An Offer is a “manifestation of willingness to enter into a bargain, so as to justify another person in understanding that his assent to that bargain is invited an will conclude it,” Restatement 2d §24.
An offer creates, in the offeree, a legal power of acceptance.
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An advertisement constitutes an offer when it is clear, definite, explicit, and leaves nothing open for negotiation.
An Acceptance is consent to the terms of an offer, creating a contract.
A Promise is a declaration of one’s intention to do or to refrain from doing something. It can bind the person making the declaration to the thing declared.
Ford Motor Credit Co. v. Russell
Facts: Π sold Δ a car with a higher APR than was advertised. Δ defaulted on the payments and sued for breach when Π gave them the higher APR. This is Π’s countersuit.
Rule, 2nd Rst., Sec. 26: Generally, if goods are advertised for sale at a certain price, it is not an offer and no contract is formed; such an advertisement is merely an invitation to bargain rather than an offer
“A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.” (e.g., checking credit history to see if someone qualifies for a loan and a certain percentage rate)
Exception: An advertisement may constitute an offer where it is clear, definite, explicit, and leaves nothing open for negotiation
Prof. points this out: There might be times when an ad can constitute an offer, but the test is “whether the facts show that some performance was promised in positive terms in return for something requested.”
Prof. points this out: 2nd Rst., Sec. 24: Offer: An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
Held: An advertisement is not an offer. Because not everyone qualifies for financing, and Π did not have an unlimited number of the car in question to sell, it was unreasonable for Δ to believe that the advertisement was an offer binding the advertiser.
Counteroffers and the Mirror Image Rule
A counteroffer destroys the original offer and replaces it for the original offeror to accept if he chooses.
Restatement 2d §36 lists five possibilities under which an offer is terminated
The offeree rejects the offer or makes a counteroffer
At the time specified in the contract, or, failing that, at the end of a reasonable time
If the offeror revokes the offer
If the offeror dies or becomes incapacitated
If the terms of the offer include a condition for acceptance that has not yet occurred.
Mirror Image Rules
Restatement 2d §59 states: “A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different fromthose offered is not an acceptance but is a counteroffer.”
Restatement 2d §61states an “acceptance request[ing] a change or addition to the terms of the offer” is not invalid “unless the acceptance is made to depend on an assent” to the new terms.
Both the UCC and the CISG are more liberal.
Davis v. Satrom
Facts: Π and Δ were negotiating the sale of a mobile home park. Π sent an offer to Δ who made mods and returned it to Π. Π and Δ went back and forth again, and Δ’s final letter included a clause accepting the offer conditioned on his attorney’s recommendation. Π sends a check to begin performance, but Δ returns the check. Π wants specific performance.
Analysis: There was never an unqualified acceptance of an offer without the introduction of additional terms and conditions (which would be counteroffers)
Furthermore, even if P “accepted” the last of D’s “counteroffers” with the conditions it imposed, one of those conditions was that the agreement be approved by the D’s attorney–rendering the agreement “not effective or operative” until the approval was obtained (which it never was). Condition precedent (the attorney’s approval) never occurred, therefore the contract never became effective.
“The formation of a contract may be conditioned upon the act of a third person…Where one of the parties to a contract stipulates for the approval of his attorney, in the absence of fraud in withholding the approval, the contract, made conditional on such approval, is not effective or operative unless it be obtained.”
When an offer terminates (Prof notes this section):
2nd Rst., Sec. 36: An offer terminates upon 1) A rejection or counter-offer by the offeree, or 2) lapse of time (at the time specified in the contract, or, failing that, at the end of a reasonable time after the offer is made), or 3) revocation by the offeror, or 4) death or incapacity of the offeror or offeree.
The UCC takes a different approach than the common law does. 2-207 of the UCC states that communication expressing acceptance will be valid even if the acceptance states terms additional to, or different from, those in the initial offer. There are specific exceptions, though, in Sec. 2-207(2).
Result: Δ’s mods resulted in a counteroffer, not an acceptance. Π’s final response to Δ’s final response constituted the only acceptance, and those became the terms of the contract, including the attorney provision which was enforceable. Specific performance denied.
Merced County Sheriff Employees’ Ass’n v. County of Merced
Facts: County (D) entered into separate contracts with sheriff’s association and firefighters (Ps). Later on, Ps sought a writ of mandate to order D to follow the agreements according to the plantiffs’ interpretations. Trial court ruled that the salary formula in the sheriff’s assn’s agreement was ambiguous and based on a mutual good faith mistake, but that the salary formula in the firefighter’s assn’s agreement was unambiguous and binding. Ps and Ds appealed.
