Offer and acceptance

From Wikipedia, the free encyclopedia 

Offer and acceptance analysis is a traditional approach in contract law used to

determine whether an agreement exists between two parties. As a contract is an
agreement, an offer is an indication by one person (the "offeror") to another (the
"offeree") of the offeror's willingness to enter into a contract on certain terms without
further negotiations. A contract is said to come into existence when acceptance of an
offer (agreement to the terms in it) has been communicated to the offeror by the offeree.

The offer and acceptance formula, developed in the 19th century, identifies a moment of
formation when the parties are of one mind. This classical approach to contract formation
has been weakened by developments in the law of estoppel, misleading conduct,
misrepresentation and unjust enrichment.

Offer 
An offer is defined by Treitel as "an expression of willingness to contract on certain
terms, made with the intention that it shall become binding as soon as it is accepted by
the person to whom it is addressed", the "offeree".[1] An offer is a statement of the terms
on which the offeror is willing to be bound.

The "expression" referred to in the definition may take different forms, such as a letter,
newspaper, fax, email and even conduct, as long as it communicates the basis on which
the offeror is prepared to contract.

Whether two parties have an agreement or a valid offer is an issue which is determined
by the court using the Objective test (Smith v. Hughes). Therefore the "intention" referred
to in the definition is objectively judged by the courts. In the English case of Smith v.
Hughes [2] the court emphasised that the important thing is not a party's real intentions but
how a reasonable person would view the situation. This is due mainly to common sense
as each party would not wish to breach his side of the contract if it would make him or
her culpable to damages, it would especially be contrary to the principle of certainty and
clarity in commercial contract and the topic of mistake and how it affects the contract.

Unilateral contract 
The contract in Carlill v. Carbolic Smoke Ball Co[3] was of a kind known as a unilateral
contract, one in which the offeree accepts the offer by performing his or her side of the
bargain. It can be contrasted with a bilateral contract, where there is an exchange of
promises between two parties. In Australian Woollen Mills Pty Ltd v. The Commonwealth
(1954), the High Court of Australia held that, for a unilateral contract to arise, the
promise must be made "in return for" the doing of the act. The court distinguished
between a unilateral contract and a conditional gift. The case is generally seen to
demonstrate the connection between the requirements of offer and acceptance,
consideration and intention to create legal relations.

Invitations to treat 
An invitation to treat is not an offer, but an indication of a person's willingness to
negotiate a contract. In Harvey v. Facey[4], an indication by the owner of property that he
or she might be interested in selling at a certain price, for example, has been regarded as
an invitation to treat. Similarly in Gibson v Manchester City Council[5] the words "may be
prepared to sell" were held to be a notification of price and therefore not a distinct offer,
though in another case concerning the same change of policy (Manchester City Council
underwent a change of political control and stopped the sale of council houses to their
tenants) Storer v. Manchester City Council[6], the court held that an agreement was
completed by the tenant's signing and returning the agreement to purchase, as the
language of the agreement had been sufficiently explicity and the signature on behalf of
the council a mere formality to be completed.

The courts have tended to take a consistent approach to the identification of invitations to
treat, as compared with offer and acceptance, in common transactions. The display of
goods for sale, whether in a shop window or on the shelves of a self-service store, is
ordinarily treated as an invitation to treat and not an offer.[7]

The holding of a public auction will also usually be regarded as an invitation to treat.
Auctions are, however, a special case generally. The rule is that the bidder is making an
offer to buy and the auctioneer accepts this in whatever manner is customary, usually the
fall of the hammer.[8] A bidder may withdraw his or her bid at any time before the fall of
the hammer, but any bid in any event lapses as an offer on the making of a higher bid, so
that if a higher bid is made, then withdrawn before the fall of the hammer, the auctioneer
cannot then purport to accept the previous highest bid. If an auction is without reserve
then whilst there is no contract of sale between the owner of the goods and the highest
bidder (because the placing of goods in the auction is an invitation to treat) there is a
collateral contract between the auctioneer and the highest bidder that the auction will be
held without reserve (i.e., that the highest bid, however low, will be accepted).[9] The U.S.
Uniform Commercial Code provides that in an auction without reserve the goods may not
be withdreawn once they have been put up.[10]

