978-1285427003 Chapter 10 Lecture Note Part 2

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Acceptance

The offeree must communicate acceptance for it to be valid. In order to accept, the offeree must do or

say something that a reasonable person would understand to mean that the offeree definitely wants to

take the offer.

Usually, silence will constitute acceptance.

Mirror Image Rule

Under the common law, acceptance must be on precisely the same terms as the offer. If the acceptance

contains terms that add or contradict the offer, even in minor ways, courts generally consider it a

counteroffer.

UCC and the Battle of Forms

Under the UCC, merchants using different preprinted forms have a way to reach agreement. This is

known as “the battle of the forms.”

The battle of forms provisions of UCC §2-207 provide an excellent illustration of how the UCC alters

common law rules. This provision allows for offer and acceptance even when there is some variance

between the terms of the offer and the terms of the acceptance; it also makes it possible under some

circumstances for a term contained in the acceptance form to become part of the contract.

Additional Case: Bayway Rening Co. v. Tosco Corp.1

Facts: Bayway Refining and Oxygenated Marketing and Trading A.G. (OMT) were both in the

business of buying and selling petroleum products. Bayway agreed to sell OMT 60,000 barrels of

gasoline, and OMT faxed a confirmation letter stating that it represented the full understanding of the

parties. The next day, Bayway faxed its own confirmation letter which stated that the document

canceled and superseded any other correspondence. Bayway’s fax incorporated by reference Bayway’s

own “General Terms and Conditions.” Those general terms were not sent with the fax, but were

available for OMT to examine if it wished. One of those terms stated that the buyer would be

responsible for any federal taxes.

OMT, which never objected to the “general terms,” received the gasoline but refused to reimburse

Bayway for the federal taxes, which amounted to $464,035. Bayway sued. OMT claimed that the Tax

Clause materially altered the contract and, under section 2-207, never became part of the agreement.

The District Court gave summary judgment for Bayway, and OMT appealed.

Issue: Was the Tax Clause a material alteration of the contract?

Holding: Judgment for Bayway affirmed. Under UCC §2-207(2)(b) the party opposing the inclusion of

additional terms shoulders the burden of proving they were a material alteration of the contract, which

is an alteration that would result in surprise or hardship if incorporated without express awareness by

the other party. To carry the burden of showing surprise, a party must establish that under the

circumstances, it cannot be presumed that a reasonable merchant would have consented to the

additional term. OMT’s executives testified they were amazed by the “contract by ambush” and

“sleight-of-hand proposal,” but OMT introduced no evidence to show that a reasonable petroleum

merchant would be surprised by the Tax Clause. Two industry experts offered unchallenged testimony

that it is customary for the buyer to pay all the taxes resulting from a petroleum transaction. An

additional term creates hardship when it creates or allocates an open-ended and prolonged liability.

That is not the case here.

Question: What does “incorporate by reference” mean?

1 215 F.3d 219 (Second Circuit Court of Appeals 2000).

Question: You mean that OMT can supposedly agree to terms it never saw?

Question: Isn’t that unfair?

Answer: No. These parties are both sophisticated merchants, dealing in an expensive commodity.

Question: Doesn’t the mirror image rule preclude a contract here?

Question: Under 2-207, the offeree might include additional terms or different terms. What is the

distinction between those terms?

Question: Which are we dealing with here, different or additional terms?

Question: Additional terms become part of the contract between the parties except in three cases.

What are they?

Question: Which is at issue here?

Question: The court holds that OMT has the burden of proof. What does that mean?

Question: What must OMT demonstrate to prove material alteration?

Question: How does OMT fare in proving surprise and hardship?

Answer: Poorly. The court holds there is no surprise, even though OMT’s executive claimed

Clickwraps and Shrinkwraps

Agreements commonly packaged inside electronic products that require the user to agree to the terms

of such agreement prior to using the product or service. These agreements are generally enforceable.

