CONTRACTS OUTLINE—THE RULES
OFFER AND ACCEPTANCE
I. Offer and Acceptance Generally (Restatement §24)
A. Offer: 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. Offeror is “Master of the Offer”—he controls it.
B. Acceptance: manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
C. Unilateral contract: involves exchange of offeror’s promise for offeree’s act. Offeree simply acts.
D. Bilateral contract: both sides make promises. Exchange is inherent.
o Objective test for intent: what a reasonable person would do
o Generally, if business relationship, intent to contract is taken seriously; if family members/social situation, no, unless the family members are in a clear legal situation (divorce)
II. Validity of particular kinds of offers
A. Offer made in jest: when offeree knows or should know offer is made in jest, not valid.
B. èHowever, courts will look at actions and expressions, not parties’ intent
C. Preliminary negotiations: if party who desires to contract solicits bids, this is not offer. (look for words like “subject to”, further negotiation necessary, procedural formalities, the larger or more complex the transaction, less likely letter of intent is binding)
D. Advertisements: most are NOT offers to sell. This is because they don’t contain sufficient words of commitment to sell.
1. èBUT—if Specific Terms: if ad contains specific words of commitment, especially promise to sell particular number of units, then may be offer.
2. èBUT—if words of commitment: do this and I’ll give you that.
E. Auctions: not an offer but solicitation of bids
F. Price quotes: only an offer when it makes quantity clear
G. Offer must cover 1) parties, 2) subject matter, 3) time for performance, 4) price, 5) quantity
1. Flash cards: offer must cover 1) subject matter, 2) price, 3) payment terms, 4) quantity, 5) quality, 6) duration, 7) work to be done
2. UCC WILL PROVIDE ANY MISSING TERMS BUT QUANTITY
o Objective test for understanding whether offer or negotiations
o Statement of future contract is not offer
III. The Acceptance
A. Offeree must know of offer: (example of reward for criminal)
1. Objective manifestation counts: as long as conduct leads offeror to conclude that offeree knew of offer or unknown terms, there’s a contract
B. Method of acceptance: offeror may choose method of acceptance
1. If not specified, then by any reasonable method
2. Acceptance of unilateral contract is by full performance
a) Option contract: needs full performance
b) If promisee states that he didn’t intend act to be acceptance, no contract
C. Offer invites either promise or performance: if not clear, offeree may accept by either
1. Scrutinize language of offer/circumstances
2. Shipment of Goods: buyer places purchase order that doesn’t state acceptance method, seller may accept by promising to ship or actually shipping goods.
3. UCC 2-206(1)(b): “an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptan
al term” in acceptance: when there’s an additional term, depends on both parties being merchants:
a) Not both merchants: additional term doesn’t prevent offeree’s response from making contract, but additional term becomes part of contract only if offeror explicitly assents to it
b) Both merchants: additional term automatically becomes part of contract
(1) BUTèMateriality: addition won’t become part of contract if it “materially alters” the contract.
(a) Disclaimer of warranty will always materially alter.
(2) BUTèObjection: if offeror objects, term won’t add.
4. Acceptance silent: if issue is handled in offer but not acceptance, acceptance will cover all terms, not just those on which they agree
5. Conflicting terms:
a) “knock-out” rule: most courts knock conflicting terms out, neither enters contract
b) UCC gap fillers are used if one is relevant, otherwise common law controls (applies when variance is immaterial)
c) Gap fillers include: implied warranty of merchantability (2-314), price (against CPI, Nymex, or some other standard), delivery date, etc.
d) Knock-out rule is much tougher on contract than UCC
6. Response diverges too much to be acceptance: no contract
Contract by conduct/performance: 2-207(3) conduct can override disagreement and create contract