Revocation of offer 
An offeror may revoke an offer before it has been accepted, but the revocation must be
communicated to the offeree, although not necessarily by the offeror. If the offer was
made to the entire world, such as in Carlill's case, the revocation must take a form that is
similar to the offer. However, an offer may not be revoked if it has been encapsulated in
an option (see also option contract).
If the offer is one that leads to a unilateral contract, then unless there was an ancillary
contract entered into that guaranteed that the main contract would not be withdrawn, the
contract may be revoked at any time:

Acceptance 
Test of acceptance 
Acceptance is a final and unqualified expression of assent to the terms of an offer.[11] It is
no defense to an action based on a contract for the defendant to claim that he never
intended to be bound by the agreement if under all the circumstances it is shown at trial
that his conduct was such that it communicated to the other party or parties that the
defendant had in fact agreed. Signing of a contract is one way a party may show his
assent. Alternatively, an offer consisting of a promise to pay someone if the latter
performs certain acts which the latter would not otherwise do (such as paint a house) may
be accepted by the requested conduct instead of a promise to do the act. The performance
of the requested act indicates objectively the party's assent to the terms of the offer.

The essential requirement is that there must be evidence that the parties had each from an
objective perspective engaged in conduct manifesting their assent. This manifestation of
assent theory of contract formation may be contrasted with older theories, in which it was
sometimes argued that a contract required the parties to have a true meeting of the minds
between the parties. Under the "meeting of the minds" theory of contract, a party could
resist a claim of breach by proving that although it may have appeared objectively that he
intended to be bound by the agreement, he had never truly intended to be bound. This is
unsatisfactory, as the other parties have no means of knowing their counterparts'
undisclosed intentions or understandings. They can only act upon what a party reveals
objectively to be his intent. Hence, an actual meeting of the minds is not required. Indeed,
it has been argued that the "meeting of the minds" idea is entirely a modern error: 19th
century judges spoke of "consensus ad idem" which modern teachers have wrongly
translated as "meeting of minds" but actually means "agreement to the [same] thing".[12]

This requirement of an objective perspective is important in cases where a party claims

that an offer was not accepted, taking advantage of the performance of the other party.
Here, we can apply the test of whether a reasonable bystander (a "fly on the wall") would
have perceived that the party has impliedly accepted the offer by conduct.

Rules of acceptance 
Communication of acceptance 
There are several rules dealing with the communication of acceptance:
 • The acceptance must be communicated: see Powell v. Lee (1908) 99 L.T. 284;
Robophone Facilities Ltd v. Blank [1966] 3 All E.R. 128. Prior to acceptance, an
offer may be withdrawn.
• An exception exists in the case of unilateral contracts, in which the offeror makes
an offer to the world which can be accepted by some act. A classic instance of this
is the case of Carlill v. Carbolic Smoke Ball Co. [1892] 2 Q.B. 484 in which an
offer was made to pay £100 to anyone who having bought the offeror's product
and used it in accordance with the instructions nonetheless contracted influenza.
The plaintiff did so and the court ordered payment of the £100. Her actions
accepted the offer - there was no need to communicate acceptance. Typical cases
of unilateral offers are advertisements of rewards (e.g., for the return of a lost
dog).
• An offer can only be accepted by the offeree, that is, the person to whom the offer
is made.
• An offeree is not usually bound if another person accepts the offer on his behalf
without his authorisation, the exceptions to which are found in the law of agency,
where an agent may have apparent or ostensible authority, or the usual authority
of an agent in the particular market, even if the principal did not realise what the
extent of this authority was, and someone on whose behalf an offer has been
purportedly accepted it may also ratify the contract within a reasonable time,
binding both parties: see agent (law).
• It may be implied from the construction of the contract that the offeror has
dispensed with the requirement of communication of acceptance (called waiver of
communication - which is generally implied in unilateral contracts): see also Re
Selectmove Ltd [1994] BCC 349.
• If the offer specifies a method of acceptance (such as by post or fax), acceptance
must be by a method that is no less effective from the offeror's point of view than
the method specified. The exact method prescribed may have to be used in some
cases but probably only where the offeror has used very explicit words such as
"by registered post, and by that method only": see Yates Building Co. Ltd v. R.J.
Pulleyn & Sons (York) Ltd (1975) 119 Sol. Jo. 370.
• Silence cannot be construed as acceptance: see Felthouse v. Bindley (1862) 142
ER 1037.[13]
• However, acceptance may be inferred from conduct, see, e.g.: Brogden v.
Metropolitan Railway Co. (1877) 2 App. Cas. 666; Rust v. Abbey Life Assurance
Co. Ltd [1979] 2 Lloyd's Rep. 334; Saint John Tugboat Co. v. Irving Refinery Ltd
(1964) 46 DLR (2d) 1; Wettern Electric Ltd v. Welsh Development Agency [1983]
Q.B. 796.

