What is an offer?
Restatement 24
A promise to do or refrain from doing something in exchange for something else. An offer must be stated and delivered in a way that would lead a reasonable person to expect a binding contract to arise from its acceptance (objective standpoint)
UCC §2-204 §2-206
What are the four elements of an offer
MDCP
1. Manifestation of present contractual intent: Looking at the outward manifestations of the parties, would a reasonable person think that there was offer and acceptance? Jokes, bluffs and hoaxes: look to whether the joke could have been reasonably understood as a serious commitment: Lucy v. Zehmer: court ruled that Lucy’s belief that the Zehmers were serious was reasonable considering the circumstances (even though Zehmer was drunk) so contract was binding; Leonard v. Pepsico (Pepsi Points case): court found that plaintiff could not have reasonably understood the offer as serious bc was a crazy expensive war plane no offer
2. Is the offer directed at a specific offeree?
3. Certain and definite terms expressly stated or implied. Offer must contain the key terms of the contract: Common law: all essential terms must be in the agreement; UCC: need only identify the parties, subject, and quantity (don’t need price)
4. Power of Acceptance to Offeree. Could a reasonable person expect a binding contract to arise from its acceptance by offeree? Ads must be: Clear, definite, explicit and leaves open nothing for negotiation (Lefkowitz)
How can an offer be terminated?
36RCEOR
Restatement 36
1. Rejection by the offeree
2. Counteroffer. (Restatement 39: Terminates the original offer and creates a power of acceptance in the original offeror)
3. Expiration by passage of time. (Offeror is entitled to set a period, if no period stated, offer must be accepted within a reasonable time).
4. Offeror’s death or mental disability. (Death/mental disability terminates the offer ONLY if it occurs before acceptance. If offeree accepts before the incident then there is an enforceable contract).
5. Revocation. (Offeror has power to revoke the offer at any time – exceptions are option contracts and firm offers. An offer can be revoked both directly and indirectly).
What are firm offers?
- Only for goods
- Effectively an option contract – no consideration required, only intent.
- UCC 2-205 (offer by a merchant (only needs to be the merchant offering can be non merchant offeree), signed in writing, with assurance that it will be held open, should not be held open for more than three months)*
What are case illustrations of firm offers?
- Mid-South Packers v. Shoney’s: Mid-South gave Shoney’s a price list in April that included a provision that Mid-South would give 45-day notice of a price increase. Three months later Shoney’s started buying from them. Mid-South increased price, Shoney’s after a while stopped paying and sued saying they violated terms. Court said that this was a firm offer, that it expired by the time Shoney’s started buying.
- Johnson says this isn’t even really a firm offer, it’s more like an invitation to bargain
General Contractor/Subcontractor
In the construction industry, there are general contractors and there are subcontractors. All bids come in at the last possible minute, creating quite a lot of confusion and chaos.
Ways to deal with bid chopping and bid shopping:
1. Treat the subcontractor’s bid as an offer that can be revoked at any time before the general’s promise of acceptance, even if the general has relied on it in forming its bid to the owner. (Problem: this practice can screw generals)
2. Treat the subcontractor’s bid as an offer that cannot be revoked until the general contractor has had a reasonable time to promise acceptance following award of the contract from the owner – treat it as an option contract (can lead to bid chopping and shopping, this is Drennan’s approach with offer estoppel)
3. Treat the subcontractor’s bid as an offer that is accepted by the general when it uses that offer to form its bid and win the contract
* Double AA v. Grand State: General Contractor wins bid to build Home Depot, relying on subcontractor’s price calculation. Subcontractor says they can’t perform at price, general contractor sues. Court gives GC damages on promissory estoppel, since they relied on promise of SC.
What is acceptance?
- Restatement 50: Acceptance is the offeree’s manifestation of assent to the offer – brings the contract into existence
- Acceptance must be a volitional act, performed freely, deliberately, and with intent to enter into a contract on its terms. This is determined objectively – would a reasonable person in offeror’s position have understood the manifestation as acceptance?
- Only the offeree may accept the offer
What are the forms of acceptance allowed in the Restatement?
Restatement 30
* Offer can invite or require acceptance through a verbal affirmative answer, or by performing or forbearing from a certain act, or may empower the offeree to make a selection of terms in his acceptance
* Unless otherwise indicated by the language or circumstances of the offer, the offer invites acceptance in any manner and by any medium reasonable in the circumstances.
What is an offer for a bilateral contract?
Both parties have outstanding promises to be performed in the future?
What is an offer for a unilateral contract?
The act of acceptance is also the complete act of
performance. Consideration is furnished in full immediately upon acceptance, and the offeree has no further duty under the contract. At the moment of formation, only one of the parties has a promise outstanding.
What is an ambiguous offer?
If the mode of acceptance is unclear,the offeree can accept either by promise or performance.
What is a general offer?
A special kind of unilateral offermade to the public at large.
What is the relationship between option contracts and reliance?
If the offeree rejects the offer under an option contract within the set period, but then later accepts within the accept period, promissory estoppel may grant the offeror reliance damages if he reasonably relied on the rejection to his prejudice.
What happens when it’s acceptance by performance that cannot be completed instantly?
If acceptance only takes place on completion of performance, the offeree risks revocation while he is in the process of performing. Restatement 62 and 45 protect against this.
Restatement 62: When an offer can be accepted either by performance or promise, the commencement of performance is an acceptance creating a bilateral contract.
Restatement 45: When performance is the exclusive mode of acceptance, the offeror loses the right to revoke once performance begins.
What are the categories of preliminary agreements?
- Binding contract: preliminary in form, but reflects an agreement on all major issues that need negotiation and the parties’ intent to be bound by it. Final contract is just a formality.
- Contract that settles some terms but leaves other important aspects to future negotiations: commits the parties to continue to work with each other and negotiate in good faith. This makes reliance damages possible, but expectation damages likely.
- No contract: merely an expression of the parties’ intent to work together in the hope of being able to conclude a contract, but they do not intend for it to be a binding obligation.
