Hannah Dumey, Claire Myers, and Andrew Hansen

Chapter 16: Acceptances

Put simply, a contract is a set of promises based on a voluntary agreement, which is made up of an offer and an acceptance of that offer. The offer is the criticalfirst step in the contract formation process and it includes the circumstances under which a proposal will be made. In technical terms, the acceptance is a response that indicates approval of the terms of the offer. The acceptance is, consequently, the important second step because it ‘seals the deal’ and forms the contract.

I. So…What specifically is an Acceptance?

A court will look at three critical steps to determine if an offeree accepted an offer and therefore created a contract.

The offeree intended to enter the contract – the offeree was not forced or entered the contract by mistake.
The offeree accepted on the terms proposed by the offeror.
The offeree communicated his / her acceptance to the offeror.

The three conditions seem fairly simple, but, of course, court cases are never really that easy. The following is a more in-depth look at the intention to accept, intention and acceptance on the offeror’s terms, and communication of acceptance.

A. Intention to Accept

Only the offeree (or someone acting on behalf of the offeree) can accept.
Courts are looking for a present intent to contract on the part of the offeree. Present intent to contract clarifies that the offeree is not joking, being evasive, etc.
Based on an objective theory of contracts, an offeree, in the cases of acceptances, will be judged by an objectivestandard – what his words, actions, and the circumstances suggest about his intent.
The courts often ask the question, “How would a reasonable person respond in this situation?”
The difference from offers is that the offeree must evaluate and agree to the terms of the offer.
The offeror may specify what behavior is required to bind the offeree to the contract, and if this is done, the offeree must comply with all the specified terms.

B. Intent and Acceptance on the Offeror’s Terms

Mirror Image Rule: The mirror image rule was based out of common law. The mirror image rule implies exactly what it sounds like – the offeree cannot change or add new terms in the offer.
Acceptances vs. Counteroffers:

In an inquiryregardingterms, a rejection is not implied if the offeree asks about the terms.
In a grumblingacceptance, a rejection is not implied if the offeree accepts the terms while complaining about them.
Neither an inquiry regarding terms or a grumbling acceptance count as counteroffers; however, it is difficult to tell the difference between the three.
The question must be asked, “Did the offeree intend to seriously accept the offer?”

Contracts involving the sale of goods: The UCC section 2-207 contains an exception for contract for goods that allows small differences between the offer and acceptance (for example, the method of shipping).

C. Communication of Acceptance

In a bilateralcontract, both sides are promising. In an acceptance, the offeree promises to do what is requested by the offeror and communicates that to the offeror.
In a unilateralcontract, the offeree accepts the offer by simply doing what is requested in the offer. Usually, it is assumed the offeror knows that the acceptance happens unless the offer requires communication.
The offeror can demand that an acceptance be done or received by a certain time. The offeror may also demand that an acceptance be done by a certain method, though most courts today will allow any method that is reasonable.

II. When and How is Acceptance Communicated?

A. Instantaneous Forms

1. When two parties are dealing in ways of communication that are instantaneous (face-to-face, telephone), as soon as the offer says “I accept” or words to the same effect, a contract is created.

B. Noninstantaneous Forms

1. Some modes of communication are not instantaneous such as mail, fax, and email. This can create timing problems for both the offeror and offeree. Because of the many problems that arise, the Ellefson case helps demonstrate the Mailbox Rule.

a. Mailbox Rule

The Mailbox Rule is one of the most important, and confusing, rules dealing with acceptances. Normally, all acceptances take effect when received. Under the Mailbox Rule, properly addressed and dispatched acceptances (through fax, email, or mail) take effect when sent. Even if the acceptance is lost and never received by the offeror, it still takes effect when sent. Because of this rule, most offerors are more prone to distinguishing when an acceptance must be received by.

b. Exceptions to the Mailbox Rule

a.If the offer requires acceptance to be received at a certain time.

b.If the acceptance was sent after a rejection – under these exceptions, they take effect when received.

c.If the offeror does not allow the use of the Mailbox Rule because the offeror is the master and creator of the contract.

c. Example:

Q: What is the difference between the two statements?

“You must accept the offer by April 1st.”
“I must receive your acceptance by April 1st.”

A: The application of the Mailbox Rule.

