- Int'l Filter Co v. Conroe
- White v. Corlies
- Ever-tite v. Green
- R2C sect. 50, 52-54, 56
"An acceptance is a voluntary act of the offeree whereby he exercises the power conferred pon him by the offer, and thereby creates the set of legal relations called a contract…
What acts are sufficient to serve this purpose? Look at the language of the offer, both in terms of words and conduct.
In the beginning, the offeror has full power to determine the acts that are to constitute acceptance."
--Corbin
- Most commercial Ks are bilateral
effective at time of exchange + a little "clearer"
W/ a unilateral K, acceptance doesn't really happen until work is "done"
- Once an acceptance has been made, the offeror no longer has the legal right to change his mind w/o incurring legal liability.
Offeror is bargaining for either:
performance
promise
Key Questions for this section:
- When a promise is sought, when can it be inferred from the offeree?
- Can mere silence ever count?
- Must the offeree notify the offeror of the acceptance?
(way more common and economically significant in our society)
International Filter Co. v. Conroe Gin, Ice & Light Co.
Commission of Appeals of Texas, 1925
Parties:
P=International ("plaintiff in error"), manufacturer of machinery and equipment for purification of water in connection w/ the manufacture of ice. HQ'd in Chicago, IL.
D=Conroe Gin, TX company, also in the ice manufacturing business
PH:
-Bench trial
-Judge found "fact" in favor of D
-J for D was affirmed by Ct of Civil Appeals
-P appeals
Facts:
-Feb. 10, 1920 P's employee ("Waterman") submitted a note to D's manager ("Thompson") which read:
"We propose to furnish, f.o.b. Chicago, one No. two Junior (steel tank) International water softener and filter to purify water of the character shown by sample to be submitted…. Price: Twelve hundred thirty ($1,230) dollars… This proposal is made in duplicate and becomes a contract when accepted by the purchaser and approved by an executive officer of the International Filter Company, at its office in Chicago. Any modification can only be made by duly approved supplementary agreement signed by both parties.
"This proposal is submitted for prompt acceptance, and unless so accepted is subject to change w/o notice.
"Respectfully submitted,
"International Filter Co.
W.W. Waterman."
-On the same day, this "proposal" was accepted by D through notation made on the same note made by Thompson:
"Accepted Feb. 10, 1920"
"Conroe, Gin Ice & Light Co.,
By Henry Thompson, Mgr."
-The paper also contained the notation, "Make shipment by Mar. 10"
-The paper then reached the Chicago office of the P in error
-On Feb. 13, 1920, Engel, P's president and VP, indorsed it: "OK Feb. 13, 1920 P.N. Engel"
-Feb. 14, P wrote and mailed the following letter
"Feb. 14--Atten. Thompson, Manager.
Conroe et al, Gentlemen: This will acknowledge and thank you for your order given Mr. Waterman for a No. 2 Jr. steel tank International softener and filter, for 110 volt, 60 cycle, single phase current-- for shipment March 10th.
Please make shipment of the sample water promptly so that we may make the analysis and know the character of the water b/f shipment of the apparatus. Shipping tag is inclosed, and please note, the instructions to guard against freezing.
Yours very truly, International…. MB Johnson."
-By a letter dated Feb. 28, 1920 D undertook to countermand the "order"
-D repeated the countermand in another letter on March 4, 1920
-P responded in a March 2 letter denying D the right of countermand and insisted on the performance of the K
(This suit ensued)
Issue on Appeal:
Did D's actions constitute an enforceable acceptance? (Is D bound to this deal?)
"Question of notification" ….[Notification to P that D accepted?]
P's argument:
-Sued for Breach of the contract alleged to have been made by the facts above.
D's argument:
-No K because:
- Neither Engel's indorsement of "OK" nor the letter of Feb. 14 amounted to approval "by an executive officer of the P at its office in Chicago"
- Notification of such approval, or acceptance, by P was required to be communicated to D
- D insists this requirement inhered in the terms of the proposal and in the nature of the transaction; AND
- Thompson, when he indorsed "acceptance" on the paper stated to Waterman, as an agent of P, that such notification must be promptly given (*Thompson testified to support this)
- The Feb. 14 letter did not constitute such acceptance or notification of approval
- D insists this requirement inhered in the terms of the proposal and in the nature of the transaction; AND
- Therefore, D has the right on Feb. 28 to w/draw or countermand the unaccepted offer.
Rules:
Sect. 56 of R2C (??) Notice Necessary to Offeror is essential either quickly or through the exercised due diligence of the offeree
Analysis:
Instant court agrees with Ct of Apps that Mr. Engel's indorsement=approval by "an executive officer of P at its office in Chicago" w/n meaning of the proposal
- The paper then became a K according to its expressed terms UNLESS that approval was REQUIRED to be communicated to D and that communication was NOT made
- This court is not prepared to agree that such communication was essential
- There is no inclination to question the justice of the general rules stated in support of that holding
D executed the paper for the purpose of having it transmitted as an offer (parties' intent). It was then acted upon. D's paper's terms embrace the offer made by P (and nothing else)
- By these "terms" the question of notification must be judged
P's original paper contained 2 provisions that relate to acceptance by D
- Declaration that the offer shall "become a K… when approved by an exec officer…"
- "This proposal is submitted for prompt acceptance, and unless so accepted is subject to change w/o notice."
#1 states a particular mode of acceptance as sufficient to make the bargain binding
-D did what was indicated by the note to accept
When this was done, as the paper said, "it became a K"
#2 does not relate in any way to a different method of acceptance by D
-Only refers to the time w/n which the act of approval may be done (a "prompt acceptance") and that the offer may be changed w/o notice
Only wanted the acceptance to happen quickly. If the act was done, there is nothing to argue about
The lower court's analysis and holding (and construction of the two numbered provisions) does not give #2(?) meaning or dissolve ambiguity.
Instead, it introduces conflict and ambiguity where none exists in the K itself
Defeats the plain term "becomes a K… when…"
The court cannot restate that the offer only becomes a K when it does what the K said would constitute acceptance and approval (that it becomes a K when accepted by exec in Chicago) AND notice is given to D of that approval…. It's not there so ct can't put it there.
