Contracts: Stage 2 of Agreement Process: Is the offer still open?

    • An offer cannot be accepted if it has been terminated (i.e., it’s “dead”).
  • Lapse. Offer lapses after a state term or after a reasonable time has lapsed.
  • Revocation. Offer terminates when the offeror revokes the offer
    • either directly or indirectly
      • Direct revocation: offeror unambiguously indicates directly to the offeree that he has changed his mind.
      • Indirect revocation: offeror engages in conduct that unambiguously indicates he’s changed his mind and the offeree is aware of the conduct. (offeror conduct +offeree awareness).
    • Revocation of offer is effective only on receipt. (not when sent). The Mailbox Rule does not apply to revocation.
      • Once offer has been accepted, the offeror can no longer revoke.
    • The offeror can revoke at any time before acceptance. However, four situations where the offeror cannot revoke:
      • Option: a promise to keep the option open that’s paid for.
        • Merely promising to keep an offer open is not enough, more is needed.
        • Painter offers to paint House’s house for $10,000 and promises not to revoke the offer in exchange for payment of $100. If House pays $100, Painter cannot revoke the offer. Since the painter was paid for his promise, he bargained away his right to revoke.
      • Reasonably foreseeable reliance before acceptance [rare] – ordinarily not accepted, but ONLY in situations where a Contractor uses Subcontractor’s bid to compute its own bid on the project. This is the only fact pattern where reliance before acceptance makes an offer irrevocable. The Subcontractor knows that before Contractor accepts, he’ll have to submit his own bid.
      • Beginning performance in an offer to enter a unilateral contract.
        • House offers painter $100 to paint his house. The offer states that it can be accepted only by painting the house. Painter starts painting the house. Can house still revoke?
          • MBE: No. Once the painter starts painting, Dr. House can no longer revoke.
        • Mere preparation for performance is not enough to make the offer irrevocable. The offeree must actually start performance for the exception to apply.
      • Firm offer under Article 2: A signed, written promise by a merchant to keep an offer open. (Almost every person in the business world is a merchant under Article 2.) (You can have an option under Art. 2 if you have consideration).
        • In a firm offer, the signed writing takes the place of consideration.
        • A firm offer has a 3 month time limit. Option contract has no time limit.
        • Not every signed written promise by a merchant is a firm offer—there must be a promise to keep the offer open.
          • Smart Realty Co. offers to sell Blackacre to Homer for $50,000. The offer is in writing, signed by Smart, and provides that Smart will not revoke for 2 weeks. Can Smart still revoke the offer? There’s no option, no consideration, no reliance, and no firm offer, so it looks like Smart can still revoke.
  • An offer terminates when the offeree rejects the offer.
    • A counteroffer = rejection, but mere bargaining does not.
      • Mere bargaining is when the offeree responds with a question.
    • Conditional acceptance = rejection
      • Conditional acceptance is not an acceptance at all. It’s just like offeree has said no.
        • Disney sends Bill Clinton an offer to appear in the film, “Waiting to Inhale.” Bill agrees on the condition that (or provided that, so long as, if) he gets top billing. There is no agreement. Conditional acceptance.
    • CL/A2Acceptance containing additional terms operates as REJECTION under the common law, but not under Art. 2. {Battle of the forms}
      • Common Law: acceptance must mirror offer (“Mirror Image Rule”)
        • Landlord sends tenant a signed lease that says nothing about pets. T adds “T may keep a pet,” signs lease and returns it to L. T has not accepted L’s offer. Under common law, an acceptance must mirror the terms of the offer. T’s addition operates as a rejection which terminates the offer.
      • Article 2: acceptance does not have to mirror offer (No Mirror Image)
        • Additional terms do not prevent acceptance. The policy is to facilitate contract formation.
        • However, the additional terms do not automatically become part of the contract. They become part of the contract only if:
          • Both parties are merchants
          • The term is not a material change (one likely to cause hardship and surprise for the offeror)
          • The offeror does not object within a reasonable time.
        • Bottom line: Offeree’s additional terms (or different terms) almost NEVER become part of the contract.
            • B bakes a written offer to buy 100 widgets from S for $1,000. The offer does not mention any warrantees. S’s written acceptance disclaims all warrantees. Is there a contract? Yes, Article 2 does not have the mirror image rule. Under Article 2, acceptance can be effective even though it adds terms. Therefore, offer has been accepted.
            • The contract DOES NOT include S’s disclaimer. Even if both parties are merchants, the disclaimer is a material change—one likely to cause hardship and surprise for the offeror. (If the terms added by offeree are customary in the industry, then it is not considered a material change.)
            • Offeror can keep out even an insignificant term/minor change simply by objecting to it.
Labels: