CHAPTER 10

Creating a Contract:Acceptances

Acceptance• Present Intent• “Mirror Image” Rule

– Materially alter terms = counteroffer• Workmon v. Publishers Clearing House, p.179

– A man who feels he has won the PCH ten million dollar prize did not meet all the conditions for acceptance, and therefore cannot claim the prize

– This is an offer for a unilateral contract, where acceptance is accomplished by doing the acts requested in the offer.

– What had Workmon failed to do?

– Is it reasonable for Workmon to believe that all he had to do to claim $10 million was to send back the form and renew his subscription?

– Note: Several state attorney generals filed suit against PCH for misleading mailings; PCH agreed to change some of its practices.

Acceptance• “Mirror Image” Rule

– Exception: Battle of Forms• Timely expression of acceptance creates a

contract even if different terms in forms• Where both merchants, additional terms apply

unless:– Expressly limited acceptance– Materially alter offer– Notice of objection

• JOM, Inc. v. Adell Plastics, Inc, p.180.

– The court finds that a damage limitation on the back of a form made a material alteration and therefore did not become part of the contract.

Acceptance• “Mirror Image” Rule

– Exception: Battle of Forms• Question 6.Yes. Battle-of-the-forms section, states that “additional

terms [following acceptance of the offer] are to be construed as proposals for addition to a contract. Between merchants, such terms become part of the contract unless.…” However, when there is only one form, Section 2-207 (2) is irrelevant. Gateway shipped the computer subject to a 30-day return policy if the consumer was not satisfied with the terms in the box. Payment preceding revelation of full terms is common. Cashiers cannot be expected to read legal documents to customers before ringing up sales. If the staff at the other end of the phone for direct-sales operations such as Gateway’s had to read the four-page statement of terms before taking the buyer’s credit card number, the droning voice would anesthetize rather than enlighten many potential buyers. Customers as a group are better off when vendors use a simple approve-or-return device. The forms in the box, when not rejected within 30 days by the Hills, were accepted. Ehill v. Gateway, 31 UCC Rep. Serv. 2d 303 (7th Cir. 1998).

Acceptance• Form- Offeree’s Acceptance Included in Contract

Unless:– Expressly Limited Acceptance– Materially Alter Offer– Notice of Objection

• Unilateral Contract– Offeree must perform to accept

• Bilateral Contract– Offeree must make promise requested– Can be explicit or implicit

• Silence– Generally not = acceptance– Some excepts based upon circumstances

• Only Original Offeree or his agent can accept an offer

Acceptance• Where writing anticipated, courts look at intent as

determined by reasonable person familiar with the circumstances– Question 9 at end of chapter

• Shann v, Dunk, p.122

• A rough preliminary form of an agreement to purchase controlling shares of a company is found to be a contract even though a further writing was contemplated

• The court cites “the subject of the agreement, its complexity, the purpose for which the contract was made, the circumstances under which it was made, and the relation of the parties.” The court also talks about “type I agreements (involved here) where all essential terms have been agreed on and a further contract is envisioned primarily to satisfy formalities. In “type II” agreements the parties recognize the existence of open terms, but have agreed to bind themselves to negotiate in good faith. They do not bind themselves to conclude the deal, only to negotiate in good faith toward the conclusion within the agreed framework.

Acceptance• Where writing anticipated, courts look at intent as

determined by reasonable person familiar with the circumstances– Question 10 at end of chapter

• Yes. Parties who have made their pact “subject to” a later agreement have manifested an intent not to be bound. Contract law give effect to parties’ wishes, but these must be expressed openly. The fact that Empro listed as a condition that its own shareholders and board of directors had to approve the deal showed an intent not to be bound. Letters of intent and agreements in principle often, as here, do no more than set the stage for negotiations on details which may or may not be ironed out. Approaching agreement by stages is a valuable method of doing business because it allows parties to agree on the basics without bargaining away their privilege to disagree on specifics. Empro v. Ball, 870 F.2d 423 (7th Cir. 1989).

Communication• Unilateral Contract - When Performed =

accepted

– Question 5 at end of chapter• Falwell made an offer for a unilateral contract

when he said he would pay $5,000 if Sloan could produce the tape. When Sloan produced the tape, he completed the act of acceptance, and Falwell must pay Sloan the money promised. Sloan v. Falwell, No.90869 (Sacramento Mun. Ct. Sept. 24, 1985).

Communication• Normally Acceptance must be

communicated• Offer May Stipulate Manner

– If so, Material Deviation = ineffective• Farago Advertising. Inc v. Hollinger International, Inc., p. 184

– The court finds that the plaintiff did not meet the stipulated manner of acceptance.

– Note that who is offeror and offeree can, as here, shift several times when parties are negotiating important terms.

– Note that the offeror, as master of the offer, always has the ability to protect himself through stipulations. A stipulation need not be reasonable. However, the less reasonable it is, the less likely an acceptance will occur

Communication• When - unless specified, look at

circumstances– Generally effective when dispatched

• Aetna v. Montgomery, p. 187– A change of beneficiary form was found to be effective upon

dispatch. Although the mailbox rule states that an acceptance is effective upon dispatch, it is important to point out to that an acceptance must be sent in a timely and proper manner for the rule to apply. Therefore, if the purported acceptance was sent too late or in an improper manner, it is not effective on dispatch, and it will not operate as an acceptance if it is received too late.

Communication• Authorized Means

– Same means as offer– Trade Usage– Reasonable– Prompt Shipment

Communication• Authorized Means

• Question 7 at end of chapter– Yes. A contract is made when an offer is unconditionally

accepted. In a unilateral contract situation, the offeree accepts by performing any and all requirements contained in the offer. Here, the only requirement was to complete and deposit the entry form provided by First, which Jergens did. Once, there is a contract, it cannot be modified except with the express consent of the parties. Jergens did not indicate she accepted First’s attempted modification. When she accepted the $80 and four tickets, she was merely accepting what was due her under the contract. She then waited to see if she was entitled to any further award. When she was, she claimed it. Her acceptance of the tickets and $80 after First had attempted to change the rules did not constitute consent to those changes. First Texas Savings & Loan Association v. Jergens, 705 S.W. 2d 390 (Ct. App. Texas 1986).

Communication• Authorized Means

– Nonauthorized = Not effective

• Sprout v. Bd. of Educ., p. 183

– A preliminary form of an agreement to settle an employee grievance is found not to be a contract because both parties expected that the agreement would be memorialized in a formal, written document and then approved by the board. The court really hinges is decision on the intent manifested by both the board and Sprout.

Communication• Authorized Means

– Nonauthorized = Not effective• Question 12 at end of chapter

– Cantu v. Central Education Agency

» A teacher’s attempt to withdraw her resignation is ineffective because the acceptance was mailed before the withdrawal was received and it was sent by a means reasonable under the circumstances.

» Why hand delivery (the way the offer of resignation was received) was not the authorized means?

» The court adopts the “reasonable means” rule.

» Additionally, her letter indicated she was not available for hand delivery of the acceptance.

» The offeror has the opportunity to protect herself or himself by stipulating a time, place and manner of acceptance. If he/she chooses not to do so, it is fair to place the risk of nondelivery or delayed delivery (the reason for the mailbox rule) on the offeror.