Contracts Quiz #3 (FULL SET)

Restatement § 58.Necessity of Acceptance Complying With Terms of Offer.

An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered.

Restatement §25: Option Contracts

An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer.

Holding in Beall v. Beall

An option not supported by consideration is a mere offer that can be terminated by revocation by the offeror or by expiration set out by the terms within.

Holding in Board of Control of Eastern Michigan University v. Burgess

Even when someone acknowledges receipt of consideration, an option contract that lacks consideration is just a mere offer that can be terminated by revocation by the offeror or by expiration set out by the terms within.

Interpretations of Recital

1. Restatement §87(1)(a) An offer is binding as an option contract if it is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; (Generally courts do not adopts this)

2. Recital raises a rebuttable presumption that the recited consideration has been paid; if it is rebutted, the offer is a revocable offer (Burgess court of appeals)

3. Recital of consideration is conclusive, evidence to the contrary is barred; offer is irrevocable for the term stated (Burgess trial court)

UCC 2-205 Firm offers

An offer by a merchant to buy or sell goods in a signed record which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

Restatement § 87(2) Reliance in Option Contract

An offer is binding as an option contract if it is an offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

Restatement § 45.Option Contract Created by Part Performance or Tender AND Comment F

1. Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.

2. The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

Comment F.

Preparations for performance. What is begun or tendered must be part of the actual performance invited in order to preclude revocation under this Section. Beginning preparations, though they may be essential to carrying out the contract or to accepting the offer, is not enough. Preparations to perform may, however, constitute justifiable reliance sufficient to make the offeror’s promise binding under § 87(2).

Holding in La Salle National Bank v. Vega

The document that contained the offer laid out the specific events that had to occur for there to be an acceptance, and therefore a full contract; since all the requirements of the offer were not met, there was no enforceable contract.

Restatement §41 Lapse of Time

(1)An offeree’s power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time.

(2)What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made.

(3)Unless otherwise indicated by the language or the circumstances, and subject to the rule stated in § 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received.

Holding in Ever-tite Roofing v. Green

The Green’s offer was accepted within a reasonable time, so the offer had not lapsed. Additionally, the offer was accepted before Green’s revocation, since the commencement began with the loading of the trucks and the delivery of the materials to Green’s residence.

Bilateral v Unilateral Contracts

• Bilateral contract- offeree accepts by promise.

• Unilateral contract- offeree accepts only by performance.

Restatement §50(1) Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise

Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.

Restatement § 30.Form of Acceptance Invited.

(1)An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing specified act, or may empower the offeree to make a selection of terms in his acceptance.

(2)Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances.

Restatement §32 Invitation of Promise or Performance.

In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.

Holding in Davis v. Jacoby

Mr. Whitehead’s April 12th letter was for a bilateral contract. When there are doubts, an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.

UCC 2-206(1)(a)

Unless otherwise unambiguously indicated by the language or circumstances an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances

Restatement § 56.Acceptance by Promise; Necessity of Notification to Offeror.

Except as stated in § 69 or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably.

Hendricks v. Behee

The Smiths did not effectively accept the offer when they signed it, since notification of acceptance to the offeror is essential to acceptance.

MAIL BOX RULE: Restatement §63 Time When Acceptance Takes Effect.

Unless the offer provides otherwise,

(a)an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror; but
(b)an acceptance under an option contract is not operative until received by the offeror.

Holding in Adams v. Lindsell

Adams accepted the offer the moment he placed the acceptance in the mail, thus creating a contract.

Understanding the Mailbox Rule in Context

The mailbox rule is an exception applied only to acceptances. Normally, communications (offers, acceptances, revocations, rejections) are effective only upon receipt. The mailbox rule makes acceptance effective upon dispatch, not receipt, provided a reasonable medium is used.

Limit to the mailbox rule:

The mailbox rule does not apply to options.

Restatement§ 65. Reasonableness of Medium of Acceptance.

Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received.

§ 54.Acceptance by Performance; Necessity of Notification to Offeror.

(1)Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification.

(2)If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless

(a)the offeree exercises reasonable diligence to notify the offeror of acceptance, or

(b)the offeror learns of the performance within a reasonable time, or

(c)the offer indicates that notification of acceptance is not required.

Holding in Carlill v. Carbolic Smoke Ball Co.

Carlill’s performance constitutes a contract, despite not notifying Carbolic, since the offer’s terms explicitly stated it was not required and the company had adequate means to learn of performance.

§ 45.Option Contract Created by Part Performance or Tender.

(1)Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.

(2)The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

Holding in Marchiondo v. Scheck

Schneck cannot revoke his offer to enter a unilateral contract because Marchiondo began performance.

§ 60.Acceptance of Offer Which States Place, Time or Manner of Acceptance.

If an offer prescribes the place, time or manner of acceptance its terms in this respect must be complied with in order to create a contract. If an offer merely suggests a permitted place, time or manner of acceptance, another method of acceptance is not precluded.

§ 62.Effect of Performance by Offeree Where Offer Invites Either Performance or Promise.

(1)Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance.

(2)Such an acceptance operates as a promise to render complete performance.

§ 64.Acceptance by Telephone or Teletype.

Acceptance given by telephone or other medium of substantially instantaneous two-way communication is governed by the principles applicable to acceptances where the parties are in the presence of each other.

§ 66.Acceptance Must Be Properly Dispatched.

An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless it is properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of similar messages.

§ 40.Time When Rejection or Counter-Offer Terminates the Power of Acceptance.

Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer.

§ 69.Acceptance by Silence or Exercise of Dominion.

(1)Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:

(a)Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.

(b)Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.

(c)Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.

(2)An offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.