518 Module 2 Lecture #4
What is acceptance?
Acceptance is an expression of assent to the terms of an offer in a manner authorized by
the offeree.
1. Acceptance must be manifest: One must generally take affirmative steps to
communicate acceptance. Under rare circumstances, silence or failure to act may
constitute acceptance.
2. Only an offeree w/ knowledge of the offer can accept.
a. Only a targeted offeree can accept the offer.
b. The offeree must be aware of the offer to accept.
3. Mirror Image Rule The substance of the acceptance must match the offer. –
a. Efforts to alter the terms of the offer do not constitute acceptance.
b. EVen if changes to the terms are minor it would not constitute acceptance.
In other words, the acceptance must mirror the terms presented in the offer.
In essence, both parties must agree to be bound by the same terms in order
to form a contract.
Forms of Acceptance
• The manner of the acceptance must conform w/ the requirements of the offer.
• If the offer limits the means of acceptance, the offeree must comply.
• If the offer sets not requirements, any reasonable method of acceptance will do.
• Applies to the medium & timing of acceptance.
Mirror Image Rule Counteroffer:
• Under the mirror image rule, acceptance must match the terms of the offer.
• An alteration even slight will result in ineffective acceptance of the offer.
• Then the offeree becomes the offeror of the counteroffer and the initial offer may
reject or accept the offer.
Acceptance & Proposal
• A reply to an offer may be considered acceptance even if it contains different or
additional terms.
• Must unequivocally accept the offer.
• Additional terms are considered as a proposal to modify the original contract terms.
• Ie. “I accept but I also think we should include an arbitration clause”.
Timing of Assent
At the moment of mutual assent, the contract becomes enforceable if the other
requirements have been met.
Offers become effective when received by the offeree.
Once the offer is effective the offeree can accept at any time until the offer is terminated.
Termination of Offers:
1. Offeror revokes the offer.
2. Offer expires due to lapse of time.
3. Offeree rejects the offer.
4. Offeree makes a counteroffer
5. Offeror or the offeree dies or is incapacitated
6. Impossibility – A condition of acceptance can no longer occur.
Timing of Acceptance: Mailbox Rule
• Acceptance must occur before the offer terminates.
• Generally, acceptance takes place when it is dispatched, i.e. placed in the mail.
• Thus, if dispatched before the offer terminates then a contract is formed.
• As long as acceptance is dispatched before revocation is received, it is effective.
Exceptions to the Maibox Rule (3):
1. Acceptance must be properly dispatched (addressed/deposited)
2. The offeror may require acceptance only upon receipt and the dispatch rule will not
apply.
3. Under options contracts, acceptance occurs only upon receipt by the offeror.
Termination for Lapse of Time
Offer expires for lapse of time when...
1. Specific time set by the offeror expires
2. A reasonable time lapses without acceptance
What is a reasonable time?
• Face to face including phone = When the conversation ends
• Offers made by mail expire the day it is received.
• It depends on the circumstances.
Rejection and Counteroffer:
• A rejection or counteroffer terminates the offer.
• A rejection or counteroffer is effective only upon receipt by the offeror.
• Confusion may arise if a party sends a rejection/ counteroffer and then dispatches
an acceptance before the rejection is received.
Ie. Offeree send rejection Jan 1
st
Offeror Sends acceptance on Jan 2nd.
Offeror receives the rejection on Jan 3
rd
Offeror receives acceptance on Jan 4 .
th
The courts treat the attempted acceptance as a counteroffer for relying upon the rejection
they received before the acceptance.
Death or Incapacity
• Another way to terminate an offer...
• Death or incapacity of either the offeror or the offeree generally terminates the offer.
• Some exceptions exist based on statute as well as, situation of temporary
incapacity where the party regains the capacity to contract.
Impossibility of Conditions
• Last way to terminate an offer...
• Offers may contains conditions to acceptance.
• Conditions are events that must occur for the power of acceptance to arise.
• If the required condition becomes impossible, then the offer terminates.
Ie. An offer for employment is conditioned on the offeree graduating in June 2020. If the
offeree fails to graduate, the offer terminates.
Acceptance by Performance
• The offeror may permit the offeree’s performance as a means of acceptance.
• If so, the beginning of performance constitutes acceptance.
• If not, beginning of performance does not constitute acceptance.
• Ie. Offeror states, you can accept my offer by promising to paint my house or just
start the work on Monday at 6:00 A.M.
• The beginning of performance turns the offer into an option making the offer
irrevocable until the offeree has a reasonable time to complete acceptance.
• Completion of performance is required in order for there to be a valid contract.
Acceptance by Silence
• If both the offeror and the offeree intend the offeree’s silence to constitute
acceptance that will be upheld.
• If it is difficult to prove that an offeree’s silence did in fact show intent to accept.
• If the parties treated silence as acceptance in prior dealings, that may establish
intent.
• If the offeree accepts benefits from the offeror w/o objection that may establish
intent (unjust enrichment).