Case: Specht v. Netscape Communications Corporation2

Facts: The plaintiffs sued Netscape, claiming that its SmartDownload software illegally captured

private information about files they downloaded from the Internet. Plaintiffs downloaded the

SmartDownload software from a page on Netscape’s web that promoted the program’s benefits and, at

the bottom, bore a button labeled “download.” If, instead of downloading, they had scrolled further

down the page, they would have seen a hyperlinked invitation to “review and agree to the terms of the

Netscape SmartDownload software license agreement.” Clicking through the hyperlinks would have

led plaintiffs to the license agreement governing the software’s terms of use. Among the license terms

was an agreement to settle any dispute through arbitration rather than through a lawsuit. The plaintiffs

never read the license terms. In response to their suit, Netscape moved the District Court to stay the

proceedings and compel arbitration. The District Court denied Netscape’s motion, ruling that the

plaintiffs had not agreed to the terms of the license.

Issue: Had the plaintiffs agreed to arbitrate their claims?

Decision: No, the plaintiffs did not agree to arbitration.

Reasoning: Netscape contends that if the plaintiffs had scrolled down to the next screen, they would

have discovered the license terms. This means that they were on notice of those terms and effectively

agreed to them.

When a contract is based on paper documents, courts often find that notice like this does bind the

parties. If one document adequately advises a party that the agreement includes terms detailed in a

second document, the terms can be enforceable. The same principle sometimes applies in the world of

e-commerce, when pages contain pop-up screens and hyperlinks to other sites. The question in this

case is whether the plaintiffs received sufficient notice of the licensing terms. Did they give real

consent to those terms?

What the plaintiffs saw was a screen filled with praise for a fast, free plug-in called SmartDownload.

The plaintiffs were urged to “Download Now!” At the very bottom was a “Download” button. There

was no immediately visible notice that license terms were detailed elsewhere, or that the company

required assent to the terms.

The company claims that the position of the scroll bar notified the plaintiffs that there was additional

information below the download button. This is unrealistic. A reasonable person would not conclude

from the scroll bar position that important licensing terms were referred to farther down. When

consumers are urged to download free software at the click of a button, a reference to license terms

placed on a submerged screen is not enough to put them on notice of those terms. The plaintiffs never

assented to the terms.

The lower court denied the motion to compel arbitration. That order is affirmed.

Question: What is Netscape asking the court to do?

Question: Why does Netscape want to deny plaintiffs their day in court?

Question: What do plaintiffs say?

Question: Where were the arbitration provisions?

Question: If they were on a separate page how did Netscape expect users to see them?

Question: What does that mean—“inquiry notice?”

2 306 F.3d 17 Second Circuit Court of Appeals, 2002.

Question: What did the court think of Netscape’s argument?

Answer: The court did not agree. The court said that the contractual nature of the download offer

Question: What does that mean in contract law terms?

Question: What should Netscape have done differently?

Answer: This 2002 decision was instrumental in leading web sites to redesign the ways in which

Communication of Acceptance

The offeree must communicate his acceptance for it to be effective. The questions that typically arise

concern the method, the manner, and the time of acceptance.

Method and Manner of Acceptance

The “method” refers to whether acceptance is done in person or by mail, telephone, email, or fax. The

“manner” refers to whether the offeree accepts by promising, by making a down payment, by

performing, and so forth. If an offer demands acceptance in a particular method or manner, the offeree

must follow those requirements. If the offer does not specify a type of acceptance, the offeree may

accept in any reasonable manner and method.

Time of Acceptance: The Mailbox Rule

An acceptance is generally effective upon dispatch, meaning the moment it is out of the offeree’s

control. Terminations, on the other hand, are effective when received.

Case: Soldau v. Organon, Inc.3

Facts: Organon fired John Soldau, then sent him a letter offering to pay him double the normal

severance pay, provided Soldau would sign a full release for any claims he might have against the

company. Soldau signed the release and deposited it in the nearest post office. When he returned home,

Soldau discovered a check from Organon for the double severance pay. He returned to the post office

and obtained from the clerk the release that he had posted; cashed Organon’s check; and finally filed a

suit, alleging that his firing was age discrimination. The federal District Court gave summary judgment

for Organon, ruling that Soldau’s acceptance of the proposed release was effective when he mailed it,

creating a contract. He appealed.

