Business Law The Ethical Global and E-Commerce

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Business Law The Ethical Global and E-Commerce Environment 15th Edition Mallor Solutions Man

Chapter 10 - The Agreement: Offer

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 and offer and determine whether a given offer
remains “on the table.”

II. ANSWER TO INTRODUCTORY PROBLEM

A. Yes. Unlike most ads, this ad is an offer in the mode of an offer for a reward. No further
action on the part of the offeror was necessary to close the deal. The ad was pointed
toward a single person or small group of people, was specific in its terms, and asked for
an act to be performed on the part of the offeree. This problem is based on Jackson v.
Investment Corp., 585 So. 2d 949 (Fla. Ct. App. 1991).
B. No. 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.
C. The owners did have the right to revoke the offer before acceptance (or, more accurately,
before Jackson foreseeably relied or substantially began performance).
D. If Jackson had known at the time he saw the ad that it was a mistake, taking advantage of
the mistake would be unethical under almost any ethical theory. If Jackson did not know
of the error until after he won the jackpot (as appears to be the case), there is likely to be
disagreement among students as to whether insisting on receiving the prize is ethical.
Jackson’s actions would be ethical applying a profit maximizing approach, but a
utilitarian would consider net social benefits and it might be that the harm to the business
owners, shareholders, and other stakeholders might outweigh the benefit to Jackson.

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
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

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Chapter 10 - The Agreement: Offer

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
winner of the drawing. MacDonald then stated that what Meram won was one dollar per
year for one million years. He gave Meram $100 for the first “hundred years.” Meram
sued for breach of contract and MacDonald and the other defendant filed a motion to
dismiss for failure to state a claim. The issue was whether MacDonald had made an
offer—would a reasonable person believe that he intended to make an offer, and if so,
was the offer sufficiently definite? The court held that the complaint alleged sufficient
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
it is plausible that a reasonable person could conclude that MacDonald intended to make
an offer? In the unedited version of the case, Meram brought claims of fraud and
intentional infliction of emotional distress against MacDonald. The court held that
Meram did not make out the elements of fraud, and Meram voluntarily consented to the
dismissal of his intentional infliction of emotional distress case. Furthermore, all claims
against Allianz, the promoter of the event, were dismissed.
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 Cases #5 and 8.
B. What is an Offer?
1. Emphasize the fact that the words "offer" and "acceptance" are used in this and following
chapters as "terms of art" that have specific legal meanings that are sometimes different
from the way the words are used in normal conversation. An offer, as the term is used in
contract law, confers on the offeree the power to bind the offeror to a contract by merely
communicating acceptance.
2. One way of emphasizing the importance of students mastering the offer concept is to note
that when courts confront a contract dispute, they are often asking two basic questions:
Was there a contract? If so, what were its terms? The offer concept is critical to the
resolution of both of these questions. If no offer ever existed, no contract can result under
traditional contract principles. Also, since all the offeree can do under traditional
principles is accept, often the offer will contain all the terms of the parties' agreement.
3. Discuss: is every proposal an offer to contract? Discuss standards for separating non-offer
proposals from offers to contract?
4. Discuss the requirement that an offer must be definite in its terms. Discuss the fact that
indefiniteness bears on intent because it can indicate that the parties are still in the
process of negotiation. Indefiniteness can also leave the court with insufficient
information to calculate a remedy if a later agreement based on an indefinite offer is
breached.
Armstrong v. Rohm and Haas Company, Inc. (p. 337): The plaintiffs worked as ceramic
grinders at Morton International’s Spencer facility. When the defendant acquired Morton,
it gave employees a month to decide whether to quit and receive a severance payment or
transfer to another facility and receive a larger incentive payment. The plaintiffs wanted
to keep their jobs but the plant manager told them that they would make more money if
they would resign and start their own business handling Rohm and Haas’s outsourced
grinding work. He stated that R and H would give the new business

