OFFER
I) An offer creates the power of acceptance for the offeree
· “say yes and we got a deal”
II) When an offeror makes an offer, he is indicating his willingness to be bound by the other person’s acceptance.
III) Invitations to deal are NOT offers. Statements made in language or under circumstances indicated that the speaker only wants to begin negotiations are considered invitations to deal, or preliminary negotiations, rather than offers. Price quotations are normally not an offer to sell but simply an invitation to the buyer to make an offer to purchase. (unless it is very specific)
· Lonergan v. Scolnick
o P inquired about land that D had advertised in a newspaper. D sent P a form letter (a written template) describing property. P wrote back, asking for description, and asked if a certain bank would be acceptable as an escrow agent. D wrote to P that escrow agent was fine, and that P would have to ACT FAST b/c D would sell to the first and he expected one to make a deal in the next week. Four days later, D sold to a 3rd party. On April 14th, P received D’s letter and the next day, P sent letter indicating he would open escrow immediately, the letter took several days to reach D, and by then, D had already sold property.
o Solicitation of offer is not an offer
o To have a K, both parties must mutually agree to a specific thing. Normally, this is done by one party making an offer that the other party accepts. When the person to whom a communication is addressed knows or has reason to know that the person making it does not intend it as an expression of a fixed purpose until a further expression of assent is given, the person has not received an offer. Here, D’s letters were clearly intended to determine whether P was interested and to provide the requested info. At no time did D make a definite offer. On the contrary, D told P that D would take the first buyer to come along. D did not give P a right to act w/in a particular time, which is what an offer does.
o Note: possibility of mailbox rule here (argument for P)
IV) Advertisements. Traditionally, advertisements are only invitations for offers. An advertisement constitutes an offer only it is clear, definite, explicit, and leaves nothing open for negotiation. Must include language of commitment or an invitation to take action w/out further communication.
· Izadi v. Machado Ford
o D placed an ad in the newspaper & in large letters “BUY ANEW FORD & GET $3000 MINIMUM TRADE IN ALLOWANCE” followed by small print stating the offer applied only toward the purchase of two expensive models. Rest of ad showed the list price of less expensive models w/ a deduction from each labeled “Any Trade Worth $3000.” P, believing that the ad offered $3000 for any car, offered D $ for a new pick up minus the $3000 trade in value of his car. D refused. P sued for fraud and breach of K.
o P’s allegation is based on an objective reading of the advertisement. D subjectively may not have intended for the ad to constitute a binding offer, but P is entitled to prove that an objective reading of the ad conveys an offer. A binding offer may be implied from the very fact that deliberately misleading advertising intentionally leads the reader to the conclusion that one exists.
V) Offeror is the Master of the Offer.
· R2d § 32—An offer may invite or require acceptance to be made by affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance.
ACCEPTANCE
I) Statement or act that indicates the offeree’s intent to enter into the deal proposed by the offeror
II) As long as acceptance takes place while the offer is still outstandingà K is formed as soon as offeree accepts
III) Mailbox Rule
· An acceptance will in some circumstances be treated as effective as soon as dispatched (mailed, telegraphed, etc.)
· Exception: If offeror has stated (expressly or implicitly) that he must receive the acceptance for it be effective.
· R2d § 63
o An acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, w/out regard to whether it ever reaches the offeror
o But not applicable to an option K—offeror must receive acceptance
IV) Silence
· Silence generally will not constitute an acceptance to an offer
· Exceptions:
o If offeror gives reason to understand silence would be treated as acceptance
o If offeree silently receives benefit of the service, then it will be held that he has accepted a K for it if he had reasonable opportunity to reject the service and if he knew or should have known that the provider of the service expected to be compensated
o If prior conduct may make it reasonable for the offeree’s silence to be construed as consent.
V) Unilateral Ks—the offeree must give notice of his acceptance after he has done the requested act.
VI) Mirror Image Rule—the acceptance has to agree to all terms in the offer (i.e., offeree cannot add any terms or make material revisions, otherwise it would constitute a counter offer)
· Example—I will sell my house to you for $100G. Ok, I will pay your asking price, but you have to include that piano. This is NOT acceptance b/c the buyer added an additional term, making it a counter offer. Thus, no party is bound.
R2d § 36—METHODS OF TERMINATING OFFEREE’S POWER OF ACCEPTANCE
R2d § 36
1) An offeree’s power of acceptance may be terminated by
· Rejection
· Counter-offer by the offeree (R2d § 39)
· Lapse of time (offer dies in a reasonable amount of time)
· Revocation by the offeror
o Note: PE can be a limit of offeror’s power to revoke (Drennan)
· Death of either party
i. Note: Your offers die w/ you, but Ks survive your death (unless there is a valid excuse)
· Incapacity of either party
2) In addition, if any conditions of acceptance under the terms of the offer are not met by the offereeà power of acceptance is terminated
COUNTER OFFERS—R2d § 39
I) Shifts Power of Acceptance—a counter offer destroys and replaces the original offer. It is now for the original offeror to accept if he chooses.
II) Mirror Image Rule—R2d § 59
· A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but a counteroffer.
