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Topics Covered in this Chapter

Offer
10-1 Essentials of an Offer
10-2 Duration of Offers
Acceptance of an Offer
10-3 Communication of Acceptance
10-4 Variant Acceptances

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 Mutual Assent
Although all four (4) requirements for
forming a contract are essential to its
existence, mutual assent is so basic
that frequently a contract is referred to
as the agreement between the
parties. You need the agreement
before you can address the other
three requirements.
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 Mutual Assent
The way parties usually show
mutual assent is by offer and
acceptance. One party makes a
proposal (offer) by words or
conduct to the other party, who
agrees by words or conduct to the
proposal (acceptance).
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 Offer – Definitions
• Offer is the indication of
willingness of a party to enter into
a contract.
• The person making the offer is the
offeror.
• The person to whom the offer is
made is the offeree.
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 Offer - Requirements
Communication – The offeree must have
knowledge of the offer and the offer must be made
by the offeror to the offeree.
Intent – The offeror must intend to make an offer;
however, intent will be determined by an objective
standard of what a reasonable person in the
offeree’s position would have believed.
Definiteness – The terms of the offer must be clear
enough to provide a court with a basis for giving an
appropriate remedy.
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 Offer – Time Limit
The offer remains opens for the time period the
offeror specified, or, if the offeror did not state a
time limit, the offer will remain open for a
reasonable period of time.
– Reasonableness will be based on a number of
factors, some of which include:
• Subject matter of the contract (for example: sale of perishable
goods vs. durable goods)
• Prior dealings, if any, between the parties
• Custom of the trade or industry involved

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 Offer – Revocation
An offeror may terminate an offer at any time before it
is accepted, subject to the following exceptions:
• Option Contract – contract that binds the offeror to
keep his/her offer open for a specified time.
• Firm Offer – (UCC Article 2 sales only) A merchant’s
offer to sell or buy goods in a signed writing.
• Statutory Irrevocability – offer made irrevocable by
statute (government-solicited bids).
• Unilateral Contract – a unilateral offer may not be
revoked after the offeree begins substantial
performance.

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Rejection & Counteroffer
Rejection of an offer terminates the offer
– Once the offeree reject an offer, he/she cannot
later accept the offer (it no longer exists)
Counteroffer is a counterproposal to an offer that
terminates the offer
– It is the offeree’s simultaneous rejection of the
offer and making his/her own offer
– The roles of offeror and offeree are now
reversed

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Other Ways Offers Terminate
Death or Incompetency of either the offeror or the
offeree terminates the offer.
Destruction of Subject Matter of an offer
terminates the offer.
Subsequent Illegality – An offer will terminate if the
state subsequently declares the purpose or subject
matter of such an offer illegal (for example, you
offer to build a commercial building on land that
the City later declares only residential buildings
may be built).
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Duration of Revocable Offers

Offer Effective
Communicated
Intent
Definite and certain

No offer OFFER OPEN No offer

Offer Terminated
Lapse of time Death
Revocation Incompetency
Rejection Destruction of subject
Counteroffer Subsequent Illegality

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 Acceptance of an Offer
The positive and unequivocal expression
of a willingness to enter into a contract on
the terms of the offer.
– Bilateral contract – requires an overt act
(make a mutual promise to accept the
terms of the offer)
– Unilateral contract – offeree performs the
act as requested in the offer
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Communication of Acceptance
Bilateral Contract
– Offeree communicates acceptance to all the
terms of the offer
Unilateral contract
– Offeree accepts the offer through substantially
beginning performance
– Offeree need not communicate acceptance,
unless the offeror has no reasonable means to
learn of the offeree’s acceptance through
performance.
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 Is Silence Acceptance?
Silence or inaction does not indicate
acceptance of an offer
Exceptions –
• Custom in the trade or industry
• Prior course of dealing
– Due to previous dealings between the parties
or stated policy to accept all offers unless
notice is given.
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 When is Acceptance
Effective?
The offeror’s terms will dictate when
acceptance is effective.
If the offeror does not specify when
acceptance is effective, then
acceptance is effective when the
offeree dispatches his/her acceptance.

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 How to Accept an Offer
The communication of acceptance must conform to the
terms specified in the offer.
– Authorized Means – If the offer does not specify a
means of communication to accept, the offeree may
communicate acceptance by any reasonable manner.
– Unauthorized Means – If the offeree uses an
unauthorized means to accept, acceptance will be
effective when received, provided that it is received
within the time within which the authorized means would
have arrived.
– Acceptance Following a Prior Rejection – first
communication received by the offeror is effective.
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 Mutual Assent
Has a definite and certain offer No
been communicated? No Offer
Yes

Has the offer been revoked by Yes

the offeror?
No

Has the offeror received a Yes

rejection or counteroffer? Offer terminated
No

Has lapse of time, death, incompetency, Yes

destruction of subject matter, or
subsequent illegality occurred?
No
No
Is acceptance effective? No contract
Yes
Contract formed

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 Acceptance of an Offer
• Variant Acceptances – contains
terms different from the offer
– Common Law – upholds “mirror image rule”
and requires acceptance to match the offer;
variant does not create a contract but serves
as a counteroffer.
– Code – allows variant acceptances in certain
cases and focuses on intent of the parties
(UCC 2-207).
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 Offer and Acceptance

Time Effective Effect

Communications by Offeror
•Offer Received by offeree Creates power to form a contract
•Revocation Received by offeree Terminates offer

Communications by Offeree
•Rejection Received by offeror Terminates offer
•Counteroffer Received by offeror Terminates offer
•Acceptance Sent by offeree Forms a contract
•Acceptance after prior rejection Received by offeror If received before rejection forms
a contract

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