Introduction
Mutual assent is commonly analyzed through offer and acceptance. One party creates a power of acceptance by making an offer. The other party forms a contract by accepting while that power remains available and by using a method the offer invites or permits.
The basic vocabulary is simple. The timing can be difficult.
Many Contracts questions present a sequence of communications: an offer is sent, a revocation is mailed, the offeree sends a rejection, the offeree changes course and sends an acceptance, or one party begins performance before learning that the offeror attempted to withdraw. The legal result may depend on which communication was effective first, whether the offer was revocable, whether the offeree’s response was a true acceptance, and whether common law or Article 2 governs.
The student should therefore treat offer-and-acceptance problems as timeline problems. Each communication or act must be classified and placed in chronological order. The question is not merely what the parties called their messages. The question is what each message legally accomplished when it was sent, received, or acted upon.
A statement labeled “acceptance” may actually be a counteroffer. A message labeled “revocation” may arrive too late. A promise to keep an offer open may be unenforceable unless supported by consideration, but a merchant’s signed written assurance concerning goods may create a firm offer without consideration. Beginning performance may prevent revocation of a unilateral-contract offer even though the offeree has not yet completed acceptance. Shipment of nonconforming goods may simultaneously accept an order and breach the resulting contract.
I The Offer-and-Acceptance Framework
A complete formation analysis should proceed in sequence.
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1Determine whether the communication created an offer.
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2Identify the person or class entitled to accept.
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3Determine whether the offeree knew of the offer.
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4Determine whether the power of acceptance remained open.
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5Ask whether the offer was revocable or protected by an option, firm-offer rule, reliance, or beginning of unilateral performance.
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6Identify whether the offer invited a promise, performance, or either method.
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7Classify the offeree’s response as acceptance, rejection, counteroffer, inquiry, performance, silence, or other conduct.
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8Determine when the relevant communication became effective.
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9Apply any common-law or Article 2 rule governing the response.
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Finally, determine whether the parties formed a contract and, if so, whether any act of acceptance also constituted breach.
This sequence should be applied communication by communication. Conclusions such as “the parties agreed” or “the offer was withdrawn” are insufficient unless the student explains when and how the legal change occurred.
II. Creation of an Offer
An offer is an objective manifestation of willingness to enter a bargain that justifies the offeree in understanding that assent will conclude the transaction.
An offer ordinarily requires four features:
- A present manifestation of willingness to contract.
- Reasonably definite terms.
- Communication to the offeree.
- An invitation for the offeree to accept and thereby form a contract.
The offeror must communicate present commitment. A statement that a person may be willing to sell, hopes to make an agreement, or wants to continue negotiations ordinarily does not create a power of acceptance.
The terms must also provide a sufficiently definite basis for determining what the offeror promises and what the offeree must do. Definiteness depends on the transaction and governing law. Article 2 may tolerate open terms in a goods transaction, while common-law agreements may demand greater certainty.
III. Who May Accept?
The offer must be communicated. A person cannot accept an offer without knowledge of it. This rule is especially important in reward cases.
Suppose a city offers a reward for information leading to the recovery of stolen property. A person who provides the information without knowing about the reward has performed the requested act, but did not perform in response to the offer. Contractual acceptance is ordinarily absent because the person lacked knowledge of the offer.
The offer is interpreted objectively. The question is what a reasonable person in the offeree’s position would understand from the offeror’s words and conduct.
Only the person or class invited by the offer may accept.
A private offer directed to one person cannot ordinarily be accepted by a stranger. If Owner offers to sell a painting to Buyer, Buyer’s friend cannot create a contract by attempting to accept on the friend’s own behalf.
A public reward offer operates differently. It may invite acceptance by any member of the public who knows of the offer and performs the stated conditions.
The offeror may define the eligible class narrowly or broadly. An offer may be directed to all employees, all customers who complete a specified act, or the first person who satisfies stated conditions.
Exam Tip
Before analyzing a response, confirm that the responding party possessed the power of acceptance. A communication cannot be an effective acceptance if the offer was directed to someone else or if the person lacked knowledge of the offer.
IV Termination of the Power of Acceptance
An offer does not remain open forever. The offeree’s power of acceptance may terminate through:
The student should place each possible terminating event on a timeline and determine when it became legally effective.
A. Lapse
An offer lapses at the time stated in the offer. If the offer says that it must be accepted by noon on Friday, an attempted acceptance after that time is ordinarily ineffective.
