Chapter 11 – The Agreement: Acceptance


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  • 2004: plaintiff Richard C. Davis and his real estate investment company (Trademark Properties Inc.) produced a treatment and demo of a reality show about purchasing, renovating and “flipping homes.” Davis submitted it to A&E Television Networks and then met with A&E. Davis argued that the terms of the agreement were that he and his company would be equal partners with A&E (paying all production costs). Davis would find, refurbish and sell all real estate featured in the show. Davis argued that A&E expressly agreed to the terms, so he let A&E shoot 13 episodes of the resulting show, "Flip This House." Davis claimed that A&E kept promising to prepare and sign a written contract to confirm the partnership terms, but a contract was never provided. When A&E decided to – and did – film subsequent seasons without Davis and his company, Davis sued for breach of contract, fraud, conversion, misappropriation of trade secrets and unfair competition, among their other claims. A&E argued that it had made it clear to Davis that it had final creative authority over the show, owned all legal rights in it and controlled and would keep all revenues. A&E claimed Davis agreed to appear in the second season, but walked away from the deal and even signed a statement acknowledging that A&E had no financial obligation to him.
  • A & E claimed that the only specific words of acceptance Davis said that Norlander (A&E’s representative) made were, “Okay, okay, I get it.” A & E contended that statement did not constitute unambiguous acceptance because it conveyed at most that Nordlander understood the terms of the offer, not that he accepted the offer on behalf of A & E. A & E maintained, therefore, a contract was never formed.
  • Hyperlink is to the Missouri court’s opinion. Court: Before a plaintiff can establish a breach of contract, he or she must first establish the existence of a contract. A contract does not exist without a defi nite offer and a ‘mirror-image’ acceptance . Any acceptance that includes new or variant terms from the offer presented amounts to a counteroffer and a rejection of the original offer. The unequivocal acceptance of the offer is fundamental to the existence of a contract. Lewis contends that the Prides made a counteroffer when they changed the closing date for the property. While both the Prides initialed this change, it was undisputed that neither Mr. nor Mrs. Lewis initialed the change to the contract. The Prides acknowledge that changing the closing date amounted to a counteroffer. The question is, was the counteroffer ever accepted? Lewis argues that he never accepted this counteroffer, and, thus, there was no contract. The Prides argue that Lewis accepted their counteroffer through his conduct and failure to act. As a general rule, silence or inaction cannot constitute acceptance of an offer. Regardless of whether he breached cultural mores, Lewis had no legal duty to act or explicitly reject the counteroffer. The Prides erroneously assumed that silence was equivalent to acceptance. This case does not fi t with the line of cases holding that an offeree’s conduct or failure to act amounted to acceptance of an offer. The Prides should have secured Lewis’s acceptance to the counteroffer before advancing the transaction. This court cannot create a contract where one did not exist.
  • Hyperlink is to the Indiana court’s opinion. The photo is of a wire manufacturer’s operation. For many years, Belden sold wire to American Electronic Components (“AEC”), an automobile sensor manufacturer, to use in its sensors. In 1996, Belden notified AEC it would be using a certain insulation in its wires to comply with AEC’s quality control program. A few years later, Belden began incorporating another insulation in its wire. That insulation cracked, causing a recall of 14,000 cars. Belden argued that the back of its customer order acknowledgement form expressly limited the damages available to AEC and that AEC’s acceptance of the agreement was expressly made conditional upon AEC’s assent solely to the terms of the form. Under Section 2-207 of the UCC, if an acceptance contains a clause conditioning the acceptance on assent to additional or different terms, the writings do not form a contract. If parties perform as if a contract exists, then conduct by the parties may be sufficient to establish a contract even if the writings between the parties do not form a contract. Court concluded that Belden could not unilaterally include terms that were expressly conditional on AEC’s assent; therefore, writings between parties did not create a contract. Bottom line: Contracts between businesses will only be based on terms upon which all parties agreed. Consequently, an attempt to expressly limit acceptance of additional language to the terms of the offer must fail.
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  • Hyperlink is to the case opinion on the website.
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  • Hyperlink is to the opinion by the U.S. Court of Appeals for the First Circuit.
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  • False. Silence in response to an offer does not constitute acceptance unless offeree takes benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation Restatement (Second) of Contracts §69 True. True. False. UCC 2–207 allows contract formation even when there is some variance between terms of offer and terms of the acceptance
  • The correct answer is (b)
  • Courts have held that people who purchase on the internet have “accepted” any underlying contract once the purchaser clicks on the submit or purchase icons.