Even still…the letter of Feb. 14 sufficiently communicated that notice, if it was required…
"Acceptance" = meeting of the minds
"Notice" = merely relates to that (above) pre-existant fact
The rules do not require any particular form or manner of notice, unless the parties themselves have prescribed it. Whatever would convey by word or fair implication notice of the fact would be sufficient.
This letter (Feb. 14) would indicate to a reasonably prudent person in D's shoes the fact that the offer was previously approved by P.
If D had acted to change its position upon it as a notification of that fact-- like, "Whoa, hey, I didn't approve…" P would be estopped to deny its sufficiency….?
Answer: [This is a reliance statement…. If after getting that approval, Conroe had done something to rely on the letter and had later tried to make an argument based on reliance, IFC would not be able to say that wasn't reasonable reliance…Basically, any reasonable person would say that was reasonable notice of the K and reasonable reliance on it]
Conclusion:
J reversed and remanded to the appellate division for all questions not passed upon it here….
(bilateral?)
Countermand: a contradictory command that overrides or annuls a previous one. An action that has the effect of voiding something previously ordered; a revocation
Inhere(d):
to exist as a permanent, inseparable, or essential attribute or quality of a thing; to be intrinsic to something.
Court later said this was an acceptance b/c it's what the K was said…
Dispensation: an exemption from a law, duty or penalty; permission to do something that is ordinarily fobidden
Analysis of the lower ct:
-Deduced that "a notification of approval" was required from the terms of the #2
!No notice of the approval was required by the lang of the K!
(The Feb. 14 note was enough)
What does this mean???
Who is the offeror?
What is the offer?
The propsoal signed by IFC's salesman on Feb 10?
Invitation to make an offer
Notation "accepted" by Conroe's mgr:
The offer (D actually made the offer)
-->This is a situation where the buyer is the offeror and the propos-er is the offeree…
How to tell: Look @ buyer's correspondence and try to spot the offer there.
Add'l policy concerns:
-Approval by P's HQ might just be a protective measure against its actions of its distant agents, like in this case
In these types of transactions, the buyer is generally the offeror…
White v. Corlies & Tift
Court of Appeals of NY, 1871
Parties:
P = builder in NYC
D= merchants in NYC
Facts:
-Sept. 1865, Ds furnished the P w/ specifications for fitting a suite of offices at 57 Broadway and requested an estimate of the costs for the work
-Sept 28 P left his estimate w/ the Ds for them to consider it and let P know their conclusion
-On the same day, D made a change to their specifications (changed from black walnut to pine) and sent a copy of that change to P for his assent UNDER THE ORIGINAL ESTIMATE
-P assented, signed the copy of the changes made and returned it to D
-The next day, Sept. 29, D's bookkeeper wrote the P a note:
"Upon agreement to finish the fitting of offices at 57 Broadway in two weeks from date, you can begin at once.
The writer will call again, probably b/n 5 and 6 tonight.
WHR for D…"
-P made no reply to the note, doesn't wait for the call but started work on the project (bought materials, etc)
-The next day, Sept. 30, the changes/agreement was countermanded by D
-When P rec'd the countermand, P brought the action for BOC
PH:
-Alleged BOC
-P won in trial court
-P won again @ appellate level
- Appealed by D
Issue on Appeal:
Did P accept or did he just go off and do his own thing?
Is this an offer for a promise or an offer for a performance?
Did P start to "perform" by buying the materials?
Analysis of lower court:
-Court charged jury as follows: "From the contents of this note that the P rec'd, was it his duty to go down to D's office and give his assent b/f starting work? In my opinion it was NOT. He had the right to act upon this note and commence the job and that this was a binding K b/n the parties."
- This is what the D's appealed
Analysis of Court of Appeals:
-P didn't manifest his acceptance so that it was clear to D through some appropriate act
-Not acceptable manifestation of acceptance by P
D's Argument on Appeal:
-By their note, D did not instruct P to go to work upon the receipt of the note but instead go to work upon an agreement to finish the work in two weeks from the date. The element of time had not yet be introduced until this point.
Further, if P decided he wanted out later, he could say he had bought the lumber for another job and thus removing any redress available to D
Rules:
"Where an offer is made by one party to another when they are not together, the acceptance of it by that other party must be manifested by some appropriate act [notice must be given]. It does not require that the acceptance shall come to the knowledge of the one making the offer BEFORE he is bound but he is NOT BOUND if that manifestation [of acceptance by offeree] is not put in a proper way to be in the usual course of events, in some reasonable time communicated to him."
Thus, if a letter containing a proposal is rec'd by mail, may be answered w/an acceptance sent by letter by mail
In general, as soon as this letter of acceptance is mailed, the K is complete b/c it is put in the proper way of reaching him.
Analysis of Instant court:
-There was no mention of an offer b/f D's note of countermand on the 30th
It was merely a proposal by the Ds that P had to accept BEFORE it became an enforceable obligation. This proposal sought a return promise by P ("I promise to complete the work in 2 weeks)
The only overt act by P indicating an acceptance on his part was the purchase of the materials for the job and then starting work
P mistook this for a unilateral K but really it was a bilateral K
Here, the P accepted but only mentally which was not indicated by speech or otherwise articulated to the other party.
"A mental acceptance alone accompanying another random act (which alone does not indicate acceptance) will NOT bind the other party"
P did not manifest his intent to accept verbally or through his actions
The materials he bought for this job were like the materials he would buy for any other job.
P began work upon the materials [like any other job], not the particular site. He could have been working on another job.
- One way or another, P had to let Ds know that he accepted their offer in the way the promise was offered….
The lower court judge led the jury to mistakenly believe that P had no duty to notify the Ds of his acceptance and that P's purchase of materials and commencement of work made a binding K
This is wrong.
Conclusion:
Reversed. New trial ordered.
(bilateral K)
D's argument on appeal
- If D's offer sought a promise, not a performance, what means of acceptance did it invite?