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all the outsourced work they could handle and that the company would like to give them
all its outsourced work. The plaintiffs followed this advice and their business failed. In
addition, Rohm and Haas continued giving outsourced work to another firm. The
plaintiffs asserted the formation of an oral contract. The court rejected this claim on the
ground that the plant manager’s statements were so vague and indefinite that no contract
was formed.
Points for Discussion: Discuss why the court can’t just fill in the gaps here. The plaintiffs
also claimed promissory estoppel and fraudulent inducement to enter the severance
agreement. Ask the students why these claims failed. The court stated that the promises
were too vague to provide the grounds for the reasonable reliance that is required for both
promissory estoppel and fraud. You might also wish to discuss the ethics and public
policy of the court’s statement that “[t]he law will refuse to enforce a simple and direct
promise if it is unduly vague…but insist on enforcing boilerplate contract language that
neither party even read or understood. Of course, a person of principle and character
would keep his word; but if his word is sufficiently imprecise, the law will not force him
to do so.”
Additional Examples: Problem Cases #1 and 5.
a. This insistence on definiteness obviously protects offerors in some cases by
preventing them from being held to contracts or contract terms that they did not
actually agree to. You should point out, however, that there is an obvious cost of such
protection: in some cases it frustrates the actual intentions of parties who intended to
contract but who, for whatever reason, failed to produce a definite 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
common thread running through all these doctrines is the desire to avoid the potential
unfairness that can sometimes result from the traditional "hands-off" approach to
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
2-204 is to protect the parties' underlying intent to contract, even if they have failed
to express that intent in definite form. If such an intent is present, the fact that the
moment the contract came into existence is undeterminable [2-204(2)], or that one or
more of its terms are left open [2-204(3)], will not prevent the formation of a
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 that
the Code contains a variety of "gap-filling" rules that the courts can use to "fill in the
blanks" of incomplete agreements [2-305 through 2-310].
Example: Problem Case #2.
b. Discuss the CISG standards for definiteness (Global Business Environment, p. 339).
6. Discuss the traditional requirement that the offeror must communicate the terms of an
alleged offer to the offeree before an offer will result. Note that an offeror's failure to
do so is good evidence that he lacks the present intent to contract necessary for an offer.

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C. Special Offer Problem Areas.

1. Discuss the general rule that ads are not offers, the problems this causes for
would-be buyers, and the legal effect of attempting to accept an ad (the buyer is,
in effect, making an offer).

2. Note the reasons for the general rule and discuss the fact that when ads are held to
amount to offers this generally occurs in situations where the reasons for the general
rule do not apply. Discuss situations in which ads are likely to be held to be offers.
Additional Example: Problem Cases #2 and 9.
3. Note that signs, handbills, displayed goods, catalogs, price quotes and price lists are
normally treated like ads (held to be invitations to offer) for similar reasons. But
contrast Problem Case #8—what makes it different?
4. Discuss the special rules that apply to rewards, auctions, and bids.
Gleason v Freeman (p. 340): The sellers listed a home formerly owned by Elvis
Presley for auction on eBay. Three individuals formed a partnership to buy the home.
Before participating in the auction, the partners agreed to eBay’s terms of use, which
stated that eBay’s real estate “auction-style advertisements” are not legally binding
offers, but rather are a way for sellers to advertise their property and meet prospective
buyers. However, the seller’s broker had added a statement to the sellers’ auction
page stating that bidding on eBay is a legally binding contract obligating the winner
to purchase the property. During the auction and before final bids, the broker
informed one of the partners that one of the sellers intended to keep possession of the
home for 60 days after closing. The partners’ $905,100 bid was the winning bid. The
partners’ attorney sent to the sellers and the partners a proposed sale contract
containing terms and also blanks to be filled in. They parties began negotiating about
terms and the contract was revised and included the 60-day possession clause. One of
the partners crossed out the 60-day clause. The parties had no further contact, and the
sellers sold the property at a higher price to a third party. The partners sued the sellers
for breach of contract and both parties filed motions for summary judgment. The
court granted summary judgment in favor of the sellers, holding that the auction did
not create a binding contract.
Points for Discussion: What factors persuaded the court that the auction was not an
offer and, thus, no binding contract was formed? Is it reasonable to expect website
users to read the lengthy terms of use of the website? What would be the result if this
transaction had occurred “offline”?

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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,
technically-worded form contracts in consumer cases, etc. The general rule is that
offerees are bound by terms that they have actual or reasonable notice of. Note that this
rule gives courts the power to "do justice" by keeping out unfair contract terms. Note that
disclaimers and exculpatory clauses are particularly likely to receive close judicial
scrutiny and may also be thrown out on other grounds (i.e., unconscionability).
Hines v. Overstock.com (p. 342): A consumer purchased a vacuum cleaner online from
Overstock.com, believing that she was buying a new vacuum cleaner. When she
discovered that the item was refurbished rather than new, she returned it. Overstock.com
charged her a $30 “restocking fee.” Hines brought a class action against Overstock.com.
Overstock.com moved to dismiss the case on the ground that its website terms of use
contained an arbitration
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?
2. Discuss the issue whether additional contract terms, such as warranty terms, that are
contained inside a package or product are included in a sale. Sales of computer software
are likely to provoke this issue, since almost all of it is “sold” pursuant to a license.
Cyberspace transactions will probably involve even more instances of additional contract
terms arriving with a product or being available for viewing through links that a
purchaser may click on. Refer students to Cyber Law in Action, p. 342.
3. Ethics in Action (p. 343): 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
they didn't know what they signed). On the other hand, many people as a practical matter
will not read, or be able to understand, the contracts they sign, and businesses who use
these drafting practices are taking advantage of this fact and abusing their greater
bargaining strength and sophistication.