Sale Goods – Acceptance under UCC 2-206
1. Unless otherwise unambiguously stated by the language or circumstances:
a. An offer shall be construed as inviting acceptance in any manner by any
medium reasonable in the circumstances.
b. An offer to buy goods for prompt shipment may be accepted by either
prompt response or prompt shipment.
UCC 2-206 – Covers acceptance by performance
2. Where the beginning of the requested performance is a reasonable mode of
acceptance an offeror who it not notified of acceptance w/in a reasonable time may
treat the offer as having lapsed before acceptance.
This means that the beginning of performance by the offeree only serves as a valid
acceptance if the offeror is notified w/in a reasonable amount of time.
Alternatively, seller/offeree has not accepted the offer by the buyer unless notified w/in a
reasonable amount of time.
The previous sections discusses common law principles applicable to all contracts except
for the sale of goods.
518 Module 2 Lecture #5
UCC Battle of the Forms: Consideration
• For the sale of goods the UCC reduced the mirror image rule regarding the effect an
offeree’s alteration or addition of terms in the offer.
Sometimes that creates a problem:
• A buyer may request goods using a purchase order from containing the key contract
terms as well as “boilerplate items”. The seller may respond by using an invoice
also containing the key contract terms and different “boilerplate” terms. Under
common law mirror image rule, no contract would be formed.
• Sale of good contracts are often created using an exchange of form agreements
between the offeror (Buyer) and the Offeree (Seller).
• The UCC’s provision are based on the premise that the parties intended to enter
into a contract even if they use standard form agreements w/ different terms.
• Individuals and entities that are parties to an agreement may not have even read the
standard terms of the boilerplate terms that were included. In this situation , the
question then becomes which terms apply.
Assent UCC 2-207(1)
• A definite and reasonable expression of acceptance of a written confirmation that is
sent w/in 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.
What does that mean?
• Unless the offeree expressly states that it is limiting its intent to contract only to the
terms of its proposal, the existence of different or additional terms does not
automatically create a counteroffer.
• Under common law and the mirror image rule a contract has been formed.
However, under UCC a contract may have been formed.
• There must be a definite expression of acceptance to the original proposed offer; if
a contract is formed.
The question becomes, what are the terms of the contract?
UCC 2-207(2)
2. The additional terms are to be construed as proposal for addition to the contract (non -
merchant)...Between merchants, such terms become a part of the contract unless:
a. The offer expressly limits acceptance to the terms of the offer.
b. They materially alter it.
c. Notification of objection to them has already been given or is given w/in a reasonable
time after the notice is received.
What does that mean?
• If one or both parties are not merchants, the different or additional terms are
considered a proposal to modify the contract.
• A contract is formed as the original agreed upon terms.
• The original offeror may accept or reject the different or additional terms.
• It’s important to note, a contract was still formed. Similar to the mirror image rule,
under common law where the offeree clearly accepts the offer but proposes new
terms.
Merchants (Definition) by UCC in two ways:
1. The UCC defines a merchant as someone who deals in goods of the kind...
2. Or otherwise holds themselves out as having knowledge or skill peculiar to the
goods or practices involved in the transaction.
This would include a seller who is making a one-time transaction but has held themselves
out as being an expert in the category.
Concerning the contracts form between the merchants the new or different terms may
become part of the contract w/o express acceptance unless the offer was expressly
restricted to its terms the new or different terms materially alter the contract of the offeror
provides notice of objection w/in a reasonable time.
Between merchants, the new or different terms may become part of the contract w/o
express acceptance unless:
• The offer was expressly restricted to its terms.
• The new / different terms material alter the contract.
• The offeror provides notice of objection w/in a reasonable time.
Ie. If an offer states that the party to a contract only agrees to the terms of the offer, then
the new terms do not become part of the contract because the offer was expressly
restricted to its terms.
Material Alteration:
• When dealing with a contract between merchants, no precise definition as to what
terms constitutes a material change to the contract.
Ie. Disclaimers of warranties and restriction on breach
• Generally, material alteration do not usually include terms considered to be
procedural or administrative in nature.
• Time allowed to complain about the occurrence of a breach may be considered
procedural or administrative in nature. It often depends on the circumstances and
needs of the parties to determine whether a material alteration has occurred.
Notice of Objection – Third scenario where new terms do not automatically become a part
of the contract is when there is a notice of objection.
• The different or additional terms also do not become part of the contract if
notification of objection to them has already been given or is given w/in a
reasonable time.
• The determination of “reasonable time” is based on the circumstances.
Assent under UCC 2-207(3)
• Sometimes the exchange of documents between seller and buyer make it very
difficult to determine whether the parties in fact agreed to enter into a contract.
Ie. When one communication states that it conditioned on agreement as to different or
additional terms.
• The UCC provides that the parties subsequent performance may be sufficient to
evidence assent to contract.
• Conduct by both parties which recognized 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 cases, the terms... consist of those terms on which the
writings of the parties agree together w/ any supplementary terms incorporated
under any other provision of this act.
