9

CHAPTER

C H A PTER OUIT INE TE A RNING O B I E CI I V E S .11t'.l[ ls

' 'r
necesslty
OFTHEOFFER AFTER
-REQUIREMENTS READINC YOUSHOULD
THISCHAPTER, TO
BEABLE thatmakes
ANSWER
THE
FOLLOWING
QUESTIONS: r aa
.TERMINATION
OFTHEOFFER laws,//
I What elementsare necessaryfor an effectiveoffer?
-ACCEPTANCE Voltaire,1649 1778
2 What are some examplesof nonoffers? (Frenchphilosopher
andwiter)

5 In what circumstanceswill an offer be irrevocable?

4 What elementsare necessaryfor an effective

acceptance?

5 Can silenceeveroperateas an acceptance?

oltaire'sstatementthat it is "necessitythat makeslaws"is certainly true in regardto

contracts.In Chapter B, we pointed out that promisesand agreements,and the
knowledgethat someof thosepromisesand agreementswill be legallyenforced,are essen-
tial to civilized society.The homes we live in, the food we eat, the clotheswe wear, the
cars we drive, the books we read, tl-re concerts and professionalsporting events we
attend-all of thesehave been purchasedthrough contractuaiagreements.Contract law
developedover time, through the common law tradition, to meet society'sneed to know
with certainty what kinds of prornises,or contracts,will be enforced and the point at
which a valid and binding contract is formed.
For a contract to be consideredvalid and enforceable,the requirementslisted in
Chapter B must be met. In this chapter, we look closely at one of these requirements,
agreement.Agreement is an essentialelement for contract formation. The partiesmust AGREEMENI
agreeon the tenns of the contract.Ordinarily, agreementis evidencedby two events:an A meetingof two or more mindsin
regardto the termsof a contract;
offer and an acceptance.One party offers a certain bargain to another party, who then usuallvbrokendown into two
acceptsthat bargain. Becausewords often fail to convey the precisemeaning intended, eventi-an offer by one partyto form
the law of contractsgenerallyadheresto the objectivetheoryof contracts,as discussedin a contractand an acceptance of the
offerby the personto whom the
Chapter B. Under this theory, a party'swords ar-rdconduct are held to mean whatevera offeris made.
reasonablepersonin tl'reofferee'sposition would think they meant.
As you read through this chapter, keep in mind that the requirement of agreement
appliesto all contracts,regardlessof how they are formed. Many contractscontinue to be
formed in ihe traditional way-through the exchangeof paper documents.Increasingly,
contractsare also being formed online-through the exchangeof electronic messages or
documents.Although we discussonline contractsto a limited extent in this chapter,we 251fTtTfffffir
will look at tl-remirore closelvin Chauter 17. ACREEMENT

I
l
252IINIIIU
CONTRACTS

OFFER
A promiseor commitmentto
performor refrainfrom performing
somesoecifiedact in the future.
An offer is a promise or commitment to perform or refrain from performing some speci-
fied act in the future. As discussedin Chapter 8, the party making an offer is called the
offeror,and the party to whom the offer is made is called the offeree.
Three elementsare necessaryfor an offer to be effective:

I There must be a serious,objectiveintention by the offeror.

2 The terms of the offer must be reasonablycertain, or definite, so that the partiesand
the court can ascertainthe terms of the contract.
I The offer must be communicatedto the offeree.

Once an effectiveoffer has been made, the offeree'sacceptanceof that offer createsa
legally binding contract (providing the other essentialelementsfor a valid and enforce-
able contract are present).
In today's e-commerce world, offers are frequently made online. Essentially,the
requirementsfor traditional offers apply to online offers as well, as you will read in
Chapter 17.

lntention
The first requirementfor an effectiveoffer to existis a serious,objectiveintention on the
part of the offeror. Intent is not determined by the subiectiveintentions, beliefs, or
assumptionsof the offeror. Rather, it is determined by what a reasonableperson in the
offeree'sposition would conclude the offeror'swords and actionsmeant. Offers made in
obvious anger, jest, or undue excitement do not meet the serious-and-obiective-intent
test. Becausethese offers are not effective,an offeree'sacceptancedoes not cteate an
agreement.
FExAMptEe.il You and three classmates ride to schooleach day in Julio'snew automo-
bile, which has a market value of $ I8,000. One cold morning, the four of you get into the
car, but julio cannot get it started.He yells in anger,"I'll sell this car to anyonefor $500!"
You drop $500 in his lap. A reasonableperson,taking into considerationJulio'sfrustration
and the obvious di{ferencein value behveen the car's market price and the purchase
price, would declarethat Julio'soffer wasnot made with seriousand obiectiveintent and
that you do not have an agreement.E
The concept of intention can be further clarified through an examinationof the types
of expressions and statementsthat arenot offers.We look at theseexpressions and state-
ments in the subsectionsthat follow. In the classiccaseof Lucy t,.Zehmer,presentednext,
the court consideredwhether an offer made "after a few drinks" met the serious-intent
requirement.

[****r*x SupremeCourt of Appeals6f Virginia,196Va.493,84 S.E.2d516 (1954).

*t*
s[t**rg ANDFACTS FergusonFarm,to the Lucysfor $5O000,as the Zehmershad
BACKGROUND
€***f W. O. Lucyand J. C. Lucy,the allegedlyagreedto do. Lucyhad knownZehmerfor fifteenor
plaintiffs,filed a suit against twentyyearsand for the lasteightyearsor so had beenanxious
A. H. Zehmerand lda Zehmer,the defendants, to compelthe to buy the FergusonFarmfrom Zehmer.One nigh! Lucy
Zehmersto transfertitle of their property,known as the stoppedin to visitthe Zehmersin the combinationrestaurant,
 255
GIIEm
ACREEMENT

9 . 1- Cont inued
CASE

fillingstation,and motor courtthey operated.Whilethere,Lucy continuedto drinkwhiskeyand engagein light conversation.

triedto buy the FergusonFarmonceagain.Thistime he tried a Eventually,.LucyenticedZehmerto write up an agreementto
new approach.Accordingto the trial courttranscript,Lucysaid the effectthat Zehmerwould sellthe FergusonFarmto Lucyfor
to Zehmer,"l bet you wouldn'ttake $50,000for that place." $50,000.Later,LucysuedZehmerto compelhim to go through
Zehmerreplied,'Yet I would too; you wouldn'tgivefiftyl' with the sale.Zehmerarguedthat he had beendrunk and that
Throughoutthe evening,the conversation returnedto the sale the offerhad been made in jest and hencewas unenforceable.
of the Ferguson Farmfor g5O,OO0.At the same time,the partiesThetrial courtagreedwith Zehmer,and Lucyappealed.
::
f N TH E W 0RDS 0F T H E C 0 U R T . . . BU C H AN AN ,J. thecourt.
l usti cel del i veredtheopi ni onof
* * r< *

In his testimony,Zehmer claimed that he "was high as a Georgia pine," and that the
transaction"was just a bunch of hvo doggoneddrunks bluffing to seewho could talk the
biggestand saythe most." That claim is inconsistentwith his attempt to testif, in great
detail as to what was said and what was done.