``

Correspondence with offer 
The "mirror image rule" states that if you are to accept an offer, you must accept an offer
exactly, without modifications; if you change the offer in any way, this is a counter-offer
that kills the original offer: Hyde v. Wrench (1840) 3 Beav 334. However, a mere request
for information is not a counter-offer: Stevenson v. McLean (1880) 5 Q.B.D. 346. It may
be possible to draft an enquiry such that it adds to the terms of the contract while keeping
the original offer alive.

An offeror may revoke an offer before it has been accepted, but the revocation must be
communicated to the offeree, although not necessarily by the offeror: Dickinson v. Dodds
(1876) 2 Ch.D. 463. If the offer was made to the entire world, such as in Carlill's case, the
revocation must take a form that is similar to the offer. However, an offer may not be
revoked if it has been encapsulated in an option (see also option contract).

Battle of the forms 
Often when two companies deal with each other in the course of business, they will use
standard form contracts. Often these terms conflict (eg. both parties include a liability
waiver in their form) and yet offer and acceptance are achieved forming a binding
contract. The battle of the forms refers to the resulting legal dispute of these
circumstances, wherein both parties recognize that an enforceable contract exists,
however they are divided as to whose terms govern that contract.

Under English law, the question was raised in Butler Machine Tool Co Ltd v. Ex-Cell-O
Corporation (England) Ltd [1979] WLR 401, as to which of the standard form contracts
prevailed in the transaction. Lord Denning MR preferred the view that the documents
were to be considered as a whole, and the important factor was finding the decisive
document; on the other hand, Lawton and Bridge LJJ preferred traditional offer-
acceptance analysis, and considered that the last counter-offer prior to the beginning of
performance voided all preceding offers. The absence of any additional counter-offer or
refusal by the other party is understood as an implied acceptance. In U.S. law, this
principle is referred to as the last shot rule.

Under the Uniform Commercial Code (UCC) Sec. 2-207(1), A definite expression of
acceptance or a written confirmation of an informal agreement may constitute a valid
acceptance even if it states terms additional to or different from the offer or informal
agreement. The additional or different terms are treated as proposals for addition into the
contract under UCC Sec. 2-207(2). Between merchants, such terms become part of the
contract unless: a) the offer expressly limits acceptance to the terms of the offer, b)
material alteration of the contract results, c) notification of objection to the
additional/different terms are given in a reasonable time after notice of them is received.

Material is defined as anything that may cause undue hardship/surprise, or is a significant

element of the contract.

If there is no contract under 2-207(1), then under UCC Sec. 2-207(3), conduct by the
parties that recognize there is a contract may be sufficient to establish a contract. The
terms for this contract include only those that the parties agree on and the rest via gap
fillers.
Postal acceptance rule 
Main article: Mailbox rule

As a rule of convenience, if the offer is accepted by post, the contract comes into
existence at the moment that the acceptance was posted (Adams v. Lindsell (1818) 106
ER 250). This rule only applies when, impliedly or explicitly, the parties have in
contemplation post as a means of acceptance. It excludes contracts involving land, letters
incorrectly addressed and instantaneous modes of communication. The relevance of this
early 19th century rule to modern conditions, when many quicker means of
communication are available has been questioned, but the rule remains for the time being.
For a detailed academic discussion, see: S. Gardner, "Trashing with Trollope: A
Deconstruction of the Postal Rules in Contract"[14]

Knowledge of the offer 
In Australian law, there is a requirement that an acceptance is made in reliance or
pursuance of an offer: see R v. Clarke (1927) 40 C.L.R. 227.

