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Principles Of Business Law - CHAPTER II























































Formation of an Offer

Sec. 7. Definition. As noted in the previous chapter, one of
the first steps in the formation of any contract lies in arriving at
an agreement between the contracting parties. This agreement is
sometimes spoken of as a meeting of the minds, but is more
commonly known as offer and acceptance. An agreement can be
reached only after one of 'the parties has "made a definite proposal
to the other. Such a proposal constitutes an offer.

An offer is the communication by one party, known as the offerpr,
to another party, called the offeree, of the former's willingness to
act or to refrain from acting along ""certain lines, if the latter will
act or refrain from acting as requested.

Sec. 8. Communication. No offer becomes effective until it
has been communicatecL . to^hejpffgree. 1 " TKcTmere desire toenter
into an agreement, which remains hidden in the recesses of one's
mind, can never constitute an offer. The writing of a letter em-
bodying a definite proposition will also prove futile unless the letter
is mailed and reaches the offeree.

An offer must be communicated by the offeror or his duly au-
thorized agent. If the offeree learns of the offerer's intention from
some outside source, no offer results. It must be communicated
through the medium or channel selected by the offeror.

An offer to the public may be made through the newspapers or
the posting of notices, but it is not effective so far as a particular
individual is concerned until he learns that the offer has been made.

Sec. 9. Meeting of minds. It is generally said, although the
statement is subject to qualification, that no agreement is effective
unless the minds of the contracting parties have met on the sub-
ject matter of the contract. If Jones offers to sell his used Chev-
rolet car to Brown for $75 and Brown agrees to buy it, no contract
results in case Jones, who has two such cars, was thinking of one,
while Brown had in mind the other. The rule that the minds of
the parties must be in accord is limited in one important respect;
namely, the intention of the parties is to be determined by their
individual conduct and what it leads the other party reasonably
to believe rather than by their innermost thoughts, which can be

v, Ledbetter, 1907, 100 Tex, 375, 99 S,W, 1111; p, 471,



known only to themselves. Thus, if A signs an agreement to pur-
chase a certain gold watch for $50 from B, the agreement is binding
although A later testifies that he never actually intended to pur-
chase it. By his conduct he led B, as a reasonable man, to think
that he would purchase it. Such conduct is all that the law re-

Offers clearly made in jest or under the strain or stress of great
excitement are usually not enforced, because one is not reasonably
justified in relying on them.

The courts hold the minds of the parties to have met when a
written agreement is signed. Each person who signs a written doc-
ument with the idea of entering into contract is presumed to know
the contents thereof. Since the act of signing manifests a person's
intention to be bound by the terms contained in the writing, he is
in no position at a later date to contend effectively that he did not
mean to enter into the particular agreement. All contracts should
be read carefully before they are signed.

Sec. 10. Offer must be definite. Not all communications that
invite future business transactions take the form of offers. Many
of them are of a preliminary nature and are issued for the purpose
of inducing an offer from others. Within this class of communica-
tions fall most of the catalogues, circulars, and advertisements is-
sued by commercial houses. 2 j*

The chief reasons why such information is not deemedyo con-
stitute an offer are that it is indefinite as to many important terms
and it indicates no intention to enter into a contract with every
person receiving it. An offer must be definite. Because of this
rule, many courts have made the statement that a mere quotation
of price does not constitute an offer. Something which indicates
a willingness to contract with a particular party at the prices quoted
must accompany the quotation of price, and enough must be stipu-
lated to enable a court at some later date to determine whether the
contract has been performed by the parties in case a controversy
develops. General statements which do not include quantities,
terms, and prices are usually inadequate unless it is clear that they
may be implied.

An advertisement may constitute an offer, but to do so it must
be very definite in form and must set forth clearly the proposed
terms of the agreement.

Sec. 11. Auctions and advertisements for bids. When articles
are sold at public auction, the offer is said to be made by the bidder
and accepted by the seller at the drop of the auctioneer's hammer.
Because of this rule, the seller can withdraw his article from sale

a Montgomery Ward and Co. v. Johnson, 1911, 209 Mass. 89, 95 N.E. 290; p. 471


at any time during the auction. Likewise, the purchaser may with-
draw his bid at any time before the auctioneer has concluded the
sale. In a few states, where an auction sale is advertised to be held
"without reserve/' the seller may not withdraw his property but
the bidder probably has the right to withdraw his bid. 3

When one advertises that bids will be received for construction
work, it is held that the advertiser makes no offer but that the
party who submits a bid is the offeror. The one calling for the bids
may reject any or all of them. The same is true of public con-
struction. Although the statutes of many states provide that pub-
lic work must be let to the lowest and best bidder, most courts
hold that all bids may be rejected. However, in these states, any
contract for public work which is consummated must be let to the
lowest responsible bidder.

