Mutual Assent - Offer

Mutual Assent
1. Mutual Assent: One party must accept the other’s offer. For an agreement to be enforced
as a contract there must be mutual assent
a. Objective standard: Did words or conduct manifest a present intention to enter
into a contract?
2. When a suit is brought in which one party seeks to enforce a contract or to obtain
damages for breach of contract, a court must first decide whether there was a contract
a. In determining whether a contract exists, a court will ask 3 questions:
i. Was there mutual assent?
ii. Was there consideration or some substitute for consideration?
iii. Are there any defenses to creation of the contract?
b. Exam Tip: Contract formation is a major topic on the exam. For any contract
question, be sure that there really is an enforceable contract, you must have all
three of the above elements. Fact patterns sometimes greatly emphasize some
elements to try and fool you into thinking a contract has been formed, but on
closer examination you might see that another element is missing. Remember to
check carefully for all three elements. If the facts state that one or more of the
elements is present or that a valid contract has been formed, don’t waste your time
analyzing elements already given to you
The Offer
1. Offer: For a communication to be an offer, it must create a reasonable expectation in
the offeree that the offeror is willing to enter into a contract on the basis of the offered
terms
a. An offer creates a power of acceptance in the offeree and a corresponding liability
on the part of the offeror
b. In deciding whether a communication creates this reasonable expectation, ask:
i. Was there an expression of a promise, undertaking, or commitment to
enter into a contract?
ii. Was there certainty and definiteness in the essential terms?
iii. Was there communication of the above to the offeree?
2. Promise, Undertaking, or Commitment: For a communication to be an offer, it must
contain a promise, undertaking, or commitment to enter into a contract, rather than a
mere invitation to begin preliminary negotiations. There must be intent to enter a contract
a. Language: The language used may show that an offer was or was not intended
i. Technical language such as “I offer” or “I promise” is useful but it isn’t
necessary. Phrases such as “I quote” “I am asking $30 for” and “I would
consider selling for” tend to be construed merely as invitations to deal
rather than offers
ii. Exam tip: Although price quotations generally are not offers, they can be
given if in response to an inquiry that contains a quantity term
b. Surrounding Circumstances: The circumstances surrounding the language is
considered by courts in determining whether an offer exists
i. Example: If a statement is made in jest, anger, or by way of bragging, and
it is reasonably understood in this context, it will have no legal effect
c. Prior Practice and Relationship of the Parties: In determining whether certain
remarks constitute an offer rather than preliminary negotiations, a court will look
to the prior relationship and practice of the parties involved
d. Methods of Communication
i. Use of Broad Communication Media: The broader the communicating
media (for example, publications), the more likely it is that the courts will
view the communication as merely the solicitation of an offer
ii. Advertisements: Ads, catalogs, circular letters, and the like containing
price quotations are usually construed as mere invitations for offers
e. Exam Tip: Most offers are fairly easy to spot, but watch out for language that
sounds like an offer but really is an invitation to deal. For example,
advertisements often sound like offers but usually are just invitations for people to
come in and deal. The more definite the language (I’ll sell for or I’ll pay you $10
for), the more likely the statement is an offer. However you need to examine other
factors (surrounding circumstances, prior relationship of parties) Don’t be hasty
 f. Exam Tip: If there has been a series of communications between the parties, pay
attention to the legal significance, if any, of each statement. For example, if you
determine that A’s first statement to B isn’t an offer but rather is merely an
invitation to deal, then B’s response cannot be an acceptance because there was
nothing to accept. You must then consider whether B’s response is another
invitation to deal or an offer. Keep checking until you find an offer and an
acceptance
3. Definite and Certain Terms: An offer must be definite and certain in its terms. The
basic inquiry is whether enough of the essential terms have been provided so that a
contract including them is capable of being enforced
a. Identification of the Offeree: To be considered an offer, a statement must
sufficiently identify the offeree or a class to which they belong to justify the
inference that the offeror intended to create a power of acceptance
b. Definiteness of Subject Matter: The subject matter of the deal must be certain,
because a court can enforce a promise only if it can tell with reasonable accuracy
what the promise is:
i. Requirements for Specific Types of Contracts
1. Real Estate Transactions - Land and Price Terms: An offer
involving realty must identify the land and the price terms
a. The land must be identified with some particularly but a
deed description isn’t required
b. Most courts will not apply a missing price term for realty
2. Sale of Goods - Quantity Term: In a contract for the sale of
goods, the quantity being offered must be certain or capable of
being made certain
ii. Requirements and Output Contracts:
1. Requirement Contract: In a requirement contract, a buyer
promises to buy from a certain seller of all the goods the buyer
requires, and the seller agrees to sell that amount to the buyer
2. Output Contract: In an output contract, a seller promises to sell to
a certain buyer all of the goods that the seller produces, and the
buyer agrees to buy that amount from the seller
3. It is assumed that the parties will act in good faith, so there can’t
be a tender of or a demand for a quantity unreasonably
disproportionate to:
a. Any stated estimate
b. In the absence of a stated estimate, any normal or otherwise
comparable prior output or requirements
4. Exam Tip: In addition to the words “require” “need” and
“produce” certain other terms are clues that the contract is a
 requirements or outputs contract. On the exam, watch for the
following words: “all” “only” “solely”
iii. Employment and Other Services:
1. Employment: In contracts for employment, if the duration of the
employment is not specified, the offer, if accepted, is construed as
creating a contract terminable at the will of either party.
