Restatement §36, Methods of Termination of the Power of Acceptance (p. 180)

Offeree’s power of acceptance terminated by:

1. Rejection or counter-offer
2. Lapse of time
3. Revocation
4. Death or incapacity.

Restatement §39, Counter-Offers (Rules, p. 180)

1. Counter-offer is made when you propose a substitute bargain for the original offer.
2. Original power of acceptance is terminated by counter-offer (unless intentions are otherwise).

 

[Restatement §40, Time When Rejection of Counter-Offer Terminates the Power of Acceptance.]

Restatement §43, Indirect Communication of Revocation (Rules, p. 180)

Power of acceptance is terminated when offeror takes action inconsistent with intention to enter K and offeree finds out about it.

Restatement §59, Purported Acceptance Which Adds Qualifications (Rules, p. 181)

A reply to an offer that purports to accept but changes the terms is a counter-offer.

Mirror Image Rule

NORMILE v. MILLER (1985) P made offer on D’s home with expiration date (Offer). D made changes to form leaving expiration clause (Counter-offer). P did not immediately accept, D sold to someone else and revoked offer to P (Revocation). P then tried to accept counter-offer by the expiration date indicated on the counter-offer. No K.

• Counter-offer was not an option because no consideration
• Did not have to be held open
• Offer is fully revocable until fully accepted. (Restatement §36)
• Mirror-Image Rule (Restatement §59): Purported acceptance with qualifications is a counter-offer
• D’s made changes so constituted counter-offer.
• Original offer was thus off the table. (Restatement §39)
• D revoked before P accepted counter-offer (Restatement §43)

 

Option Contracts allow a right to accept for a certain period of time, and there is limited power to revoke., R2d § 25

• option typically isn’t created unless consideration is provided

OFFER AND ACCEPTANCE – UNILATERAL CONTRACTS

Partial Performance is No Performance

PETTERSON v. PATTBERG (1928) D promised discount on mortgage payments if he paid it by a certain time, but before that time, D sold mortgage to someone else. P came to pay, D wouldn’t accept. No K

• Partial Performance is No Performance
• Rigid application of the classical rule.
• Offer of unilateral contract may be withdrawn before performance. The offeror can revoke before offeree accepts, however brief the interval of time between the two acts.
• This sort of holding gave rise to Restatement §45

Restatement §45, Option Contract Created by Part Performance or Tender (Rules, p. 181)

1. An option contract is created when offeree tenders or begins invited performance.
2. Offeror’s duty of performance is conditional on completion of performance.

Partial Performance creates an Option Contract

COOKE v. COLDWELL BANKER D made offer based on commissions in March, then changed terms in Sept. P had already partially performed through Sept. K is enforceable.

• Substantial performance can create contract.
• P could also have asserted promissory estoppel, but reliance would have ended in Sept b/c upon finding out that there was a new offer, there would have been no reasonable reliance.
• Substantial performance can create an option contract
• D had to keep the offer open for a reasonable period of time to allow P to complete performance.
• P not bound to performance. Free to walk away.

PROMISSORY ESTOPPEL TO ENFORCE OFFERS

Minority Approach: Strict Application of Classical Contract Law

JAMES BAIRD CO. v. GIMBEL BROS., INC. Linoleum subcontractor made an incorrect estimate and withdrew it before it was accepted. No K b/c offer was not accepted before it was revoked.

• No Bilateral K.
• Offer indicated “prompt acceptance” would occur after bid was awarded.
• Offer was revoked before this happened.
• No Unilateral K
• No counter promise or consideration.
• No Promissory Estoppel
• Parties intended that they both be bound.
• No Option K
• No evidence. You don’t lightly imply an option.
• Favorable to Subs.

Majority Approach: Promissory Estoppel

DRENNAN V. STAR PAVING CO. D, subcontractor, made bid that was used by P general contractor in a bid for a city project. D realized he underestimated bid and revoked offer. There was K b/c D had reason reason to expect P to rely on his bid and wanted him to.