- Agreement to complete the work w/n specific amt of time
NOT
A performance
- If D wanted a performance,
D's letter should have said, "if you can finish the work in 2 weeks, you can begin at once." NOT "upon an agreement" (which it did)
R2C sect 53: An offer can be accepted by the rendering of a performance ONLY if the offer invites such an acceptance
The offeree has to be cognizant of what the K is asking them to do.
- If they accept it the wrong way, they probably have not accepted it at all.
Ever-tite Roofing Corportation v. Green
La App 1955
Parties:
P=ERC
D=Green homeowners who need a new roof
Facts:
-Ds wished to have P re-roof their home and signed a document that set out the work in detail and the price in monthly installment
-Same was signed by P's representative, who had NO authority to bind P
-Document had a provision that read: "This agreement becomes binding only upon written acceptance by the principal or authorized officer of the P or upon commencing performance of the work"
-As D knew, b/c work was to be done on credit, P had to first obtain credit reports on D and get financing for the project by outside institution
-When this was done, about nine days after execution of the agreement, P loaded 2 trucks and sent them w/ its workmen to D's residence
-Upon their arrival, they found work had already been started by another company for same project and they were not permitted to work
PH:
-P sued D for BOC
-J for D
-P appeals
Issue:
Did D provide sufficient notice to P to drop the K in the matter by which they did?
D's arg:
-We revoked in time b/c the offer said "you can accept by commencing work" … they did NOT actually commence work. We notified them before they started work.
Reasoning of lower ct:
-D had timely notified P before commencing performance of the work (agreed w/ Ds)
Trial court held that the manner that P gave notice (the presence of other company working on
job when P's men arrived before they started work) was sufficient and timely to signify D's desire for them not to start work/D's desire to w-draw from the K
Reasoning of instant ct:
-We do not agree w/ lower ct b/c:
D knew this work was to be processed through P's Shreveport office
The record shows no unreasonable delay caused by P
No time limit was specified on K for work to be begun
It was understood by both parties that financing would take some time
Therefore, P proceeded w/ due diligence
Time element: b/c the K did not give any specifics as to timeframe, a reasonable amount of time is contemplated where no time is expressed
- Reasonable time must be allowed in accordance w/ the facts, circumstances and evident intention of the parties.
- None of the delays in D's application were unusual
Commencement of performance: P's performance began when it first loaded its trucks in Shreveport and transported its men and materials to D's residence
At that point, the K became complete
Conclusion:
Reversed
(Unilateral K)
"Reasonable" amount of time is allowed by the court
No time element expressed
(Court could have interpreted this differently to favor the Ds by saying work didn't commence until crew starting installing shingle or removing the old shingles)
Notice in Unilateral Ks
- Bishop v. Eaton
- Allied Steel v. Ford Motor Co.
Tuesday, September 30, 2008
9:29 PM
If a K is to be bilateral, notice of acceptance is required by offeree "in some reasonable time" to the offeror (R2C sect. 56)
The necessity of giving notice is less obvious if the offer proposes a unilateral contract (performance, not promise)
Carlill v. Carbolic Smoke Ball Co. (1893): A cold remedy has a "offer" that allows anyone who contracts the flu or a cold after using the remedy properly for three times daily for 2 weeks is to be granted a 100L reward
P sues the company and is awarded the 100L
D's appeal was dismissed
- The D's ad was not mere puffery but an actually offer
- The fact P did not notify D of her acceptance was not fatal to her claim
Rule:
If the offeror expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal w/o communicating acceptance of it [by the offeree to the offeror] then the performance of the offer will be sufficient as an acceptance w/o notification.
In many cases, you look at the offer itself
In advertising cases, there is an inference that can be drawn from the transaction itself [consumer buys product, uses product] that a person is NOT required to notify his acceptance of the offer b/f he performs [do companys really want consumer to wait to use product?]. When consumer performs, the condition of notification is dispensed with.
Important American case on the necessity of notice of acceptance of a unilateral K:
Bishop v. Eaton
Mass. 1894
Parties:
P=Bishop (lives in Illinois)
D=Eaton (lives in Novia Scotia)
Facts:
-D writes P letter: If you help my bro get $ I will see that it gets paid
-P helps bro get $
-Bro defaults on loan
-P brings suit against D
Lower ct's analysis:
-Although there is no requirement of notice to the offeror of the acceptance in this kind of K, ct still thought this was a case were notice of acceptance should have been given b/c of the geo distance b/n the parties
-Usually, promisor knows in these cases he is bound when he sees that action has been taken on the faith of his offer
This act would not afford such knowledge to the promisor quickly
Thus, promisee is bound to give him notice of his acceptance w/n a reasonable time after doing what constitutes the acceptance
Conclusion: contrary to analysis, lower ct found that notice had been given
Allied Steel and Conveyors, Inc. v. Ford Motor Co.
United States Court of Appeals, Sixth Circuit, 1960.
Parties:
Allied: Allied
Ford: is actually P b/c Ford is sued but impleads Aliied
Facts:
-Aug. 19, 1955: Ford ordered machinery from Allied on Ford's printed form (PO #15145) which provided that if Allied was required to do work (installation) on Ford's premises, Allied would be responsible for all damages caused by negligence of its own employees.
-Attached to that form was another printed form, Form 3618, which included a much broader indemnity provision requiring Allied to assume full responsibility for not only its own employees but also for Ford's, in the case of negligence that was connected to Allied's work. This provision, however, was marked VOID.
-The PO was accepted by Allied & the K was performed.
-July 26, 1956: Ford submitted a 2nd PO to Allied "Amendment #2" which proposed that Ford purchase add'l machinery from Allied.
-This form was a little different. "This PO agreement is NOT binding until accepted. Acceptance should be executed on acknowledgment copy which should be returned to the buyer."
-Again, same 3618 attached but now without VOID marked
-The acknowledgment copy was executed by Allied on Nov. 10 & reached Ford on Nov. 12.
-By Nov. 12, Allied had already started work on the installation for over a month
-On Sept. 5, Hankins, an employee of Allied had sustained personal injuries as a result of the negligence of one of Ford's employees.
Issue in lower court:
Which of the indemnification provisions are we operating upon at the time of the incident?
PH:
Hankins sued Ford who in turn impleaded Allied, relying on Form 3618's indemnity provision (2nd version that had not been voided)
-Trial court gave J for Hankins against Ford
-Trial court gave J for Ford against Allied
-Allied then moved for JNOV
-Was denied
-Allied appealed
Issue on appeal:
Was Allied requred to indemnify Ford for injuries based on 2nd 3618 form?
Allied's argument on appeal:
-The contractual provisions evidenced by Amend. #2 were not in effect at the time of Hankins's injury b/c it had not been accepted at that time by Allied in the formal manner expressly required by the amendment itself.
-They are OK with paying for negligent acts of own workers but not Ford's (?)
-There as an expressed requirement means of acceptance
-A binding acceptance of the amendment could be effected only by Allied's execution of the acknowledgment copy of the amendment & its return to Ford
Rules: see also R2C 60
- An offeror may prescibe the manner in which the acceptance of his offer shall be indicated by the offeree and an acceptance of the offer in that manner will constitute a binding contract.
- However, if the offeror merely suggests a permitted method of acceptance, alternative methods of acceptance are not precluded [ruled out in advance]
- If the offer requests a return promise (unilateral K) and the offeree starts to do or tender was he was requested to promise without actually making that promise to the offeror, there is a K if such performance is completed within the time allowable for accepting by making a promise.
- In these cases, a tender of the performance operates as a promise to render a complete performance (R2C)
Analysis of instant court:
Two conclusions:
- However, if the offeror merely suggests a permitted method of acceptance, alternative methods of acceptance are not precluded [ruled out in advance]
- Ford's provision of its form regarding the execution and acknowledgment copy of Amend #2 was only a suggested method of acceptance
- The words used by Ford was "should" and NOT "must"
- This provision was there just for Ford's protection-- Ford would not be bound by the amendment unless Allied agreed to all of the conditions specified in it. The actual "method" of returning it to Ford was mentioned just to suggest a simple and convenient way for Allied to indicate its assent.
- All Ford wanted was for Allied to perform the work upon the terms prescribed in the amendment, not the actual copy of the contract.
- All Ford wanted was for Allied to perform the work upon the terms prescribed in the amendment, not the actual copy of the contract.
- The words used by Ford was "should" and NOT "must"
- The offer was accepted and a binding K was formed when Allied w/ Ford's knowledge, undertook the performance of the work called for by the amendment.
- This is supported by other authorities that the acceptance of a K may be implied from the acts of the parties.
- An offeree who has led the offeror to believe that there was a K, should not be able to assert an intent that is contrary to his acts.
- Allied argued that Ford could have revoked the order when Allied began installing the machinery w/o first having executed its written acceptance.
- Not true. If that were the case, if Ford had acquiesced in the acts of Allied and accepted the benefits of the performance, Ford would be estopped to object and could not later deny the existence of a K.
Conclusion:
Affirmed. This could be construed as an offer for EITHER a bilateral or unilateral K.
- Indemnity agreements is one where a party undertakes contingent liability for a loss threatening another.
Black's: "a duty to make good any loss, damage or liability incurred by another. [2] the right of an injured party to claim reimbursement for its loss, damage or liability from a person who has such a duty.
Indemnity against liability: a right to indemnity that arises on the indemnitor's default, regardless of whether the indemnitee has suffered a loss.
These agreements are regularly enforced even when the loss envisaged (imagined) is attributable to the fault of the promisee [the indemnitee].
Rationale of indemnity agreements: Often it is difficult when 2 parties enter a K to figure out who should pay when one or both of the parties cause a loss to a 3rd party. An indemnity agreement solves this problem b/c it has already figured out who has to pay in such a situation.
- It's sometimes cheaper for one of the parties to concentrate on this "anticipation" (and buy the appropriate insurance) than the parties having to pay for the costs assoc with risk management in aggregate.
- It's sometimes cheaper for one of the parties to concentrate on this "anticipation" (and buy the appropriate insurance) than the parties having to pay for the costs assoc with risk management in aggregate.
What's the distinction b/n this case and White v. Corlies?
Ans: | bilateral v. unilateral Ks |
If the language had been different and this had been the only way to accept the offer, this would probably sound more like a bilateral contract… Maybe. The offeror would not be Ford but instead Allied.
R2C sect. 62: Wherein an offer invites the offeree to choose b/n acceptance by promise and acceptnace by performance, the tender or beginning of the invited performance or a tender of the beginning of the invited performance or a tender of a beginning of it is an acceptance by performance.
But it's not fulfilled (consideration is not furnished) until performance ends.
….
Termination of the Power of Acceptance
- Dickinson v. Dodds: Timing issue-- when an offer is made w/ a timeframe for the offeree to accept, it is binding? [lapse]
- Ragosta v. Wilder: firm offers… preparations to perform as a means of acceptance do NOT count. [revocation prior to acceptance by performance]
Saturday, October 04, 2008
2:55 PM
- After a party has made an offer (thereby conferring the power of acceptance on another party), that new "power of acceptance" can only be terminated in four ways:
- Lapse of the offer
- Revocation of the offer
- Death of the offeror or incapacity
- Offeree's rejection
- Lapse of the offer
*Timing. Timing of an acceptance, rejection or revocation when dealing w/ mail, messenger or other electronic means…
"The Mailbox Rule"-
Acceptance is effective when the acceptance is signed and put out of the poss of the offeree. In the mail=accepted.
Once the acceptance has been mailed, it's too late for either party to change its mind.
Revocation is effective only upon receipt by the offeree.
Even if a rejection & an acceptance is sent at the same time & the rejection is opened first by the offeror, the acceptance is still valid b/c it became valid the second it was mailed. An offeree cannot revoke after that acceptance has been mailed. (Typical bar exam question)
UCITA, an acceptance dispatched by email is effective when received. (Uniform computer information transfer act).
Receipt-=receipt to computer address, not to the individual (if it goes to junk, it was still "received"
- However, not many jurisdictions have adopted UCITA as the law.
- If the offeror/offeree are close to one another & there's instantaneous communication & both parties hear it, that acceptance becomes valid.
Lapse: the expiration of the period w/n which an offer can be accepted
Some offers say specifically
Some do not specify, so it lapses after a "reasonable time" depending on the circumstances
Factors include: | Rapid fluctuation in the product's price, manner of delivery of the offer [In Akers v. Sedberry, an oral offer was made for the offeror to resign, the conversation closed but then the offeree tried to accept a few days later. The court held that offers made in conversation close with the conversation and cannot be accepted afterwards], amount of time coupled with the content of the offer [Loring v. Boston] | |
Tardy acceptances-- If the offeree is slow to accept but still wants it, can the offeror choose to disregard the delay?
Option Ks: (r2c sect. 25) a promise made by an offeror that effectively limits the offeror's power to revoke
Usually a K like this expresses, directly or indirectly, a fixed period w/n which the offeree has to "pick up" the option
- Three ways how option Ks are created:
- Consideration
- Firm offers under the UCC
- Reliance by the offeree
- Consideration
Revocation:
Basic rule in common law countries- An offeror can terminate an offer at any time b/f it has been accepted by "revoking" it.
- The only way an offeror can avoid the common law rule (above) is if they expressly say that their offer is irrevocable…. Like a firm offer or option K.
"Firm offers" or option contracts-- exceptions b/c these two kinds of offers are irrevocable for a period of time. [Irrevocability is the defining characteristic of the option K]
Key question: | How much does the existence of a K depend on the exact sequence of the "acceptance" and the "revocation"? |
Dickinson v. Dodds
Ct of Appeal, Chancery Division, 1876
Parties:
P=George Dickinson
D=John Dodds
Facts:
-On Weds. June 10, 1874 D signed and delivered P a memo that said:
"I hereby agree to sell P the whole of my dwelling-- house, garden, stables, outbldgs thereto belongings, situate at Croft, belonging to me, for the sum of 800L. As witness my hand this 10th day of June 1874…. 800L signed… P.S. This offer be left over until Friday, 9 o'clock J.D."
-P decides that he wants the property, but doesn't rush to let D know, thinking that he had until 9 a.m. on Friday
-Thursday afternoon, P hears that D was offering or agreeing to sell the property to someone else (Thomas Allan)
-P rushes over to D's mother-in-law's house (where D had been staying) and leaves mother-in-law w/ a formal acceptance
-Mother in law forgets to give it to D and testifies to that effect
-Friday around 7 a.m. Berry, who as acting as an agent for P, found D at Darlington Raceway station and handed him another copy of the acceptance by P and told D that P accepted
-D replied that it was too late & that the property had already been sold
-The day before (Thurs.), D had signed a formal K for the sale of the property to Allan for 800L and rec'd from him a deposit of 40L
-P brings action against D for damages AND a performance of the K to him and to stop the conveyance of the property to Allan and if Allan did already receive the conveyance, that he be forced to convey the property to P
*He basically makes it sound like there are two bindings Ks present here (D & P's; D&Allan's) and he would be entitled to priority in equity
Issue:
Was D bound to perform the offer he made to P?
If an offer has been made for the sale of property but b/f that offer has been accepted the person who made it then enters into another binding agreement to sell the property to somebody else, & that person whom the offer was first made receives notice in some way of this new offer and agreement, can the original party make a binding K by acceptance by accepting the offer?
Rules:
In order to make a valid K, two minds must be in agreement at one time
-Before that point of agreement, the offer can be withdrawn at any time b/c it is only a nudum pactum and both parties are "free" of the obligation
Analysis:
This was merely an offer. Before there was any attempt at acceptance by P, P knew that D had changed his mind & had agreed to sell the property to another person
Therefore, it is impossible to say whether there was ever that existence of the two minds being in agreement at the same time
Conclusion:
There is no K.
Revocation of general offers-
The way most general offers are made (like ads), it would be impossible for the offeror to give notice of a revocation to all ppl who are aware of the offer
The offeror can be required to give notice of revocation by the same manner that it was extended… But, even if a person tries to accept after the revocation (but didn't know about it, only knew about the offer), the offeror is not bound as long as that "publicity" was given (R2C sect 46)
Problem p. 179:
A offered in writing to sell B greenacre for $1000, offer to remain open for 5 days. Fourth day, B rec'd info from county recorder of deeds that the A had sold the property to C. B thought the information would likely be reliable, but did consider that there might be some error, so B notified A on the 5th day. The information given by the recorder was wrong, but a refused to perform. Is there a K?
- Yes. Even though B gained his information from a reliable source regarding A's supposed definite action that would be inconsistent w/ his intention to sell to B, the fact that no such action occurred by A (he denied what the recorder said when he refused to perform) does not fit under R2C sect 43. B's acceptance pre-dated A's revocation, A's window to revoke had thereby closed… It's a K.
- No. If B had not conferred w/ the recorder of deeds, a source B concedes he considered to be "reliable," he could argue that his acceptance came b/f his knowledge of A's revocation. However, R2C 43 says that B's power was terminated when A took definite action inconsistent w/ an intention to enter into the proposed K & the offeree acquires reliable information to that effect
Nudum pactum: bare or naked promise… exists when there is an absence of consideration
Option Ks are NOT VALID W/O CONSIDERATION!!!
"Firm offers" under the UCC
- Early common law, irrevocable offers or option could be created by making the promise under a seal
- Doctrine of consideration later replaced it
- From Dodds v. Dickinson, we know that a time limit fixed by the offeror could not prevent revocation of the offer before the time limit had expired because it was absent consideration. Without consideration, any restriction of the power to provoke was nudum pactum.
- American courts have followed this despite not being very popular with the public.
- But, if we don't then we start to treat offers as subordinate forms of promises….
- One way to deal w/ this problem is the giving of a small amount of $$ in exchange for a promise of irrevocability.
- This works w/ real property b/c parties in these transactions can reasonably foresee the possibility of revocation & create this rather elaborate mechanism
- It does not work as well for less formal transactions like the sale of goods b/c the offeror is less likely to clthe the promise in the trappings of consideration b/c, unlike real estate, goods are usually more easily replaced or resold in cases of breach + the sale of goods usually takes place in an active market where the values of the goods are subj to rapid fluctuations….