The appearanceof the contract,the fact that it was under discussionfor forty minutes
or more before it was signed;Lucy's objection to the first draft becauseit was written in
the singular,and he wantedMrs. Zehmer to sign it also;the rewriting to meet that objec-
tion and the signing by Mrs. Zehmer; the discussionof what was to be included in the
sale,the provisionfor the examinationof the title, the completenessof the instrumentthat
*", of it by Lucy with no requestor suggestionby either
the taking possession
"".",rt.d,
of the defendantsthat he give it back, are factswhich furnish persuasiveevidencethat the
execution of the contract was a seriousbusinesstransactionrather than a casual,jesting
as defendantsnow contend.
-rla.J
In the field of contracts,asgenerallyelsewhere,we must look to the outwardexpression
of a personas manifestinghis intention ratherthan to his secretand unexpressed
intention.
The law imputesto a personan intention correspondingto the reasonablemeaning of his
*oldr*"ld*r.ts. lEmphasisadded ]

Whether the writing signedby the defendantsand now sought to be enforcedby the
complainantswas the result of a seriousoffer by Lucy and a seriousacceptanceby the
defendants,or was a seriousoffer by Lucy and an acceptancein secretfestby the defen-
dants,in either event it constituteda binding contract ofsale behveenthe parties.

rtresupremecourt
D t C l S l 0NAN DRE ME DY Virgo f in ia I MP A CT I A W rt r s i s a
0 F T HI SCA S E0 N T 0 DA Y ' S
determinedthat the writing was an enforceablecontractand clossiccose in controctlaw becauseit illustrotesso cleorly the
reversedthe ruling of the lower court. The Zehmerswere objectivetheory of controctswith respectto determining
required by court order to follow through with the sale of the whether o seriousoffer wos intended. Today,the courts
FergusonFarmto the Lucys. continue to opply the objectivetheory of controctsond
ffi.ffi routinely cite Lucyv. Zehmeros o significontprecedent in
ffi WHATlF THEFACTS DIFFERENT? thi,o,eo.
WERE
#ffi Supposethot thedayafterLucysignedthepurchose
agreementfortheform,hedecidedthothedidnlwontitofter RETEVANTWEB SITES fo locqteinformotionontheWeb
oll, and Zehmersued Lucy to pertorm the controct Wouldthis concerningfhe Lucyv.Zehmerdecision,go to thistext'sWebsite
chongein the foctsalterthe court'sdecisionthat Lucyond of , seled"Chapter
www.cengage.com/blaMbll 9," ond clickon
Zehmerhod creqted on enforceoblecontract? Why or why not? "URLsfor Landmarks!'

@
254MiIilU
CONTRACTS

Expressionsof Opinion An expressionof opinion is not an offer. It does not demon-

stratean intention to enter into a binding agreement.ITEXAMPLE 9.2-lHawkinstook his son
to McGee, a physician,and askedMcGee to operateon the son'shand. McGee saidthat
the boy would be in the hospitalthree or four daysand that the hand wotid probablyheal
a few dayslater. The son'shand did not heal for a month, but nonethelessthe father did
EEfilillFm An opinion is not an not win a suit for breach of contract.The court held that McGee did not make an offer
offerand not a contractterm.
can be "oerfect"
to heal the son'shand in three or four days.He merely expressedan opinion as to when
Coodsor services
in one party'sopinionand "poor" l h e h a n d w o u l d h e ai .l E
in another's.
Statementsof Future Intent A statementof an intention to do somethingin the future
e.tl If Arif says,"I plan to sell my stockin Novation,Inc., for $ ] 50
is not an offer.lEExA-tvtpt-r
per share,"a contract is r-rotcreatedif |ohn "accepts"and tenders$150 per sharefor the
stock.Arif has merely expressed his intention to enter into a future contractfor the saleof
the stock.If John acceptsand tendersthe $150 per share,no contract is formed, because
a reasonablepersonivould conclude that Arif was only thinking about sellinghis stock,
not promising to sell it. E

Preliminary Negotiations A request or invitation to negotiate is not an offer; it only

expresses a willingnessto discussthe possibilif of enteringinto a contract.Examplesarestate-
mentssuch as"Wiil you sell ForestAcres?"and "l wouldn't sell rny car for lessthan $8,000."
A reasonable personin the offeree'spositionwouid not concludethat such a statementindi-
catedan intentionto enterinto a bindingobligation.Likewise,when the governmentand pri-
vate firms need to have constructionwork done, they invite contractorsto submit bids. The
inyitation to submit bids is not an offer, and a contractordoesnot bind the governmentor pri-
vate firm by submitting a bid. (The bids that the contractorssubmit are offers,however,and
the governmentor privatefirm can bind the contractorby acceptingthe bid.)

fk':lfinqfiTNif Advertisements are Advertisements,Catalogues,and Circulars In general,advertisements, mail-ordercata-

not binding,but they cannotbe
deceptive.
logues,and circular letters(meantfor the generalpublic) are treatedasinvitationsto nego-
tiate,not asoffersto form a contract.ZFTxAMPIE,.dl You put an ad in the classifiedsection
of yor-rrlocal newspaperoffering to sell your guitar for $275. Seven people call and
"accept" yor-rr"offer" before you can remove the ad from the newspaper.If the ad were
truly an offer, you would be bor-rndby sevencontractsto sell your guitar. Becauseinitial
advertisements are treatedasinvitationsto make offersratherthan offers,however,you wili
have sevenoffersto choosefrom, and you can acceptthe best one withor,rtincurring any
l i a b i l i tyfo r th e s i xyou rej ect.E
Although most advertisementsand the like are treatedas invitations to negotiate,this
does not mean that an advertisementcan never be an offer. On some occasions,courts
have construedadvertisements to be offersbecausethe ads contained definite terms that
invited acceptance(such as an ad offering a rewardfor the return ofa lost dog).
The plaintiff in the following casearguedthat an ad on a Web site constitutedan offer,
which l-reaccepted.

1 . Ha wkin sv. M cce e ,84 N .H . 114,146A . 611 (1929).

2. Restatement (Second) of Contracfs,Section26, Commentb.

UnitedStatesDistrictCourt,WesternDistrictof New Yorh - F.Supp.2d

-(2Oo7).

ANDFACTS daily fnternetnews service,and publishesScience,a scholarly

BACKGROUND
L*ffi"""f TheAmerican for
Association journal.An ad on the ScienceNOWWebsiteasksfor "news
the Advancementof Science(AAAS)maintainsScienceNOW a for its
tips" and statesthat eachtip will be investigated
 255EIE@
ACREEMENT

9 .2 - Cont inued
CASE

suitabilityas an item for ScienceNOWor an articlefor Science.
In responseto the ad, ErikTrell,a professorand physician,
submitteda manuscriptin which he claimedto havesolveda
famousmathematicalproblem,popularlyknown as Beal's
Conjecture.AAASdecidedthat Trell'smanuscriptcontained
neithernews nor a solutionto Beal'sConjectureand declined
to publishit. Trellfiled a suit in a federaldistrictcourt against
AAASand others,alleging,amongother things,breachof
contract.Trellasserted,in part,that the ScienceNOWad
was an offer,which he acceptedwith his submissionof a
manuscript.The defendantsfiled a motion to dismissthis
claim.

lN THE WORDS 0F THE COURT . . . JzHNr. ELFvtN,D.J.[DistrictJudge]

