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Chapter 10 – The Agreement: Offer

10-1

CHAPTER 10

THE AGREEMENT: OFFER

I. LEARNING OBJECTIVES:

This chapter is designed to acquaint students with the first component of the mutual agreement

required by contract law: the offer. After reading the chapter and attending class, a student

should be able to:

1. Explain the elements of an offer under both the UCC and common law.

2. Determine whether a given proposal is likely to be considered to be an offer.

3. Distinguish advertisements that are considered to be offers from those that are merely

invitations to negotiate.

4. Describe the circumstances that terminate an offer and determine whether a given offer

remains “on the table.”

II. ANSWER TO INTRODUCTORY PROBLEM

A. Probably not. The important thing here is for students to think their way through the

elements of an offer and determine whether the facts presented fulfill the elements: intent

to contract; definite terms; communicated to the offeree. Here, as further explored in the

claim an offer was made to them.

C. Intent is judged by an objective standard: whether a reasonable person familiar with all

the circumstances would be justified in believing that an offeror intended to contract.

D. Probably not. The specificity of what Clooney describes goes to the definiteness of the

offer. Although he does provide quite a bit of detail about what he would do, assuming it

III. SUGGESTIONS FOR LECTURE PREPARATION:

A. Introduction

1. Stress the importance of the concept of mutual agreement in contract law. How do we

determine whether agreement is mutual?

2. Discuss the objective theory of contracts. Note that courts seeking evidence of an

agreement look to the parties’ objective intent rather than their subjective intent or

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

understanding. Distinguish objective and subjective. Ask the class what they think would

happen if the law had adopted the subjective standard. Point out how the objective theory

of contracts enhances the predictability of contract enforcement.

Meram v. MacDonald (p. 335): The plaintiff attended a presentation by MacDonald at a

gathering of financial representatives. At the presentation, MacDonald invited attendees

to put their business cards in a basket for a drawing and stated that the person whose

card was drawn and who stayed for the entire presentation would “leave with a million

dollars.” Meram put his card in the basket, stayed for the entire presentation, and was the

facts that could be proven to show that an offer was made.

Points for Discussion: You might emphasize the procedural posture of the case and

explain that the court is not saying that Meram will win the million dollars, but only that

his complaint was adequate to proceed with the case. What facts persuaded the court that

Additional Examples: Lucy v. Zehmer, 84 S.E.2d 516 (Va. Sup. Ct. 1954) (a classic

objective theory case in which a seller who claims to have been joking when he made an

offer is held to a contract). See also Problem Case #5.

B. What is an Offer?

1. Emphasize the fact that the words “offer” and “acceptance” are used in this and

by merely communicating acceptance.

2. One way of emphasizing the importance of students mastering the offer concept is to

result under traditional contract principles. Also, since all the offeree can do under

agreement.

offer proposals from offers to contract?

4. Discuss the requirement that an offer must be definite in its terms. Discuss the fact that

breached.

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

J.D. Fields & Company, Inc. v. United States Steel International, Inc. (p. 343): J.D.

Fields and USSI frequently contracted for steel products through a process of request,

price quote, purchase order, order acknowledgement, and performance. This case

involves two potential transactions that reached the purchase order stage but no further.

USSI ultimately refused to complete the transaction. J.D. Fields sued, claiming that it

had entered contracts with USSI based on the price quotes and purchase orders. USSI

defended by saying there was never an agreement. The district court concluded that

USSI’s price quotes were not offers under the UCC standard for whether an offer exists.

orders at issue. Compare and contrast them and the analysis of each under the UCC

standard. Purchase Order 45850 cannot be the basis for a contract, because it was at

most an indication that the parties were still in the process of coming to definite terms (in

Additional Examples: Problem Cases #1, 2, and 5.

a. This insistence on definiteness obviously protects offerors in some cases by

enough agreement.

5. Point out that while classical contract law had fairly high specificity standards, a variety

of modern contract doctrines facilitate the enforcement of indefinite agreements. The

indefinite agreements.

a. Discuss section 2-204 of the Code. Contrast the Code approach (which is definitely

“hands-on”) with the traditional “hands-off” approach. Note that the entire thrust of

contract. Only when the agreement is so incomplete as to prevent the court from

reaching a fair result will indefiniteness prevent the formation of a contract. Note

6. Discuss the traditional requirement that the offeror must communicate the terms of an

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

do so is good evidence that he lacks the present intent to contract necessary for an offer.