Result: Regarding sheriff’s assn, the contract has the meaning attached to them by sheriff’s assn. Sheriff’s assn had no reason to know of any other meaning attached by D, and D had reason to know of the meaning attached by P. Regarding firefighter assn’s agreement, however, the parties failed to reach a meeting of the minds and would have to renegotiate.
Rst. 2nd, § 20, Effect of Misunderstanding
(1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and
(a) neither party knows or has reason to know the meaning attached by the other; or
(b) each party knows or each party has reason to know the meaning attached by the other.
(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if
(a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or
(b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.
Ardente v. Horan
Facts: Π bid on Δ’s house for sale. After Δ stated the offer was acceptable, Π prepared a sale agreement and sent it to Δ along with a check. Π also sent a letter asking if certain furnishings were included. Δ then refused to sell, returning the check. Π wants specific performance
Rule: To be effective, an acceptance must be definite and unequivocal
Rst. Sec. 58: “An offeror is entitled to know in clear terms whether the offeree accepts his proposal. It is not enough that the words of reply justify a probable inference of assent.”
Prof. brings this to our attention: Exception: An acceptance may be valid despite conditional language if the acceptance is clearly independent of the condition.
Held: Π’s “letter of acceptance” was conditional, and therefore a counteroffer rejecting Δ’s offer. No contractual obligation was created.
Note: The plaintiff’s lawyer might have wanted to keep it ambiguous so as to maintain their bargaining strength vis a vis the furniture. They might not have wanted it to read as a counter-offer, but as an acceptance with confirmation that the furniture was part of the agreement. B/c this isn’t a mirror image agreement, the court ultimately finds that this is a counter-offer and finds for defendants. What could’ve happened here is that someone else offered a higher price, and the Horans found it convenient to use the second letter to get out of this deal.
Note: Contracts Concluded by Exchange of Letters
The Mailbox Rule
General Rule:
Communications take effect when reached by the person for whom they are destined.
The Offeror is the Master of the Offer.
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. Restatement 2d §30(1).
Acceptance Rule:
Rst. 2nd, Sec. 63: Acceptance is effective when and where it is dispatched.
2 exceptions:
Rst. says option contracts are effective upon receipt.
CISG for international sales usually follows rule that acceptance is effective upon receipt.
Example: The Overtaking Rejection. By letter, A offers to sell B a drill-press for $5,000. B posts acceptance and then, before A receives this letter, B telephones to reject the offer. Is the rejection effective? What if, relying on the rejection, A sells to a third party before receiving B’s acceptance?
The rejection in the first question is not effective, because the acceptance is valid when sent. In the 2nd case, A can try to use promissory estoppel to stop B’s enforcement of B’s acceptance.
Example: The Overtaking Acceptance. By letter, A offers to sell B a racehorse for $3,000. B sends A a letter rejecting the offer, but then, before A receives the rejection, B posts an acceptance. Is B’s acceptance effective? Does it matter whether A receives the rejection before the acceptance? Whether A relies on the rejection?
In the 1st question, B’s acceptance holds because it is valid at the time it is sent; the rejection is valid on receipt. SPECIAL RULE!
Restatement Second § 40 (basically, if the acceptance arrives first that’s what controls)
Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer.
The Overtaking Revocation. Corporation A sends corporation B a letter offering to sell an airplane for $10,000,000. A short time later, A mails a revocation of its offer; but before B receives A’s revocation, it mails its acceptance. Is the acceptance effective?
Yes. Acceptance valid when sent.
Mid-South Packers, Inc. v. Shoney’s Inc.
Facts: UCC case; Shoney’s said that Mid-South was supposed to give Shoney’s 45 day notice when there’s a price change; there’s a price change, there’s a tiff, Shoney’s relents, but Shoney’s internally marks how much more it’s costing them and eventually offsets that amount on the last invoice. Shoney’s refused to pay Mid-South balance due on shipped meat; Mid-South brought suit to recover the money; judgment for Mid-South affirmed.
P’s offer, held open at its discretion at least after July 17, was properly revoked and replaced by the offer of a 7 cent increase at the Aug. 12 meeting–D accepted this offer on Aug. 18 when it was informed that P would not sell except at the new price, and D ordered shipment. Thereafter, D created separate contracts and obligated itself to pay the new price each time it mailed purchase orders with that price noted on them.
No theory of contract would permit D to manifest acceptance of P’s new offer, to induce performance, and then revoke that acceptance and demand compliance with a prior, withdrawn offer.
Revocability of Offers: 2nd Rst., Sect. 41, 42, 43 (Red book p. 206-207)
Why this rule? Since an offeror’s promise to keep the offer open is not supported by consideration, it may be revoked at will, the major limitation being that the offeree retains the right to accept until directly OR indirectly informed of the revocation.