****
* * * Resolutionof this issuerequiresconsiderationof principles of contract law that
are not limited to the law of any one state * * x [and] implicate questionsof contract
law deeply ingrained in the common law of England and the Statesof the Union. It is
upon theseprinciplesthat the Court will examinethis issue.
With respectto the formation of a contract,the Court finds that the relevantfactsare
contained in paragraphs26 through 28 of fTreli's] Amended Complaint. In those
(&\AS
paragraphs,plaintiff allegesthat providesa daily news service,ScienceNOW, as
one of its Wbb products," that "in one of its Internet fadvertisements]for fnews]
tips," Science NOW indicated that "its news team would investigateany tip submitted
that was suitable for an item in Science NOW and that the same might even lead to
a storyin ihe prini versionof defendantAMS's Science magazine"and that in response
to this advertisement, "plaintiff submitted his manuscript to defendant Science
NOW entitled 'Reproving Fermat'sLast Theorem: also confirming Beal's and related
conjectures."'
Having reviewed the Amended Complaint, the Court finds that, upon the facts as
alleged in the Amended Complaint, this claim must be dismissedbecauseno contract
was formed. Quite simply, the Court finds that the advertisementfor "news tips" on the
Science NOW Web site cannot be construedas an offer * 'r' {' Statementsthat urge
members of the general public to take some action in responsethereto, as is clearly
depicted in the Amended Complaint herein, are commonly characterizedas advertise-
ments. Adyertisementsare not offers-they invite offers. Likewise, responsesto advertise-
ments are not acceptances-they are offers.At best, it was Trell's submission of the
manuscriptthat was the offer, which Trell clearly admits defendantsdeclined to accept.
This is the controllinglaw. The Court finds no distinctionrequiringa differentanalysisor
result merelybecausethe advertisement was soliciting ideas(i.e., "newstips") rather than
goods,or becauseit was communicatedoverthe Intemet as opposedto through television,
radio or newspaperadvertisement[Emphasisadded.]
There is a very narrow and limited exceptionto this rule, bui it is rarely applied and
only in exceptional circumstanceswhere the advertisementclearly communicatesan
offer that is definite, explicit and leavesnothing open for negotiation.There is nothing
alleged in the Amended Complaint which could reasonablybe construedto apply this
exception.

rtrecourt
ANDREMEDY
DECISI0N the
sranted AtNA t Y S I S - T e c h n o l o g i ca l
F 0 RCRI T I CA
defendants'motion and dismissedthe plaintiffscomplaint. thecourthovemadean
Consideration shoutd
ScienceNOW'sad for "news tips" was not an offer,but an exception to the rule opplied in this cqsebecouse the od wos
invitationfor offers. posted on the Internet? Why or why not?

@

A $27 million Horrier fighter iet thot
wos offered as o prize in PePsiCo's
"Drink Pepsi-Get Stuff" od compoign'
Although the iet was o fanciful iest to
PepsiCo, one consumer took the offer
seriouslyond attempted to fulfill the
terms of the prize. ls PepsiCo's "offer"
of the jet enforceoble? (Paul Friel/
CreativeCommons)
price
Price Lists Price listsare anotherform of invitation to negotiateor trade'A seller's
buyer to offer to buy at that
list is not an offer to sell at that price; it merely invites the
"prices subiectto change"_on the price list. Only in
price. In fact, the seller usually puts
rare circumstanceswill a price quotation be construedas an offer.
and
Should promisesof prizesmdde in adsond circulors olways be enforced?Businesses
other organizations commonly promote their products or services by offering prizes,rewards,
and the lik" fo, the performanceof specificactions.Ordinarily, theseadsfor prizespresentfew
problems.At times,though, people perform whatever is necessary to win an advertisedprize
only to learnthat the offer was made in jest-that is, the ad's sPonsor had no realintentionof
givinganyonethe prize.
For example, Pepsico launched an ad campaign that said consumers
iorlJ use "Pepsi Points"-which could be found on specially marked packages of Pepsior Pur-
chasedfor ten cents each-to obtain T-shirts and other merchandise with the Pepsi logo.One
of the adsfeatureda Harrier fighter jet, which was listed at 7 million Pepsi Points. When a con-
sumer,JohnLeonard,raised$700,000, purchased 7 million PepsiPoints, and laid claim to the
prize,however,PepsiCocontended that the Harrier jet in the commercial was "fanciful" and
that the offerwas made in jest'
In the lawsuitthat followed,the court agreed,statingthat "no objectivepersoncould rea-
jetl'5 Yet
sonablyhave concludedthat the commercialactuallyofferedconsumersa Harrier
Leonardobviouslydid draw that conclusion,and in a numberof other cases,individualshave
undertakenseriouseffortsto win nonexistent prizes.Someclaimthat not enforcingsuchprom-
isesis unfairto individuals who rely on the promiset as JohnLeonarddid in this case'
H
is
Auctions In an auction, a seller "offers" goodsfor sale through an auctioneer,but this
not an offer to form a contract. Rather, it is an invitation askingbidders to submit offers.In
the context of an auction, a bidder is the offeror, and the auctioneer is the offeree'The offer
is acceptedwhen the auctioneer strikesthe hammer. Before the fall of the hammer, a bid-
d", ,n"y revoke(takeback) her or his bid, or the auctioneermay rejectthat bid or all bids'
Typicaily, an auctioneerwill reject a bid that is below the price the seller is willing to accept'
-
When the auctioneeracceptsa higher bid, he or she reiectsall previousbids. Because
rejection terminatesan offer (aswill be discussedlater), thosebids representoffersthat have
been terminated. Thus, if the highest bidder withdraws his or her bid before the hammer
fa1ls,none of the previousbids is ieinstated. If the bid is not withdrawn or reiected,the con-
traci is formed ,"her'tthe auctioneerannounces'"Going once,goinghvice,sold!" (or some-
thing similar) and leh the hammer fall.
Tiaditionally, auctionshave been either "with reserve"or
"without reserve."In an auction with reserve,the seller
(through the auctioneer)may withdraw the goodsat any time
beforelhe auctioneerclosesthe saleby announcementor by
the fall of the hammer. All auctions are assumedto be auc-
tions with reseryeunlessthe terms of the auction are explic-
itly statedtobe without reserve.Inan auction without reserve'
the goodscannot be withdrawn by the sellerand must be sold
to the highestbidder. In auctionswith reserve,the seller may
reservethe right to confirm or reject the sale even after "the
hammer hasfallen." In this situation,the selleris obligatedto
3. Leonardv.P epsi C88 . affd 210F 3d 88 (2d
o, F.S upp2d 116(S .D .N .Y1999);
Cir. 2000).
 257@@
ACREEMENT

In on oudion, such os this one in

Boonville, Missouri, is the porty
selling the goods the "offeror" for
purposes of contract lovti Why or
why no2 (AP Photo/l. C. Patterson)

notifi, those attending the auction that salesof goods made during the auction are not
final until confirmedby the seller.a

Agreementsto Agree Tiaditionally,agreementsto agree-that is, agreementsto agreeto

the material terms of a contractat some future date-were not consideredto be binding
contracts.The modernview,however,is that agreements to agreemay be enforceableagree-
In other
ments(contracts)if it is clearthat the partiesintend to be bound by the agreements.
words,under the modern view the emphasisis on the parties'intent ratherthan on form.
lrExAMnErsl Nter a patron was injured and nearlydrownedon a water ride at Six
FlagsAmusement Park, Six Flags,Inc., filed a lawsuit againstthe manufacturerthat had
designedthe ride. The defendantmanufacturerclaimed that there was no binding con-
tract betweenthe parties,only preliminary negotiationsthat were never formalized into a
contractto constructthe ride. The court, however,held that a faxeddocument specifying
the details of the water ride, along with the parties'subsequentactions (beginning con-
strr-rctionand handwriting noteson the fax),wassufficientto showan intent to be bound.
Becauseof the court'sfinding, the manufacturerwasrequiredto provideinsurancefor the
water ride at Six Flags,and its insurer was required to defend Six Flags in the personal-
injury lawsuitthat aroseout of the incident.5B
Increasingly,the courtsare holding that a preliminary agreementconstitutesa binding
contract if ihe partieshave agreedon all essentialterms and no disputedissuesremain to
be resolved.6In contrast,if the partiesagreeon certain major terms but leaveother terms
open for further negotiation,a preliminary agreementis binding only in the sensethat the
partieshave committed themselvesto negotiatethe undecided terms in good faith in an
effort to reacha final agreement.-