- In response to this, UCC (2-205) contains an provision that enables an offeror (who must also be a merchant) to make an irrevocable offer by means of a signed writing
Recitals: (1) an account or description of some fact or thing; (2) a preliminary statement in a K or deed explaining the reasons for entering into it [intentions] or the background of the transaction; (3) traditionally each recital begins w/ the words "Whereas"
- If a sum of $$ in paid as consideration for an option, this fact is usually recited
- What is the effect of a recital if no payment is made?
- Some courts held the offer to be of no effect
- Other courts have held that it is irrevocable, either as a binding acknowledgement of payment or as a promise to pay [R2C sect 87 favors this view b/c the signed writing has a "vital significance" as a formality, but the handing over of a nominal sum is as inconsequential as a peppercorn]
- Some courts held the offer to be of no effect
"merchant" under UCC 2-205:
-a person who deals in goods of the kind
-one who by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction
*for more, see p. 180 @ the bottom
UCC2-205: merchant offerors to make irrevocable offers w.o consideration by means of a signed writing known as a firm offer…. Firm offers can made irrevocable for a period of up to 3 mos.
Ragosta v. Wilder
Supreme Ct of Vermont, 1991
Parties:
P= Ragosta, prospective buyer of The Fork Shop
D=Wilder, owner of The Fork Shop
Facts:
In 1985, Ps became interested & started prelim negotiations w/ D for purchase of the shop
Those negotiations were fruitless
In 1987, Ps learned that D was again considering to sell the shop
They mailed him a letter offering to purchase the property w/ a check for $2K & started making arrangements to secure financing
In a letter dated Sept. 28, 1987, D returned the $$ & explained that he had 2 properties up for sale & that he would NOT sign an acceptance to the Ps b/c that would tie up both of these properties until there was a closing
In this letter he also made this counter-offer:
"I will sell you The Fork Shop and its property as listed….for &88K at anytime until Nov. 1, 1987 …. Proving said property has not been sold"
Ps rec'd this letter Oct. 1 & called D and said: "The terms of this offer are acceptable & they were prepared to accept the offer."
D assured them that no one else was currently interested in the property
Oct. 6: Ps informed D that they would not close the sale on Oct. 8 as they had discussed earlier but instead on the 10th.
On Oct. 8, D called Ps & said he was no longer willing to sell
At this time, D was well aware that Ps had processed their loan application & were prepared to close
Ps informed D that they would be at the bank on Oct. 15 w/ the $ to buy the property
D did not show up
P's claim they incurred $7499.23 in loan closing costs
PH:
Ps sued for specific performance of D selling them the property @ the $88K price
Trial court held for Ps & ordered D to convey the property to Ps for the $88K price.
- "D had made an offer in writing which could only be acceptance by performance prior to the deadline" [thus calling it a unilateral K]….
- The D could not revoke b/c Ps, relying on his offer, had already begun performance of the K
- D should be estopped from rvoking the offer on a theory of equitable estoppel
D then appealed
Issue on appeal:
Could D revoke the offer at any time before the other party (P) accepts by performing, so long as there is no consideration for the promise to keep the offer open?
P's argument in trial court:
- D's letter dated Sept. 28 created a K to sell to them unless the property was old to someone else
- The Trial Ct said: (1) that it was merely an offer that could only be accepted by performance by the deadline & (2) a promise to keep the offer open unless the property was sold to another buyer
- The Trial Ct said: (1) that it was merely an offer that could only be accepted by performance by the deadline & (2) a promise to keep the offer open unless the property was sold to another buyer
- The actions they undertook to obtain financing constituted consideration for D to keep the offer open, b/c they were detrimental to them
- The Trial Ct said: this was a performance K & therefore D could not revoke the offer to sell once the Ps started performance by their efforts in obtaining financing
- The Trial Ct said: this was a performance K & therefore D could not revoke the offer to sell once the Ps started performance by their efforts in obtaining financing
- Ps are entitled to equitable estoppel.
- The Trial Ct said that if D had sold the shop to someone else, Ps would not be entitled to relief
Analysis of Instant Ct:
- D did not receive any consideration for either promise. He actually returned the check for $2K which would have constituted consideration for the promsie to keep the offer open (probably b/c he did not want to make a firm offer)
The promise to keep the offer to sell open was NOT enforceable & absent the operation of equittable estoppel, D could revoke the offer to sell the property @ any time b/f the Ps accepted it
- Although a detriment to the Ps could constitute consideration, they ignore the rules regarding consideration. Here, the Ps began to seek financing even b/f the D made a definite offer to sell the property. Whatever detriment they suffered was not in exchange for D's promise to keep the offer to sell open.
- Further, P's efforts to get financing was NOT part of the actual performance offered by D. Instead, it was merely a preparation for the performance.
- Further, P's efforts to get financing was NOT part of the actual performance offered by D. Instead, it was merely a preparation for the performance.
- B/c d specified in his letter a specific manner of acceptance would be a performance, the P's argument that they accepted D's offer over the phone must fail.
- The phone call was a promise, what D wanted was a performance.
Equitable estoppel is not applicable here b/c there were no facts known to D that P did not know. P could not have acted on a reasonable understanding that the D would definitely convey the property to them. The fact that they knew it could conveyed to someone else gave them ZERO assurance that D would definitely convey the property to them, even if D told them on Oct. 1 that no one else was looking @ the property. When the Ps took the steps to get financing, they knew they were taking a risk.
This court is unwilling to shift the "risk" that Ps undertook on to D.
- The phone call was a promise, what D wanted was a performance.
Rules:
- An option is a continuing offer and if it is supported by consideration, it cannot be w/drawn b/f the time limit
- "To constitute consideration, a performance or a return promise must be bargained for." R2C sect. 71(1); "A performance or return promise is bargained for if it is sought by the promisor in exchange for his promsie & is given by the promisee in exchange for that promise." Sect 71 (2)
- R2C sect 45: "…in a performance K, an option K is created when the offeree tenders or begins the invited perfomance or tenders a beginning of it… BUT that performance that is partially tendered or begun must be part of the actual performance invited in order to preclude revocation…"
- R2C sect 45: "…in a performance K, an option K is created when the offeree tenders or begins the invited perfomance or tenders a beginning of it… BUT that performance that is partially tendered or begun must be part of the actual performance invited in order to preclude revocation…"
- Under a unilateral K, an offer cannot be accepted by promising to perform; rather, the offeree must accept, if at all, by performance, & the K then becomes executed.
