of communication is used.

The mailbox rule does not apply to instantaneous forms of commr-rnication, such aswhen the parties are dealing face to face, by telephone, or by fax. There is still someuncertainty in the courts as to whether e-mail should be considered an instantaneousform of communication to which the mailbox rule does not apply. If the parties haveagreed to conduct transactions electronically and if the Uniform Electronic TransactionsAct (UETA-to be discussed in Chapter l7) applies, then e-mail is considered sent whenit either leaves the sender's control or is received by the recipient. This rule takes the placeof the mailbox rule when the UETA applies but essentially allows an e-mail acceptanceto become effective when sent (as it would if sent by U.S. mail).

Authorized Means of Acceptance A means of communicating acceptance can beexpressly authorized-that is, expressly stipulated in the offer-or impliedly authorized by

266 llNili!ilCONTRACTS

the facts and circumstances surrounding the situation or by law.13 An acceptance sent by

means not expressly or impliedly authoiized normally is not effective r-rntil it is received

by the offeror.When an offeror specifies how acceptance should be made (for example, by overnight

delivery), express authorization is said to exist, and the contract is not formed unless the

offeree uses that specified mode of acceptance. Moreover, both offeror and offeree are

bound in contracithe moment this means of acceptance is employed lrExAMPLTTml

Shaylee & Perkins, a Massachusetts firm, offers to sell a container of antique furniture to

Leri,"*'s Antiques in Colorado. The offer states that Leaham's must accept the offer via

FedEx overnighi delivery. The acceptance is effective (and a binding contract is formed)

the moment tlat Leaham's gives the overnight envelope containing the acceptance to the

f,edEx drrver. llj

When the Prefened Means of Acceptance Is Not Indicated.. Most offerors do not

expressly specify the means by which the offeree is io accept. When the offeror does not

specifi, e*ptessly that the offeree is to accept by a certain means, or that the acceptance

will be efflctive only when received, acceptance of an offer may be made by any medium

lhal is reasonable under the circumstances.\+Whether a mode of acceptance is reasonable depends on what would reasonably be

expecied by parties in the position of the contracting parties. Courts look at prevailing

business usages and other surrounding circumstances such as the method of communica-

tion the partles have used in the pasf and the means that were used to convey the offer'

The offeior's choice of a particular means in making the offer implies that the offeree is

authorized to use the same or a faster means for acceptance. IrE)<ltvtpLe g:il Two parties

have been negotiating a deal via fax, and then the offeror sends a formal contract offer by

priority mail ivithor-rtlpecifying the means of acceptance. In that situation, the offeree's

"...pir,l.. by priority mail or by fax is im.pliedly authorized' EI

When the Authorized Means of Acceptance Is Not (Jsed, An acceptance sent by

means not expressly or impliedly authorized normaliy is not effective until it is received by

the offeror. Frxn[4=hTE r.rZ Frank Cochran is interested in buying a house from Ray

Nunez. Cochran faxes an offer to Nunez that clearly specifies acceptance by fax. Nunez

is going out of town for a few days, however, and doesn't have access to a fax machine'

Th"ereiore, Nunez sends his acceptance to Cochran via FedEx instead of by fax. In this

situation, the acceptance is not effective (and no contract is formed) until Cochran

receives the FedEr delivery. E The use of an alternative method does not render the

acceptance ineffective if thl substituted method performs the same function or serves the

same purpose as the authorized method.

Exceptions The following are three basic exceptions to the rule that a contract is

formed when an acceptance is sent by authorized means:

I If the offeree's acceptance is not properly dispatched, in most states it will not be effec-

tive until it is received by the offeror. For example, if an e-mailed acceptance lists the

recipient's e-mail address incorrectly, or if the acceptance is faxed to the wrong tele-

13. Restatement (Second) of Contracts, Section 30, provides that an offer invites acceptance "by any medium reason-

able in the circumstances," unless the offer is specific about the means ofacceptance. Under Section 65, a medium

is reasonable if it is one used by the offeror or one customary in similar transactions, unless the offeree knows of cir-

cumstances that would argue against the reasonableness ofa particular medium (the need for speed because ofrapid

price changes, foi example).

14. Restatement (second) ofcontracts, Section 30. This is also the rule under UCC 2-206(1)(a).

phone number, it will not be effective until received by the offeror. If U.S. mail is theauthorized means for acceptance, the offeree's letter must be properly addressed andhave the correct postage. Nonetheless, if the acceptance is t imely sent and timelyreceived, despite the offeree's carelessness in sending it, it may still be considered tohave been ef fect ive on dispuic l r . lq

If the offer stipulates when acceptance will be effective, then the offer will not be effec-tive until the time specified. l'he offeror has the power to control the offer and can stip-ulate both the means by which the offer is accepted and tl-re precise time that anacceptance will be effective. For example, an offer might state tl'rat acceptance will notbe effective until it is received by the offeror, or it might make acceptance effectivehventy-four hours after being shipped via DHL deiivery.

Sometimes, an offeree sends a rejection first, then later changes his or her mind andsends an acceptance. Obviously, this chain ofevents could cause confusion and evendetrirrent to the offeror, depending on whether the rejection or the acceptance arrivedfirst. In such situations, the law cancels the rule ofacceptance on dispatch, and the firstcommunication received by the offeror determines whether a contract is formed. If thereiect ion arr ives [ i rst . there is no contract . ]6

15. Restatement (Second) of Contracfs, Section 6716. Restatement (Secondl of Contracfs, Section ,10

Shane Durbin wantedto have a recordingstudio custom-built inhis home. He sentinvitations to a

267EmtACREEMENT

Did Amstel's bid meet the requirements of an offer?Explain.

Was there an acceptance of the offer? Why or why not?

Suppose that the court determines that the parties didnot reach an agreement. Further suppose that Amstel, inanticipation of building Durbin's studio, had purchasedmaterials and refused other jobs so that he would havetime in his schedule for Durbin's project. Under whattheory discussed in the chapter might Amstel attempt torecover these costs?

How is an offer terminated? Assuming that Durbin didnot inform Amstel that he was rejecting the offer, wasthe offer terminated at any time described here? Explain.

7

5number of local contractors to submit bids on the project.Rory Amstel submitted the lowest bid, which was 920,000less than any of the other bids Durbin received. Durbincalled Amstel to ascertain the type and quality of thematerials that were included in the bid and to find out if hecould substitute a superior brand of acoustic t i les for thesame bid price. Amstel said he would have to check intothe price difference. The parties also discussed a possiblestart date for construction. Two weeks later, Durbin changedhis mind and decided not to go forward with his plan tobuild a recording studio. Amstel f i led a suit against Durbinfor breach of contract. Using the information presented inthe chapter, answer the following questions.

acceptance 265agreement 251counteroffer 252

mailbox rule 265mirror image rule 262olter 252

option contract 26trevocation 260

268 IINIIUUCONTRACTS

Requirementsof the Offer(See pages 252-260.)

Terminationof the Offer(See pages 260-263.)

Acceptance(See pages 263-267.)

1.Intent-There must be a serious, objective intention bythe offerorto become bound bytheoffer. Nonoffer situations include (a) expressions of opinion; (b) statements of intention;(c) preliminary negotiations; (d) generally, advertisements, catalogues, and circulars;(e) price l ists; (f l solicitations for bids made by an auctioneer; and (g) traditionally,agreements to agree in the future.

2. Definiteness-The terms of the offer must be sufficientlv definite to be ascertainable bv theparties or by a court.

3. Communication-The offer must be communicated to the offeree.

1. By oction of the parties-

a. Revocation-Unless the offer is irrevocable, it can be revoked at any time beforeacceptance without liability. Revocation is not effective until received by the offeree orthe offeree's agent. Some offers, such as a merchant's firm offer and option contracts,are irrevocable.

b. Rejection-Accomplished by words or actions that demonstrate a clear intent not to acceptthe offer; not effective until received by the offeror or the offeror's agent.

c. Counteroffer-A rejection of the original offer and the making of a new offer.

2. By operotion of low-

a. Lapse of time-The offer terminates (l ) at the end of the time period specified in the offeror (2) if no time period is stated in the offur, at the end of a reasonable time period.

b. Destruction of the specific subject matter of the offer-Automatically terminates the offer.

c. Death or incompetence of the offeror or offeree-Terminates the offer unless the offer isirrevocable.

d. lllega lity-Supervening illega lity terminates the offer.

l. Can be made only by the offeree or the offeree's agent.

2. Must be unequivocal. Under the common law (mirror image rule), if new terms or conditionsare added to the acceptance, it will be considered a counteroffer.

3. Acceptance of a unilateral offer is effective on full performance of the requested act. Generally,no communication is necessary.

4. Acceptance of a bilateral offer can be communicated by the offeree by any authorized modeof communication and is effective on dispatch. Unless the offeror expressly specifies themode of communication, the following methods are impliedly authorized: (a) the same modeused by the offeror or a faster mode; (b) mail, when the two parties are at a distance; and(c) in sales contracts, any reasonable medium.

mAnswers for the even-numbered qaestions in this tot Review section can be found on this text's accompanying Web site ot

Select "Chapter 9" and click on "For Review."

I Wliat elements are necessary for an effective offer?

2 What are some examples of nonoffers?

5 In what circumstances will an offer be irrevocable?

4 What elements are necessary for an effective acceptance?

5 Can silence ever operate as an acceptar-ice?

E