4. Theserulesapplyunder both the common law of contractsand the Uniform CommercialCode,or UCC. See
ucc 2-328.
lnsurdnceCo., 471 F.Supp.2d201 (D.Mas. 2007).
5. SixFlags,Inc. v. Steadfast
6. See,for example,Tractebel EnergyMarketing,lnc.v. AEPPowerMarketing,lnc.,487F.ld 89 (2d Cir. 2007);and
FluorineOn CaIl, Ltd. t. FluorogasLimited,No.01-CV-186(W.D.Tex.2002),contractissueaffirmedon appealat
380F.ld 849 (5th Cir. 200'1).
7 See,for example,MBH, Inc. t lohn Otte Oil & Propane,lnc.,727 N.W.2d 238 (Neb.App.2007);and Barrandr.
Whataburger, Inc., 211 S.W 3d I 22 (Gx.App.- CorpusChristi 2006).
258IINIIUil
CONTRACTS

To avoid potential legal disputes,be cautiouswhen draftinga memorandum

outlininga preliminaryagreementor understanding with anotherparty.lf all the
major terms are included,a court might hold that the agreementis binding even
though it was intendedto be only a tentativeagreement.One approachto avoid
beingboundto the termsof a preliminaryagreementis to includein the writing
not only the points on which the partiesagree,but also all of the points of
disagreement. Alternatively,a party might add a note or disclaimerto the
memorandumstatingthat, althoughthe partiesanticipateenteringa contractin
the future, neither party intendsto be legallybound to the terms that were
discussed.Thatway,the other party cannotclaim that an agreementhas already
been reachedon all essentialterms.
lr.l
In the following case,the disputewasoveran agreementto settlea caseduring a trial. One
party claimed that t1reagreementformed via e-mail wasbinding, and the other party claimed
it was merely an agreementto agreeor to work out the terms of a settlementin the future.
Can an exchangeof e-mailscreatea completeand unambiguousagreement?

AppeafsCourt of Massachusetts, N.E.2d952 (2008).

71 Ma_ss.App.Ct.29,878
@o

ANDFACTS enteredinto stock-purchase
BACKGROUND
BasisTechnologyCorporation
createdsoftwareand providedtechnicalservicesfor
Amazon.com, Incls,Japanese-languageWebsite.The
agreement between the two companiesallowedfor separately
negotiated€ontracts additionalservicesthat Basismight
for
provideto Amazon.At the end of 1999,Basisand Amazon
a. In the searchbox on the right,enter "71 Mass.App.Ct.
29," and clickon
"Searchi'On the resultingpage,clickon the casename.
agreements.Later,Amazon
objectedto certainactionsrelatedto the securitiesthat Basis
sold.BasissuedAmazonfor variousclaimsinvolvingthese
securitiesand for failingto pay for servicesperformedby Basis
that were not includedin the originalagreement. Duringthe
trial,the two partiesappearedto reachan agreementto settle
out of courtvia a seriesof e-mailexchangesoutliningthe
settlement.WhenAmazonreneged,Basisserveda motion to
enforcethe proposedsettlement.The trial judge entered
judgmentagainstAmazon,which appealed.

0F THEC0URT
lN THEWORDS J.pudgel
. . . stKoRA,

; ; ; ;" the evening of March 27, afterthe third day of evidence and after settlement
discussions, Basis counsel sent an e-rnail with the following text to Amazon counsel:

fAmazon counsel]-This e-mail confirms the essentialbusinessterms of the settlement

betweenour respectiveclients * * *. Basisand Amazon agreethat they promptly will take
all reasonabiestepsio memorialize in a written agreement,to be signed by individuals
authorizedby each party,the terms set forth below, as well as such other terms that are rea-
to make theseterms effective.
:":":tt_".:.*ary

fAmazon counsel], pleasecontact me first thing tomorrow morning if this e-maii does not
accuratelysummarizethe settlementterms reachedearlier this evening.
Seeyou tomorrow morning when we report this matter settledto the Court.

At7:26 A.M. on March 24, Amazon counsel sent an e-mail with a one-word reply:
"correct." Later in the morning, in open court and on the record, both counsel reported
the result of a settlement without specification of the terms.
 259GI@
ACREEMENT

C ASE
9. 5- Cont inued

On March 25, An'razon'scounselsenta facsimileof the first draft of a settlementagree-

ment to Basis'scounsel.The draft comported with all the terms of the e-mail exchange,
implementing and boilerplate fstandardcontract provisionslterms.
""1T*1r"me

[Within a few days,though,] the partieswere deadlocked.On April 21, Basisservedits

motion to enforce the settlementagreement.Amazon opposed.* {< *( The motion and
oppositionpresentedthe issr,res
whether the e-mail terms were sufficientlycomplete and
O.Ufrj"_a*rm an agreementand whether Amazon had intended to be bound by them.

We examinethe text of the terms for the incompletenessand indefinitenesschargedby

Amazon. Proyisionsare not ambiguoussimply becausethe partieshavedevelopeddifferent
intfft:t:ons of them. IEmphasisadded.]

We must interpret the document as a whole. In the prefaceto the enumeratedterms,

Basiscounsel statedthat the "e-mail confirms the essentialbusinessterms of the settle-
ment behveenour respectiveclients,"and that the parties"agreethat they promptly will
take all reasonablesteps to memorialize" those terms. Amazon counsel concisely
responded,"correct."Thus the "essentialbusinessterms" were resolved.The partieswere
pr"_""fdj"g to "memorialize" or record the settlementterms, not to createthem.

To ascertainintent, a court considersthe words used by the parties,the agreement

taken as a whole, and surroundingfactsand circumstances.The essentialcircumstance
of this disputedagreementis that it concluded a trial.
* * * As the trial judge explained in her memorandum of decision, she
"terminated" the trial; she did not suspendit for exploratorynegotiations.She did so in
relianceupon the parties'report of an accomplishedagreementfor the settlementof their
disoute.
xxx x
In sum, the deliberateness and the gravityattributableto a report of a settlement,espe-
cially during the progressof a trial, weigh heavilyas circumstantialevidenceof the inten-
tion of a party such as Amazon to be bound by its communication to ihe opposingparty
and to the court.

rneAppeals
ANDREMEDY
DECISI0N courtof IF THEFACTS
W HAT W ERE
DIFFEREN T ?
Massachusetts affirmedthe trial court'sfindingthat Amazon Assumethot the qttorneysfor both sideshad simply
intendedto be bound by the termsof the March23 e-mail. hod o phone conversationthat included oll of the terms to
Thate-mailconstituteda completeand unambiguousstatement which they actually agreed in their e-mail exchonges. Would
of the parties'desireto be bound by the settlementterms. the court have ruled differently? Why or why not?

Deifn it enes s
The secondrequirement for an effectiveoffer involvesthe definitenessof its terms. An
offer must have reasonablydefinite terms so that a court can determine if a breach has
occurred and give an appropriateremedy.6
An offer may invite an acceptanceto be worded in such specifictermsthat the contract
is made definite.kExnmFiEesl Marcus BusinessMachines contactsyour corporationand

8. Restatentent(Second)of Contracfs,Section 33. The UCC has relaxedthe requirementsregardingthe definiteness

ofterms in contractsfor the saleofgoods.SeeUCC 2-204(3).
260
IM
CONTRACTS

offersto seil "from one to ten MacCool copying machinesfor $1,600each; statenumber
desiredin acceptance."Your corporationagreesto buy hvo copiers.Becausethe quantity
Toviewthe termsof a is specifiedin the acceptance,the terms are definite,and the contractis enforceable.El
go to the
samplecontract,
"forms" pagesof the 'LectricLaw
Library
at C o m m u n i ca tio n
and selectone of the types of
A third requirementfor an effectiveofTeris communication-the offer must be commu-
contractslisted there to review
nicatedto the offeree lgExnMpTE r.il Tolsonadvertises a rewardfor the return of her lost
cat. Dirlik, not knowing of tl-rereward, finds the cat and returns it to Toison. Ordinarily,
Dirlik cannot recoverthe reward because an essential element of a rewardcontractis that
the one who claims the reward must have known it was offered.A few stateswould allow
recovery of the reward, but not on contract principles-Dirlik would be allowed to
recoveron the basis that it would be unfair to deny him the reward just becausehe did
not know about E it.

