Offer and acceptance

Finally, we get to offer and acceptance. It may seem odd to leave this to last--especially
if you think of offer and acceptance as a matter of contract formation. But offer and
acceptance is not so much a set of doctrines about how to form a contract, but a set of
doctrines about whether a contract was formed. One way to think about this is that the
doctrine deals, not so much with how to make contracts, but whether you can get out of
them. If the contract hasn't been formed, you can get out on the ground that there is no
agreement to enforce. Thought of in this way, offer and acceptance belongs with the other
doctrines we have been studying--impracticability, frustration, mistake--doctrines about
how to get out of contracts.

Remedial consequences: the remedial consequences of the doctrines are the same as
well. Impracticability etc. take you off the contract; so does finding that there is no
enforceable contract.

Acceptances take effect upon dispatch--the mailbox rule

We will start with some relatively manageable doctrine--the rules governing the timing
of contracts entered into by correspondence. This is sometimes called the "mailbox rule".

Suppose the parties are negotiating by mail to buy a car. The seller--the offeror--mails
an offer to sell to the buyer. The buyer mails his acceptance. But it takes 10 days for the
acceptance to reach the buyer. In the meantime, the buyer has changed her mind, and has
mailed a revocation of the offer. The revocation reaches the buyer after the acceptance
reaches the seller. Here is the time sequence:

Jan. 1 Jan. 5 Jan. 10 Jan. 15 Jan. 20

Buyer offer Acceptance revocation

(offeree) received mailed received

Seller revocation acceptance

(offeror) mailed received

Question: is there a contract? The common law rule (the "mailbox rule"):

Acceptance takes effect when it is dispatched.

Adams v. Lindsell follows this rule.

The acceptance was mailed on September 5; was not received until September 9. The
offeror changed his mind in the meantime and claimed there was no binding contract. But
the court held the contract was formed on September 5 when the acceptance was mailed.

Revocations take effect upon receipt

So when does a revocation take effect?

The common law rule: revocations take effect upon receipt--not upon dispatch.
Change the facts in our earlier example: suppose the seller does not mail his acceptance
until January 12; the seller has already mailed her revocation (January 10). Can the seller
get out of the contract? No, the revocation to be effective has to be received by the buyer
before the buyer mails his acceptance. The acceptance is mailed on January 12 and the
revocation does not arrive until January 20.

Exceptions to the mailbox rule?

The California rule on effectiveness of revocation may be different; one could read the
relevant statute as saying that the revocation is effective when mailed. But actually that
isn't all that clear, and there has never been a case raising this issue.

The rule in all states about acceptance is that it is effective when mailed. Questions
about the timing of acceptance do come up quite often.

E-mail: it is suggested that in the case of e-mail, the rule be changed to male offers
effective on receipt. Is this a better way to allocate the burden of uncertainty in these
cases?

Meeting of the minds under the mailbox rule

We now know the rule? How do we justify it? This was a problem under the meeting of
the minds doctrine. The idea of that doctrine is that the minds of the parties must be
brought together by communication; surely, the relevant communication occurs only when
the offeror receives the acceptance, not when the offeree mails it. So how is the mailbox
rule consistent with the meeting of the minds doctrine? Household Fire & Carriage
discusses this problem.

Household Fire & Carriage Acc. Ins. Co. v. Grant

The court calls the meeting of the minds "practically the foundation of English law upon
the subject of the formation of contracts." The court worries about the problem just raised.
The court accepts the argument of Adams v. Lindsell that, without the mailbox rule, no
contract could "ever be completed by the post." The idea is that if the offeror is not bound
until he or she receives the acceptance, then--if there is to be a true meeting of the minds--
the offeree should not be bound until notified that the offeror received the acceptance and
assented to it; but then the offeror should not be bound until he or she is notified that the
offeree received notification of offeror assent to the acceptance, . . . and so on ad infinitum.

So what was the court's solution? It said it would regard the post office as the agent of
both parties and treat delivery of the acceptance to the post office as the equivalent of
putting the acceptance in the actual hands of the offeror.