Decision: Affirmed. Soldau created an enforceable contract.

Reasoning: Soldau argues that federal law should govern this case, not California law. In fact, it makes

no difference because both court systems use the “mailbox” rule. Acceptance is effective when

dispatched. The U.S. Supreme Court adopted the rule almost 100 years ago. Since then, every court,

treatise, and commentator has approved the rule, both in the United States and most common law

countries. The mailbox rule offers a reasonable method of balancing the risks between two parties.

Leaving it as a settled principle creates certainty in contract formation.

The moment Soldau put the envelope in the mailbox, the company became obligated to give him double

severance pay, and he gave up any right to file suit.

Question: What did Soldau do that was wrong?

3 860 F.2d 355, 1988 U.S. App. LEXIS 14757 United States Court of Appeals for the Ninth Circuit, 1988.

Question: How did the court rule in favor of Organon?

Question: But Soldau got the letter back—doesn’t that mean the mailbox rule doesn’t apply?

Multiple Choice Questions

1. Rebecca, in Honolulu, faxes a job offer to Spike, in Pittsburgh, saying, “We can pay you $55,000

per year, starting June 1.” Spike faxes a reply, saying, “Thank you! I accept your generous offer,

though I will also need $3,000 in relocation money. See you June 1. Can’t wait!” On June 1 Spike

arrives, to find that his position is filled by Gus. He sues Rebecca.

(a) Spike wins $55,000.

(b) Spike wins $58,000.

(d) Spike wins restitution.

(e) Spike wins nothing.

2. Arturo hires Kate to work in his new sporting goods store. “Look,” he explains, “I can only pay

you $9.00 an hour. But if business is good a year from now, and you’re still here, I’m sure I can pay

you a healthy bonus.” Four months later Arturo terminates Kate. She sues.

(a) Kate will win her job back, plus the year’s pay and the bonus.

(b) Kate will win the year’s pay and the bonus.

(d) Kate will win only her job back.

(e) Kate will win nothing.

Answer: E. Kate will win nothing. The only thing Arturo obligated himself to do was to pay $9.00

3. Manny offers to sell Gina his TV for $100 on January 1. On January 2, Gina writes out a letter of

acceptance. On January 3, Gina drops the letter in a mailbox. On January 4, a postal worker gets

the letter out of the mailbox and takes it to the post office. On January 5, the letter arrives in

Manny’s mailbox. When (if ever) was a contract formed?

(a) January 2

(b) January 3

(d) January 5

(e) None of the above – a contract has not been formed.

4. Frank, an accountant, says to Missy, “I’ll sell you my laptop for $100.” Missy asks, “Will you give

me until tomorrow to make up my mind?” “Sure,” Frank replies. Which of the following is true?

(a) Frank cannot revoke his offer, no matter what.

(b) Frank cannot revoke his offer only if Missy pays him to keep the offer open until tomorrow.

(d) Frank can revoke his offer no matter what, because he did not promise Missy anything in

writing.

5. Which of the following amounts to an offer?

(a) Ed says to Carmen, “I offer to sell you my pen for $1.”

(b) Ed says to Carmen, “I’ll sell you my pen for $1.”

(d) All of the above.

(e) A and C only.

Essay Questions

1. The town of Sanford, Maine, decided to auction off a lot it owned. The town advertised that it

would accept bids through the mail, up to a specified date. Arthur and Arline Chevalier mailed in a

bid that turned out to be the highest. When the town refused to sell them the lot, they sued. Result?

Answer: No contract, no sale. An auction is with reserve unless stated otherwise. The ad was silent

2. The Tufte family leased a 260-acre farm from the Travelers Insurance Co. Toward the end of the

lease, Travelers mailed the Tuftes an option to renew the lease. The option arrived at the Tuftes’

house on March 30, and gave them until April 14 to accept. On April 13, the Tuftes signed and

mailed their acceptance, which Travelers received on April 19. Travelers claimed there was no

lease and attempted to evict the Tuftes from the farm. May they stay?