The communication of an effectiveoffer to an offereegivesthe offereethe powerto trans-

form the offer into a binding, legal obligation (a contract)by an acceptance.This power
of acceptancedoes not continue forever,though. It can be termir-rated by action of the
partiesor by operationof law.

o f th ePa r tie s
T e r m i n a t iboynActio n
An offer can be terminatedby the action of the partiesin any of three ways:by revocation,
by rejection, or by counteroffer.

Revocation of the Offer The offeror's act of withdrawing an offer is referred to as

REVOCATION
In contractlaw the withdrawalof an
offer bv an offeror,Unlessthe offer is
inevocible,it can be revokedat any
time prior to acceptancewithout
liability.
revocation.Unlessan offer is irrevocable,the offeror usuallycan revokethe offer (even if
he or shehaspromisedto keep the offer open), aslong asthe revocationis communicated
to the offereebefore the offereeaccepts.Revocationmay be accomplishedby an express
repudiation of the offer (for example,with a statementsuch as "l withdraw my previous
offer of October 17"'1orby the performanceof acisthat are inconsistentwith the existence
of the offer and that are made known to the offeree.
IEExAMpLE e.sl Ceraldineoffersto sell someland to Gary.A weekpasses. and Cary, who
has not yet acceptedthe offer, learnsfrom his friend Konstantinethat in the meantime
Geraldinehassold the propertyto Nunan. Gary'sknowledgeof Geraldine'ssaleof the land
to Nunan, eventhough he learnedof it through a third party,effectivelyrevokesGeraldine's
offer to sell the land to Gary. Geraldine'ssaleof the land to Nunan is inconsistentwith the
continued existenceof the offer to Gary, and thus the offer to Gary is revoked. Ei
The generalrule followed by most statesis that a revocationbecomeseffectivewhen
the offereeor the offeree'sagent (a personwho actson behalf of another)actuallyreceives
it. Therefore, a letter of revocationmailed on April I and deliveredat the offeree'sresi-
dence or place of businesson April 3 becomeseffectiveon April 3.
An offer made to the generalpublic can be revokedin the samemanner in which the
offer was originally comn'iunicated.lfixAMFLEe.tl A department store offers a $10,000
reward to anyone providing information leading to the apprehensionof the personswho
burglarized its downtown store.The offer is published in three iocal papersand in four
papersin neighboringcommunities.To revokethe offer, the storemust publish the revo-
cation in all sevenpapersfor the samenumber of daysit published the offer.The revoca-
tion is then accessibleto the general public, and the offer is revoked even if some
oarticular offereedoesnot know about the revocation.E
 26rEInE@
ACREEMENT

Irrevocable Offers Nthough most offers are revocable,some can be made irrevocable.
Increasingly,courtsrefuseto allow an offeror to revokean offer when the offereehaschanged
position becauseof justifiablereliance on the offer (under the doctrine of detrimental
reliance,or promissoryestoppel,which will be discussedin Chapter l0). In,some circum-
stances,"firm offers"madeby merchantsmay alsobe consideredirrevocable. We will discuss
theseoffersin Chapter lB.
Another form of irrevocableoffer is an option contract.An option contract is created OPNONCONTRACT
when an offerorpromisesto hold an offer open for a specifiedperiod of time in return for A contractunderwhichthe offeror
cannotrevokethe offerfor a
a payment (consideration)given by the offeree.An option contracttakesawaythe offeror's stipulatedtime period.Duringthis
power to revokean offer for the period of time specifiedin the option. If no time is spec- period,the offere canacceptor
ified,then a reasonable periodof time is implied. ITEXAMTIE erol Supposethat you are in rejectthe offer without fear that the
offerwill be madeto another
the businessof writing movie scripts.Your agentcontactsthe head of developmentat New person.The offereemust give
Line Cinema and offersto sell New Line your new movie script. New Line likes your consideration for the option(the
scriptand agreesto pay you $25,000for a six-monthoption. In this situation,you (through irrevocableoffer) to be enforceable.
your agent)are the offeror,and New Line is the offeree.You cannot revokeyour offer to
sell New Line your scriptfor the next six months.After six months, if no contracthasbeen
formed, New Line losesthe $25,000,and you are free to sell your script to another movie
studio. E
Option contractsare also frequently used in conjunction with the sale of real estate.
FEXAMpiEll tl You agreewith a landownerto leasea houseand include in the leasecon-
tract a clause stating that you will pay $15,000 for an option to purchasethe property
within a specifiedperiod of time. If you decide not to purchasethe home after the speci-
fied period has lapsed,you lose the $15,000,and the iandlord is free to sell the property
to another buyer. []

Rejection of the Offer by the Offeree If the offereerejectsthe offer, the offer is termi-
nated.Any subsequentattempt by the offereeto acceptwill be construedas a new offer,
giving the original offeror (now the offeree)the power of acceptance.A reiection is ordi-
narily accomplishedby words or by conduct indicating an intent not to acceptthe offer.

A billboard offers o reward for the

capture of the killer of this woman's
husbond. How con this offer be
revoked?(AP Photo/DenisPoroy)