Sec. 12. Tickets. Tickets purchased for entrance into places
of amusement or as evidence of a contract for transportation often
contain small printed matter which attempts to limit or define the
rights of the holder. Some conflict exists relative to the effective-
ness of these stipulations, but it is generally held that they become
a part of the offer and are accepted by the holder if he is aware
of the printed matter even though he does not read it. There are
some cases, such as those involving steamship tickets, in which the
purchaser is presumed to know about the printed matter even
though his attention is not called to it at the time the ticket is

ILaJicket is received merely as evidence of ownership and is to
be presented later as a means of identification, 'the provisions are
ineffective unless the recipient's attention is directed to them at the
Time the ticket is accepted. Thus, tickets given at checkrooms or
repair shops are received usually as a means of identifying the
article to be returned rather than with any idea of the ticket em-
bodying the terms of a contract.

Finely printed material found on the back of written contracts
or on letterheads which is not clearly embodied in the terms of the
contract by reference thereto does not form a part of the agreement.
If it is desired to make it part of the agreement, some reference
should be made to it in the body of the writing. Where attention
is called to the fine print, the provisions are not always enforceable
as they often attempt to relieve public utilities and carriers of
responsibility for their own carelessness. Further discussion of
this is deferred until the material dealing with illegal contracts is

3 McPherson Bros. Co, v. Okanogan County, 1907, 45 Wash. 285, 88 Pac. 299; p.


Duration of Offer

Sec. 13. Duration. An offer that has been properly communi-
cated continues as such until it lapses, or until it is revoked, re-
jected, or accepted. The offeror is considered to be continually
renewing the offer until one of the above takes place.

Sec. 14. Offer lapses after reasonable time. An offer does not
remain open indefinitely, although the offeror fails to withdraw it.
If the offer stipulates the jteriod during which it is to continue, it
automatically lapses at the end of that period. An attempted
acceptance after that date could only amount to a new offer being
made by the offeree of the original offer. An offer which provides
for no time limit remains open for a reasonable time a reasonable
time being such period as a reasonable person might conclude was
intended. Whether an offer has lapsed because of the mere passage
of time is usually a question of fact for the jury to decide after it
has given proper weight to all surrounding circumstances. One of
the most important factors to be considered in such a case is the
nature of the property. An offer involving property which is fluc-
tuating greatly in value remains open a relatively short time in
comparison with property of a more stable character. 4 Other facts
that should be given weight are: the circumstances under which
the offer is made, the relation of the parties, and the means used in
transmitting the offer. An offer made orally usually lapses when
the parties involved separate. It remains open thereafter only
when the offeror clearly indicates that the matter may be consid-
ered further by the offeree.

Sec. 15. Death or insanity. The death or the insanity of the
offeror or the offeree causes an offer to lapse. This statement is
true even though the other party has no notice of the death. An
offeror cannot continue to make an offer after his death; neither
can an offeree accept an offer after death. At the time the con-
tract is consummated, both parties must be capable of entering into
the agreement. It should be emphasized at this point, however,
that the death or the insanity of one of the parties does not cause
a rescission of a contract which has previously been formed.

To illustrate, let us assume that Adams offers to sell to Barnes
a certain farm for $5,000. Barnes, unaware of Adams' death, mails
his acceptance and then enters into a contract with Curtiss to sell
the property at a profit. Adams' estate is under no duty to con-
vey the property to Barnes, because the offer automatically lapsed
upon the death of Adams. Had the acceptance become effective

4 Minnesota Linseed Oil Co. v. Collier White Lead Co., 1876, Fed. Cas. No. 9, 635,
4 Dill. 431; p. 473.


before the death of Adams, the estate would not have been relieved
of its duty to make a conveyance of the property, since death does
not ordinarily excuse one from performing a contract previously

Sec. 16. Revocation. An offer may be revoked by the offeror
at any time before it has been accepted, despite the fact that the
offeror may have informed the offeree of his willingness to hold it
open for a definite period of time. So long as it is a mere offer,
it can be withdrawn whenever the off^fsrHesTres.^ This rule ap 1
^Ties, SVeri though the otter expressly stipulates that it may not be
withdrawn without the consent of the other party. ^