  • Chapter 11 – The Agreement: Acceptance

    1. 1. C H A P T E R 11 The Agreement: AcceptanceMake yourbargain beforebeginning toplow.Arab proverb 11-1
    2. 2. Learning Objectives• Explain elements of acceptance under common law and the UCC• Determine how acceptance can be communicated, including by silence• Determine when oral acceptance is effective 11-2
    3. 3. Requirements for Acceptance• Acceptance must be by clear expression by offeree of intent to be bound by terms of offer and communicated to offeror – Only offeree may accept offer – If offer calls for performance, then performance is acceptance – Offeror may specify manner of acceptance • Example: “notify of acceptance in writing” 11-3
    4. 4. Trademark Properties v. A & E Television Networks• Facts & Procedural History: – Dispute arose out of a disagreement over alleged oral agreement to split equally net revenues of the reality television series “Flip This House” – Court dismissed all plaintiff’s claims except breach of contract. Jury returned verdict awarding Plaintiff just over $4 million, or about half of first season’s net revenues – Defendant appealed arguing that evidence was legally insufficient to support a finding of an oral contract under New York law 11-4
    5. 5. Trademark Properties v. A & E Television Networks• Issue: Did jury reasonably find that parties formed an oral contract over distribution of revenue?• Reasoning and Holding: – Oral contracts as binding as written contracts, but “context matters” – If Davis reasonably understood A&E representative’s equivocal statement as acceptance, then contract was formed; also, conduct of A&E and Davis supports both parties believed contract existed – Judgment affirmed 11-5
    6. 6. Mirror Image Rule• Traditional contract law rule required acceptance to be the mirror image of the offer – Example: Pride v. Lewis• Currently, judges hold that only material variances between an offer and an alleged acceptance result in an implied rejection of the offer 11-6
    7. 7. The UCC & Variance of Terms• UCC 2–207 allows contract formation even when there is some variance between terms of offer and terms of acceptance – A definite and timely expression of acceptance creates a contract, even if it includes terms different from those stated in offer or if it states additional terms offer did not address [2–207(1)] – Belden v. American Electric Components, Inc. 11-7
    8. 8. 11-8
    9. 9. Communicating Acceptance• With instantaneous forms of communication, knowing when acceptance occurs is easy – Non-instantaneous forms (postal mail) more difficult• Mailbox rule makes acceptance effective upon dispatch when the offeree used a manner of communication expressly or impliedly authorized (invited) by the offeror• Okosa v. Hall illustrates operation of the rule 11-9
    10. 10. Communicating Acceptance• Courts today allow communication of acceptance by any reasonable means of communication 11-10
    11. 11. Silence as Acceptance• General rule is that an offeree’s silence, without more, is not an acceptance• Circumstances may impose duty on offeree to reject offer affirmatively or be bound• Includes cases in which offeree’s silence objectively indicates an intent to accept – Example: McGurn v. Bell Microproducts, Inc. 11-11
    12. 12. McGurn v. Bell Microproducts• Facts: – Bell extended offer of employment to plaintiff – Plaintiff altered written offer to include severance package, signed and returned – Bell silent regarding alteration and plaintiff worked for more than a year – Bell fired plaintiff and refused to pay severance – Plaintiff won summary judgment for breach of contract 11-12
    13. 13. McGurn v. Bell Microproducts• Reasoning & Ruling: – Silence in response to an offer does not constitute acceptance unless offeree takes benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation • Restatement (Second) of Contracts §69 – Whether Bell accepted plaintiff’s alteration of the contract by its silence and conduct is a matter of fact, thus a matter for the jury; case remanded 11-13
    14. 14. Effect of Acceptance OFFER+ ACCEPTANCE AGREEMENT 11-14
    15. 15. Test Your Knowledge• True=A, False = B – Silence may never indicate acceptance – Offeror may specify manner of acceptance – Only material variances between an offer and an alleged acceptance result in an implied rejection of the offer – UCC 2–207 does not allow contract formation if there is some variance between terms of offer and terms of the acceptance 11-15
    16. 16. Test Your Knowledge• Multiple Choice – The effect of offer plus acceptance is: a) Negligible b) An agreement c) The mirror image rule d) None of the above 11-16
    17. 17. Thought Questions• Do you read clickwrap agreements when purchasing goods through a website?• Should you be bound by click agreements if purchasing via the internet? 11-17
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