j
262IWiIilE
CONTRACTS
Flf#ffiIl rhe way in which a
responseto an offeris Phrasedcan
determinewhetherthe offeris
acceptedor rejected.
COUNTEROFFER
An offeree'sresponseto an offerin
whichthe offereerejectsthe original '
offerand at the sametime makesa
new offer.
MIRROR IMAGFRUIE
A commonlaw rulethat requires
that the terms of the offeree's
acceptance adhereexactlyto the
terms of the offeror'soffer for a
validcontractto be formed.
Foranswersto some
commonquestionsabout
contractlaw, go to-the Web site of the
LegalInformationNetrruor(Inc.,at
As with a revocation,a rejection of an offer is effectiveonly when it is actually receivedby
the offeroror the offeror'sagent.InExAMpLET.lrl GrowgoodFarmsmailsa letterto Campbell
Soup Company offering to sell carrotsat ten cents a pound. (Of course,today,such offers
tend to be-sent electronicallyrather than by mail, as will be discussedin Chapter l7')
Campbell Soup Company could reject the offer either by sendingor faxing a letter to
GrowgoodFar*s expresslyrefecting the offer or by mailing the offer back to Growgood,indi-
cating"an intent to rejeci it. Alternatively,Campbell could offer to b_uythe carrotsat eight
cents'perpound (a counteroffer),necessarily reiectingthe originaloffer' E
Merely inquiring about an offer doesnot constitutereiection. lrEXAMPLE rls"l A friend
offersto buy yo.rr DVD movie collection for $100.You respond,"ls this your best of{er?"
or "Will you pay me $375 for it?" A reasonablepersonwould conclude that you did not
reject the offer but merely made an inquiry for further considerationof the offer.You can
still accept and bind yor-rrfriend to the $300 purchaseprice. When the offeree merely
inquiresasto the firmnessof the offer,there is no reasonto presumethat sheor he intends
to rejectit. E
Counteroffer by the Offeree A counteroffer is a rejection of the original offer and the
simultaneousmaking of a new offer. lEEx[rvtpl-?gJa I Burke o{fersto sell his home to Lang
for $270,000.Lang responds,"Your price is too high. I'll offer to purchaseyour housefor
$250,000."Lang'sresponseis called a counterofferbecauseit rejectsBurke'soffer to seli ai
$270,000and createsa new offerby Lang to purchasethe home at a price of$250,000.E
At common law, the mirror image rule requiresthat the offeree'sacceptancematch
the offeror'soffer exactly.In other words,the terms of the acceptancemust "mirror" those
of the offer.If the acceptancemateriallychangesor addsto the terms of the original offer,
it will be considerednot an acceptancebut a counteroffer-which, of course,need not
be accepted.The original offeror can, however,acceptthe terms of the counterofferand
createa valid contract.Y
of Law
by0peration
Termination
The offeree'spower to transform an offer into a binding, legal obligation can be termi-
d by operationof law if any of four conditionsoccur: lapseof time, destructionof the
,p.iFt. subject matter, death or incompetenceof the offeror or offeree,or superuenlng
iilegality of the proposedcontract.
Lapse of Time An offer terminatesautomaticallyby law when the period of time specified
in the offer has passed.If the offer statesthat it will be left open until a particular date, then
the offer will terminate at midnight on that day.If the offer statesthat it will be left open for
a number of days,such asten days,this time period normally beginsto run when the offer is
actually receivedby the offeree,not when it is formed or sent. When the offer is delayed
(through the misdeliveryof mail, for example),the period begins to run from the date the
offeree would have received the offer, but only if the offeree knows or should know that
the offer is delayed.lo
I-ExAMFLE e.rsl Supposethat Beth offersto sell her boat to fonah, statingthat the offer
will remain open until May 20. UnlessJonah acceptsthe offer by midnight on May 20,
the offer will lapse(terminate).Now supposethat Beth writesa letter to Jonah,offeringto
9. The mirror imagerule hasbeengreatlymodifiedin regardto salescontracts.Section2-207 ofthe UCC provides
ofacceptance(suchassigningthe form in the
that a contractis formedifthe offereemakesa definiteexpression
appropriate modifyor add to the termsofthe originaloffer (see
location),eventhoughthe termsofthe acceptance
Ch a p le rI 8 \.
10. Restatement(Second)of Contracts,Section49.
 26IEI@
AGREEMENT

sell him her boat if jonah acceptsthe offer within hventy daysof the letter'sdate,which
is May l. ]onah must acceptwithin twenty daysafter May I, or the offer will terminate.
Supposethat insteadof including the dateMay I in her letter, Beth had simply written to
Jonahoffering to sell him her boat if Jonahaccepiedwithin twenty days.In this instance,
fonah must acceptwithin twenty daysof receivingthe letter. The samerule would apply
if Beth r-rsedinsufficientpostageand ]onah receivedthe letter ten dayslate without know-
ing that it had been delayed.If, however,Jonahknew that the letter wasdelayed,the offer
would lapsehventydaysafterthe day he ordinarilywould havereceivedthe offer had Beth
usedsufficientpostage.El
If the offer doesnot specif, a time for acceptance,the offer terminatesat the end of a
redsonable period of time. A reasonableperiod of time is determinedby ihe subjectmatter
of the contract,businessand marketconditions,and other relevantcircumstances. An offer
to sellfarm produce,for example,will terminatesoonerthan an offerto sellfarm equipment
becausefarm produce is perishableand subjectto greaterfluctuationsin marketvalue.

Destruction of the Subiect Matter An offer is automaticallyterminatedif the specific

subjectmatter of the offer is destroyedbeforethe offer is accepted.For example,if Bekins
offersto sell his prize cow to Yatsen,but the cow is struck by lightning and dies before
Yatsencan accept,the offer is automaticallyierminated.(Note that if Yatsenacceptedthe
offer just before lightning struck the cow, a contract would have been formed, but,
becauseof the cow'sdeath,a court would likely excuseBekins'sobligation to perform the
contracton the basisof impossibiiityof performance-seeChapter 14.)

Death or Incompetence of the Offeror or Offeree An offeree'spower of acceptanceis

terminatedwhen the offeror or offereedies or is deprived of iegal capacityto enter into
the proposedcontract,unlessthe offeris irrevocable.llA revocableoffer is personalto both
partiesand normally cannot passto a decedent'sheirs or estateor to the guardian of a
mentally incompetent person.This rule applieswhether or not one party had notice of
the death or incomoetenceof the other ps1y. lrrxntvtrl-FrteI Kapola.who is quite ill.
writesto her friend Amanda, offeringto sell Amanda her grand piano for only $400.That
night, Kapola dies.Tl-renext day,Amanda, not knowing of Kapola'sdeath, writesa letter
to Kapola, acceptingthe offer and enclosinga check for $400. Is there a contract?No.
There is no contract becausethe offer automaticallyterminatedon Kapola'sdeath. E

SuperveningIllegality of the ProposedContract A statuteor court decisionthat makes

an offer illegal automatically terminates the offer. FEXAMFIE e.fl Acme Finance
Corporation offersto lend Jack $20,000at l5 percent interestannually,but before )ack
can accept,the statelegislatureenactsa statuteprohibiting loans at interestratesgreater
than I2 percent. In this situation,the offer is automaticallyterminated.(If the statuteis
enactedafter Jackacceptsthe offer, a valid contract is formed, but the contract may still
be unenforceable-seeChapter I l. ) E

An acceptanceis a voluntary act by the offereethat showsassent,or agreement,to the AC€EPTANCE

terms of an offer.The offeree'sact may consistof wordsor conduct. The acceptancemust A voluntaryact by the offereethat
showsassent,or agreement, to the
be unecuivocaland must be communicatedto the offeror. terms of an offer; may consistof
wordsor conduct.

ll. Restatement(Second)of Contracts,Section48. If the offer is irrevocable,it is not terminatedwhen the

offeror dies.
264TNNM
CONTRACTS

Acceptance
Unequivocal
To exercisethe power of acceptanceeffectiveiy,the offeree n'rustaccept unequivocalll'.
This is theminor imagerule previouslydiscussed. If tl-reacceptanceis subject to new con-
of
ditions or if the terr-r-rs the acceptance materially changetl-reoriginal offer, the accep-
tance may be cleemed a counteroffer that implicitly rejectsthe original offer.
EE[IEEGtrf whenanofferis Certain terms, when aclded to an acceptance, will not qualif, the acceptancesuffi-
rejected,it is terminated. ciently to constituterejection of the offer. l*ExAM+ll ,l8l Supposetl-ratin responseto an
art dealer'soffer to sell a painting by a well-known artist, the offeree replies,"l accePt;
pleasesenda written contract."Tlie offereeis requestir-rg a written--contract but is not rnak-
ing it a condition for acceptar-rce. Therefore, the acceptance is effective u'ithout the writ-
ten contract.In contrast, if the offeree replies, "l accept lf you send a written contract," the
acceptanceis expressly conditioned on the request for a writing, ar-rdthe statemer-rtis not
an acceptanc.blt, counteroffer. (Notice how in-rportant each worcl isl)12E