Abandonment of the meeting of the minds doctrine

This is a legal fiction if anything is. Why not just admit that contract formation does not
really require a "meeting of the minds"? We said, when discussing this the last time, that
all that was really required in the law was that the parties words and actions be such that a
reasonable outsider would think that they had reached an agreement. This is all the
"meeting of the minds" doctrine really comes to. If we keep this in mind (if I can be
allowed that expression), we can see that there really is no problem with the mailbox rule:
the crucial action that the law looks at in the case of contracts formed by correspondence is
the putting of the acceptance in the mail.

Isn't this better than making up legal fictions the way the Household Fire & Carriage
court does? So why not stop worrying about the meeting of the minds?

McTernan v. LeTendre

Courts did stop worrying. You can see this reflected in McTernan. This is a
Massachusetts case, and Massachusetts had followed the rule that accept is effective, not on
dispatch, but on receipt. But the court says that since every other state has the other rule,
Massachusetts will do: "Diversity within the commercial law of a single economic
community is not favored." No worries here about meeting of the minds; the decisive
consideration is to have a uniform rule.

But is it really a good rule?

The rule is of course arbitrary. We could make acceptances effective of receipt if we

wanted--now that we are no longer worried about the meeting of the minds. Or we could
have some more complicated rule that made some effective on receipt, some on dispatch.
The worry is that arbitrary rules like the mailbox rule sometimes cause injustice--when the
rule is not appropriate given the particular facts of the case. And, indeed, this is exactly
what happens with the mailbox rule.

To see the issues, let's consider some hypothetical.

First hypothetical: offeree's need to rely

The seller is a new car dealer; he has lots of cars, more than he can sell. The buyer is
someone who is moving to a new city, and she will need a car right away. The buyer writes
a dealer in the new city asking for prices. The dealer writes back with an offer. The buyer
mails her acceptance, but the post office delays delivery for two weeks, and in the
meantime the dealer changes his mind and decides to back out of the deal. By this time,
the buyer has arrived in the new city and immediately needs a car.

Does the buyer have a contract? Yes, under the common law rule. Is this a good
result?

Fair to the seller?

Suppose the seller backed out of the deal because, not hearing from the buyer for two
weeks, he assumed she was not interested. Why shouldn't he be able to do that? After all,
if the buyer wanted to leave nothing to chance, she could have called or faxed.

But then the seller could have done so too. As far as using faster communication
goes, there is no real way to distinguish the two parties. Is there some other
relevant fact? Yes, if we suppose that the seller has a lot of cars to sell and that there is not
too much difference between them. So the dealer is not hurt by the two week delay; he will
not lose any sales. There is no reason the seller needs to know right away whether he is
bound to sell to the buyer.

Here the common law rule gives the buyer certainty at the price of some uncertainty for
the seller. But the seller's uncertainty does not matter since the seller has no need for
certainty.
Second hypothetical--offeror's need to rely

But it can be the seller that needs certainty. Suppose I need a car sometime in the next
six months. So I have plenty of time to look for a car; it will not matter much to me if this
or that particular deal to buy a car falls through. I see a car advertised in the newspaper. I
write to ask about it, and the seller--a private party with only one car to sell--writes back
with an offer. I mail my acceptance, but the post office delays delivery for two weeks.
When the seller doesn't hear from me she sells to someone else and mails a revocation to
me. The seller is eager to sell because she needs the money; when the second buyer
comes along, she is afraid of losing the sale and acts quickly.

Who needs certainty here? The seller, clearly. But the mailbox rule does not give the
seller certainty. The rule protects the offeree. And there are many cases in which the
offeree does need protection, does need certainty--as in the first hypothetical. But there
are also cases where the seller needs certainty.

Are they ways to protect the seller? Ways to get around the mailbox rule? Of course.

Improper method of communication

One way is to hold that the offeree's method of communication was improper. Let's
start with the easy cases.