Under these circumstances, the contract consists of those terms to which the multitude of
writings agree.
• If there is a contract between the terms the conflict results in both terms being
“knocked out” and if necessary, the default rules under UCC kick-in.
• To put it differently, the disagreeing terms do not become part of the contract, they
are knocked out. However, if the knockout terms is a key term then the UCC gap
filling provisions are applied.
Ie. If the two runnings disagree on the terms of delivery which is a key term, then neither
the terms in writings will apply.
• Instead, the UCC default term for delivery would be substituted and the delivery
would have to occur at a reasonable under the circumstances.
Ie. Computer Co. Accepts phone orders. Buyer specify their need, the seller sets the price
and the delivery terms and buyer pays.
Computer arrive w/ an invoice containing the contract terms and expressly state that these
are the only terms.
One court held that the phone conversation established a contract between the parties
and invoice w/ the delivery was a confirming memorandum under UCC 2 -207.
Thus, any different or additional terms were considered proposals to modify the contract,
which the buyer can accept or reject.
A different court treated the shipping of the computers as the offer and keeping the
computers as an acceptance.
• This court refused to apply UCC 2-207.
• The courts rationale was that it was impractical for sellers that accept phone orders
to include every contract term in that phone conversation.
• Thus, the terms of the written invoice are the only ones that apply
518 Module #2 Lecture #5
Key terms:
• Requirements of consideration
• Gift promises
• Adequacy of Consideration
Requirements of Consideration
• Contracts are not enforceable unless there is consideration.
Agreements made without consideration are considered unenforceable gift promises.
Ie. If Alan voluntarily promises to give Baker $1000 or if Alan voluntarily promises to mow
Baker’s lawn and then does not perform, there is no breach of contract because no
contract was formed.
What is consideration?
• There must be a bargain for exchange between the parties.
• Each party must obtain something that it seeks for exchange for what it gives up.
• Almost any promise or performance can constitute consideration.
• It consists of an act, usually providing something of value or a promise to perform
such an act.
Ie. If A offers to give B $1000 in exchange for a car there is a bargain for an exchange.
Even if B were giving 10 tennis lessons instead of $1000 as long as A sought the
performance in exchange for the car then there is a bargain for an exchange.
Restatement (Second) 71 - Consideration
To constitute consideration a performance or return promise must be bargained for.
A performance or return promise is bargained for if it is sought by the promisor in exchange
for his promise and is given by the promise in exchange for that promise.
Important: Nothing needs to be exchanged at the point of contracting in order to form a
valid contract. The contract can be an exchange of promise whereby performance may
occur at a later date.
Under section 71 - Performance
• The performance may consist of an act other than a promise or forbearance which it
refraining from partaking in something that you have a legal right to do or the
creation, modification or destruction of a legal relationship.
Ie. Divorce in the case of marriage. The performance or return promise may be given to the
promisor or another and it may be given by Promisee or another person.
Restatement (Second) 71
• The consideration does not need to be a benefit to the promisor or a detriment to
the Promisee.
If a party promises to stop smoking in exchange for a sum of money, that party does not
necessarily create a detriment, not may it create a benefit to the other party.
As long as the parties sought for that type of exchange it’s consideration.
Forbearance - Refraining from doing something can be consideration.
• A party can promise to not sue another party as consideration.
• The creation, modification, or destruction of a legal relationship.
• The promise to act as another’s agent or the promise to alter the current legal
relationship between parties ie. Divorce can be consideration.
• The consideration sought does not need to be provided to the Promisor or provided
by the Promisee.
• A party can promise to pay for the other party’s child education.
Ie. Andrea can promise to give her car to Becky in exchange for Becky can pay $1000 to
Andrea’s friend Carol. That constitutes consideration as the parties bargained for and
sought after the exchange of the promises.
Gift Promises
• When a Promisor doesn’t seek anything in exchange from the Promisee that is an
unenforceable gift promise.
• Providing a return gift does not convert the first gift into a contract.
If A volunteers promises to cut B’s lawn each week over the summer, the fact that B may
gift A with a thank you gift certificate after two weeks doesn’t turn the original gift promise
into an enforceable promise.
A could stop at anytime and there would not be a valid enforceable contract.
• When a gift comes with conditions, sometimes the conditions are met and other
times not.
Ie. If A promises to donate money to a university if it will name a building after her.
Consideration
If A promises to donate money to a university for its scholarship fund. Gift promise.
Adequacy of Consideration
• Courts do not generally inquire as the adequacy of consideration.
• The consideration does not need to be of equal value of the promise.
Consideration exists even if I sell my house for $20,000 below market value.
• The law assumes that the parties can decide for themselves how much a promise of
performance is worth to them.
• If there is a secure imbalance in the value of the exchange, courts may examine the
contract to determine if it is in fact unenforceable for either reason ie. Fraud,
Duress
In summary, courts will find there is an enforceable agreement when there is a bargain for
exchange or promises of performance between the parties.