Rejection, death or lapse of time 
An offer can be terminated on the grounds of rejection on the part of the offeree,that is if
the offeree does not accept the terms of the offer.Also upon making an offer,an offeror
may include as a condition to the contract the duration in which the offer will be
available.If the offeree fails to accept the offer within this specific period then the offer
will be deemed as terminated.

Death of offeror 
Generally death (or incapacity) of the offeror terminates the offer. This does not apply to
option contracts.

The offer cannot be accepted if the offeree knows of the death of the offeror. In cases
where the offeree accepts in ignorance of the death, the contract may still be valid,
although this proposition depends on the nature of the offer. If the contract involves some
characteristic personal to the offeror, the offer is destroyed by the death...

Death of offeree 
An offer is rendered invalid upon the death of the offeree: see Re Irvine.

Counter Offers 
If the offeree rejects the offer, the offer has been destroyed and cannot be accepted at a
future time. A case illustrative of this is Hyde v. Wrench (1840) 49 E.R. 132, where in
response to an offer to sell an estate at a certain price, the plaintiff made an offer to buy at
a lower price. This offer was refused and subsequently, the plaintiffs sought to accept the
initial offer. It was held that no contract was made as the initial offer did not exist at the
time that the plaintiff tried to accept it, the offer having been terminated by the counter
offer.

It should be noted that a mere inquiry (about terms of an offer) is not a counter offer and
leaves the offer intact. The case Stevenson v. McLean (1880) 28 W.R. 916 is analogous to
this situation.

Formation 
A contract will be formed (assuming the other requirements are met) when the parties
give objective manifestation of an intent to form the contract. Of course, the assent must
be given to terms of the agreement. Usually this involves the making by one party of an
offer to be bound upon certain terms, and the other parties' acceptance of the offer on the
same terms.

Criticisms 
Criticisms of offer-acceptance analysis lie in that this tool was created by legal academics
and can be rather arbitrary at times, and bears little resemblance to how lay-people
perceive the formation of a contract.[citation needed]

Mailbox rule
The mailbox rule (called the "postal rule" or "postal acceptance rule" in the UK,
Australia and New Zealand, or "deposited acceptance rule") is a term of common law
contracts which determines the timing of acceptance of an offer when mail is
contemplated as the medium of acceptance. The general principle is that a contract is
formed when acceptance is actually communicated to the offeror. The mailbox rule is an
exception to the general principle. The mailbox rule provides that the contract is formed
when a properly prepaid and properly addressed letter of acceptance is posted. One
rationale given for the rule is that the offeror nominates the post office as implied agent
and thus receipt of the acceptance by the post office is regarded as that of the offeree. The
main effect of the mailbox rule is that the risk of acceptance being delivered late or lost in
the post is placed upon the offeror. If the offeror is reluctant to accept this risk, he can
always require actual receipt before being legally bound.

It is important to note, however, that if the offeree mails a rejection and then sends an
acceptance (or otherwise changes his mind), whichever communication is received by the
offeror first controls.
Case law 
The rule was established by Anthony in the 19th century cases, starting with Adams v.
Lindsell (1818) B & Ald 681, which was later confirmed in Dunlop v. Higgins (1848) 1
HL Cas 381, Household Fire Insurance Company v. Grant (1879) 4 Ex D 216 and
Henthorn v. Fraser [1892] 2 Ch 27.