The revocation of an offer becomes effective only when it has
been communicated to the offeree. The mere sending of a notice
of revocation is insufficient. It must be received by the offeree.
Communication of the revocation differs from that of the offer,
since, in the case of revocation, notice of any kind is sufficient, even
though it is received in an indirect manner or from some party not
an authorized agent of the offeror. Knowledge from any source
of an act on the part of the offeror which shows his intention to
revoke the offer is sufficient. To illustrate: An offeree, who learns
from a neighbor of the offeror that a farm offered for sale has been
sold to a third party, cannot now accept the offer. The offer is
revoked as soon as the offeree learns of the sale, regardless of the
source of his information.

Sec. 17. Revocation of public offers. It would be impossible
for the offeror of a public offer to give personal notice of revocation
to all persons who may have learned of the offer. Because of this
fact, the offeror may withdraw his offer by giving the same general
publicity to the revocation as he gave to the offer. Thus, a public
offer made through the newspapers in a certain locality may be
withdrawn through the same medium. As a result, it is possible
for such an offer to be withdrawn without the offeree's having
learned of the withdrawal.

Sec. 18. Option contracts. An option contract consists of an
agreement to hold an offer open for a definite period of time upon
the payment of a certain sum of money by the offeree. In such a
case the offer cannot be withdrawn until the option period expires.
The offer is no longer a mere offer but has been transformed into a
contract of option, and is based upon a consideration given by the
offeree. If the offeror receives no compensation for his promise to
hold his offer open for a certain time, it can be withdrawn by him
at any time he desires by giving notice.

"Bosshardt & Wilson Co, v. Crescent Oil Co., 1895, 171 Pa. St. 109; p. 474.


Sec. 19. Rejection. Rejection by the offeree causes an offer to
lapse, even though the original offer was to have remained open
for a longer period. The offeree cannot, after his rejection, change
his mind and accept the offer. An attempt to do so will, at best,
amount to a new offer, which must be accepted by the original

An attempted acceptance which varies in any particular the
terms of the offer is in effect a rejection of the offer. Such an
acceptance is deemed a counteroffer, which may or may not be ac-
cepted by the party making the original offer. By making a coun-
teroffer, one impliedly rejects the original offer, 6 unless the offeree
uses language which makes it clear that he is still considering the
original offer. A counteroffer is a rejection only because it implies
that the original terms are not acceptable to the offeree.

An acceptance embodying terms other than those contained in
the offer should be distinguished from a mere request for additional
information. This distinction is especially necessary where the re-
quest for further information suggests that the original offer is still
being considered. Thus, an offer to sell two thousand steel fence
posts at $30 a hundred would not be rejected by an inquiry which
requested a price on one thousand posts. If, however, the offeree
had 'ordered one thousand posts at $30 a hundred, the offer would
have lapsed.

Rejection of an offer is not effective until it has been communi-
cated to the offeror. 7 Such communication must be carried directly
by the offeree or his chosen agent, and is not effective until it
reaches the offeror.


Sec. 20. Definition. An agreement consists of an offer by one
party and its acceptance by the person or persons to whom it is
made. As an unaccepted offer hangs in large measure like a sus-
pended question, the acceptance should be a positive answer to that
question. The offeror, in effect, says, "I will sell you this article
for two hundred dollars. Will you buy it?" The acceptor an-
swers the question in the affirmative. An acceptance is an indica-
tion by the offeree of his willingness to be bound by the terms of
the offer. It may, if the offer permits, take the form of an act, the
signing and delivering of a written instrument, or of a promise com-
municated to the offeror.

Sec. 21. Acceptance of unilateral offer. Contracts are either
inilateml ogJrilateral in nature, depending upon whether The offelr

6 Morrison et al. v. Parks, 1913, 1 N.C. 197, 80 S.E. 85; p. 475.
7 Diebel v. Kaufman, 194$, (Ohio App.) 62 N.E.(2) 770; p. 476.


must be accepted by an act or whether a promise to perform will
create the contractual relation. A unilateral offer is one whjctuhy
its language and surrounding circumslances y ' indScates thatit may
by C(j'Rlj3letion of the particular action requested.

