Acceptance Contracts 101

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Print This Page Email Link to This Page © Reprint or License This Acceptance Defined A manifestation of willingness to be bound by the terms of an offer made in a manner invited or required by the offer. (Rest.2d § 50(1).) An acceptance of an offer must be absolute and unconditional. In order for the acceptance to be effective all of the terms of the offer must be accepted without change or condition. ADVERTISEMENT Acceptance results in the formation of a contract: both parties are bound and neither can withdraw from the bargain without incurring liability to the other. Ordinarily, acceptance must be expressed or communicated by the offeree to the offeror, in order to manifest mutual assent. The manner in which acceptance is to be communicated may be specified in the offer, in which case that becomes the exclusive means of acceptance. But if the offer prescribes no means any reasonable and usual mode may be adopted. (See Rest.2d §30.) In some cases merely acting in justifiable reliance on an offer may serve as sufficient reason for making a promise binding. (Drennan v. Star Paving Co. (1958) 51 Cal.2d 409, 333 P.2d 757) Shipment of Goods as Acceptance UCC 2-206(1)(b) provides, that an offer, usually a purchase order, can be accepted by any reasonable "medium", including the commencement of performance. Unless otherwise unambiguously indicated, an offer to buy goods for "prompt shipment" is to be construed as inviting acceptance either by promise or by the act of shipment itself. Restatement 2d of Contracts sections 32 and 62 announce a similar principle. Chirelstein, Concepts & Case Analysis in the Law of Contracts, p. 41. Silence Not Ordinarily Acceptance Since acceptance must be communicated, ordinarily silence cannot constitute an offer to enter into a bilateral contract. Chirelstein, Concepts & Case Analysis Unsolicited Merchandise See Cal.Civ.Code §1584.5 which reads in part: "The receipt of any goods etc. shall for all purposes be deemed an unconditional gift to the recipient who may use or dispose of the goods in any manner he sees fit without obligation on his part to the sender." Note that this is a statutory exception to the rule that use of consideration constitutes acceptance. See also, 39 U.S.C. §3009 FAQ's "ACCEPTANCE" Q. Moe makes an offer to sell Blackacre to Curly for a specified price and states that Curly has 10 days within which to accept. If Curly accepts on the 11th day no contract arises because the offer has lapsed. What if no time for acceptance had been specified? A. An offeree's power of acceptance is terminated if he fails to accept within the prescribed period. If the offer does not specify a particular time for acceptance, the offeree's power is terminated if he fails to accept within a reasonable time. Reasonable time is a question of fact depending on the circumstances existing when the offer and attempted acceptance are made; such circumstances include the nature of the proposed contract, the purposes of the parties, the course of dealing, and the relevant usages of the trade. E.g., an offer to sell a fluctuating commodity,e.g., crude oil, is likely to have a shorter life than an offer to sell a stable commodity, e.g., real estate. An offer remains open until it is withdrawn or revoked. An offer may be revoked any time prior to acceptance.  (Cal.Civ.Code § 1586) An offer may be revoked in any of the following ways: (1) Express revocation, (2) implied revocation, e.g., receipt by the offeree of reliable information that the offeror has taken action inconsistent with the offer remaining open, (3) lapse, (4) rejection, (5) counteroffer, (6) death of the offeror. As a general rule the offeror is free to revoke an offer at any time before the offeree has accepted it. Express notice of withdrawal before acceptance is not required. It is sufficient that knowledge of acts by the offeror inconsistent with the continuance of the offer is brought home to the offeree. E.g., in an offer to sell Blackacre it is sufficient that the person making the offer does some act inconsistent with the offer such as selling it to someone else, and that the person to whom the offer is made has knowledge of such act. There need not be an express or actual withdrawal or retraction. Once the person to whom the offer has been made knows that the property has been sold to someone else, it's too late for him to accept the offer. (Dickinson v. Dodds, 2 Ch.Div. 463 (1876).) Q. Moe makes an offer to sell Blackacre to Curly for a specified price and states his offer will remain open for 10 days. Five days later Moe informs Curly that the offer is revoked. Curly then immediately accepts the original offer. Contract? What if Moe bargained for and received $10 in exchange for his promise to keep the offer open for 10 days? A. An irrevocable option is a contract, made for consideration, to keep an offer open for a prescribed period. Unless consideration is given, the option is revocable at any time. (Rest.2d §87). An exception to the rule that an irrevocable option must be supported by consideration is found in UCC 2-205. (Remember, the UCC only applies to sales of goods and 2-205 applies only to "merchants" [note the broad definition of "merchant" at UCC 2-104(1)]) 2-205 is intended mainly to limit the power of an offeror to withdraw his firm offer in circumstances in which the offeree reasonably relies on the offer's firmness. It merely converts a common law offer into a firm offer. However, it only applies if (1) there has actually been an offer (2) by a merchant (3) in a signed writing (4) which gives assurance that it will be held open. THE "MAILBOX RULE" Although revocation and rejection of an offer are effective when received, the general rule is that a contract is made when the acceptance is dispatched, even though the letter of acceptance is lost and never reaches the offeror. This is the rule of Adams v. Lindsell (K.B. 1818) 106 Eng.Rep.250. In California this rule is codified in Cal.Civ.Code §1583. (See Rest.2d §63) Consent is deemed to be fully communicated when the offeree has placed his acceptance in the course of transmission to the offeror. In other words, acceptance is effective upon dispatch. Q. Moe offers to sell Blackacre to Curly for $100k. The offer is made by mail. The next day, Moe mails a revocation which arrives one day after the offer. As the postal carrier handed the revocation to Curly, Curly handed his letter of unqualified acceptance to the postman. Has a contract been formed? A. No. Acceptance is effective when put out of the possession of the offeree. Revocation is effective on receipt. Here the revocation was received prior to the offeree putting his acceptance out of his hands. SOFTENING OF THE MIRROR IMAGE RULE UNDER THE UCC At common law, an acceptance which added qualifications or conditions or which in any way varied from the terms of the original offer was treated as a rejection and counter offer. This was true no matter how trivial the qualification or condition. This was known as the "Mirror Image Rule." The underlying rationale is that the making of a counteroffer communicates to the offeror that the offeree does not wish to accept the offer. UCC 2-207 was intended to alter the "Mirror Image Rule" of the common law. Under subdivision (1) of that section, a contract is recognized notwithstanding the fact that an acceptance or confirmation contains additional or different terms from those of the offer or prior agreement, provided that the offeree's intent to accept the offer is definitely expressed and provided that the offeree's acceptance is not expressly conditioned on the offeror's assent to the additional or different terms. Hence, 2-207 rejects the common law mirror image rule and converts many common law counteroffers into acceptances. A document may be an acceptance under 2-207(1) and yet differ substantially from the offer. 2-207(2)(b) presupposes that a contract can be formed under 2-207(1) even though the acceptance includes a term that "materially alters" the offer. Remember, Article 2 of the UCC only applies to contracts for the sale of goods. (UCC 2-102). If a contract is for anything other than the sale of goods the Mirror Image Rule will still apply. 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