The mailbox rule applies only to acceptance. Other contractual letters (such as one
revoking the offer) do not take effect until the letter is delivered, as in Stevenson v
McLean (1880) 5 QBD 346. The implication of this is that it is possible for a letter of
acceptance to be posted after a letter of revocation of the offer has been posted but before
it is delivered, and acceptance will be complete at the time that the letter of acceptance
was posted—the offeror's revocation would be inoperative.

Examples:

1. A makes an offer to B on January 1; A then decides to revoke the offer on January

2 and puts a letter in the mail to B revoking the offer; however, B puts a letter
accepting the offer in the mail on January 3, and does not receive A's revocation
letter until January 4. The letter of revocation can be effective only when
received, that is January 4. However, a contract was formed on January 3 when
the letter of acceptance was posted. It is too late to revoke the offer.
2. A makes an offer to B on January 1, and initially B intends to reject the offer on
January 2 by putting a letter in the mail to A rejecting the offer. However, the next
day B changes his mind and sends a fax to A accepting the offer. In this situation,
whichever communication A receives first will govern.
3. On January 1, A makes an offer to sell a parcel of land to B. B mails her
acceptance on January 2. On January 3, however, before A receives B's
acceptance, B telephones A and states she wishes to reject the offer. When B's
original letter of acceptance arrives on January 4, A records the contract as a sale.
B's acceptance of the offer means there is a binding contract--she is obliged to pay
for the land or be liable for damages.

Under the mailbox rule, performance is a means of acceptance. If A orders 1000 blue
coathangers and B ships them out, that shipment is considered to be a conveyance of
acceptance of A's offer to buy the coathangers. Defective performance is also an
acceptance, unless accompanied by an explanation. For example, if A orders 1000 blue
coathangers, and B mistakenly ships 1000 red coathangers, this is still an acceptance of
the contract. However, if B ships the red coathangers with a note that they sent these
because they had run out of blue coathangers, this is not an acceptance, but rather an
accommodation, which is a form of counter-offer.

An interesting implication of the operation of the mailbox rule is that as acceptance is

complete once the letter of acceptance is posted, it makes no difference whether the
offeror actually receives the letter. This was demonstrated in Byrne v Van Tienhoven
(1880) 5 CPD 344. If a letter of acceptance were to be lost, acceptance has still taken
place. An exception to this would be if the offeree knows or has reason to know that the
letter of acceptance never reached the offeror. For example, if A brings a letter of
acceptance to the local post office and A sees the post office burn down a moment later,
there is no acceptance.

The mailbox rule does not apply to instantaneous forms of communications. For example
in Entores Ltd v Miles Far East Corporation [1955] 2 QB 327, the Court held that the
mailbox rule did not apply to an acceptance by telex as the Court regarded it as an
instantaneous form of communication. The general principle that acceptance takes place
when communicated applies to instantaneous forms of communication. Courts have
similarly held that the mailbox rule does not apply to acceptances by telephone or fax.

The courts are yet to decide whether e-mail should be regarded as an instantaneous form
of communication. If the offeree were to convey acceptance by commercially
unreasonable means - by cross-country pony express, for example - the acceptance would
not be effective until it had actually been received.

A letter is regarded as "posted" only when it is in the possession of the Post Office; this
was established in the case of Re London & Northern Bank [1900] 1 Ch 220. A letter of
acceptance is not considered "posted" if it is handed to an agent to deliver, such as a
courier.

The mailbox rule does not apply to option contracts or irrevocable offers where
acceptance is still effective only upon receipt. This is because the offeree no longer needs
protection against subsequently mailed revocations of the offer.

Where parties are at distance from one another, and an offer is sent by mail, it is
universally held in this country [United States] that the reply accepting the offer
may be sent through the same medium, and, if it is so sent, the contract will be
complete when the acceptance is mailed,...and beyond the acceptor's control; the
theory being that, when one makes an offer through the mail, he authorizes the
acceptance to be made through the same medium his agent to receive his
acceptance; that the acceptance, when mailed, is then constructively
communicated to the offeror.

