A contract starts when one party makes an offer and the other accepts it. An offer is an outward show of willingness to be bound on stated terms, made in a way that would lead a reasonable person in the other party's position to think that saying yes closes the deal. Acceptance is agreement to those terms. Courts read both objectively. What matters is what each side said and did, not the private intention either of them kept to themselves.
Elements
- An offer. Definite terms, communicated to the offeree, showing present willingness to be bound rather than an invitation to negotiate.
- A power of acceptance. The offer creates it, and the offeror controls its shape, including how and by when it may be exercised.
- Termination. That power ends on rejection, on a counteroffer, on lapse of time, on a revocation that reaches the offeree first, or on the death of either party.
- Acceptance. Unequivocal assent, given by a return promise in a bilateral contract or by performance in a unilateral one.
- Timing. Under the mailbox rule an acceptance is effective when sent, while revocations and rejections are effective only when received.
Leading cases
- Lucy v. Zehmer: a written agreement to sell a farm was enforceable because the seller's outward conduct showed assent, whatever he privately thought about the joke.
- Lefkowitz v. Great Minneapolis Surplus Store: an advertisement that is clear and definite and leaves nothing open for negotiation can be an offer rather than an invitation to deal.
- Carlill v. Carbolic Smoke Ball Co.: a public promise of a reward can be a unilateral offer to anyone who performs, and the performance is itself the acceptance.
- Dickinson v. Dodds: an offer is revoked once the offeree learns from a reliable source that the offeror has changed his mind.
Where students go wrong
The first mistake is arguing about what somebody secretly meant. The objective test asks what a reasonable person in the other party's shoes would have understood, so a defendant who says he was only joking loses unless the joke was obvious at the time.
The second is treating every reply as an acceptance. At common law a response that adds or changes a term is a counteroffer, and it destroys the original offer. Under UCC section 2-207 a definite acceptance can still form a contract even though it states extra terms, so name the governing body of law before you apply either rule.
The third is stretching the mailbox rule. It covers acceptances, not revocations or rejections, and the offeror can switch it off simply by requiring actual receipt.
FAQ
Is an advertisement an offer?
Usually not. Most advertisements are invitations to negotiate. One becomes an offer when it is clear and definite, leaves nothing open, and identifies who may accept, such as a first come first served promise for a stated quantity.
When can an offer still be revoked?
Any time before acceptance, provided the revocation reaches the offeree. Option contracts, firm offers under the UCC, and beginning performance on a unilateral offer all cut that power short.
What is the difference between a bilateral and a unilateral contract?
A bilateral contract trades a promise for a promise. A unilateral contract offers a promise that can only be accepted by completing the requested performance.
Related terms
Working through this in your own casebook takes longer than reading it here. Syllume starts from your syllabus and turns each assigned case into a brief you can study from.