Equitable estoppel: P has the burden of establishing four elements:
- The party being estopped must know the facts
- The party being estopped must intend that his conduct shall be acted upon or the acts must be such that the party asserting the estoppel has a right to believe it so intended
- The latter must be ignorant of the true facts
- The party asserting the estoppel must rely on the conduct of the party to be estopped to his detriment
Conclusion:
Because Ps did not tender performance AND did NOT establish the elements for the application of equitable estoppel, D was entiteld to w/draw his offer when he did
- The party being estopped must know the facts
This has characteristics of an illusory promise b/c ther e is no "check" on his discretion. Good-faith might be implied (if Ps got the money, he would be obligated to comply w/ the sale) but his reliability is compromised-- he's been ambivalent to this sale for a long time. Futher, there's not a lot "glueing" him to comply w/ the sale.
Promise for promise (bilateral) is a much cleaner K. B/c of reasons of risk & certainty.
Death of the offeror/incapacity:
- This rule applies whether or not the offeree knows about the death
- However, this rule's use has been reduced since the typical offeror is not often a "deathless" corporate entity.
- There's a deficiency of authority related to this rule (Williston in the First Restatement)
- At the time of the drafting of the R1C, it was vital that the rule match that for agency in American Law Institute
- The R2C preserves the ALI rule though it admits that this is a relic of the now-obsolete view that Ks require a "meeting of the minds" & out of harmony w/ the modern doctrine that a manifestation of assent is effective w/o regard to actual mental assent
- At the time of the drafting of the R1C, it was vital that the rule match that for agency in American Law Institute
- Death or incapacity does not terminate the offeree's power of acceptance under an option K.
- Death or incapacity after a K has been formed may efect obligations under the K and depends on how pivotal the person's role was in the enterprise.
R2C sect. 48: an offeree's power of acceptance is terminated upon death of the offeror or other supervening incapacity.
- Same effect for death of an offeree
Corbin says…There is no really good reason or necessity for this rule. For instance, if a guy dies w/ debts, the law has no trouble figuring out who ought to handle the payments. There would be no greater difficulty associated with declaring the power of acceptance to survive as well.
(see ALI/R2C comment above)
Rejection by the offeree:
A rejection by the offeree bars a subsequent acceptance…R2C sect 38
- There is no "psych!"I want to accept now. Upon rejection, an offer is DEAD.
- Rationale: It might be unjust to allow this to happen if the offeror has relied on this rejection.
- Rationale: It might be unjust to allow this to happen if the offeror has relied on this rejection.
The mirror image rule-- some background:
An acceptance must be unequivocally (absolutely clear) & definitely on the EXACT terms proposed by the original offer, without the slightest variation or condition (trad'l common law doctrine)…
An acceptance w/ a limitation or a condition is a rejection & acts like a counteroffer, which then requires acceptance by the original offeror before a contractual relationship can exist
Rationale: | The offeror as "master of the offer" enjoys freedom from K except on the offeror's own terms. |
Key Qs:
- What counts as a rejection? See mirror image rule.
- What counts as a rejection of a firm offer?
The strictness of this rule is often mitigated in practice:
Three typical situations where the Mirror Image Rule is mitigated: |
| |
Kinds of cases where disputes tend to arise: |
|
|
Solution: | The more rigorous the application of the Mirror Image Rule, the more attractive recourse to these "pretexts" becomes | Under the Mirror Image rule, the party who sent the last form b/f the performance began usually prevailed. This is b/c each "later" form acts as a rejection of any earlier offer by the other party & as a counteroffer. Thus, it became advantageous to fire the "last shot" before a performance began. |
*A lot of this was changed/revised with the adoption of UCC 2-207
Grumbling acceptances-- "unqualified" acceptance…. "Ship the goods on the 10th, though I wish you'd ship them sooner." fall under R2C sect. 39-- comment B distinguishes b/n "qualified" (i.e. conditional acceptances-- an acceptance which purports to accept the offer but makes acceptance expressly conditional on assent to add'l or different terms.
Shipment of Goods as Acceptance
Corinthian Pharm Systems Inc v. Lederle Labs
Thursday, October 02, 2008
2:04 PM
UCC 2-206(1)(b): an order for "prompt or current shipment" shall be construed as inviting acceptance either by a return of a prompt promise or the actual action of shipping the conforming or non-conforming goods….
Is a seller's shipment of goods in response to a buyer's order an acceptance?
Two possible consequences of a notice req:
UCC 2-206(2): "the offeror who is not notified of acceptance w/n a reasonable time may treat the offer as having lapsed b/f acceptance."
Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories
United States Dist Ct, (SD, ID Indianapolis Division), 1989
Parties:
P is Cornthian Pharm, a distributor of drugs that purchases supplies from naufact such as D
D is Lederle- pharm manufactuere & distr that makes a # of drugs, including the DTP vaccine.
Facts:
-D periodically issued a price list to all its customers of all its products
-each price list stated that all orders were subject to acceptance by D at its home office and indicated that the prices were shown "were in effect at the time of publication but are submitted w/o offer and are subj to change w/o notice."
-Further, this list said that when price changes do occur, they take immediate effect & all unfilled current orders and back orders will be invoiced at that price at the time that shipment is made
-From 1985 through early '86, P made a number of purchases of the vaccine from D, the largest single order being for 100 vials
-During this time, DTP was the subj of many product-liability lawsuits
-D then decided to "self-insure" so they amped up their prices substantially (>3X)that would become effect May 20
-D's mgmt then prepared an internal memo dated May 19… These letters were sent to sales force but NOT customers.