-Excerpt of an opinion by Judge Kimmelman (718 A.2d 1223)

Civil law jurisdictions 
Civil law jurisdictions do not follow the postal rule. The classical civil law position is that
acceptance, like any expression of will, can only be effective if it was communicated to
the addressee, unless the lack of communication can be attributed to the latter.[1] The
Vienna Convention on the International Sale of Goods chooses a compromise between
the two approaches: According to article 18(2) of the Convention, an acceptance is
effective when it reaches the offeror. However, article 16(1) of the Convention provides
for the most important consequence of the common law "mail-box rule," that is, an offer
may not be revoked if the revocation reaches the offeree after it has dispatched an
acceptance.[2]

UNCITRAL model law 
Main article: UNCITRAL

Many countries have enacted legislation based on the UNCITRAL Model Law of
Electronic Commerce. Such legislation is often entitled the Electronic Transactions Act.
Among other issues, this legislation deals a default rule for the time that email (electronic
communications) is sent and when it is received. However it is mistaken to suggest that it
deals with a clarification of the postal acceptance rule for electronic communications.
There are two schools of thought.

(1) Ask if the postal acceptance rule applies to emails (electronic communications). If
your answer is yes, then the relevant Electronic Transaction Act (ETA) can help. The
postal acceptance rule states that there is a contract when posted – so we should apply the
"sent" rule under the ETA. If the answer is no; then either apply the "received" rule under
the ETA or ignore it and use the contract rule of communication.

(2) Instead, treat the Electronic Transactions Act as an intended substitute and statutory
replacement of the postal acceptance rule; in which case the "received" rule should apply.
The problem with this second school of thought is that there is nothing in the Model Law
of Electronic Commerce, nor the ETAs which suggests that it was intended to replace the
postal acceptance rule. We are still waiting for a court to decide.

The UNCITRAL rules on time of sending and receiving are:

(1) Unless otherwise agreed between the originator and the addressee, the dispatch of a data
message occurs when it enters an information system outside the control of the originator or of
the person who sent the data message on behalf of the originator.

(2) Unless otherwise agreed between the originator and the addressee, the time of receipt of a data
message is determined as follows:

(a) if the addressee has designated an information system for the purpose of receiving data
messages, receipt occurs:

(i) at the time when the data message enters the designated information system; or

(ii) if the data message is sent to an information system of the addressee that is not the designated
information system, at the time when the data message is retrieved by the addressee;

(b) if the addressee has not designated an information system, receipt occurs when the data
message enters an information system of the addressee.
Mirror image rule In the law of contracts, the mirror image rule,
also referred to as an unequivocal and absolute acceptance requirement states that an
offer must be accepted exactly without modifications. The offeror is the master of his
own offer. An attempt to accept the offer on different terms instead creates a counter-
offer, and this constitutes a rejection of the original offer. (Restatement(2d) Contracts
§59).

This position is adhered to in Australia (New South Wales). If a person were to accept an
offer, but make a modification, then they are actually rejecting the offer presented to
them and are proposing a counter-offer [Masters v Cameron (1954) 91 CLR 353]. That
modifying party is then the one making a new offer, and the original offeror is now the
one who has to accept.

In the United States, this rule applies in most situations, but it has been altered with
respect to merchants dealing in the sale of goods under the Uniform Commercial Code
(UCC Section 2-207). In such situations, an acceptance that does not match the terms of
the offer is nonetheless effective as long as the material terms are agreed upon. Example:
Marty the T-shirt printer (merchant) offers to make and sell for $100 one thousand yellow
T-Shirts, imprinted on the back with "Thank your English teacher!", to Vinny of
Vincent's Shirt Barn (merchant). Vinny accepts the offer and writes on the back of the
invoice "change to 'Thank your English teachers!'" This constitutes acceptance. The
contract will be enforceable in spite of the alteration, because the change is immaterial
and both are merchants. The changed or additional terms in the acceptance will become
part of an agreement between merchants, unless the offer limits acceptance to the terms
of the offer (e.g.,'no substitutions'), the terms materially alter the offer, or the other party
objects to the new terms within a reasonable time. (UCC 2-207 (2)(a)-(c)). When both
parties are not merchants but the transaction is covered by the UCC (for example, if
Vinny agrees to sell T-shirts to a customer who is not a merchant), each additional term
becomes a proposal for addition to the contract but not automatically a part of the
bargain. (UCC 2-207(2)).

