Chapter 14: Agreement: Offer and Acceptance

Business Law, Sixth Edition
© 2019 BVT Publishing. All rights reserved.
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Chapter 14:
Agreement: Offer and Acceptance

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Learning Objectives
• Describe the elements of an offer.
• Discuss auctions as offers.
• Explain the duration of offers.
• Discern irrevocable offers.
• Understand the elements of an acceptance.

S-3
14.0 In the News
How Binding Is Your Browsewrap Agreement?
http://bvtlab.com/8tr68
Clickwrap agreements require a user to affirmatively
click a button to assent to the agreement’s terms,
whereas a browsewrap agreement assumes the
user’s assent from use of the website.
• Should Internet clickwrap and browsewrap
agreements be legally binding contracts?
• Do they constitute mutual assent?
Discuss responses.

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14.1a Objective Theory of Contracts
Mutual assent results in the creation of
an agreement.
• Historically based on the subjective
meeting of the minds
• Today, based on objective theory

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Critical Thinking
Case: Dalton
The court applied the objective theory of
contracts to determine whether a settlement
agreement was too indefinite to qualify as a
contract.
• In order to overcome the objective theory in this
case, what should Opal have done?
• Why is the objective theory beneficial to society?
Why not a subjective theory? What are the costs
(real and otherwise) to society associated with
both theories?

S-6
14.1b Definition of Offer
Conditional promise by offeror to offeree
• Offeree must respond in the manner sought by
the offeror.
– Does something (performs an act)
– Refrains from doing something (forbearance)
– Promises to do something or to refrain from
doing something
• Expectation of a present commitment in
exchange for a response by the offeree
Contracts: The Offer (9:16)
http://bvtlab.com/5RUh8

S-7
14.2a Test for Offer’s Existence
• Present intention to contract
• Reasonably definite terms
• Communication of offer to proper party

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14.2e Omitted Terms: Gap Filling
• No time clause, a court will supply a
reasonable time for performances.
• No price is specified, a court will rule that
a reasonable price was intended.
• Courts are willing to supply terms
material to a contract under the
impression that the parties have
sufficiently indicated an intent to
contract.

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14.2e Critical Thinking
Case: Leonard v. PepsiCo, Inc.
Responding to an ad seen on TV for Pepsi
products, Plaintiff set out to accumulate enough
Pepsi points to redeem them for a Harrier fighter jet.
Pepsi claimed that the inclusion of the jet in the
commercial was for the purpose of entertainment
and there was no offer.
• Why are advertisements generally not considered an
offer? When might they be considered an offer?
• In Carbolic Smoke Ball, the court found an offer.
Why?
• Why was the ad not considered an offer of reward?

S-10
14.2g To Whom Addressed
• Must sufficiently identify the offeree
• Usual rule is that if the addressee is an
indefinite group, then there is no offer.
– Advertisements
– Estimates
– Quotes
– Catalogs
– Circulars
– Proposals

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14.2i Auctions
With reserve auction
• The bidders are the offerors.
• Acceptance occurs with the fall of the
hammer.
Without reserve auction
• The auctioneer makes the offer.
• Each bid is an acceptance subject to there
being no higher bid.

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14.3a Introduction Duration of Offers
An offer that has been communicated
properly continues in existence until:
• Lapses or expires
• Terminated by operation of law (illegality and
incapacity)
• Rejected by the offeree
• Revoked (directly or indirectly) by the offeror
• Receives a counteroffer

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14.4 Irrevocable Offers
Power to revoke may be lost
• Contract
- Optional contracts
• Legislation
- State statures
• Conduct of the offeree
- Partial performance in the unilateral contract
- Reliance (substantial change of position) by
the offeree

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14.4a Option Contract
Option contract is based on some
consideration.
• Offeror is bound to hold an offer open
• Takes away power to revoke the offer
• Offeree has given some consideration

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14.4b Firm Offers Under the Code
Most significant statute based Code
[2-205]
• Makes a merchant’s offer irrevocable
• The offeror is a merchant.
• The transaction involves the sale of goods.
• Irrevocable for the time stated (but no
longer than three months)

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14.5a Introduction to Law of Acceptance
• An indication by the offeree to be bound by
the terms of the offer
• Acceptance takes multiple forms.
– An act (unilateral offer)
– A return promise to the offeror (bilateral offer)
– The signing/delivery of a written instrument
• Only the person to whom the offer is made
can accept the offer.
Acceptance of the Offer (6:54)
http://bvtlab.com/482vC

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14.5b Accepting a Bilateral Offer
• Accepted by the offeree making a
promise in response to the promise of
the offeror.
• Promise is to perform in the manner
required by the offer.
• Must be communicated to the offeror
• May consist of any conduct that shows
intent

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14.5c Counteroffers Under the
Mirror Image Rule
• A common-law requirement
• Acceptance must conform exactly to the
terms of the offer.
• Any deviation will be considered a
counteroffer—constitutes a rejection.

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14.5d Rejection of the Mirror Image
Rule Under the Code
• The Code rejects the mirror-image rule.
• Under the Code, a definite expression of
acceptance of a written confirmation
operates as an acceptance.
• Additional or different terms do not
prevent the formation of a contract unless
they are expressed in the form of a
counterproposal.

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14.5d Critical Thinking (Slide 1 of 2)
Case: Standard Bent Glass
In applying UCC § 2-207, the court found that
the response to the offer evidenced an intent
to perform under the offeror’s contract for the
sale of a machine. However, the offer
included an arbitration clause, and the parties
are bound by that clause to arbitrate the
dispute.

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• Why did the court find the response from
Standard Bent Glass an acceptance
instead of a counteroffer?
• How does section 2-207(1) favor the
formation of contracts?
• Does the traditional, common law “mirror-
image” rule favor the formation of
contracts to the same extent? Why?
14.5d Critical Thinking (Slide 2 of 2)

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14.5h Communication of Acceptance
• Offeror has the power to control both
the manner and mode of acceptance.
• Mailbox or deposited acceptance rule
– Acceptance letter is effective the moment it
is mailed.
– Application of the mailbox rule can be
avoided by stating in the offer that the
acceptance is not effective until it is
actually received.

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14.5i Accepting a Unilateral Offer
Substantial performance constitutes an
acceptance.
• Offeror becomes bound when performance
is commenced.
• Offeree has duty to complete performance.
• Order for goods may be accepted either by
a shipment or by a prompt promise to ship.

Chapter 14: Agreement: Offer and Acceptance

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Chapter 14: Agreement: Offer and Acceptance