• Promissory Estoppel (Restatement §90)
• D made a promise intending that P rely.
• P did, in fact, rely.
• Reliance was reasonable.
• P suffered as a result.
• Prejudicial, foreseeable change in position.
• Factors favoring PE application (not limited to these factors):
• Client is governmental entity – ultimate burden on taxpayers
• Tight timing
• General had to name subs in bid
• General had to post 10% bond
• Limits to Contract
• General contractors can’t Bid Shop or Renegotiate after K is awarded
• General contractors can’t rely on subs bid if he knows, or should have known, it was erroneous
• Subs can state that offer is revocable (but not realistic, b/c Gen will toss)
• Mere estimates don’t qualify
• Effect: Enhances bargaining leverage of general contractor even more than it already was.
• Client’s interest is behind this opinion b/c this will keep costs down for ultimate customer.

 

Option Contract, R2 § 87(2)

1. Offeror should reasonably expect to induce action or forbearance before acceptance, and
2. Does not induce such action or forbearance
3. Necessary to avoid injustice

UCC: FIRM OFFERS

Allows an offer to be kept open without consideration.

UCC §2-205, Firm Offers (Rules, p. 25)

Offer will be kept open without consideration  if:

1. An offer by a merchant to buy or sell goods
2. signed writing that assures the offer will be kept open
3. Period of irrevocability may be stated and may not exceed three months
4. If form supplied by offeree, then must be signed by the offeror.

 

• Allows offeree to comparison shop, make plans
• Offeree more likely to accept if it knows the offer will still be good

BATTLE OF THE FORMS

 

Benefits of Forms:

• Save time and legal fees: lower transaction costs
• Lends predictability b/c customers will know what to expect
• Reduces chance of error
• Gives the user a legal edge b/c they’ve been reviewed by lawyers
• Companies have greater control over contracts
• Permits decision making lower in the corporation
• Facilitates inventory, record-keeping.

 

Drawbacks:

• Nobody reads them.
• Everyone uses different forms.
• Potential bargaining problem for the party who doesn’t have the form

Restatement §33, Certainty (Rules, p. 179)

1. Manifestation of intention can’t be offer unless terms are reasonably certain.
2. Terms are reasonably certain if they provide basis for breach and remedy.
3. If terms are left open it may show there is no intent to make offer/acceptance.

UCC §2-207, Additional Terms in Acceptance or Confirmation (Rules, p. 27)

1. A timely expression of acceptance operates as acceptance even when it states additional or different terms, unless it is made expressly conditional on assent to the new terms (in which case it is considered a counter-offer).
2. The additional terms are proposals for addition.
1. Between merchants, they become part of K unless:
1. The original offer expressly limits acceptance to its offer
2. They materially alter the K, OR
3. Notification of objection has already been given or is given within reasonable time.
2. (Not between merchants, they must be expressly agreed to by the offeror.)
3. Conduct by parties can establish a K although writings do not. T&C will be those expressed in writings and UCC “gap-fillers.” [If both offer and acceptance expressly limit acceptance, then the  
   “acceptance” is really a counter-offer, in which case there is no K. But the conduct of the parties can establish a K. In this case, any different terms will get knocked out and any additional terms will fall away. The needed terms will be supplied by gap-fillers.]
1. The different terms are seen to conflict with original offer. Both sets of terms drop out and gap-fillers are used. (Comment 6, KNOCKOUT RULE)
1. Occasionally, the different terms are considered to have been objected to, and so do not become part of the K.
2. Deposit doesn’t equal acceptance, just a performance upon one of the terms

 

Four Offer/Acceptance Cases:

1. Neither offer nor acceptance are expressly conditional:
1. K is formed under 2-207(1)
2. Knock Out Rule: contradictory terms are knocked out (NOT 2-207(3))
3. Additional terms are added as per 2-207(2)
1. B/w merchants, terms go in automatically unless we meet 2-207(2)(a)-(c)
1. 2-207(2)(b) and comment 4: Materially alter means to cause “surprise or hardship”
2. If not b/w merchants, additional terms go in only with assent of both parties or when there is no timely answer
2. Offer is expressly conditional, acceptance is not
1. K is formed under 2-207(1)
2. First Shot Rule: terms are of the offer only
3. Offer is not expressly conditional, acceptance is
1. Acceptance isn’t an acceptance but a counter-offer
2. No K unless there is perfornence
3. Terms are determined by 2-207(3)
4. Both offer and acceptance are expressly conditional
1. No K until performance
2. Terms are determined by 2-207(3)

