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Offer and Acceptance Handout
Terms in this set (36)
Formation of a contract requires?
A bargain in which there is a manifestation of mutual assent to the exchange and a consideration
Manifestation of mutual assent to an exchange requires?
Each party to either make a promise or begin to render performance
Offer + Acceptance
Any set of words/deeds that create in the other party the legal power to bring about a binding contract by "accepting."
Creates the "power of acceptance" for the offeree.
How to determine when there has been an offer?
Parties' intent as manifested in words or actions. Whether a reasonable person in the position of the offeree would construe the words or conduct of the offeror to indicate that the offeror intended to bestow upon the offeree the power to bind him by accepting.
The offer must engender the reasonable understanding that acceptance will result in the formation of a contract without any further approval being required from the offeror. If the proposal reserves a final say on whether to be bound, it is a preliminary communication.
When intent is not clearly expressed, the communication is interpreted objectively; whether the addressee was reasonably justified in understanding that the proponent intended to be bound on acceptance.
Objective Test takes into account the following facts and context of the communication:
Language of the communication, comprehensiveness and specificity of the terms in the communication, the relationship of the parties, the course of their negotiations and any previous dealings between them, customary trade policies, etc.
For example, if a property owner wants to make an offer to a prospective buyer, he might clearly express an offer: "I offer to sell you my property, Blackacre, for $500,000 in cash. If you wish to buy this property, you must deliver your written acceptance to me by 5 pm, Pacific Daylight Time, on Tuesday, August 27, 2013."
This wording of "offer" and "acceptance" leaves little doubt that the property owner intended to make an offer.
"I wish to sell my property, Blackacre, and will consider an offer of at least $500,000 cash. I invite you to make me an offer if you are interested in buying it."
This could be characterized as an invitation for an offer or preliminary negotiations.
"I am willing to sell my property, Blackacre, but will not consider an offer of less than $500,000 cash. Let me have your reply as soon as possible."
If the property owner is less precise in his language, he might say something that does not make his intention clear.
If a dispute were to arise about this ambiguity, a court would consider the facts and context of the communication.
Is an advertisement an offer or merely an invitation to make an offer?
Resolved by the usual process of interpreting its reasonable intent, looking to the language in context. As comment b to Rest. § 26 explains, "[a]dvertisements of goods by display, sign, handbill, newspaper, radio or television are not ordinarily intended or understood as offers to sell." That is, in most situations, common practice would lead a reasonable person to understand an advertisement not as an offer, but merely as a solicitation or invitation for offers (e.g., a recipient can respond by making an offer that the advertiser has discretion to accept or reject). This is the way advertisements are ordinarily understood.
Courts have found advertisements to be offers . . .
where there is "some language of commitment or some invitation to take action without further communication." Rest. § 26, cmt. b. For instance, if the advertisement specifies a particular quantity of goods to be offered at the specified price, and indicates what specific steps need to be followed to accept that offer without further communication from the seller (e.g., goods being sold on a "first come, first-served" basis). We have examples in our casebook with the Izadi case and the Lefkowitz case, which is discussed in the notes and is cited by the court in Izadi.
Master of the offer
Offeror is master of the offer. Offer may propose the terms of exchange/the manner and time for an effective acceptance. Offeree can only "accept" the terms that the offeror has offered. Also, if the offeror clearly indicates that the acceptance, to be valid, must be rendered by a particular time or in a particular place or manner, those express conditions will govern. Rest. § 60. (An acceptance might be written, oral, or expressed by conduct.)
Expresses assent conditioned on, or qualified by, additional or different terms. This is a counteroffer.
Not an acceptance.
In the event the offeror does not stipulate what the offeree must do to accept, there are a number of default rules that govern:
For example, if a mode and time for acceptance are not set out in the offer, the court must decide whether the acceptance was reasonable and timely. If an offer could be interpreted as inviting the offeree to accept either by a promise or by performance, the offeree may accept by either method. Rest. § 32. In such circumstances, if she chooses to accept by performance the beginning of the invited performance constitutes an acceptance, and such acceptance operates as a promise to render complete performance. Rest. § 62.
If an offeree rejects an offer expressly or simply does not accept it within a particular time . . .
the offer lapses and no contract is formed.
Offeree is interested in forming a contract, but not on the terms proposed.
Offeree may respond by making a counteroffer.
Counteroffer has the effect of . . .
terminating the offeree's power of acceptance of the original offer and reversing the process. The original offeror now is the offeree with the power of acceptance to the counteroffer.
If the offer does not specify the point at which acceptance takes effect,
then acceptance is effective as soon as it is put out of the offeree's possession, so long as it is in a manner expressly or impliedly authorized by the offer.
If acceptance by mail is permissible, then acceptance occurs as the offeree deposits a properly stamped and addressed acceptance in the mailbox.
Mailbox rule applies only to acceptances. A rejection or counteroffer sent by the offeree, and a revocation by the offeror
Are effective only on receipt
Mailbox rule does not apply to acceptance of a valid option
Acceptance under an option contract is effective only on receipt
What happens if the offeree initially mails a rejection or counteroffer and then changes her mind and mails an acceptance?
In that instance, whichever arrives first is effective. That is, the acceptance is effective if it arrives first; the rejection is effective if it arrives first.
What happens if the offeree mails an acceptance followed by a rejection?
The acceptance is effective unless the rejection gets there first and the offeror detrimentally relies on the rejection.
When does the offeree lose the power to accept?
An offer will automatically lapse after a reasonable period of time, or if the offeror specifies a time, then at that time.
When will the offeree's power to accept be terminated sooner?
1. The death of the offeror.
2. Revocation of the offer.
3. Rejection or counteroffer by the offeree.
Offeror, master of the offer, is allowed to . . .
Revoke the offer at any time before it is accepted, even where she herself has specified it will be left open for a longer period of time.
Revocation is effective when . . .
the offeree receives direct or indirect notice of the offeror's intent to revoke.
Exceptions to foregoing rule that the offeror is free to revoke at any time before acceptance:
1. Binding option contract, 2. Unilateral contracts (perofrmance has begun), 3. Pre-acceptance reliance
Binding option contract
Offer clearly indicates her intent to leave the offer open for a specified period. If certain conditions are met it will be treated as a binding option contract.
Firm offer rule
UCC version of an option contract. Does not require consideration. Period of irrevocability is up to 3 months.
A promise that invites acceptance only by performance. Under "classic" contract doctrine, offeree only accepts via complete performance.
Common Law approach to Unilateral Contract performance
An option contract will in effect be created as soon as performance is begun, requiring the offeror to keep the offer open for whatever period is "reasonably" required for the offeree to complete performance.
Temporary irrevocability can result from an equitable option when the offeree substantially and foreseeably relies on the offer and when the requirements are met.
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