A"bilateral offerTon the other hand, ripens into a contract when the
offeree indicates his willingness to perform. Most agreements are
of the latter class, and, in case an offer is ambiguous, the courts
tend to construe it as bilateral. The fact remains, however, that
a sizable portion of our contracts are unilateral in form. The of-
feror in such cases does not require, in fact does not desire, a prom-
ise or assurance of performance, but insists on completion of the
act requested before a contract is created.

Since a unilateral offer is not accepted until completion of the
task assigned, the offeror is at liberty to withdraw his offer at any
time prior to final performance. If the offeree has incurred ex-
penses preparatory to carrying out the terms of the offer or in par-
tially completing the act requested, he has no recourse against the
offeror unless the work done has proved of benefit to the offeror. 8
In the latter case he must be paid the value of the benefit conferred.
Acceptance of a unilateral offer becomes effective as soon as comple-
tion of the act is effected. Notice of completion need not be given
to the offeror, since it is assumed that knowledge of performance
will be readily available to him.

To distinguish further between these two types of contracts, let
us consider the following typical situations. A hardware merchant
is approached by a salesman of a manufacturer and signs a purchase
order for certain goods, the order being subject to the approval of
the manufacturer's home office. The acceptance is effective as soon
as that approval has been communicated to the dealer, because the
offer was bilateral in nature, suggesting that it was to be accepted
by a promise to ship. Until notice of approval is received, the
offeror is at liberty to withdraw his offer. On the other hand, if we
assume a dealer is immediately in need of several items of merchan-
dise and mails a letter to a certain concern asking for immediate
shipment of the articles listed, a unilateral offer has doubtless been
made. Acceptance takes place as soon as the goods are placed with
a common carrier for shipment, even though the buyer has no
knowledge of that fact. Until they are placed with the carrier,
however, the buyer is free to withdraw his order in spite of the fact
that the manufacturer has incurred certain expenses in anticipation
of delivery. In general, no contract is created until the act re-
quested in the unilateral offer has been fully performed.

8 Butcher's Advocate Co. v. Berkhoff et al., 1916, 168 N.Y. Supp. 160, 94 Misc. 299;
p. 477.


Sec. 22. Bilateral offer. A bilateral offer is accepted by a
promise to do the things requested in the offer. The promise must
be communicated to the offerer and may consist of any conduct
which unequivocally evinces an intention to be bound by the con-
ditions prescribed in the offer. Such intention must be brought to
the attention of the offeror. The acceptance may take the form
of a signature to a written agreement or a nod of the head. No
formal procedure is required by the canadian laws of acceptance. If the
offer is made to a group of people in the aggregate, the acceptance
is not complete until each person of the group has indicated his ac-
ceptance. Until then the offeror is at liberty to withdraw.

Where the agreement takes the form of a written instrument, the
acceptance is effective only when the document has been signed and
delivered, unless it was clearly the intention of the parties that the
earlier verbal agreement be binding and that the writing act merely
as a memorandum or better evidence of their oral contract-
Sec. 23. Silence as assent. The offeror cannot force the offeree
to speak. In most cases, therefore, mere silence never amounts to
acceptance, although the offeror in his offer may have suggested
that such be the case. A previous course of dealing between the
parties, or the receipt of goods under certain circumstances, might
well raise a duty upon the part of the offeree to speak in order to
avoid contractual relationship. 9 Mere silence of itself never con-
stitutes an acceptance.

Sec. 24. Acceptance by offeree. Only the person to whom the
offer is made can accept the offer. 10 An offer cannot even be as-
signed to a third party. Quite often goods are ordered from a firm
which has discontinued business, and the ffoods are shipped by its
5uccessc In such case the offeror is under no duty to accept the
goods! If he accepts the goods knowing that they were shipped by
the successor, he then impliedly agrees to pay the new concern for

Offers to the public may be accepted by any member of the public
who is aware of the offer.

Sec. 25. Acceptance must follow offer. The acceptance, in
order to be effective, must conform to the terms of the offer. If the
acceptance! contains any new terms or conditions, or if jtr YP TIM * n
[jjnv jnanner the terms of the offer, it becomes a counteroffer and
bl\grefffre rejects the original offer The mere addition of a request
for a favor or of a condition which does not in any way qualify the
legal advice of the offer will not affect the acceptance. A stipulation

in the offer relating to place, time, or manner of acceptance must
be strictly complied with by the. offeree.