The first statement allows the use of the mailbox rule. If the acceptance is sent on or before April 1st, a contract is created.
The mailbox rule does not apply because even if the acceptance is sent on or before April 1st, the offeror must RECEIVE it by April 1st.

2. Contracts for goods and contracts for services are not always treated the same way. For example, contracts for goods are governed by the UCC, or Universal Commercial Code, in most states, and contracts for services are usually governed by common law. Because of these differences, the application of the mailbox rule varies slightly between traditional common law and modern common law/the UCC.

ELLEFSON CASE

Debate: There was a dispute between David Ellefson and Megadeth Inc., a company Ellefson believed had defrauded him. Ellefson brought suit against Megadeth and negotiations started to try to settle the disagreement. Ellefson’s attorney received a statement from Megadeth stating, “that Dave Mustaine (part of the Megadeth company) has instructed us to pull the offer to Ellefson off the table and to terminate this deal as of 5 PM PST on Friday 5/14/04, if we do not have a signed agreement in hand.” Ellefson’s lawyers worked diligently to finish the contract between the two parties. At 5:16 PM on May 14th, Ellefson’s lawyers emailed Megadeth’s lawyers saying, “Dave Ellefson told me he signed and faxed the signature page to you.” Ellefson did sign and fax a complete, signed agreement, but there was no evidence the fax was sent prior to the 5:00 PM deadline. On May 24th, Megadeth’s lawyer wrote Ellefson’s lawyer stating that Ellefson “withdraws from these negotiations and withdraws all proposals”. Ellefson filed suit against Megadeth.

Decision: The motion granted in favor of the Megadeth defendants because there was no evidence that Ellefson sent his original and completed fax before the 5:00 PM deadline. According to the judge, because there was no evidence the fax was sent on time, Ellefson did not comply with the terms of the contract and by faxing his completed, signed agreement, he actually presented a counteroffer to Megadeth, who could then choose to accept his offer or reject it.

C. Authorized Modes of Acceptance (Traditional Common Law of Contracts)

The traditional common law says thatunder the mailbox rule acceptances are effective when they are sentby the means authorized. An authorized mode of communication is either invited or suggested by the offeror. A stipulated mode of communication is when the offeror states explicitly how the offeree must accept (“You must accept by fax”) and the offeree must follow these terms and accept the designated way. Also, the manner of communication used by the offeror in making the offer would be authorized. An improperly sent acceptance of one that was sent with a non-authorized mode of communication is effective when received. If the non-authorized method is too slow, it might not count at all.

D. Reasonable Modes of Acceptance (Modern Common Law and the UCC)

The UCC and most states today say that an offer can be accepted by any reasonable means of communication, and an acceptance that is properly sent within a reasonable period is effective upon being sent (even if the offer requires a different method of acceptance). Reasonable is defined by the circumstances in which the offer is made (i.e. speed and reliability of the means used by the offeree). If an acceptance is made in an unreasonable way under the circumstances, the UCC rejects the traditional rule that the acceptance takes effect when received. It states that an acceptance sent by unreasonable means is effective when sent IF it is received within the time that an acceptance by a reasonable means would have arrived.

E. Acceptance in Auctions

Auctions happen in everyday life – anything from traditional auctions to services such as Ebay. Because of all the possible ways to auction, they have been differentiated into two broad categories: auctions with reserve and auctions without reserve.

1.Auctions with reserve: All auctions are assumed to be this type unless otherwise stated. Here, the bidder is the offeror and the auctioneer is the offeree, therefore, the auctioneer can accept or of has the right to reject an offer that is not high enough. (traditional auctions)

2. Auctions without reserve: In this type of auction, the auctioneer is the offeror and cannot reject the highest bid. The highest bidder is the offeree and is the party that accepts. (some Ebay actions)

III. Problems with Acceptances

A. Unilateral Contracts

1. As stated before, a unilateral contract is accepted and entered into when the offeree performs the requested act. Unilateral contracts cannot be revoked by the offeror once the offeree has begun and completed substantial performance of the act.

a.Example: If Joe puts out a reward out for his cat, Princess Sophie, he cannot revoke the offer if he sees that Jim has accepted the offer and is bringing Princess Sophie up the street. Even though Joe may realize that he actually hates his cat, he still must pay the reward to Jim (provided that Jim knew about the reward).

