Dalie Jimenez – Fall 2014
When dealing with formation issues, courts rely on objective tests, not subjective tests
Would a reasonable person in the position of the offeree understand from the offeror’s words and conduct and intent to be bound? AND
Did the offeree in fact believe so?
Ex: Lucy v. Zehmer (41)
D Zehmer and his wife owned a tract of land and, after some drinks, drew up a contract to sell the land to P Lucy on the back of a receipt. Zehmer and his wife both signed. When Lucy attempted to enforce, Zehmer claimed he was only joking.
Ct: A person cannot claim he was merely joking when his conduct and words would warrant a reasonable person in believing that he intended a real argument.
Ex: Leonard v. Pepsico
Teenage P attempted to purchase a Harrier Jet using “Pepsi points.”
Ct: not only was it not an offer under R2C because the commercial referred to the catalogue (i.e., the true offers, and those subject to availability), but no reasonable person could have believed that the company seriously offered to transfer a jet worth millions of dollars for a few hundred thousand worth of points.
Traditionally, the terms of the offer and the acceptance must be identical—the “mirror image rule”
Offer: the manifestation of a willingness to enter into a bargain
“An offer must be definite and certain. To be capable of being converted into a K of sale by an acceptance, it must be made under circumstances evidencing an express or implied intention that its acceptance shall constitute a binding contract.” (Maryland Supreme Corp. v. Blake Co.)
Ex: Blake Company (Blake) (defendant) was a general contractor, and Maryland Supreme Corporation (Supreme) (plaintiff) was a sub-contractor. After learning that Blake intended to submit a bid for a construction contract, Supreme sent Blake a letter indicating that it could provide specific materials at a certain price for the duration of the construction project. The letter specifically stated that Supreme could guaranty the price. Blake was the successful bidder, and Blake chose Supreme as the materials supplier. During the course of construction, Supreme raised the materials’ price above the price quoted in the letter. Blake opposed the price increase and procured a new supplier. The price Blake paid the new supplier exceeded the price Blake would have had to pay Supreme. As a result, Blake withheld a portion of the money it owed Supreme. Supreme sued Blake in general assumpsit, and Blake counterclaimed for breach of contract.
Ct: Letter was clearly an offer in light of all the facts and circumstances because there was the expectation that acceptance thereof would create a contractual relationship.
The offeror is the master of his offer so he can set terms of acceptance. Traditional common law rule: When an offer specifies time/place/manner, acceptance must comply.
Unless the offeror gives the offeree the ability to make a K with acceptance, then no offer exists. Conditions =/= suggestions here.
Ex: P and D begin negotiations to buy/sell a piece of real estate. However, the document stipulates that it had to go back to the trust for a signature. A rider was attached that required the signature of the trustees for P. The trustees never signed. (LaSalle National Bank v. Vega)
Circulation of pricing advertisements does not constitute an offer nor does a quote
Exception: advertisement is clear, definite, explicit, and leaves nothing open to negotiation
It’s generally the order itself that constitutes the offer.
Ex: Leonard v. Pepsico
A statement will generally be an offer if a reasonable person would think that they can complete the deal simply by giving their assent.
Invitation for an offer is not an offer R2C 24
Destroying the Offer
Rejection (can be Direct or Indirect): Offeree manifests a disagreement. In the common law, a counteroffer is a rejection followed by an offer.
Revocation (can be Direct or Indirect): If the offeror says “I revoke” before the offeree accepts, the offer is terminated
Indirect: a reasonable person should have known given sufficient information.
Ex: P inquires as to D’s newspaper ad for the sale of property. D responds with description of property and approval of escrow agent and warning P he expects to sell soon. D sold to 3rd party, and then P receives latest letter and responds that he will open escrow and requests deed. P sues when D states that he has sold property already. (Lonergan v. Scolnick).
Ct: P failed to accept the offer before it was revoked. D’s communications with P was an invitation for] offers. D clearly indicates that there are other potential buyers and does not at any time agree to hold property for P.
No offeree should assume that he is the only one the offer has been extended to
Lapse: An offer lapses after the period stated in the offer or, if no duration is stated, after a reasonable time (cts usually look at the circumstances surrounding the offer to determine what constitutes a reasonable time. Cf UCC 2-206; R2C 41).