S i l e n caesAcce p ta n ce
"By your
Ordinarily, silence cannot constitute acceptance,even if the offeror states,
silence and inaction, you will be cleemedto have acceptedthis offer." This general rule
appliesbecause,rr o*.r". should not be put under a burden of liabiliq' to act affirma-
tiveli,in orderto rejectan offer.No considlration-that is, nothing of value-has passed
to the offereeto impose such a liability.
In some instances,however,the offeree does have a duty to speak;if so, his or her
silenceor inactionwill operateasan acceptance. Silencen-raybe an acceptance when an
offereetakesthe benefit of offeredserviceseven though he or she had an opportunity to
reject them and knew that they were offered with the expectation of cornpensation.
washing store wtn-
IffiExAMP-LEr:TrlJohn, a college student who earns extra income by
ao*r. i"or on tl-rewinclowof a storeand catchesthe attention of the store'smanager.)ohn
poinh to the windorvand raiseshis cleaner,signalingthat he wili be washingthe windou''
doesnotl'ringto stop him. Here, the storemanager's_silence
Th. ,-r-r^r.rg.r constitutesan
acceptance,and an implied-in-factcontractis cleated.The storeis bor-rndto pay a reason-
a b l ev a l u efo r John' sr' rork.E

t-,"d it, f*t*" 9, in regard to salescontracts, the UCC provides that an acceptance may still be effective
urless both
"ir
evcn ifsome terms are added. The new tenns are simpll'treatecl as proposals for additions to the contract,
are merchants, the additioral terms (rvith some exceptions) becomc part of thc
parties are merchants. If the parties
contract IUCC 2 207(2)1.

Thisphoto shows a letterfrom o

DVD club that wos sent to o club
member. lf the iecipient (offeree)
does nothing, has he or she
occepted the offer7 WhYor whY not?

-Hf*-#nLlf-N-- fdq+B' -{

j,i;'
***,X,n-sE'#li,
r*4_qdr.ti*.!.

h*. ** it*t :#ad r?'t

lr*lr++"1*rk g{, l+r-, ;ir*
 265G![Em
ACREEMENT
!

Silencecan alsooperateasan acceptancewhen the offereehashad prior dealingswith !

the offeror.If a merchant,for example,routinely receivesshipmentsfrom a supplier and i
ll
in the pasthasalwaysnotified the supplierwhen defectivegoodsare rejected,then silence I

constitutesacceptance.Also, if a buyer solicitsan offer specifuingthat certain terms and

conditions are acceptable,and the seller makesthe offer in responseto the solicitation,
the buyer has a duty to reject-that is, a duty to tell the sellerthat the offer is not accept-
able.Failureto reject(silence)will operateas an acceptance.

C omm unic atofioAnr c e p t a n c e

Whether the offeror must be notified of the acceptancedependson the nature of the con- fil:Ifil':ffli!'llifl A bilateral contract ;s
tract. In a bilateral contract,communication of accepianceis necessarybecauseaccept- a promisefor a promise,and a
unilateralcontractis performance
ance is in the form of a promise (not performance),and the contract is formed when the for a oromise.
promiseis made (ratherthan when the act is performed).Communication of acceptance
is not necessary, however,if the offer dispenses with the requirement.Also, if the offer can
be acceptedby silence,no communication is necessary.
Becausea unilateral contract calls for the full Derformanceof some act. acceDtanceis
usuallyevident.and notificationis unnecessary. Nevertheless. exceptionsdo exist,suchas
when the offeror requestsnotice of acceptanceor has no way of determiningwhether the
requestedact hasbeen performed.In addition,sometimesthe law (such asArticle 2 of the
UCC) requiresnotice of acceptance,and thus notice is necessary.

M odeandT im el i n eosfsA c r e p t a n c e
Acceptancein bilateral contractsmust be timely. The generalrule is that acceptancein
a bilateral contract is timely if it is made before the ofTeris terminated. Problems may
arise,though, when the partiesinvolved are not dealing face to face. In such situations,
the offereeshould use an authorizedmode of communication.

The Mailbox Rule Acceptancetakeseffect,thus completing formation of the contract,

at the tir-nethe offeree sendsor deliversthe communication via the mode expresslyor
impliedly authorized by the offeror. This is the so-calledmailbox rule, also called the MAITBOX RUIE
depositedacceptancerule, which the majority of courts uphold. Under this rule, if the A rule providingthat an acceptance
of an offer becomeseffectiveon
authorizedmode of communication is the mail, then an acceptancebecomesvalid when dispatch(on beingplacedin an
it is dispatched(placedin the control of the U.S. PostalService)-not when it is received officialmailbox),if mail is,expressly
by the offeror.The mailbox rule wasformed to preventthe confusionthat ariseswhen an or impliedly,an authorizedmeansof
communication of acceptance to the
ofleror sendsa ]etterofrevocation but, beforeit arrives,the offereesendsa letter ofaccep- offeror.
tance. Thus, whereasa revocation becomes effective only when rI is receiyedby the
offeree, an acceptancebecomes effective on dispatch (when sent, even if it is never
received),provided that an authorizedmeansof communication is used.
The mailbox rule does not apply to instantaneousforms of commr-rnication,such as
when the parties are dealing face to face, by telephone, or by fax. There is still some
uncertainty in the courts as to whether e-mail should be consideredan instantaneous
form of communication to which the mailbox rule does not apply. If the parties have
agreedto conduct transactionselectronicallyand if the Uniform Electronic Transactions
Act (UETA-to be discussed in Chapter l7) applies,then e-mailis consideredsentwhen
it either leavesthe sender'scontrol or is receivedby the recipient.This rule takesthe place
of the mailbox rule when the UETA appliesbut essentiallyallows an e-mail acceptance
to becomeeffectivewhen sent (asit would if sentby U.S. mail).

Authorized Means of Acceptance A means of communicating acceptancecan be

expresslyauthorized-that is, expresslystipulatedin the offer-or impliedly authorizedby
266llNili!il
CONTRACTS

the factsand circumstancessurroundingthe situationor by law.13An acceptancesent by

meansnot expresslyor impliedly authoiized normally is not effectiver-rntilit is received
by the offeror.
When an offeror specifieshow acceptanceshould be made (for example,by overnight
delivery),expressauthorizationis said to exist,and the contract is not formed unlessthe
offeree usesthat specifiedmode of acceptance.Moreover, both offeror and offereeare
bound in contracithe moment this means of acceptanceis employed lrExAMPLTTml
Shaylee& Perkins,a Massachusetts firm, offersto sell a container of antique furniture to
Leri,"*'s Antiques in Colorado. The offer statesthat Leaham'smust acceptthe offer via
FedEx overnighi delivery.The acceptance is effective(and a binding contract is formed)
the moment tlat Leaham's givesthe overnight envelopecontaining the acceptanceto the
f,edEx drrver.llj

When the Prefened Means of Acceptance Is Not Indicated.. Most offerors do not
expresslyspecifythe meansby which the offereeis io accept.When the offeror doesnot
specifi,e*ptesslythat the offereeis to acceptby a certain means,or that the acceptance
will be efflctive only when received,acceptanceof an offer may be made by any medium
lhal is reasonableunder the circumstances.\+
Whether a mode of acceptanceis reasonabledependson what would reasonablybe
expeciedby partiesin the position of the contracting parties.Courts look at prevailing
businessusagesand other surroundingcircumstancessuch asthe method of communica-
tion the partleshave used in the pasfand the meansthat were used to convey the offer'
The offeior'schoice of a particular means in making the offer implies that the offereeis
g:il
authorizedto use the sameor a fastermeansfor acceptance.IrE)<ltvtpLe Two parties
have been negotiatinga deal via fax, and then the offeror sendsa formal contractoffer by
priority mail ivithor-rtlpecifyingthe means of acceptance.In that situation,the offeree's
by priority mail or by fax is im.pliedlyauthorized' EI
"...pir,l..
When the Authorized Means of Acceptance Is Not (Jsed, An acceptance sent by
meansnot expresslyor impliedly authorizednormaliy is not effectiveuntil it is receivedby
the offeror. Frxn[4=hTE r.rZ Frank Cochran is interestedin buying a house from Ray
Nunez. Cochran faxesan offer to Nunez that clearly specifiesacceptanceby fax. Nunez
is going out of town for a few days,however,and doesn'thave accessto a fax machine'
Th"ereiore,Nunez sendshis acceptanceto Cochran via FedEx insteadof by fax. In this
situation, the acceptanceis not effective (and no contract is formed) until Cochran
receivesthe FedEr delivery. E The use of an alternativemethod does not render the
acceptanceineffectiveif thl substitutedmethod performsthe samefunction or servesthe
samepurposeas the authorizedmethod.