REVOCATION
I) Revocation of a Bilateral K
· Baird v. Gimbel Bros.
o Gimbel (D) sends offer to various general contractors on 12/24. P receives offer on 12/28 and submits its bid to the state same day. Same day, 12/28, D realizes he made a mistake in pricing on bid (only priced for ½ of the linoleum), so D sent out telegram to all general contractors that they are revoking the previous offer. On 12/30 K is awarded to P and P attempts to accept D’s offer.
o Offeror can revoke his offer at anytime prior to acceptance by the offeree.
o P tries arguing PE—relief on D’s offer and thus, needs to be enforced. Judge—an offer becomes a promise to perform only when it has been accepted by the offeree (here, P). An offer alone is not a promise. P also argues that D bid and this means they were prepared for the bid to be accepted, and thus, they need to perform. Judge—bidding system is a huge part of the contracting world. It would be ridiculous to bind every contractor to their bids. Would it not require all generals to accept every bid they receive?
o For contrast, see Drennan v. Star Paving Co. (PE section)
· Normille v. Miller
o D owned real estate that she listed w/ Hawkins. Byer showed D’s property to Ps. Ps made an offer that specified it had to be accepted on or before 5pm. D made changes to the offer. P said he could not pay the deposit that D wanted—Byer thought this meant P had rejected D’s counteroffer. D accepted an offer from a 3rd party and told P she revoked her counteroffer to them. Ps still paid D’s asking deposit and signed her counteroffer by the 5pm deadline that they specified in their original offer. Ps sought specific performance.
o A party cannot accept a counteroffer after it has been revoked. A revocation terminates the offeree’s power of acceptance.
o Prof agrees w/ this decision.
§ Although P’s could argue they had a reasonable time to accept c/o—wouldn’t matter b/c D revoked c/o prior to acceptance.
o P’s time for acceptance provision did not become part of the terms of D’s counteroffer. If Ps had accepted the counteroffer, there would have been a binding purchase K. But D’s counteroffer did not contain a promise or commitment to hold the counteroffer open for a specific period of time and it also did not reference P’s original time limit.
o When no time limit is specified in an offer/counteroffer, the implied time limit for it to be accepted is w/in a reasonable time frame
o Note: Option K
§ P’s lawyers tried arguing the time limit from their offer carried over to D’s counteroffer. However, courts determined it didn’t and thus, no need to go to second step of an option K (consideration). Here, P’s argues wanted to argue that K was signed under seal (D’s initials in the corner) and this constitutes consideration.
II) Revocation of a Unilateral K
· Old view: only full performance = acceptance
· Petterson v. Pattberg
o Peterson (P) had executed a promissory note to D for a 3rd mortgage. D offered in writing to discount the amount of the mortgage if it was paid on or before a specified date. P went to D’s home and told D he was ready to pay. D refused to accept the payment, indicating he had already sold the note to a 3rd party.
o The offer of a unilateral K may be revoked at any time prior to full performance of the act required as acceptance (even if the offeror knows the offeree intends to perform)
o Here, D revoked the offer before P physically tendered payment.
o Dissent (Prof agrees)—D did not act in GF b/c when he wrote the letter (offer) to P, he probably did not intend for P to make a tender w/out first stating that he had come to make tender. Therefore, P formed a binding K w/ D b/c he fully performed. The actual tender cannot be done w/out D’s consenting to that tender.
· New view: Substantial Performance = Acceptance = Binding K
· Cook v. Coldwell Banker/Frank Laiben
o P was a real estate agent employed by D. In March, D announced a bonus program. Bonuses would be paid at the end of the year. By September, P had surpassed the requisite commissions. Same month, D announced a change—that the bonuses would be paid in March of the following year instead of at the end of the current year. P did not say anything when the new program was announced (silent). P joined a different company in January and D told her she would not get her bonus. P brought suit for breach of K.
o An offer to make a unilateral K is accepted when the requested performance is rendered. An offeror is entitled to revoke the offer at any time prior to performance, but not once the offeree has made substantial performance.
o A unilateral K arises when performance is based on the will or pleasure of one of the parties. The promisor does not receive a promise as consideration, but receives a performance from the promisee as consideration. Thus, an offer to make a unilateral K is accepted when the requested performance is rendered.
o A promise to pay a bonus in return for continued employment is an offer for a unilateral K. When the employee performs by continuing to work, the offer is accepted. P was at-will; could have left at anytime, however, D’s bonus offer induced P to stay w/ D through the year and earn the bonus. P thereby accepted D’s offer.
o Here, by Sept, P earned enough commissions to make her bonus.
o Note: P also could have a PE argument—she relied on offer in a way that wouldn’t permit offeror to revoke.
o Note: R2d § 45
§ Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option K is created when the offeree tenders or begins the invited performance or tenders a beginning of it.
§ Consequence àofferor is bound to offer while offeree is not.
III) R2d § 43—Indirect Revocation
· An offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent w/ an intention to enter into the proposed K and the offeree acquires reliable information to that effect.