Firm offer
In the United States, a firm offer allows merchants to make offers to buy or sell
irrevocable for up to three months provided that the offer be put down in writing or
otherwise authenticated. Such offers are defined by UCC § 2-205 of the Uniform
Commercial Code of the United States.

A firm offer in effect creates an option contract without requiring any consideration from
the prospective buyer. Because the firm offer holds the seller to a higher standard than the
potential buyer, it reflects a change from traditional common law, which treated all
parties to a contract the same way, to a more modern view that holds certain parties to a
higher standard of behavior.
There are two versions of the UCC firm offer rule in effect. The old UCC § 2-205 states
that an offer is firm and irrevocable if:

• it is an offer to buy or sell goods

• it is made by a merchant
• it is a signed writing

There are at least two additional requirements. First, in no event will the period of
irrevocability be longer than three months. Second, if the offeree submits a form on
which the offeror is supposed to set out the offer, then the irrevocability condition must
be separately signed by the offeror. If all of these conditions are met, then the offer will
be irrevocable either for the period stated in the offer, or for a reasonable time if no time
is stated in the offer.

Thus, if there is a stated time period of 6 months, then the 3 month limit applies and the
offer ceases to be legally enforceable after 3 months. If a reasonable time period would
be longer than 3 months, the limit nevertheless applies and terminates the offer's
enforceability after 3 months.

The new UCC § 2-205 does away with the "signed writing" requirement. Instead, it
requires an "authenticated record." Also, instead of a separate signature for firm offers,
the proposed UCC § 2-205 requires separate "authentication." This is slightly broader
language - a signature qualifies as authentication, but so does any other visual mark or
sound intended to indicate adoption of the terms; a signed writing is an authenticated
record, but so is any other inscription in a tangible or electronic medium that may be
retrieved in a perceivable form.

These changes are intended to make the UCC provision more similar to the U.N.
Convention on Contracts for the International Sale of Goods, and to clear up any
ambiguities that may exist as to whether a firm offer may be made electronically.

Consideration
Consideration is a concept of legal value in contract law. It is a promised action, or
omission of action, that the promisee did not already have a pre-existing duty to abide by.
It can take the form of money, physical objects, services, or a forbearance of action. Both
parties to a contract must pass consideration to the other party for there to be a valid
contract.

However, even if a court decides there is no contract, there might be a possible recovery
under Quantum meruit (sometimes referred to as a Quasi-contract) or promissory
estoppel.
Basic examples of consideration 
If A signs a contract to buy a car from B for $5,000, A's consideration is the $5,000, and
B's consideration is the car.

Additionally, if A signs a contract with B such that A will paint B's house for $500, A's
consideration is the service of painting B's house, and B's consideration is $500 paid to A.

Further, if A signs a contract with B such that A will not repaint his own house in any
other color than white, and B will pay A $500 per year to keep this deal up, there is also
consideration. Although A did not promise to affirmatively do anything, A did promise
not to do something that he was allowed to do, and A therefore did pass consideration.
A's consideration to B is the forbearance in painting his own house in a color other than
white, and B's consideration to A is $500 per year.

Conversely, if A signs a contract to buy a car from B for $0, B's consideration is still the
car, but A is giving no consideration, and so there is no valid contract.

There are a number of common issues as to whether consideration exists in a contract.

Value of consideration 
Generally, courts do not inquire whether the deal between two parties was monetarily fair
- merely that each party passed some legal obligation or duty to the other party. The court
is more concerned about the presence of consideration rather than the adequacy of the
consideration.

The values between consideration passed by each party to a contract need not be
comparable. For instance, if A offers B $200 to buy B's mansion, luxury sports car, and
private jet, there is still consideration on both sides. A's consideration is $200, and B's
consideration is the mansion, car, and jet. Courts in the United States generally leave
parties to their own contracts, and do not intervene when parties knowingly make bad
deals.