-D prepares another letter to let P know "officially" several weeks after May 20
-Somehow, however, P already knew about this price change
May 19: In response to this info, P immediately placed an order for 1000 vials through a computer-telephone ordering system, the date b/f the change
-The computer system completing the sale gave P a tracking number for its order
On the same date (5/19), P sent D 2 written confirms of its order. On each of these confirm forms, P "confirming" the price of $64.32 per vial
-June 3: D sent an invoice to P for 50 vials at the $64.32 price
-the invoice contained the standard D language as noted above
The vials were sent & accepted by P
-At the same time, D sent its customers a letter (incl P) that "the enclosed represents a partial shipment of the order for the DTP vaccine that you placed with us on May 19) …The letter also stated that under D's standard terms and conditions of sale the normal policy would be to invoice the order @ the price @ the time of shipment. However, in the light of the major increase in price, D had decided to make an exception to its terms and conditions and ship a portion of the order at the lower price. The ltter further stated that the blance would be priced at $171 (per vial?!) and that shipment would be made after the price increase became effective, during the week of June 16. The letter did say, however, that if P wished to cancel the balance of the order, please contact D b/f or on June 13.
PH:
P sues for specific performance for the 950 vials of DTP vaccine that D chose not to deliver
-D moved for summ J on a number of alternative grounds to dispose of this claim including:
- No K for the sale of the 1000 vials was formed
- If a K was formed, it was subj to D's terms & conditions & the 50 vials sent to P were merely an accommodation….
Issue:
Did D agree to sell P 1000 vials at the $64.32 price?
Rules:
-UCC:
Analysis:
P's "order" of 1000 vials @ the $64.32 price was the first offer
Nothing D did at this point can be interpreted as an offer. The price lists were NOT offers, but merely invitations for others to make offers.
Neither D's internal memo nor its letter to customers dated May 20 can be construed as an offer to sell 1000 @ that lower price
-There is no evidence d intended for P to receive that internal price memo
-The letter to the customers was just to give notice of the price change
According to the court, who is the offeror in this case?
The buyer is the offeror… Corin made 1st offer when it called into the phone system.
Next question is if D ever accepted P's offer. D never did anything that would communicate or support an act of acceptance of P's offer.
A computer cannot "accept" by giving a tracking #. It's merely an adminsterial fx that says, "we got your order"
What's the deal with the 50 vials and the accompanying letter (after the order)?
UCC 2206b:
The letter clearly indicated that they were shipping non conforming goods, they were clear about so Corin did not need to accept…. If seller seasonably notifies the buyer the shipment signifies only an accomodation.
Further, there was nothing ambigous about D's terms of acceptance on the accompanying letter to the shipment of non-conforming goods
So, this shipment of nonconforming goods plus the letter "offering" to sell the add'l 950 vials at the higher price was really a counteroffer that Lederle was free to reject…
Once you make a counteroffer, that counteroffer fxs as a rejection of the original offer.
The original offeror then becomes the offeree.
Conclusion:
No agreement to sell 1000 vials at low price was ever formed… Lederle did not offer to sell P the vaccine at the lower price… The little "gift" of 50 cheap vials does not have any legal significance in the formation of a binding K
Effect of this provision of price list: This makes it clear that D is NOT the offerors and the receipient of the goods are NOT the offeree.
Acomodations havesignificance in UCC 2-206
Generally, silence is NOT an acceptance. R2C sect 69
Even though the offeror is the "master" of the offer, the offeror does not have the power to alter this rule.
-"Unless I hear from you, you have accpted my offer" does NOT work
But it's not a hard and fast rule. Sometimes, a silent retention can amount to an acceptance.
Factors that an influence this different holding include level of familiarity b/n the parties. In Hobbs v. Massasoit Whip Co., the parties has been transacting four or five times before in the same way… When the D was silent about a particular shipment and retained the goods for an "unreasonable" time, his actions were found to amount to an acceptance.
It can also go the other way-- a buyer who has used the same seller submits an order, the seller holds on to the order for a while but doesn't fill it, the buyer asks what's up, the seller says he's not going to fill the order.
Here, the court said "The filling of these orders in this manner for all these years was a regular practice and did constitute a valid acceptance and thus, creates a binding K." The seller should have sent a notice of rejection. If they had, the buyer would know that American had not begun production...
- So, silence + something else (retention, history, reliance interest of the other party) = acceptance sometimes
Steinberg v. Chicago Medical School
Sunday, October 05, 2008
3:08 PM
Problem p. 165:
Steinberg v. Chicago Medical School
-Brochure published by school listed admissions "criteria"
-Steinberg alleges he met each criteria
-He then sends in completed app + $15 app fee
-Is rejected
-Later learns that candidates were also evaluated on non-published criteria such as their family's ability to donate to the school
Steinberg's argument: The school's failure to evaluate him exclusively by the stated criteria is a BOC w/ him.
-Sues under unilateral contract theory: Steinberg's consideration was his performance (he sent in $$ & application materials) if Medical School will evaluate his application based on listed criteria.
- The brochure was an invitation to make an offer which also stated an exclusive method of how that offer should be made. Steinberg made his offer in the exact way stipulated. He also produced consideration for that offer in the form of his $15 application fee. At that point his "performance" was complete & his consideration for the deal was completely furnished.
- When the school voluntarily accepted his $15, it constituted an acceptance of his offer which obligated them to evaluate his application on the specified terms.
Rule 1:
R2C sect. 62: Wherein an offer invites the offeree to choose b/n acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of the beginning of the invited performance or a tender of a beginning of it is an acceptance by performance.
But it's not fulfilled (consideration is not furnished) until performance ends.
After that point, a K was formed b/n Steinberg and the school for the school to evaluate his application according to the stated standards in the brochure. Any deviation from these stated criteria breached the K.
Rule 2:
Under R2C sect 71, to constitute consideration, a performance must be bargained for. A performance is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
Consideration for both sides:
Steinberg to school: I will pay you to evaluate my application based strictly on the criteria set forth in the brochure. Here is $15.
School to Steinberg: We are taking your $ and therefore accepting your offer. Now we will evaluate your application strictly on specified criteria.
- Is this unilateral contract theory?
- Offeree/offeror v. promisee/promisor? (are these two sets of words synonyms?)
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