2. Other Services: For other services, the nature of work to be
performed must be included in the offer
iv. Missing Terms: The fact that one or more terms are left open does not
prevent the formation of a contract if it appears that the parties
intended to make a contract and there is a reasonably certain basis for
giving a remedy
1. In such as case, the majority of jurisdictions and UCC hold that the
court can supply reasonable terms for those that are missing
2. Price: Except in contracts for real property, the failure to state the
price doesn’t prevent the formation of a contract if the parties
intended to form a contract without the price being settled
a. Note: If a contract for the sale of goods is missing a price
term, UCC provides that the price will be a reasonable
price at the time of delivery
3. Time: If an agreement doesn’t specify the time in which an act is
to be performed, the law implies that it is to be performed within a
reasonable time
v. Vague Terms: The presumption that the parties’ intent was to include a
reasonable term goes apply missing terms. The presumption CANNOT
be made if the parties have included a term that makes the contract too
vague to be enforced
1. Uncertainty can be cured by part performance that clarifies the
vague term or by acceptance of full performance
2. Exam Tip: If a material term is vague or ambiguous, it is not an
offer at common law or under the UCC. Watch for terms such as
“appropriate” “fair” and “reasonable” which signal a possible
vagueness problem
vi. Terms to Be Agreed on Later: Often, an offer will state that some term
is to be agreed on at a future date. If the term is a material term, the offer
is too uncertain
4. Communication to Offeree: To have the power to accept, the offeree must have
knowledge of the offer. Therefore, the proposal must be communicated to them
a. Exam Tip: An offer may be a continuing offer - an offer to form a series of
contracts. Watch for facts in which a seller offers to buyer certain goods for a
stated price over a specified time period
5. Termination of Offer: An offer cannot be accepted after it has been terminated. An
offer may be terminated by an act of either party or by operation of law
a. Termination by Offeree:
i. Lapse of Time - Muse Accept Within Specified or Reasonable Time:
The offeree must accept the offer within the time specified, or if no time is
specified, within a reasonable time
1. Failing to do means the offer is terminated and can no longer be
accepted
2. A reasonable amount of time is a question of fact that depends on
all the circumstances at the time the offer and attempted
acceptance are made, such as the nature of the contract, the parties’
purposes, or their course of dealing
a. Because of this, absent guiding language in the contract, a
reasonable time for acceptance may be as short as the end
of the conversion or as long as years for certain reward
offers
ii. Rejection
1. Express Rejection: An express rejection is a statement by the
offeree that they do not intend to accept the offer. Such a rejection
will terminate the offer
2. Counteroffer as Rejection: A counteroffer is an offer made by the
offeree to the offeror that contains the same subject matter as the
original offer, but differs in its terms
a. Exam Tip: Remember that a counteroffer is both a rejection
and a new offer. It terminates the original offer and
reverses the roles of the parties. The offeree giving a
counteroffer becomes the offeror of a new offer, which the
other party may accept or reject
3. Mere Inquiry: Distinguish between a counteroffer (which
constitutes a rejection) and a mere inquiry. An inquiry won’t
terminate the offer when it is consistent with the idea that the
offeree is still keeping the original proposal under consideration
a. The test is whether a reasonable person would believe that
the original offer had been rejected
4. Conditional Acceptance as Rejection: When an acceptance is
made expressly conditional on the acceptance of new terms, it is a
rejection to the offer
a. The conditional acceptance is essentially a new offer, and
the original offeror may form a contact by expressly
assenting to the new terms
 b. The offer that results from a conditional acceptance cannot
be accepted by performance
i. If the parties ship or accept goods after a
conditional acceptance, a contract is formed by
