Chapter 1
OFFER AND ACCEPTANCE
A. Objective theory of contracts: Contract law follows the objective theory of contracts. That is, a party's intent is deemed to be what a reasonable person in the position of the other party would think that the first party's objective manifestation of intent meant. For instance, in deciding whether A intended to make an offer to B, the issue is whether A's conduct reasonably indicated to one in B's position that A was making an offer. (Example: A says to B, "I'll sell you my house for $1,000." If one in B's position would reasonably have believed that A was serious, A will be held to have made an enforceable offer, even if subjectively A was only joking.)
B. Legal enforceability: The parties' intention regarding whether a contract is to be legally enforceable will normally be effective. Thus if both parties intend and desire that their "agreement" not be legally enforceable, it will not be. Conversely, if both desire that it be legally enforceable, it will be even if the parties mistakenly believe that it is not. (Example: Both parties would like to be bound by their oral understanding, but mistakenly believe that an oral contract cannot be enforceable. This arrangement will be enforceable, assuming that it does not fall within the Statute of Frauds).
1. Presumptions: Where the evidence is ambiguous about whether the parties intended to be bound, the court will follow these rules: (1) In a "business" context, the court will presume that the parties intended their agreement to be legally enforceable; (2) but in a social or domestic situation, the presumption will be that legal relations were not intended. (Example: Husband promises to pay a monthly allowance to Wife, with whom he is living amicably. In the absence of evidence otherwise, this agreement will be presumed not to be intended as legally binding, since it arises in a domestic situation.)
C. Intent to put in writing later: If two parties agree (either orally or in a brief writing) on all points, but decide that they will subsequently put their entire agreement into a more formal written document later, the preliminary agreement may or may not be binding. In general, the parties' intention controls. (Example: If the parties intend to be bound right away based on their oral agreement, they will be bound even though they expressly provide for a later formal written document.)
1. Where no intent manifested: Where the evidence of intent is ambiguous, the court will generally treat a contract as existing as soon as the mutual assent is reached, even if no formal document is ever drawn up later. But for very large deals (e.g., billion dollar acquisitions), the court will probably find no intent to be bound until the formal document is signed.
II. OFFER AND ACCEPTANCE GENERALLY
A. Definitions:
1. "Offer" defined: An offer is "the manifestation of willingness to enter into a bargain," which justifies another person in understanding that his assent can conclude the bargain. In other words, an offer is something that creates a power of acceptance.
2. "Acceptance" defined: An acceptance of an offer is "a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer."
Example: A says to B, "I'll sell you my house for $100,000, if you give me a check right now for $10,000 and promise to pay the rest within 30 days." This is an offer. If B says, "Here is my $10,000 check, and I'll have the balance to you next week," this is an acceptance. After the acceptance occurs, the parties have an enforceable contract (assuming that there is no requirement of a writing, as there probably would be in this situation).
B. Unilateral vs. bilateral contracts: An offer may propose either a bilateral or a unilateral contract.
1. Bilateral contract: A bilateral contract is a contract in which both sides make promises. (Example: A says to B, "I promise to pay you $1,000 on April 15 if you promise now that you will walk across the Brooklyn Bridge on April 1." This is an offer for a bilateral contract, since A is proposing to exchange his promise for B's promise.)
2. Unilateral contract: A unilateral contract is one which involves an exchange of the offeror's promise for the offeree's act. That is, in a unilateral contract the offeree does not make a promise, but instead simply acts. (Example: A says to B, "If you walk across the Brooklyn Bridge, I promise to pay you $1,000 as soon as you finish." A has proposed to exchange his promise for B's act of walking across the bridge. Therefore, A has proposed a unilateral contract.)
III. VALIDITY OF PARTICULAR KINDS OF OFFERS
A. Offer made in jest: An offer which the offeree knows or should know is made in jest is not a valid offer. Thus even if it is "accepted," no contract is created.
B. Preliminary negotiations: If a party who desires to contract solicits bids, this solicitation is not an offer, and cannot be accepted. Instead, it merely serves as a basis for preliminary negotiations. (Example: A says, "I would like to sell my house for at least $100,000." This is almost certainly a solicitation of bids, rather than an offer, so B cannot "accept" by saying, "Here's my check for $100,000.")
C. Advertisements: Most advertisements appearing in newspapers, store windows, etc., are not offers to sell. This is because they do not contain sufficient words of commitment to sell. (Example: A circular stating, "Men's jackets, $26 each," would not be an offer to sell jackets at that price, because it is too vague regarding quantity, duration, etc.)