Suppose the offeree addresses the letter wrong, or sends it by an unreasonably slow
means--carrier turtle, bulk mail. Where the letter never gets there, or is delayed for an
unreasonably long time, the court will not follow the mailbox rule; it will not hold that
acceptance occurred with dispatch. Liability here is put on the person responsible for the
delay--the offeree.

Note: the offeree's carelessness must cause an actual delay; if the misaddressed or
improperly sent acceptance gets there as fast as a properly sent letter would have, the
court will follow the mailbox rule.

Rules for the appropriate method of response

Old rules: At one time there were strict rules: the form of response essentially had to
be the form used to communicate the offer. This led to weird results: the offeree sends his
acceptance by telegram, but since the offer was mailed, this is inappropriate and is not an
effective acceptance--even though the telegram was faster than mailing a letter.

Today: the rigid rules have been dropped. The black letter standard is that you have to
use a reasonable form of response. So what is a reasonable form of response?

Reasonableness depends, in part, on how fast the offeror needs to know. In the first
hypothetical, mailing the offer is reasonable; in the second, mailing may not be reasonable;
why not phone? Other considerations, such as custom, may influence the determination of
reasonableness here.

Changing the rule in the offer

Another way around the mailbox rule: in some cases the offer itself will define the
method of acceptance. The offer may say: "Please reply in person", "Please reply by mail",
etc.

General rule: if the offer mentions a method of acceptance, that is the method the
offeree has to use.

Note: the offeror can change the mailbox rule itself. The offer can say, "The offer will
not be accepted until I receive your acceptance."

As it is often put: "The offeror is the master of his or her offer."

Interpreting the offer to change the rule

Even where the offer does not explicitly change the rule, the courts may decide the it
does so impliedly. The courts might do this in the second hypothetical. Suppose the buyer
knew that the seller needed to know quickly whether the buyer would buy, that the seller
will sell to another buyer if the first buyer decides against the deal. Then the court might
say that it was understood that acceptance would be by an appropriately fast method--e. g.,
telephone.

Lewis v. Browning

Here the offer does discuss the method of acceptance (p. 420), but it never explicitly
says that the acceptance will not be effective until it is received. But the court implies from
the language of the offer that the
acceptance will not be effective until it is actually received.

The court had good language to go on in the offer. But even if the language had been
less clear, it may well have found the implication. The 2d R says that "where receipt of the
notice is essential to enable the offeror to perform, such a condition is normally implied."

This--the 2d R--may be a little strong; courts will not always imply the condition (that
acceptance is effective only on receipt) in cases like the second hypothetical; whether they
will depends on the offeror's need for certainty.

Option contracts

Option contracts are another area in which the courts will often imply a change in the
mailbox rule. Reminder about option contracts: they are contracts to hold an offer open--
e. g., "Here is my offer; it is open until Friday".

In Falconer v. Mazess the court says that the mailbox rule applies to options--provided
mailing the acceptance is a reasonable form of communication.

But note that the 2d R takes the contrary position: In option contracts acceptance is
effective on receipt. This is probably the majority position.

Need for certainty in option contracts

Suppose I offer to sell you my car and say the offer is open for five days. Who is the
one with the most uncertainty, you or me? You may not know whether you want to accept
the offer, but you do know where you stand at any given moment--for, against, or
undecided. I am up in the air, however, not being able to read your mind. So I have the
greater degree of uncertainty. We can see this if we think about what could happen when
the five days are up and I have not heard from you. Suppose I have another buyer that
wants the car. Can I safely sell to that buyer, or might I still be bound to you by a mailed
acceptance that I have not received? Under the mailbox rule, I won't know the answer.

So why not use the opposite rule here--acceptance is effective only on receipt? This
makes sense because option contracts specify a date by which the offeror presumably wants
to know whether the offer is accepted, a date by which the offeror wants notification.