Answer: Yes, they may. Using the mail to accept is reasonable, since Travelers chose that medium

3. Consolidated Edison Co. of New York (Con Ed) sought bids from General Electric Co. (GE) and

others to supply it with two huge transformers. Con Ed required that the bids be held open for 90

days. GE submitted a written bid and included a clause holding the bid open for 90 days. During

that period, Con Ed accepted GE’s bid, but GE refused to honor it. Is there a contract?

4. The Dukes leased land from Lillian Whatley. Toward the end of their lease, they sent Ms. Whatley

a new contract, renewing the lease for three years and giving themselves the option to buy the land

at any time during the lease for $50,000. Ms. Whatley crossed out the clause giving them an option

to buy. She added a sentence at the bottom, saying, “Should I, Lillian Whatley, decide to sell at end

[sic] of three years, I will give the Dukes the first chance to buy.” Then she signed the lease, which

the Dukes accepted in the changed form. They continued to pay the rent until Ms. Whatley sold the

land to another couple for $35,000. The Dukes sued. Are the Dukes entitled to the land at $50,000?

At $35,000?

Answer: The Dukes win nothing. They offered a contract with an option clause but Ms. Whatley

You Be the Judge: WRITING PROBLEM Academy Chicago Publishers (Academy)

approached the widow of author John Cheever about printing some of his unpublished stories. She

signed a contract, which stated: “2. The Author will deliver to the Publisher on a mutually agreeable

date one copy of the manuscript of the Work as finally arranged by the editor and satisfactory to the

Publisher in form and content. .. 5. Within a reasonable time and a mutually agreeable date after

delivery of the final revised manuscript, the Publisher will publish the Work at its own expense, in such

style and manner and at such price as it deems best, and will keep the Work in print as long as it deems

it expedient.”

Within a year, Academy had located and delivered to Mrs. Cheever more than 60 unpublished stories.

But she refused to go ahead with the project. Academy sued for the right to publish the book. The trial

court ruled that the agreement was valid; the appeals court affirmed; and the case went to the Illinois

Supreme Court. Was Academy’s offer valid, and was the contract enforceable? Argument for Mrs.

Cheever: The agreement is too vague to be enforceable. None of the essential terms are specified: the

number of stories, their length, who selects them, the date of publication, the size or cost of the book,

or anything else. There is no contract. Argument for Academy: Mrs. Cheever wanted to publish this

book and agreed in writing to help Academy do so. Both parties understood the essential nature of the

book and were willing to permit some flexibility, to ensure a good edition. She has no right to back out

now.

Answer: Mrs. Cheever won. The court held, as stated in her argument, that all of the key terms

were missing. A court might be willing to supply a missing term, where the parties stated most of

Discussion Questions

1. Advertisements usually do not amount to offers. Is this fair? Should businesses have legal

obligations to sell items at an advertised price?

2. Most auctions are held “with reserve.” If you place the highest bid at such an auction, and if your bid

is below the reserve, then you do not get the item. Is this fair? Should the law award you the item

at the price you bid?

3. Someone offers to sell you a concert ticket for $50, and you reply, “I’ll give you $40,” The seller

refuses to sell at the lower price, and you say, “OK, OK, I’ll pay you $50.” Clearly, no contract has

been formed because you made a counteroffer. If the seller has changed her mind and no longer

wants to sell for $50, she doesn’t have to. But is this fair? If it is all part of the same conversation,

should you be able to accept the $50 offer and get the ticket?

4. If you click an “I agree” box, odds are that its terms are binding on you, even if the box contains

dozens or even hundreds of lines of dense text. Is this fair? Should the law change to limit the

enforceability of clickwraps?

5. Courts stick to objective (reasonable person) standards when evaluating offers and acceptances.

Juries are not asked to “get inside someone’s head.” They are instructed to determine what a

reasonable person would think of offerors’ and offerees’ statements. Is this practice reasonable?

Would it be better if the law directly considered whether people wanted to make contracts?