Nominal consideration 
Although courts in the United States tend not to look at the value of consideration, there
is one exception.

The old English rule of consideration questioned whether a party gave the value of a
peppercorn to the other party. As a result, contracts in the United States have sometimes
have had one party pass nominal amounts of consideration, typically citing $1. Some
courts have since thought this was a sham. Since contract disputes are typically resolved
in state court, some state courts have found that providing $1 to another is not a
sufficiently legal duty, and therefore no legal consideration passes in these kinds of deals,
and subsequently, no contract is formed.

Still today, licensing contracts that do not involve any money at all will often cite as
consideration, "for the sum of $1 and other good and valuable consideration". If analyzed
under state law, these contracts may very well be found invalid.

Existing legal duties 
A party which already has a legal duty to provide money, an object, a service, or a
forbearance, does not provide consideration when promising merely to uphold that duty.

The prime example of this sub-issue is where an uncle gives his 17 year old nephew (a
citizen of the USA) the following offer: "if you do not smoke cigarettes or marijuana
until your 18th birthday, then I will pay you $500" (it is a criminal offense in the US for
people under the age of 18 to smoke). On the nephew's 18th birthday, he tells the uncle to
pay up, and the uncle says no. In the subsequent lawsuit, the uncle will win, because the
nephew, by U.S. law, already had a duty to refrain from smoking cigarettes.

The same applies if the consideration is a performance for which the parties had
previously contracted. For example, A agrees to paint B's house for $500, but halfway
through the job tells B that he will not finish unless B increases the payment to $750. If B
agrees, and A then finishes the job, B still only needs to pay A the $500 originally agreed
to, because A was already contractually obligated to paint the house for that amount.

Bundled terms 
Contracts where a legally valueless term is bundled with a term that does have legal value
are still generally enforceable.

Consider the uncle's situation above. If the same uncle had instead told his 17 year old
nephew the following offer: "if you do not smoke cigarettes and do not engage females
before your 18th birthday, then I will pay you $500". On the nephew's 18th birthday, he
asks the uncle to pay up, and this time, in the subsequent lawsuit, the nephew will win.
Although the promise of not smoking was not valuable consideration (it was already
legally prohibited), virtually all states allow some sort of engagement by minors. Even
though the engagement by minors is legally restricted, there are circumstances where it is
legal, and thus the promise to forbear from it entirely has legal value.

Past consideration 
Generally, past consideration has no legal value. Past consideration therefore cannot be
used as a basis to form a new contract.
Suppose A is driving in his car on a sunny Sunday afternoon, and he sees smoke coming
from a vehicle on the side of the road ahead. A pulls over, sees B injured in the vehicle,
and pulls B out of the car to safety. B makes a full recovery, and the next day, says to A,
"because you saved me, I will pay you $5,000 per year until you die." 5 years later, B
dies of cancer and even though B paid A $5,000 each of those years, the executor of B's
estate refuses to pay A any more money. In the subsequent lawsuit, A will lose, because
no contract existed. At the time that B took up this $5,000 per year obligation, A did not
offer any consideration. Applying the "value of consideration" rule, A might actually win
if A had merely replied, "I will only accept, if you require that I do not walk backwards
on Tuesdays between 4:00pm and 4:10pm EST while holding a red pen". Even though
A's consideration has little monetary value to pretty much anyone, it does have legal
value, as it is a promise of forbearance.

Option contracts and conditional consideration 
Generally, conditional consideration is valid consideration.

Consider the following situation. A is a movie script writer. B runs a movie production
company. A says to B, "buy my script." Instead, B says "How about this -- I will pay you
$5,000 so that you do not let anyone else produce your movie until one year from now. If
I do produce your movie in that year, then I will give you another $50,000, and no one
else can produce it. If I do not produce your movie in that year, then you're free to go." If
the two subsequently get into a dispute, the issue of whether a contract exists is answered.
B had an option contract -- he could decide to produce the script, or not. B's consideration
passed was the $5,000 down, and the possibility of $50,000. A's consideration passed was
the exclusive rights to the movie script for at least one year.