Exceptions The following are three basic exceptionsto the rule that a contract is
formed when an acceptanceis sent by authorizedmeans:

I If the offeree'sacceptanceis not properly dispatched,in most statesit will not be effec-
tive until it is receivedby the offeror.For example,if an e-mailedacceptancelists the
recipient'se-mail addressincorrectly,or if the acceptanceis faxed to the wrong tele-

13.Restatement(Second)of Contracts,Section 30, providesthat an offer invites acceptance"by any medium reason-
able in the circumstances," unlessthe offeris specificaboutthe meansofacceptance.Under Section65, a medium
is reasonableif it is one usedby the offeror or one customaryin similar transactions,unlessthe offereeknowsof cir-
cumstances that would argueagainstthe reasonableness ofa particularmedium (the needfor speedbecauseofrapid
price changes,foi example).
14. Restatement (second)ofcontracts, Section 30. This is alsothe rule under UCC 2-206(1)(a).
 267Emt
ACREEMENT

phone number, it will not be effectiveuntil receivedby the offeror.If U.S. mail is the
authorized meansfor acceptance,the offeree'sletter must be properly addressedand
have the correct postage.Nonetheless,if the acceptanceis timely sent and timely
received,despitethe offeree'scarelessness in sendingit, it may still be consideredto
h a vebeenef f ec t iv eo n d i s p u i c l r.l q
If the offer stipulateswhen acceptancewill be effective,then the offer will not be effec-
tive until the time specified.l'he offerorhasthe power to control the offer and can stip-
ulate both the means by which the offer is acceptedand tl-reprecise time that an
acceptancewill be effective.For example,an offer might statetl'ratacceptancewill not
be effectiveuntil it is receivedby the offeror, or it might make acceptanceeffective
hventy-fourhours after being shippedvia DHL deiivery.
Sometimes,an offereesendsa rejectionfirst,then later changeshis or her mind and
sendsan acceptance. Obviously,this chain ofeventscould causeconfusionand even
detrirrent to the offeror,dependingon whether the rejection or the acceptancearrived
first.In suchsituations, the law cancelsthe rule ofacceptanceon dispatch,and the first
communication receivedby the offerordetermineswhether a contractis formed. If the
re i e c t ionar r iv es[ ir s t .th e rei s n o c o n tra c t.]6

(Second)
15.Restatement of Contracfs,Section67
(Secondlof Contracfs,Section,10
16. Restatement

S h a n eD u rb i nw anted Did Amstel'sbid meet the requirements of an offer?

to havea recording
studiocustom-builtin
his home.He sent
invitationsto a
numberof localcontractors to submitbids on the project.
RoryAmstelsubmittedthe lowestbid,which was 920,000
lessthan any of the other bids Durbinreceived. Durbin
calledAmstelto ascertainthe type and qualityof the
materialsthat were includedin the bid and to find out if he
could substitutea superiorbrandof acoustictilesfor the
samebid price.Amstelsaidhe would haveto checkinto
the pricedifference.The partiesalsodiscussed
a possible
startdatefor construction.Two weekslater,Durbinchanged
his mind and decidednot to go forwardwith his plan to
build a recordingstudio.Amstelfiled a suit againstDurbin
for breachof contract.Usingthe informationpresentedin
the chapter,answerthe followingquestions.
Explain.
7 Wasthere an acceptanceof the offer?Why or why not?
5 Supposethat the courtdetermines that the partiesdid
not reachan agreement.Furthersupposethat Amstel,in
anticipationof buildingDurbin'sstudio,had purchased
materialsand refusedotherjobs so that he would have
time in his schedulefor Durbin'sproject.Underwhat
theorydiscussed in the chaptermightAmstelattemptto
recoverthese costs?
How is an offerterminated? Assumingthat Durbindid
not inform Amstel that he was rejectingthe offer,was
the offerterminated at any time describedhere?Explain.

acceptance
265 mailbox rule 265 optioncontract26t
agreement251 mirrorimagerule 262 revocation260
counteroffer
252 olter 252
268IINIIUU
CONTRACTS

Requirements 1.Intent-Theremust be a serious,objectiveintentionbythe offerorto becomebound bythe

of the Offer offer. Nonoffersituationsinclude (a) expressionsof opinion; (b) statementsof intention;
(Seepages252-260.) (c) preliminarynegotiations;(d) generally,advertisements, catalogues,and circulars;
for bids made by an auctioneer;and (g) traditionally,
(e) pricelists;(fl solicitations
agreementsto agreein the future.
2. Definiteness-The bv the
terms of the offer must be sufficientlvdefiniteto be ascertainable
partiesor by a court.
3. Communication-Theoffer must be communicatedto the offeree.

Termination 1. By oction of the parties-

of the Offer
(Seepages260-263.) a. Revocation-Unlessthe offer is irrevocable,it can be revokedat any time before
acceptancewithout liability.Revocationis not effectiveuntil receivedby the offereeor
the offeree'sagent.Some offers,such as a merchant'sfirm offer and option contracts,
are irrevocable.
b. Rejection-Accomplished by words or actionsthat demonstratea clearintent not to accept
the offer; not effectiveuntil receivedby the offeror or the offeror'sagent.
c. Counteroffer-Arejectionof the originaloffer and the makingof a new offer.
2. By operotion of low-
a. Lapseof time-The offerterminates(l ) at the end of the time periodspecifiedin the offer
or (2) if no time period is statedin the offur,at the end of a reasonabletime period.
b. Destructionof the specificsubjectmatterof the offer-Automatically terminatesthe offer.
c. Deathor incompetenceof the offeroror offeree-Terminates the offer unlessthe offer is
irrevocable.
d. lllegality-Superveningillegality terminatesthe offer.

Acceptance l. Can be made only by the offereeor the offeree'sagent.

(See pages 263-267.)
2. Must be unequivocal.Underthe common law (mirror imagerule),if new terms or conditions
it will be considereda counteroffer.
are addedto the acceptance,
3. Acceptanceof a unilateraloffer is effectiveon full performanceof the requestedact.Generally,
no communicationis necessary.
4. Acceptanceof a bilateraloffer can be communicatedby the offereeby any authorizedmode
of communicationand is effectiveon dispatch.Unlessthe offerorexpresslyspecifiesthe
mode of communication,the followingmethodsare impliedlyauthorized:(a) the same mode
used by the offeroror a fastermode; (b) mail,when the two partiesare at a distance;and
(c) in salescontracts,any reasonablemedium.

m
Answersfor the even-numberedqaestionsin this tot Reviewsection can be found on this text's accompanyingWeb site ot
Select"Chapter 9" and click on "For Review."

I Wliat elementsare necessary

for an effectiveoffer?
2 What are someexamplesof nonoffers?
5 In what circumstanceswill an offer be irrevocable?
4 What elementsare necessary
for an effectiveacceptance?
5 Can silenceeveroperateas an acceptar-ice?