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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
contract on the terms of the original offer.
2. Discuss the various things that can terminate an offer:
a. The terms of the offer - the offeror, as "the master of his offer," can place express
limits on the offer's life. Example: Problem Case #4.
b. Lapse of time - offers that fail to specify a time limit are only open for a "reasonable
time." Discuss the factors courts consider in determining the life of such an offer.
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. 318). Discuss the increasing number of exceptions to this
rule:
1) Options - offerors who promise not to revoke in exchange for the payment of
some bargained-for consideration cannot revoke for the period of the option.
2) Firm offers - note that UCC section 2-205 makes a major change in the common
law rule on the revocability of offers by saying that some kinds of offers to sell
goods are irrevocable despite the absence of consideration.
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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b) You might wish to point out that section 2-205 exemplifies two important
attributes of the Code that were discussed in Chapter 9: special standards for
"merchants" and a tendency to protect people's expectations (here resulting
from the "assurances" in the offer) at the expense of formal rules 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
form contract) and to avoid unfairness by requiring "assurances" terms on
forms supplied by the offeree to be separately signed by the offeror before a
firm offer will result.
3) Offers for unilateral contracts - note the problems posed by the traditional rule on
revocation of offers when it is applied to an offer contemplating a unilateral
contract. Discuss the different approaches to this problem taken by the
Restatement Second in sections 45 and 62 and the trade-offs inherent in each
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,
and enforcement of the promise is necessary to avoid injustice. The most
common situation in which this rule is invoked involves subcontractor/contractor
bid cases. The seminal case on this point is Drennan v. Star Paving, 333 P. 2d
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.
In such a case the various rules on the effectiveness of revocations and
acceptances may be dispositive of the case.
c. Rejection by the offeree - discuss the general rule that an offeree who rejects an offer
loses the power to accept it at a later date. Explain the reason behind the rule: the
offeror who receives a rejection may rely on it by making another offer to a third
party. This underlying reason explains why rejections won't terminate offers in cases
where either party indicates an intent to keep the offer open.
Examples: Problem Case #9.
1) Note that some courts hold that rejections do not terminate option contracts.
2) Discuss the effectiveness of rejections. Like revocations, rejections are generally
only effective when actually received by the offeror. This is because there is no
risk that an offeror will ever rely on an uncommunicated rejection.
d. Death or insanity of either party - discuss the reason why death or insanity
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.

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Family Video Movie Club v. Home Folks, Inc. (p. 346): Family Video made a written
offer to buy out Home Folks’ lease because it wanted to purchase and open a video
store on the property on which Home Folks operated a restaurant. Over four months
went by and Home Folks’ operators did not sign the offer. The property was
destroyed by fire and then Home Folks signed the offer and attempted to accept. It
contended that the contract was valid. The court held that Family Video’s offer had
terminated because of the lapse of a reasonable time and destruction of the subject
matter.
Points for Discussion: The court explains why destruction of the subject matter
results in termination of an offer. What is its explanation? Why is it important for the
court to determine if the mid-2002 oral discussion was an oral contract?
f. Intervening illegality - discuss the general rule that intervening illegality terminates
an offer and the general reason for the rule: why facilitate the creation of a contract to
do an illegal act? Note that the subject of how courts deal with contracts involving
illegality will be discussed later in Chapter 15.
1) You may also wish to point out that in these last three categories (incapacity,
destruction of subject matter, and illegality) the offer is terminated as a matter of
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).
B. E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS (3rd ed. 2004).
C. J. WHITE & R. SUMMERS, HANDBOOK OF THE LAW UNDER THE UNIFORM
COMMERCIAL CODE (5th ed. 1999).