C. Special Offer Problem Areas.

1. Discuss the general rule that ads are not offers, the problems this causes for

effect, making an offer).

2. Note the reasons for the general rule and discuss the fact that when ads are held to

Additional Example: Problem Cases #4, 5, and 9.

4. Discuss the special rules that apply to rewards, auctions, and bids.

Kolodziej v. Mason (p. 346): Dustin Kolodziej saw an interview with James Chaney

against Mason’s client was fatally flawed. In the full interview, he claimed that the

interview constituted a reward offer that Kolodziej accepted by performing the

requested act. Mason moved for summary judgment.

Points for Discussion: The court determines that this was not an offer of a unilateral

contract as most valid reward offers generally are for several reasons. What were the

reasons? (Kolodziej was not privy to the full interview so did not know all of the

Additional Example: Problem case #7 (auction).

D. What Terms are Included in Offers?

1. Discuss the problem of what terms are included in offers and, hence, become part of the

parties’ contract. Talk about “fine print,” terms on the back of printed contracts,

Hines v. Overstock.com (p. 350): A consumer purchased a vacuum cleaner online from

Overstock.com, believing that she was buying a new vacuum cleaner. When she

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discovered that the item was refurbished rather than new, she returned it. Overstock.com

clause. The trial court denied the motion, and Overstock.com appealed. The issue on appeal

was whether the terms of use arbitration clause became part of the parties’ contract. The

Second Circuit affirmed on the basis that there was no indication that Hines had the

opportunity to see the terms before “accepting” them.

Points for Discussion: Does this case mean that only clickwrap terms of use are binding?

What changes should Overstock.com make in its website to ensure that the terms of use

do become part of the contract?

3. Ethics in Action (p. 351): On one hand, it can be argued that the drafting practice is not

unethical because an individual signing a contract has the personal responsibility to read

it thoroughly and consider assumption of obligations. Also, the enforcement of form

contracts can promote efficiency (reduce litigation by denying litigants the argument that

greater bargaining strength and sophistication.

E. Termination of Offers

1. Discuss the importance of being able to determine the duration of an offer. Stress the fact

that an offeree who attempts to accept an offer that has terminated has made an offer to

Revocation by the offeror – as the master of his offer, the offeror can terminate the

offeree’s power to accept by revoking the offer. Note that the general common law

rule on revocations is that the offeror can revoke at any time prior to acceptance,

even if he has promised not to revoke. Contrast the approach under the CISG (Global

Business Environment, p. 354

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

a) Discuss the elements of a firm offer under section 2-205: a signed writing,

by a merchant, which contains “assurances” that it will be held open.

Example: Problem Case #10.

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like consideration.

c) You may also wish to point out how the last sentence of 2-205 represents an

attempt by the Code’s drafters to recognize commercial reality (the day of the

firm offer will result.

approach.

4) Promissory estoppel – section 87(2) of the Restatement Second recognizes

another limitation on an offeror’s power of revocation; an offeror may be

estopped from revoking if he should reasonably have foreseen that the offeree

would rely in some substantial way on the offer, the offeree does in fact so rely,

757 (Cal. 1958).

5) Discuss the general rule on the effectiveness of revocations: revocations are only

effective when actually received by the offeree. Note the reason behind this rule

and the critical role such timing issues can play in contract cases: the offeror

may be trying to revoke an offer that the offeree is desperately trying to accept.

where either party indicates an intent to keep the offer open.

D’Agostino v. Federal Insurance Company (p. 354): Miia D’Agostino was the

beneficiary of a trust, managed by Bank of America (BofA) as trustee, which owned

a multifamily property in Cambridge, Massachusetts. The property was destroyed by

pursue any potential claims against BofA as trustee. Federal, sought both release

from D’Agostino and indemnification from any claims BofA might press against it

(i.e., wanted D’Agostino to promise to cover any such claims). As a result of these

negotiations, Federal’s attorneys sent to Goren a lengthy “Confidential Release and

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Settlement Agreement, which included a payout of $1.15 million to D’Agostino, a

release of all claims against Federal (but not BofA), and a number of other

boilerplate and substantive terms, including an indemnification clause. D’Agostino

purported to reject the Release and continue with the litigation. Federal filed a

motion with the court to enforce the Release as a settlement and to dismiss the claim.