Firm Offers: (Prof. notes this section) UCC, Sec. 2-205: applies only to a merchant who in a signed writing makes an offer and assures that it will be held open–such an offer “is not revocable for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months.”
Note: Contracts Accepted by the Offeree’s Performance
Acceptance by Part Performance: 2nd Rst., Sec. 45(1): “Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it”
So, Willie doesn’t get screwed two days before his 21st birthday, after he’s abstained from all the fun stuff, if his Uncle decides oh, I don’t want to follow through with the money anymore and am ‘revoking’ my offer.
Consequence of Sec. 45 is that, for a certain time, one party is bound and the other is not. It’s up to the offeree whether or not to complete the performance.
Offers Ambiguous to a Manner of Acceptance: See UCC 2-206(1), the language of which is picked up by 2nd Rst., Sections 30, 32, and 62
Essentially, “In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.” Sec. 62 says, when an offer is ambiguous as to whether a promise or performance constitutes acceptance, not only is the beginning or tender of performance “an acceptance by performance,” but this acceptance “operates as a promise to render complete performance.”
Thus, in the case of an offer that invites acceptance by performance only, the offeree who starts performance has the option not to continue (think of Willie); but when the offer is ambiguous as to the manner of acceptance, the offeree who starts performance becomes legally obligated to complete it.
Arango Construction Co. v. Success Roofing, Inc.
Facts: Contractor/subcontractor case; court held D subcontractor liable for breach of contract; SOF did not apply; reliance did apply.
1st issue Court takes on: UCC Statute of Frauds
Rule, UCC Statute of Frauds, 2-201: “A contract for the sale of goods for the price of $500 or more is not enforceable…unless there is some writing sufficient to indicate that a contract for sale has been made b/w the parties and signed by the party against whom enforcement is sought…”
Construction contracts, service, and real estate property transactions are not within the scope of the statute; nor are contracts for work, labor, and materials: have to determine if contract is for the sale of goods to be manufactured (which would be covered) or for the manufacture of goods (which wouldn’t, because “it is in the nature of the common-law contract for work, labor, and materials, and the uniform sales act [later the UCC]” does not apply.
D’s contract is for work, labor, and materials–statute of frauds doesn’t apply.
2nd issue: No meeting of the minds
Court finds that the argument that there was a dispute is without merit
3rd issue: Construction contractor bids are irrevocable offers
Because contractors must rely on oral bids, the courts consider the subcontractor’s oral bid an irrevocable offer until the general contractor has been awarded the prime contract; then the courts apply promissory estoppel to ensure that the subcontractor does not raise the bid.
In contract law, construction bidding is treated as a unique category; due to construction bidding deadlines, the drafting of written agreements is “impossible” and contractors must rely on oral bids.
Promissory Estoppel – disfavored doctrine
Restatement 2nd of Contracts § 90
(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
Judge Hand v. Justice Traynor
Hand: (Prof points out this opinion as an example of the traditional contract law analysis): the subcontractor’s bid is not an offer of a unilateral contract that the general contractor can accept by performance (i.e., by submitting the bid as part of the general bid to the customer); and promissory estoppel doesn’t apply.
*The general contractor is bound to the price submitted to the letting party (customer) but the subcontractors are not bound, and are free to withdraw.
Governed by traditional contract law: the subcontractor’s bid is an offer to contract that remains open only until accepted or withdrawn.
Traynor: Blended the ‘reliance’ analysis with themes from 2nd Rst. Sec. 45 (“Option Contract Created by Part Performance or Tender”).
Where an offer invites an offeree [in our case, the general contractor] to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.
If a party starts to perform its acceptance, the rug can’t be pulled out from under them (safety net for the general contractor in relying on the bid of the subcontractor).
Issue: Under Traynor’s line of reasoning, the general can hold the sub to its bid after relying on the bid in submitting its own bid to the customer, but the winning general is not obligated to give the contract to the sub!
Common dangers are bid-shopping (using the lowest subcontractor’s bid as a tool in negotiating lower bids from other subs) and bid-chopping (pressuring subs to lower their bids).
Other dangers: 1) Subs won’t be able to afford to do the work that generals are requiring of them at the price the generals want. 2) Disincentive to engage in the bidding process? (Like a free-rider problem). 3) Decreased competition among subcontractors, leading potentially to lower quality.
What is actually used in this case is:
Restatement 2nd of Contracts § 87: Option Contract
(1) An offer is binding as an option contract if it
(a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or
(b) is made irrevocable by statute.
(2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.