Sec. 26. Time of taking effect. As noted before, the accept-
ance of a unilateral offer takes effect as soon as the act requested is
completed. The acceptance of a bilateral offer becomes effective
as soon as it is communicated to the offeror. Communication is
effected in most states as soon as the offeree places his acceptance
with the means of communication used or suggested by the offeror.
The contract is formed at that time. Thus, if the offeror transmits
his offer by mail, the acceptance is complete as soon as it is properly
addressed, stamped, and placed with the postal authorities. An
offer dispatched by telegram is accepted as soon as the reply is
handed to the telegraph company. In other words, if the offeree
transmits his acceptance by the mode of communication which the
offeror uses, the acceptance is complete as soon as it is deposited
with that agency. In case the offeror stipulates the means of com-
munication to be used in response to his offer, the acceptance will
be effective at the date of delivery only if the acceptance is deliv-
ered to the stipulated agency. 11 If no mode of communication is
held out by the offeror, the offeree is at liberty to use the mails.

The ultimate effect of these rules is to place upon the offeror any
possible loss resulting from misconduct on the part of his communi-
cating agency. Thus, a contract exists, although a letter of accept-
ance is lost in the mails. The offeror, in such cases, is duty bound
to perform, even though he may have entered into other contracts
as a result of his failure to receive a reply. He can avoid this result
only by stating in his offer that the acceptance shall be ineffective
until it is actually received by him.

An offer is effective even though it be delayed in reaching the
offeree. Since the delay normally results from the negligence of
the offerer's agent or his chosen means of communication, he should
bear the loss resulting from the delay. However, if the delay is
apparent to the offeree, his acceptance will be good only if it reaches
the offeror within a reasonable time after the offer would normally
have been received.

Sec 27. Effective when received. The transmission of an ac-
ceptance by some agency other than the one held out by the offeror
does not affect the validity of the acceptance. Its effectiveness is
merely postponed until the time of delivery to the offeror. In such
a case the offeree accepts the risk of delay or of failure to deliver.
If an offer stipulates that the acceptance must be received, the date
of acceptance is delayed until it reaches the offeror.

"Lucas v, Western Union telegraph Co,, 1908, 131 Iowa 6$9, W tf.W. 191; p, 480,


Sec. 28. Implied. A contract may be implied from the conduct
of parties, as well as from their language. One who knowingly
receives a benefit at the expense of another under such circum-
stances as to negative the possibility of a gift immediately assumes
an obligation to pay an amount equal to the reasonable value of
such benefit ; however, no promise can be implied from his conduct
if he is unaware that the benefit is being conferred. To illustrate
the latter point: A, by mistake, during the absence of B on a fishing
trip, makes repairs on 5 J s residence. J3, upon his return, is under
no duty to pay for such repairs, even though he has been benefited.
No promise, in fact, can be implied from his conduct.

Review Questions and Problems

1. Define the term "offer." Why is it essential to the formation of an

2. One L lost a mare and publicly offered a reward of $150 to the
finder. R, not having learned of the reward, found and returned the
mare to the owner. May R recover the reward?

3. What factors must be considered in the determining of the duration
of an offer?

4. A offered to sell his house to B for $5,000. B offered to give him
$4,500, which A refused to accept. Later, B tendered A $5,000, which
was refused. Had the offer been rejected before the tender?

5. How is a public offer revoked?

6. A offered, on March 13, to sell his grocery store to B for $3,000.
On March 15 B mailed his acceptance, which reached A J s office on March
18. On March 17 A died. May A's executor recover from B in case he
fails to perform?

7. How is a unilateral offer accepted? May such an offer be with-
drawn after the offeree has started to perform?

8. A wrote a letter to B and offered to sell B a certain diamond ring
for $300. He added that unless he heard from B within the next ten
days, he would conclude that B had accepted. B failed to make any re-
ply. Was there a contract?

9. A advertised for bids on a certain construction job. B submitted
the lowest bid. A wrote to B, saying: "You are the lowest bidder.
Come on down." Was this an acceptance of the bid?

10. G offered to sell a carload of oats to P at 42 cents a bushel. P
wired his acceptance and added that the city scale weights should be ac-
companied by an affidavit. Was this an effective acceptance?

11. Can there be an implied contract in fact without the recipient's
knowingly receiving the benefit?

12. A certain school board advertised for bids on a new high-school
building. A statute in that state provided that all contracts for public
works should be let to the lowest and best bidder. A, a responsible bid-
der, submitted the lowest bid, but the board rejected all of the bids. Has
A a good cause of action against the school board?

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