B. Bilateral Contracts

1. A bilateral contract is accepted and entered into when an offeree makes the promise requested by the offeror. Acceptance can also be implied by actions (if the action amounts to a promise).

a.Example: If Joseph, a horse breeder, leaves 5 horses with Smith, an animal salesman, and says, “Look after my horses. If you would like, it is $1000 per horse.” If Smith sells the horses, it is implied that he accepts Joseph’s offer.

C. Silence as Acceptance

The general rule that applies to using silence as an offer is that if an offeree is silent, without anything more, he/she does not accept. Also, it is generally held that it is unfair for the offeror to expect silence to count as acceptance.
The circumstances of a case can sometimes impose a duty on the offeree to express rejection. If the parties have agreed in advance that silence can count as acceptance, then it can. Some book and cd clubs send out a “selection of the month” and if the member does not respond, they get the selection. But these are the rules of the club agreed to up front.
Sometimes facts can indicate that silence is acceptance.
Example: If Shock Electric offers to do all the electricity wires in a new building for Maple Contractor’s and Maple does not respond but allows Shock Electric to do the work, there is an implied contract between the two.

D. Acceptance When a Writing is Anticipated

If a dispute arises before a contract is put in writing…

If the two parties made it clear during negotiations that they intend to put an acceptance in writing, then a contract is not formed until both parties have signed the written acceptance.
Without an expression of intent, the courts would look at what a reasonable person would decide about whether a signed, written contract is required.

E. Acceptance of Ambiguous Offers

Sometime an offer is not clear about whether it is bilateral or unilateral. In these cases, the offer can be accepted by any reasonable means according to the circucmstances.

1. Acceptance by Shipment

The UCC says that an order requesting immediate shipment of goods may be accepted either by promise to ship or by just shipping. The Code also states that prompt shipment of either conforming goods(what the order requested) or nonconforming goods (something other than what was requested) counts as an acceptance of the order, and no contract is created if the seller notifies the buyer within a reasonable period of time that the shipment of nonconforming goods is intended as an accommodation for the unavailable conforming goods.

IV. Who Can Accept an Offer?

Only the original offeree can accept (or someone acting for the offeree). The offer is personal to the offeree. If a third party tries to accept, it is not an acceptance but a completely new offer.

Example:

Q: If Jones sends an email to Walter offering to sell his car and Anderson sees the email and calls Jones to accept the offer, can Anderson accept?

A: Anderson cannot accept - only Walter can legally accept.

V. Review Questions:

Questions:

1. What are the three critical steps the courts look at to decide if a contract exists?

2. On March 1, Baker sends an offer to Able in the mail. On March 2, Able receives the offer. On March 3, Baker sends a letter revoking offer. On March 4, Able sends a letter of acceptance. On March 5, Able receives the revocation. On March 6, Baker receives acceptance. In this example, is there a contract? Does the Mailbox Rule apply?

3. Lisa subscribes to Time Magazine. The publishing house of Time sends Lisa a letter stating that she will receive Cosmo free of charge for three months as part of a promotion. However, it states that if she does not send a letter back refusing subscription, she will automatically be subscribed to Cosmo for a year and billed. Can the publishing house use silence as acceptance in this case?

4. Is a non-authorized mode of communication allowed in acceptances?

5. Does a contract exist if an acceptance is received by any other method other than the stipulated method?

6. Bill was offered a car for $1,000, but said that he would only buy the car if the owner took $100 off. If the owner does that, and Bill buys the car, was it a new acceptance?

Answers:

1. Courts look at whether the offeree intended to accept, whetherthe offeree accepted all the terms of the offer, and communicated that acceptance (if necessary).

2. There is a contract and the Mailbox Rule does apply. Because Able sent the acceptance before receiving the revocation, a contract exists. Remember, acceptances take effect when sent and rejections and revocations take effect when received.

3. Yes. Lisa is fully notified of the terms and is given amble time to cancel.

4. Yes. The acceptance goes into effect upon reception.

5. A contract can exist because even though the method used was not specified, most states will still allow this method as long as it is still reasonable.

6. Yes. When Bill said that he would only buy the car if it was $900 and the owner complied, there was, in effect, a counter offer and acceptance.

The End

Chapter 16: AcceptancesPage 1