 

Confirmation/Proposals to Addition: (2-207 comments) K has been formed, and is followed by a memo with the agreed upon terms and new ones

1. B/w merchants, terms added even when there is no timely answer, except for:
1. If last offer is expressly conditional, no terms added. 2-207(a).
2. Terms materially alter K, or
3. There has been express objection to these terms before
2. Not b/w merchants, new terms must be expressly agreed upon before added.

Common Law: Last Shot Rule

PRINCESS CRUISES, INC. V. GENERAL ELECTRIC CO. (P. 223) P sent purchase order to D with T&C (Offer). D returned fixed price quote (Counter-offer) then final price quote (also Counter-offer), both with own T&C limiting liability to the price of the K. P called D and said “go ahead” (Acceptance). D confirmed by letter. P sued D for consequential damages. For D. Liability limited per terms of its counter-offer.

• Predominance Test: Is the K over Goods (UCC) or Services (R2)?

1. Language of the contract
2. Nature of the Business
3. Value of the Materials

• Last Shot Rule (Common Law): The party who sends the last form before acceptance governs the transaction

• Last Shot Rule usually benefits Seller, b/c it supplies the last form
• Mirror Image Rule: K can be formed only if the terms of one offer are accepted precisely as stated. Any variation constitutes a counter-offer which can be accepted. (R2 § 59, comment a)

Express Conditionality: Offer/Acceptance

BROWN MACHINE, INC. V. HERCULES, INC. (P. 231)  P submitted price quote/proposal for trim press including T&C limiting its liability (Invitation of Offer). D submits purchase order “expressly limiting” acceptance to its own T&C (Offer). P sends order acknowledgement form with own T&C stating D had 7 days to respond if it didn’t consent to terms. D sent letter changing one spec and saying all others are OK. D’s employee was injured by trim press and sues P. P sues D to recover damages. For D. Liability not limited. 

• First Shot Rule: Quotes aren’t offers unless they are adequately detailed
• P’s Proposal Not the Offer
• Submitted for D’s approval.
• Discussion of adjusting price.
• “No order…will be binding…unless accepted by Brown”
• Expired in 30 days.
• D’s purchase order was the Offer
• Largely a matter of convention
• P’s order acknowledgement form was the Acceptance (UCC §2-207(1))
• P did not make acceptance expressly conditional
• Must notify other party that they are unwilling to proceed unless new terms are agreed to.
• “7 day” clause was not sufficient.
• (Under common law it would have been a counter-offer b/c Mirror Image Rule.)
• P’s new terms do not become part of K (UCC §2-207(2))
• D’s original offer does limit acceptance to its T&C
• P’s new terms would materially alter the K

Test for Materiality: Surprise/Hardship (Dale Horning)

1. Surprise: If it doesn’t comport with trade practice
2. Hardship
1. Significant economic harm
2. Significant risk is being shifted

 

Examples of Materiality in § 2-207 comments 4 & 5:

• Disclaiming warranties: always material
• Choice of forum: probably material
• Arbitration requirement: maybe material (courts tend to favor arbitration clauses)
• Interest payments for overdue accounts: probably not material
• Payment of attorneys fees: probably not material

Additional Terms. DALE R. HORNING CO. V. FALCONER GLASS (P. 240) P agreed to buy glass from D over the phone. The next day, both parties sent written confirmations. D’s contained fine print limiting liability for consequential damages. Glass was defective. P sues for consequential damages. For P. K was formed over the phone. D’s terms do not control.

• D’s confirmation considered Acceptance
• D’s terms do not become part of K (UCC §2-207(2)) b/c they would materially alter the K
• Test for Materiality: Surprise/Hardship (You need both.)
• Hardship – Term shifts risk from one party to the other