If no time is stated, the offer remains open for a reasonable time. Reasonableness depends on the circumstances, including the subject matter, market volatility, the method of communication, the commercial context, prior dealings, and the parties’ apparent purpose.
An offer involving rapidly fluctuating securities or market prices may lapse quickly because delay can materially change the bargain. An offer concerning land or a consumer transaction may remain open longer.
A face-to-face oral offer is often understood to expire when the conversation ends unless circumstances indicate otherwise. An offer transmitted by email or letter may reasonably remain open long enough for consideration and response.
Lapse does not require communication from the offeror. When the relevant time expires, the power of acceptance ends automatically.
B. Revocation
An offeror generally may revoke a revocable offer at any time before acceptance.
Revocation is ordinarily effective when received by the offeree, not when sent. This contrasts with the mailbox rule, under which some acceptances become effective upon dispatch.
Suppose Seller mails a revocation on Monday. Buyer mails an effective acceptance on Tuesday without having received the revocation. Buyer receives the revocation on Wednesday. If the mailbox rule applies to the acceptance, a contract may have formed on Tuesday because the revocation was not effective until received.
Revocation may be direct or indirect.
Direct Revocation
Occurs when the offeror communicates that the offer is withdrawn. The communication need not use the word “revoke.” Any clear statement inconsistent with the offer remaining open may be sufficient.
Indirect Revocation
Occurs when the offeree learns from a reliable source that the offeror has taken definite action inconsistent with an intention to contract with the offeree.
For example, Owner offers to sell land to Buyer. Before Buyer accepts, Buyer learns reliably that Owner has sold the land to someone else. The sale is definite action inconsistent with the original offer remaining open and may terminate Buyer’s power of acceptance. Mere rumor is generally insufficient.
C. Rejection & Counteroffers
A rejection ordinarily terminates the offeree’s power of acceptance when the rejection is received by the offeror.
After an effective rejection, the offeree cannot ordinarily revive the original offer by attempting to accept. The later communication is usually treated as a new offer unless the original offeror renews the original proposal.
Counteroffers vs. Inquiries
At common law, a counteroffer ordinarily terminates the power to accept the original offer and proposes a new bargain.
A counteroffer must be distinguished from an inquiry or a grudging acceptance.
- “Your offer is unacceptable. I will not pay more than $8,000.”
This language rejects the original offer and makes a counteroffer. - “Would you consider accepting $8,000?”
This may be a mere inquiry. It asks whether the offeror is willing to modify the proposal but does not necessarily reject the existing offer. - “I accept, but only if you reduce the price by $1,000.”
This is conditional. The offeree is not accepting the existing terms and is making a counteroffer. - “I accept your offer. Would you consider reducing the price by $1,000?”
This may be an acceptance followed by a request. The first sentence objectively accepts the offer without conditioning assent on the requested change.
Common Trap
Do not classify every response mentioning a different term as a counteroffer. Determine whether the offeree conditioned acceptance on the change or accepted first and merely requested a modification.
D. Death, Incapacity, Destruction, and Illegality
The power of acceptance may terminate if the offeror or offeree dies or becomes legally incapacitated before acceptance, even if the other party does not yet know of the event. An option contract may be treated differently because it creates a separate enforceable obligation.
The power of acceptance may also terminate when the subject matter is destroyed or when a change in law makes the proposed transaction illegal.
The failure of a condition specified in the offer may also terminate the power of acceptance. If an offer states that acceptance must be made by a particular date, person, or method, failure to satisfy the condition may prevent formation.
V Irrevocable Offers
Although an offer is generally revocable before acceptance, several doctrines can make it temporarily irrevocable. These doctrines protect the offeree’s opportunity to accept even though acceptance has not yet been completed.
Option Contracts
An option contract is a separate agreement in which the offeror promises to keep an offer open and the offeree provides consideration for that promise.
Suppose Seller offers to sell land to Buyer for $300,000. Buyer pays Seller $500 in exchange for Seller’s promise to keep the offer open for thirty days. Buyer has purchased an option. Seller ordinarily cannot revoke during the option period. Without consideration, a common-law promise to keep an offer open is generally revocable despite the promise.
Acceptance of an option contract generally becomes effective upon receipt, not dispatch. This is an important exception to the ordinary mailbox rule.