Reasonableness is very fact dependent. Ex. P sent a telegram to D saying they would sell oil at price X. Dispatch was transmitted Sunday and not delivered to D until Mon. morning. During that time, the cost of oil increased such that P would take a great loss if they sold it at the quoted price. On Tuesday, D replied and accepted the terms, but P crossed telegrams to withdraw (but after D accepted).
Ct: Delay in D’s response was too long. P clearly intended for immediate response in a fluctuating market. D’s delay allowed them to take unjust advantage of such fluctuations. The offer had lapsed.
Death/incapacity of either party: An offeree’s power of acceptance terminates when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract (even if the surviving party is unaware.)
Preserving the Offer
Agreements to later agree are usually not enforceable, nor are offers to keep the offer open.
Ex: Dodds (D) sent Dickinson (P) a memorandum in which he agreed to sell a specified piece of land for 800 pounds with the offer held open until 9AM the following Friday. Dickinson alleged that he had decided to accept Dodds’ offer on Thursday morning but did not contact him immediately because he thought he had until Friday morning to accept. On Thursday afternoon Dickinson learned that Dodds had offered or agreed to sell the land to a third party. Dickinson wrote a note accepting the offer and delivered it to his home, leaving it with his mother-in-law who neglected to give the note to Dodds. On Friday morning before the original deadline to accept the offer, both Dickinson and his agent gave Dodds a written acceptance of the offer. Dodds stated that he had already sold the land to another party the previous day. (Dickinson v. Dodds)
Ct: Offer to keep the sale open was merely an offer, and lacked both consideration and acceptance. Once P knew D had made an agreement with the 3rd party, he should have known there could be no mutual assent.
Common Law Rule: An option supported by consideration is a binding agreement. If unsupported by consideration, then the agreement was merely an offer that could be withdrawn at any time before acceptance. (However recital is a rebuttable presumption.)
Ex: The landowner owned the parcel that bordered on three sides of a farm that the buyer had purchased. The same day he contracted to buy the farm, the buyer obtained a three-year option to purchase the landowner's parcel, for which he paid a money consideration. The option was never exercised, and the parties executed a new option for five years and for an additional consideration. The later
purchase agreement to respondents for purchase of real property. Respondents signed and returned the agreement. Appellant then changed closing date to a date that was approximately six weeks later than initial closing date. Appellant initialed change and returned agreement to respondents with earnest money. Respondents received another offer and accepted the new offer. Appellant sued for specific performance and alternatively for breach of contract. The district court held that contract was not legally binding. (Gresser v. Hotzler.)
R2C (59&61): An acceptance which requests a change is NOT a rejection, unless the acceptance is made to depend on agreement to the changed term. The K is formed on the original terms.
UCC 2-207: Battle of the Forms
A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
the offer expressly limits acceptance to the terms of the offer;
Ex: Small print on back of form sent to acknowledge order for carpeting contained an arbitration clause. The face of the form specified that acceptance was “subject to” all the terms on the reverse side. Carpet purchaser sought to avoid the arbitration clause. Ct: D’s form did not expressly condition acceptance on assent. “Subject to” =/= express condition. (Dorton v. Collins & Aikman Corp.)
they materially alter it; or
notification of objection to them has already been given or is given within a reasonable time after notice of them is received
Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
Ex: Krack (P) manufactured cooling units containing steel tubing supplied by Metal-Matic (D). For ten years the parties had followed the same course of dealing: at the beginning of each year, Krack sent Metal-Matic a blanket purchase order, Metal-Matic would then forward an acknowledgment form and ship the tubing. Metal-Matic’s acknowledgment forms contained a disclaimer of liability to Krack and made its assent expressly conditioned upon Krack’s assent to the disclaimer. P’s purchase order did not contain this provision and P never formally assented. At one point P’s purchasing manager objected to D’s liability limitations, but D did not remove the limitation and both parties continued to do business. Ct: without specific and unequivocal assent, the disclaimer is not part of the K, because it conflicts and the parties performed. (Diamond Fruit Growers, Inc. v. Krack Corp.)