Offer and Acceptance
Offer and acceptance are the foundational elements of contract formation, requiring a definite proposal and unequivocal assent to create a binding agreement.
Overview
Offer and acceptance are the two acts that form the basis of every contract. An offer is a manifestation of willingness to enter into a bargain, made so as to justify the offeree in understanding that assent will conclude the deal. Acceptance is the offeree's unequivocal expression of assent to the offer's terms.
For an offer to be valid, it must contain definite and certain terms and be communicated to the offeree. Courts apply the objective theory of contracts: whether a reasonable person in the offeree's position would believe an offer was made, not the subjective intent of the offeror. Lucy v. Zehmer established that even a person who claims to be joking is bound if a reasonable person would take the statement seriously.
The common law mirror-image rule requires acceptance to match the offer exactly; any variation is a counteroffer. The UCC relaxes this through § 2-207 (the "battle of the forms"), allowing acceptance even with additional or different terms in contracts for the sale of goods.
Offers can be terminated by revocation (before acceptance), rejection, counteroffer, lapse of time, death or incapacity, or destruction of the subject matter. Under the mailbox rule, acceptance is effective upon dispatch, while revocations are effective upon receipt. Option contracts and Restatement § 87(2) (reliance on offers) can make offers irrevocable.
The distinction between offers and preliminary negotiations is frequently tested. Advertisements are generally invitations to deal, not offers — but Lefkowitz v. Great Minneapolis Surplus Store shows that specific, definite ads can constitute offers.
Key Takeaway
Contract formation requires a valid offer (definite terms, communicated) and a valid acceptance (unequivocal assent, communicated). The objective theory governs — look at what a reasonable person would understand.
Exam Tip
Watch for UCC § 2-207 issues when goods are involved — the mirror-image rule doesn't apply. Know the mailbox rule and its exceptions. Always check whether there's really an offer or just preliminary negotiations.
Landmark Cases (14)
Frequently Asked Questions
What is the objective theory of contracts?
The objective theory holds that a contract is formed based on the outward manifestations of the parties — their words and conduct — not their secret intentions. A party is bound if a reasonable person would conclude an agreement was made, even if the party claims they were joking.
What is the mirror-image rule?
Under common law, acceptance must match the offer exactly (mirror it). Any different or additional terms constitute a counteroffer rather than an acceptance. The UCC § 2-207 relaxes this rule for sales of goods.
Are advertisements offers?
Generally, advertisements are invitations to deal, not offers. However, an ad can be an offer if it is specific, definite, and leaves nothing open for negotiation, as in Lefkowitz v. Great Minneapolis Surplus Store.
What is the mailbox rule?
The mailbox rule provides that acceptance is effective upon dispatch (when mailed or sent), while revocations are effective upon receipt. This means an acceptance can be effective before the offeror knows about it, creating a binding contract.
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