Thus, the magistrate judge to whom the case was assigned had to decide whether a

settlement agreement had been reached.

Points for Discussion: What does this case hinge on? (Whether Federal’s Release

agreement. They were essential to any fully settled agreement. These included an

extensive confidentiality agreement and the indemnification clause.)

See also Examples: Problem Case #9.

1) Note that some courts hold that rejections do not terminate option contracts.

automatically terminates an offer.

e. Destruction of subject matter – discuss this general rule. You may also wish to note

that the law has a host of rules designed to deal with the issue of who bears the risk

of loss if the subject matter of an offer is destroyed after the offer has been

effectively accepted. See also Problem Case #8,

law rather than by the actions of either party.

IV. RECOMMENDED REFERENCES:

A. Henry Mather, Firm Offers under the UCC and the CISG, 105 DICK. L. REV. 31 (2000).

COMMERCIAL CODE (5th ed. 1999).

V. ANSWERS TO PROBLEMS AND PROBLEM CASES:

1. No. The court rejected this claim on the ground that the plant manager’s statements were so

vague and indefinite that no contract was formed. Armstrong v. Rohm and Haas Company,

Inc., 349 F. Supp. 2d 71 (D. Mass. 2004).

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

2. No. In analyzing the problem, the court first decided that the UCC applied to this contract.

Although some intangible assets were involved in the sale of a business, the contract was

predominantly for goods. Under the UCC, section 2-204 addresses definiteness in sales

contracts. It provides that:

1. A contract for sale of goods may be made in any manner

sufficient to show agreement, including conduct by

both parties which recognizes the existence of such a

contract.

undetermined.

3. Even though one or more terms are left open a contract

for sale does not fail for indefiniteness if the parties

have intended to make a contract and there is a reasonably

certain basis for giving an appropriate remedy.

Ct. App. 2008).

3. No. The court pointed out that Waffco offered to tow the truck for $275 and Rodziewicz

accepted that offer by authorizing the truck to be towed. The contract, therefore was for

$275. There was no evidence that Waffco informed Rodziewicz that he would be charged a

labor charge for moving the truck a few miles. The court also noted that “it is likely that

N.E.2d 491 (Ind. Ct. App. 2002).

4. No. Schiff’s proposal to pay anyone $100,000 for calling the show and citing the requested

section of the Internal Revenue Code was a valid offer for a reward, but it could only have

been accepted by calling the show during the live broadcast. The court stated, “An offeror is

the master of his offer and it is clear that Schiff by his words, ‘If anybody calls this show,’

5. No. Generally, advertisements are offers only when they are clear, definite, and leave

viewing the ad would believe that it was a serious offer. A reasonable viewer would see it as

1999).

6. No. An “acceptance” that contains terms that differ from the terms of the offer is a counter-

offer and operates as a rejection. The court pointed out that in this case, “the purchase

period.” Thus, no contract was formed between Pernal and the church. St. Nicholas Greek

Orthodox Church of Detroit v. Pernal, 2005 Mich. App. LEXIS 1402 (Mich. Ct. App. 2005).

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7. No. The eBay terms and conditions were very clear. The additional terms added by the

Freeman, 2008 U.S. Dis. LEXIS 52304 (W.D. Tenn. 2008).

8. No. The court held that Family Video’s offer had terminated because of the lapse of a

reasonable time and destruction of the subject matter. Family Video Movie Club v. Home

Folks, Inc., 827 N.E. 2d 582 (Ind. Ct. App. 2005).

9. No. According to the general rule, sales materials transmitted to prospective customers are

solicitations for offers rather than offers and they give no power of acceptance to the

materials sent to the plaintiffs by the Mint makes clear that the contention of the plaintiffs

that they reasonably believed the materials were intended as an offer is unreasonable as a

of offers from customers that were subject to acceptance by the Mint before the Mint would

be bound by a contract.” Mesaros v. The United States of America, 845 F.2d 1576 (Fed. Cir.

1988).

was irrevocable. In the second situation, however, no firm offer was made because a

nonmerchant made the offer. (This is a hypothetical case).