Merchant Firm Offers (Article 2)
Article 2 provides a special rule for firm offers involving goods. No consideration is required. An offer is irrevocable as a merchant firm offer when:
- A merchant offers to buy or sell goods.
- The offer is contained in a signed writing.
- The writing gives assurance that the offer will remain open.
The irrevocable period may not exceed three months without consideration. If the writing states a longer period, the firm-offer protection ordinarily lasts no more than three months, although the offer may remain open as a revocable offer afterward.
Foreseeable Reliance
An offer may become temporarily irrevocable when the offeror should reasonably expect the offeree to rely substantially before acceptance, the offeree does rely, and injustice can be avoided by protecting the offer.
This doctrine frequently appears in construction bidding. A subcontractor submits a bid to a general contractor. If the general contractor reasonably relies on the subcontractor’s price and wins the project, a court may prevent the subcontractor from revoking for a reasonable period.
Beginning Performance (Unilateral Contract)
A unilateral-contract offer invites acceptance through completed performance rather than a return promise.
Traditionally, an offeror could attempt to revoke before performance was complete. Modern doctrine generally protects an offeree who has begun the invited performance by creating an option contract. Once qualifying performance begins, the offeror ordinarily cannot revoke for a reasonable time necessary to complete the performance.
Students should distinguish preparation from performance. Purchasing paint and arranging transportation may be preparation. Applying paint to the building is beginning performance. Finishing the work completes acceptance.
VI Acceptance
Acceptance is an objective manifestation of assent to the terms of the offer made in the manner invited or required. The offeror is the master of the offer and may prescribe who may accept, how acceptance must occur, when acceptance must occur, and whether acceptance is effective on dispatch or receipt.
If the offer expressly requires a particular method, the offeree generally must comply. If the offer merely suggests a method, another reasonable method may be effective.
Bilateral Contracts
A bilateral contract is an exchange of promises. The offer invites acceptance through a return promise. Each party becomes bound when the promises are exchanged.
Seller promises to deliver a machine next month. Buyer accepts by promising to pay $20,000 upon delivery. The contract forms when the acceptance becomes effective.
Acceptance ordinarily requires communication to the offeror.
Unilateral Contracts
A unilateral contract exchanges a promise for completed performance. A reward offer is a common example.
The offeror promises payment if the offeree performs a specified act. The offeree accepts by completing that act, not merely by promising to perform it.
Notice may be required when the offeror would not reasonably learn of the completed performance.
The Mirror-Image Rule (Common Law)
At common law, acceptance generally must mirror the offer. A response that changes or adds a material term may be a counteroffer rather than an acceptance. This rule reflects the principle that the parties must agree to the same bargain.
VII. Acceptance Under Article 2
Article 2 uses more flexible formation principles for transactions in goods. An order to buy goods may generally be accepted by a prompt promise to ship, or prompt shipment.
The Rule of Shipment
- Shipment of conforming goods constitutes acceptance and performance.
- Shipment of nonconforming goods ordinarily constitutes both acceptance AND breach. The seller has accepted the buyer’s order by shipping but has failed to perform according to the contract.
- Accommodation: If the seller clearly identifies the nonconforming shipment as an accommodation, it is a counteroffer rather than acceptance. The buyer may accept or reject the substituted goods.
VIII The Mailbox Rule
Under the ordinary mailbox rule, an acceptance sent by an authorized method is effective when dispatched unless the offer provides otherwise.
Rejections, revocations, and counteroffers are generally effective when received.
This difference makes communication timelines essential. Suppose Offeror mails an offer. Offeree mails an acceptance on Tuesday. Offeror mails a revocation on Monday, but Offeree does not receive it until Wednesday. If the mailed acceptance was authorized, the contract formed on Tuesday when acceptance was dispatched. The revocation became effective too late.
Exceptions to the Mailbox Rule
IX. Silence as Acceptance
Silence ordinarily does not constitute acceptance. An offeror cannot generally impose a contract by stating, “If I do not hear from you, you have accepted.” The offeree is not required to reject unwanted offers.
Exceptions may exist when:
- The offeree takes offered benefits with reason to know compensation is expected.
- The offeror states that silence will count as acceptance and the offeree intends to accept by remaining silent.
- Prior dealings make silence a reasonable form of assent.
- The offeree exercises dominion over offered property.
X. Electronic Contracts
Modern contracts may be formed through email, text message, online purchase, clickwrap agreement, or automated transactions. Traditional formation principles still apply. The court asks whether the user received reasonable notice of terms and objectively manifested assent.