Rhode Island Tool v. United States

This case illustrates another way in which courts have protected the offeror--by
abandoning the mailbox rule altogether. This another mistaken bid case. The bidder sent
in a bid that was mistakenly too low. Here we will just look at the offer and acceptance
issue. This issue arises because the bidder quickly realized the mistake and tried to revoke
the bid. But the government--the offeree--had already mailed its acceptance (let's suppose
so anyway, not clear on the facts).

So what does the court do? It abandons the mailbox rule. t argues that the rationale
for the rule was that the letter was out of the offeree's control as soon as it got to the post
office. The offeree could not get the letter back, so delivery to the post office was as good
as actual delivery to the offeror. But now, the court note, the post office has changed its
rules so that the offeree could get the letter back.

Is this a good argument? This argument looks back to the idea that the post office is
the agent of both parties. But this was a fiction from the beginning. We said that the real
issue here is the need for certainty. So the question is: does the government--the
offeree--need the certainty that the mailbox rule gives it? It is hard to see why. The
government would not be harmed by delay.

Note the court could let the offeror out on a mistake theory. The mistake was
discovered while there was still time for the government to accept the second lowest bid, so
the mistake caused no harm to the government.

Lonergan v. Scolnick

This illustrates another way of protecting the offeror.

Facts: negotiations by correspondence for the sale of land. The seller sent his last letter
to the buyer on April 8; the problems began then. Before the plaintiff could reply, the seller
sold the land to another buyer--on April 12. The plaintiff mailed his acceptance of the
seller's "offer"--what the plaintiff claims was an offer--on April 15.

Suppose we analyze the situation using the mailbox rule--assuming that an offer was
made. Then offeree mailed the acceptance on April 15. Had the offeror revoked the offer
prior to the 15? No. He did not communicate at all with the plaintiff after April 8. So then
there would be a contract.

Seller's need for certainty

Put aside the mailbox rule for a minute. Is this a case in which the seller--the offeror--
needs certainty about whether the offer has been accepted? Yes, he is "expecting other
buyers this week."
Does the buyer need certainty? Well it is possible that the buyer is under time
constraints--maybe he needs to act fast for some reason. But there were reasons for
urgent action, it is not in the record.

Avoiding the mailbox rule in Lonergan

We could avoid the mailbox rule in this case in one of the ways we have discussed;
implying that acceptance must be by an appropriately fast method would be one way, or
implying that acceptance is effective only
upon receipt.

The holding in Lonergan

What does the court do? The court said there was no contract. Did the court use one of
the ways we have discussed of avoiding the mailbox rule? No, the court said the seller
never made an offer. Remember that our analysis under the mailbox rule assumed an offer
was made; you can't have an acceptance without an offer. So this is another way around
the mailbox rule: hold that there was never an offer.

Why isn't there an offer?

What's an offer? The traditional answer: an offer is something that the offeror is bound
by as soon as the other accepts. The idea: There are two things the seller could be saying
in Lonergan. First: "Here is my offer; once you accept, I am bound." Second: "Here is my
property; I might be interested in selling it; make me an offer; when you do, I will have the
right to accept or reject it." The first is an offer; the second is not--it is a request for an
offer from the other party.

Does the language in the seller's letter make it explicit which he is saying? No. So we
have an interpretation issue. So now we see that the mailbox rule cases can raise two
interpretation issues. We not only have to decide if the offer implicitly changed the mailbox
rule, we also have to decide if the communication was an offer at all.

How do you tell when something is an offer?

There are various standards in the opinions. They are not very helpful. One standard
often mentioned is definiteness and completeness. Definiteness and completeness: to be
an offer the communication has to be fairly definite and complete. For example, if the
communication does not mention price and other important terms, there really isn't
anything for the other party to accept. So the communication probably won't be treated as
an offer. Courts sometimes look at definiteness, but just as often they do not. So this is
not a very reliable guide.

Lonergan is an example of a court not looking at definiteness as a factor. The April 8

letter was definite and complete. It mentioned the price, the location of the land, and a lot
of other information. But the court did not treat it as an offer. And there are other cases
where communications leave a lot out, the court nonetheless treats it as an offer.