their conduct, and the new terms are not included
5. Effective When Received: A rejection is effective when received
by the offeror
6. Rejection of Option: Because an option is a contract to keep an
offer open, a rejection of or a counteroffer to an option does not
constitute a termination of the offer
a. The offeree is still free to accept the original offer within
the option period unless the offeror has detrimentally
relief on the offeree’s rejection
b. Termination by Offeror - Revocation: A revocation is the retraction of an offer
by the offeror. An offeror may revoke by directly communicating the revocation
to the offeree
i. An offer made by publication can be directly revoked only by
publication through comparable means
ii. An offer may also be revoked indirectly if the offeree receives:
1. Correct information
2. From a reliable source
3. Of acts of the offeror that would indicate to a reasonable person
that the offeror no longer wishes to make the offer
iii. Effective when received: A revocation is generally effective when
received by the offeree. Where revocation is by publication, it is effective
when published
1. Exam tip: Remember that generally a written communication is
received when it is delivered to a place of business through which
the contract was made or another location authorized to receive
this type of communication. It does not matter whether the
recipient actually reads the communication. Courts will likely
apply the same rules to phone messages
iv. Limitations on Offeror’s Power to Revoke: Offers can be revoked at
will by the offeror, even if he has promised not to revoke for a certain
period, except in the following circumstances:
1. Options: An option is a distinct contract in which the offeree
gives consideration for a promise by the offeror not to revoke an
outstanding offer
a. Example: An offeror offers to sell her farm to an offeree for
$1 million and promises to keep the offer open for 90 days
if the offeree pays the offeree $1,000 to keep the offer open
 2. Merchant’s Firm Offer under UCC: (1) If a merchant, (2)
offers to buy or sell goods in a signed writing, and (3) the writing
gives assurances that it will be held open, the offer is not
revocable for lack of consideration during the time stated, or if
no time is stated, for a reasonable time (but in no event may such
period exceed 3 months)
a. Exam Tip: If a merchant-offeror states that an offer will
stay open for a period beyond the UCC’s 3 month limit on
irrevocability, they will be bound only for 3 months.
Remember that the 3 month limitation applies only to
offers not supported by consideration. Watch out for an
offer that looks like a merchant’s firm offer but includes
some consideration. This is an option contract, and the
offer can be held open for as long as the parties specify
3. Detrimental Reliance: When the offeror could reasonably expect
that the offeree would rely to their detriment on the offer, and the
offeree does so rely, the offer will be held irrevocable as an
option contract for a reasonable length of time
4. Beginning Performance in Response to True Unilateral
Contract Offer: An offer for a true unilateral contract becomes
irrevocable once performance has begun
a. The offeror must give the offeree a reasonable time to
complete performance
b. Note: The offeree is not bound to complete performance -
they may withdraw at any time prior to completion of
performance, and there is no acceptance until performance
is complete
c. Substantial preparations to perform do not make the
offer irrevocable but may constitute detrimental reliance
sufficient to make the offeror’s promise binding to the
extent of detrimental reliance
5. Beginning Performance - Offer Indifferent as to Manner of
Acceptance: Most offers are indifferent as to the manner of
acceptance, and thus a bilateral contract may be formed upon the
start of performance by the offeree
a. Once the offeree begins performance, the contract is
complete and revocation becomes impossible
b. Note: Notification of the start of performance may be
necessary
c. Termination by Operation: The following events will terminate an offer by
operation of law:
 i. Death or insanity of either party: Death or insanity need not be
communicated to either party
ii. Destruction of the proposed contract’s subject matter
iii. Supervening illegality