· Note: Normille v. Miller case (realtor told P that D already sold home)
IV) Exceptions to Revocabilityà UCC § 2-205—The Firm Offer
· Case law generally provides that a firm offer, meaning an offer that by its terms is to remain open for a specified period, can be revoked before its expiration, just as an ordinary offer. The rationale is that no consideration was given for the promise, so the promise to hold the offer open is not binding.
· Exceptions
(1) Options. Where consideration is given for the promise to hold the offer open then the firm offer becomes irrevocable.
(2) Nominal Consideration. A firm offer is irrevocable if it recites a nominal consideration, if the offer is in writing, and proposes a fair exchange w/in a reasonable time. R2d § 87
(3) Reliance. If the offeror should have foreseen that the offer would induce relia
reements are not necessarily mere negotiations. If the parties intend that a letter of intent be contractually binding, it may be enforced as a K.
o Note: case was remanded.
o Here, the LOI included detailed terms of the agreement and stated that P had been awarded the job. The letter stated that it authorized the work which was to commence 4 to 11 days after the date of the letter. These facts suggest that the parties (especially D) intended to be bound so the work could begin on time. In addition, there would be no need to cancel the LOI or include a cancellation clause if the parties did not intend for it to be binding.
o AA and Jones would argueà this is merely an agreement to agree (on a formal written K in the future)
o Quake would argueà a K would be merely memorializing the agreement—have already agreed upon the material terms but just need something in writing to serve as a formality.
o Note: In writing an LOI, a drafter should avoid ambiguity regarding the issuer’s intent to be bound and recipients should be aware that normally, an LOI is NOT a binding K.
o Possibly a PE argument here for P? Yes.
CONSIDERATION
Consideration—the inducement of a K—something of value given in return for a performance or a promise of performance by another, for the purpose of forming a K. This is a required element in the formation of a K. (mutual inducement)
R2d § 71—Requirement of Exchange; Types of Exchange
(1) To constitute consideration, a performance or return promise must be bargained for.
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
(3) The performance may consist of an act, forbearance to act, or a mere promise to act.
I) Old View—Consideration Exists When There is a Benefit to the Promisor or a Detriment to the Promisee
· Hamer v. Sidway
o Uncle promised nephew that if he refrained from drinking, using tobacco, swearing, and playing cards until he was 21, he would give him $5G. Nephew refrained and kept his promise.
o A waiver of any legal right at request of another party (the promisor) is sufficient consideration for a promise
II) Modern View—R2d § 71—The Promise Must Induce the Return Consideration and Vice Versa
· Pennsy Supply v. American Ash
o School District had K w/ Lobar. Lobar subcontracts w/ Pennsy. Pennsy uses Aggrite from American Ash to complete the paving work. Paving cracked; Pennsy remedied. Part of remedial work involved the removal and disposal of Aggrite. P requested D to arrange for these things. D did not do so claiming that the Aggrite was a gift and thus, no consideration, and therefore, no obligation to remove and dispose of Aggrite.
o Mutual Inducement. Each party’s promise and resulting performance induced the corresponding promise and performance of the other party.
o Here, D provides material free of charge to P in exchange for P relieving D of the disposal costs of Aggrite.
III) R2d § 79—Adequacy of Consideration
· Any performance that is bargained for is consideration, regardless of whether the values exchanged are equivalent. So long as there is no fraud, duress, or undue influence, the slightest consideration is sufficient to support the most burdensome obligation.
· Batsakis v. Demotsis
o During WWII, P, a Greek resident, loaned D, 500,000 drachmae, which at the time was worth $25. D gave P a written note to repay $2G in U.S. currency. P sued on the note and the court found for P for $750 (the value of 500,000 drachmae at the time of the trial.) P appeals to recover the full K amount.
o Courts do not examine Ks between parties to determine whether the consideration received by each side was equivalent. Agreement is valid as long as there is valid consideration (each party got what they bargained for).
o Public Policy. Courts do not inquire into the adequacy of consideration b/c public policy allows the parties to make their own K; each party determining what is valuable to him.
o R2d § 79(a) If the requirement of consideration is met, there is no additional requirement of (a) a benefit to the promisor or a detriment to the promisee, (b) equivalence in the values exchanged, or (c) mutuality of obligation.
o Note: Newman v. Snell in the notes (different outcome). But Prof agrees w/ Batsakis view: not up to courts to decide whether or not it was an unfair bargain.
IV) Past Act as Consideration
· A promise is said to be given for moral or past consideration when the promisor is motivated by some past event which inspires the promisor to make his promise. Usually, the past event is a transaction of some sort between the promisor and the promisee which benefited the promisor and placed him under a moral obligation to keep the promise.
· Plowman v. Indian Refining Co
o At-will employees had worked for D for many years. D’s GM told Ps that D would them ½ of their wages for the rest of their lives. Ps had to come pick up checks from the office biweekly. D sent Ps a letter describing arrangement, but the letter made no specification as to how long the payments would last. One year later, D notified Ps the payments were being terminated. Ps sued. D claims the payments were gratuitous and w/out consideration and in addition, were not properly authorized by D.
Past service of empl