Clickwrap vs. Browsewrap
A clickwrap agreement generally requires the user to take an affirmative step, such as clicking a button stating “I agree,” after receiving reasonable notice that contractual terms apply. The strongest designs display assent language clearly, avoid hiding terms, and make the user take affirmative action. These are generally enforceable.
Browsewrap terms are posted through a website hyperlink without requiring affirmative assent. They are more difficult to enforce unless the user had actual or constructive notice. Merely placing a “Terms of Use” link at the bottom of a webpage may not establish assent if the user was not reasonably alerted.
Common Trap
Do not assume that online terms are enforceable merely because they existed somewhere on the website. The user must receive reasonable notice and objectively manifest assent.
XI. Integrated Timeline Hypothetical
"On Monday, Seller emails Buyer: I offer to sell you my printing press for $40,000. You may accept by mail or email. This offer will remain open until Friday. (Buyer gives no consideration).
On Tuesday morning, Seller mails a revocation.
On Tuesday afternoon, Buyer mails a rejection.
On Tuesday evening, Buyer changes her mind and emails an acceptance.
Seller receives Buyer’s email Tuesday night. Seller receives Buyer’s mailed rejection Wednesday. Buyer receives Seller’s revocation Thursday."
- First: Seller made an offer. Although Seller promised to keep it open, Buyer gave no consideration, and it's not a merchant firm offer. The offer remained revocable.
- Second: Seller’s revocation was not effective when mailed Tuesday morning. Revocation is effective upon receipt (Thursday).
- Third: Buyer’s mailed rejection was not effective when sent. Rejection is effective upon receipt (Wednesday).
- Fourth: Buyer’s emailed acceptance arrived Tuesday night before either the rejection or revocation became effective. Because the offer authorized email, acceptance was effective no later than receipt Tuesday night (and may have been effective on dispatch).
Result: A contract formed before termination of the power of acceptance.
XII. Bar-Style Analysis Notes
- For offer creation, identify present commitment, definiteness, communication, and invitation to accept.
- For revocation, distinguish direct and indirect revocation and remember that revocation is effective upon receipt.
- For irrevocability, classify the doctrine precisely: option contract, merchant firm offer, reliance, or beginning unilateral performance.
- For merchant firm offers, identify goods, merchant status, signed writing, assurance, and the three-month limit.
- For unilateral offers, distinguish preparation from beginning performance.
- For common-law acceptance, apply the mirror-image rule. Distinguish a counteroffer from a mere inquiry.
- For Article 2 shipment, distinguish conforming shipment, nonconforming shipment (acceptance & breach), and accommodation (counteroffer).
- For the mailbox rule, remember dispatch effectiveness only applies to acceptances. If rejection is sent first, the mailbox rule is suspended (first to arrive controls).
Exam Tip
After each event in a timeline, ask: “At this exact moment, does the offeree still possess the power to accept?” That question often reveals the answer.
Chapter Summary
An offer is a present objective manifestation of willingness to contract on reasonably definite terms, communicated to an offeree and inviting acceptance. Only the invited person or class may accept.
The power of acceptance may terminate through lapse, revocation, rejection, counteroffer, death or incapacity, destruction, or illegality. Revocation and rejection are ordinarily effective upon receipt. A common-law counteroffer ordinarily rejects the original offer, but a mere inquiry may leave the offer open.
Offers may become irrevocable through an option contract (requires consideration), an Article 2 merchant firm offer (requires a merchant, signed writing, assurance, 3-month max limit without consideration), reasonable foreseeable reliance, or beginning invited performance under a unilateral-contract offer.
Acceptance must be an objective manifestation of assent. Bilateral contracts involve exchanges of promises. Unilateral contracts involve acceptance through completed performance.
At common law, the mirror-image rule applies. Under Article 2, an order may be accepted by a prompt promise to ship or prompt shipment. Shipment of nonconforming goods constitutes acceptance and breach unless clearly identified as an accommodation (which acts as a counteroffer).
Under the mailbox rule, an authorized acceptance is generally effective upon dispatch. Rejections and revocations are effective upon receipt. Exceptions include offers requiring receipt, option contracts, and conflicting rejection-and-acceptance sequences.
Silence ordinarily is not acceptance. Electronic contracts depend on traditional assent principles, with clickwrap agreements being stronger than browsewrap terms due to affirmative manifestation of assent.
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