1. Specific terms: But if the advertisement contains specific words of commitment, especially a promise to sell a particular number of units, then it may be an offer. (Example: "100 men's jackets at $26 apiece, first come first served starting Saturday," is so specific that it probably is an offer.)
2. Words of commitment: Look for words of commitment — these suggest an offer. (Example: "Send three box tops plus $1.95 for your free cotton T-shirt," is an offer even though it is also an advertisement; this is because the advertiser is committing himself to take certain action in response to the consumer's action.)
D. Auctions: When an item is put up for auction, this is usually not an offer, but is rather a solicitation of offers (bids) from the audience. So unless the sale is expressly said to be "without reserve," the auctioneer may withdraw the goods from the sale even after the start of bidding. See UCC §2-328(3).
IV. THE ACCEPTANCE
A. Who may accept: An offer may be accepted only by a person in whom the offeror intended to create a power of acceptance. (Example: O says to A, "I offer to sell you my house for $100,000." B overhears, and says, "I accept." Assuming that O's offer was reasonably viewed as being limited to A, B cannot accept even though the consideration he is willing to give is what O said he wanted.)
B. Offeree must know of offer: An acceptance is usually valid only if the offeree knows of the offer at the time of his alleged acceptance.
1. Rewards: Thus if a reward is offered for a particular act, a person who does the act without knowing about the reward cannot claim it.
C. Method of acceptance: The offeror is the "master of his offer." That is, the offeror may prescribe the method by which the offer may be accepted (e.g., by telegram, by letter, by mailing a check, etc.).
1. Where method not specified: If the offer does not specify the mode of acceptance, the acceptance may be given in any reasonable method.
2. Acceptance of unilateral contract: An offer for a unilateral contract is accepted by full performance of the requested act.
Example: A says to B, "I'll pay you $1,000 if you cross the Brooklyn Bridge." This can only be accepted by A's act of completely crossing the bridge. (However, the offer will be rendered temporarily irrevocable once B starts to perform, as discussed below.)
3. Offer invites either promise or performance: If the offer does not make clear whether acceptance is to occur through a promise or performance, the offeree may accept by either a promise or performance.
a. Shipment of goods: For instance, if a buyer of goods places a "purchase order" that does not state how acceptance is to occur, the seller may accept by either promising to ship the goods, or by in fact shipping the goods. UCC §2-206(1)(b).
b. Accommodation shipment: If the seller is "accommodating" the buyer by shipping what the seller knows and says are non-conforming goods, this does not act as an acceptance. In this "accommodation shipment" situation, the seller is making a counter-offer, which the buyer can then either accept or reject. If the buyer accepts, there is a contract for the quantity and type of goods actually sent by the seller, not for those originally ordered by the buyer. If the buyer rejects, he can send back the goods. In any event, seller will not be found to be in breach. UCC §2-206(1)(b).
4. Notice of acceptance of unilateral contract: Where an offer looks to a unilateral contract, most courts now hold that the offeree must give notice of his acceptance after he has done the requested act. If he does not, the contract that was formed by the act is discharged. (Example: A says to B, "I'll pay you $1,000 if you cross the Brooklyn Bridge by April 1." B crosses the bridge on time. As soon as B crosses, a contract is formed. But if B does not notify A within a reasonable time thereafter that he has done so, A's obligation will be discharged.)
5. Acceptance by silence: Generally, an offer cannot be accepted by silence. But there are a few exceptions:
a. Reason to understand: Silence can constitute acceptance if the offeror has given the offeree reason to understand that silence will constitute acceptance, and the offeree subjectively intends to be bound.
b. Benefit of services: An offeree who silently receives the benefit of services (but not goods) will be held to have accepted a contract for them if he: (1) had a reasonable opportunity to reject them; and (2) knew or should have known that the provider of the services expected to be compensated.
c. Prior conduct: The prior course of dealing may make it reasonable for the offeree's silence to be construed as consent. (Example: Each time in the past, Seller responds to purchase orders from Buyer either by shipping, or by saying, "We don't have the item." If Seller now remains silent in the face of an order by Buyer for a particular item, Seller's silence will constitute an acceptance of the order.)
d. Acceptance by dominion: Where the offeree receives goods, and keeps them, this exercise of "dominion" is likely to be held to be an acceptance.