V. ANSWERS TO PROBLEMS AND PROBLEM CASES:

1. No. The posting was not sufficiently definite to be an offer. The posting included
information about the position title, summary, and minimum requirements, but it did not
include important information such as a salary or start date. Also, the language of the
posting made it clear that it was only soliciting responses from people who might want to be
included in an applicant pool. The court stated that, “it did not give Watson the power of
acceptance, and his response could not alone consummate a bargain.” Thus, no implied
contract was formed in this case. Watson v. Public Service Co., 207 P.3d 860 (Colo. Ct.
App. 2009)
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.
2. An agreement sufficient to constitute a contract for sale
may be found even though the moment of its making is
undetermined.

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Chapter 10 - The Agreement: Offer

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.
There are some terms missing that would normally be in a contract for the sale of a business,
but it is not necessary that all the terms be stated. The essential terms were agreed upon in
this case, and a contract was formed. Jannusch v. Naffziger, 883 N.E.2d 711 (Ill. 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 Waffco did not take the truck to the Volvo dealer, as
instructed, so that it would have leverage to extract this $4,070 charge that
Rodziewicz did not agree to and for which Waffco produced no evidence of work
product.” Rodziewicz v. Waffco Heavy Duty Towing, 763 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,’
limited his offer in time to remain open only until the conclusion of the live ‘Nightwatch’
broadcast.” Newman v. Schiff, 778 F.2d 460 (3d Cir. 1985).
5. No. Generally, advertisements are offers only when they are clear, definite, and leave nothing
for further negotiation. This ad contained no language such as “first come, first served” that
would lead a reasonable person to believe that Pepsico intended to obligate itself on a
contract with any person who responded to the ad. In addition, no reasonable person viewing
the ad would believe that it was a serious offer. A reasonable viewer would see it as
humorous “puffery.” Leonard v. Pepsico, Inc., 88 F. Supp.2d 116 (U.S. Dist. Ct. S.D.N.Y.
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 agreement,
contrary to the offer imposing ‘no conditions,’ contained additional terms and conditions. The
purchase agreement was contingent upon financing and approval by uniform parish regulations
and further provided that the seller would assume costs. Additionally, defendant, as the seller, did
not sign this purchase agreement within the two week offer 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).
7. No. The advertisement for news tips on the ScienceNOW website cannot be construed as an
offer, nor did it create a unilateral contract. It was merely a statement urging members of the
general public to take some action in response, otherwise known as an advertisement. The court
stated that, “Advertisements are not offers—they invite offers. Likewise, responses to
advertisement are not acceptances—they are offers… At best, it was Trell’s submission of the
manuscript that was the offer.” Since AAAS did not accept this offer, no contract was formed.
Trell v. American Association for the Advancement of Science, 2007 U.S. Dist. LEXIS 36942
(U.S. Dist. Ct. W.D.N.Y. 2007).

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Chapter 10 - The Agreement: Offer

8. Yes. PBC communicated an offer through its brochure to all 2007 season ticket holders
and it stated all of the essential terms of the agreement and gave precise instructions
about how to accept. It was an offer, which each plaintiff accepted. Brotherson v. The
Professional Basketball Club, LLC, 604 F. Supp. 2d 1276 (D.C. W.D. Wash. 2009).
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 recipient.
Otherwise, the court stated, “ The advertiser could be bound by an excessive number of contracts
requiring delivery of goods far in excess of amounts available. That is particularly true in the
instant case where the gold coins were limited to 500,000 by the Act of Congress. We conclude
that a thorough reading, construction, and interpretation of 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 matter of law. This is especially true in
view of the words ‘YES, Please accept my order . . .’ that were printed on the credit card form,
which showed that the credit card order was an offer from the plaintiffs to the Mint to buy the
coins, which offer might or might not be accepted by the Mint. Accordingly, the Mint materials
were intended solely as solicitations 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).
10. The offer in the first situation is a firm offer because it was an offer to sell goods made by a
merchant in a writing that was signed, assuming that “dealership stationery” including some kind
of logo or identifying language that could be considered to be a signature, and gave assurances
that could be construed as promising to keep the offer open. Thus, the promise was irrevocable.
In the second situation, however, no firm offer was made because the offer was made by a
nonmerchant. (This is a hypothetical case).

III. ONLINE RESEARCH: FINDING OFFERS ON THE INTERNET

1. Commercial solicitations abound on the Internet. For their examples of offers, students
should select examples of solicitations that are pointed to one person or a small group of
people, that specify the important terms to close the deal without further information from the
advertiser, and that ask for an act on the part of the reader. Ads that do not satisfy the
elements of an offer are, of course, invitations to negotiate.
2. For examples of rules about ending listings early, see http://pages.ebay.com/help/sell/selling-
basics.html and seller performance standards, see http://pages.ebay.com/help/policies/seller-
non-performance.html.

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