Contract Acceptance: Key Requirements & Case Law
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Powerpoint from textbook Business Law - the ethical, global, and e-commerce environment to accompany BA 330 course at the University of Alaska Fairbanks.
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Contract Acceptance: Key Requirements & Case Law
- 1. Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
- 2. Capacity to Contract Illegality Writing Rights of Third Parties Performance and Remedies © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
- 3. The Agreement: Acceptance Make your bargain before beginning to plow. Arab proverb © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
- 4. Learning Objectives Basics of Acceptance Intent Communication Special Problems 11 - 4
- 5. Requirements for Acceptance Acceptance must be by clear expression by offeree of intent to be bound by terms of offer and communicated to offeror Only offeree may accept offer If offer calls for performance, then performance is acceptance Offeror may specify manner of acceptance Example: “notify of acceptance in writing” 11 - 5
- 6. Adsit Co. v. Gustin Facts & Procedural History: Gustins ordered products from Plaintiff Adsit Co.’s website, clicking an “I Accept” button that referred to Adsit’s refund and return policy, and choice of law clause for Indiana Gustin returned goods and reversed credit charge Plaintiffs denied receipt of goods and filed suit in Indiana; both parties appealed trial court ruling Gustins (Texas and Alabama residents) argued that Indiana lacked personal jurisdiction 11 - 6
- 7. Adsit Co. v. Gustin Issue: Does the court have jurisdiction? Reasoning and Holding: Promises become binding when there is a meeting of the minds and consideration is exchanged A web-based contract, or clickwrap agreement, is valid if the web-user had reasonable notice of the agreement and manifested assent Gustins had reasonable notice and assented, including to the jurisdiction of Indiana courts 11 - 7
- 8. Mirror Image Rule Traditional contract law rule required acceptance to be the mirror image of the offer Example: Finnin v. Bob Lindsay, Inc. Currently, judges hold that only material variances between an offer and an alleged acceptance result in an implied rejection of the offer 11 - 8
- 9. The UCC & Variance of Terms UCC 2–207 allows contract formation even when there is some variance between terms of offer and terms of the acceptance A definite and timely expression of acceptance creates a contract, even if it includes terms different from those stated in offer or if it states additional terms offer did not address [2–207(1)] Example: Standard Bent Glass Corporation v. Glassrobots Oy 11 - 9
- 10. 11 - 10
- 11. Communicating Acceptance With instantaneous forms of communication, knowing when acceptance occurs is easy Complicated by non-instantanesous forms such as mail Mailbox rule makes acceptance effective upon dispatch when the offeree used a manner of communication expressly or impliedly authorized (invited) by the offeror Example: Okosa v. Hall 11 - 11
- 12. Communicating Acceptance Courts today allow communication by any reasonable means of communication 11 - 12
- 13. Silence as Acceptance General rule is that an offeree’s silence, without more, is not an acceptance Circumstances may impose duty on offeree to reject offer affirmatively or be bound Includes cases in which offeree’s silence objectively indicates an intent to accept Example: McGurn v. Bell Microproducts, Inc. 11 - 13
- 14. McGurn v. Bell Microproducts Facts: Bell extended offer of employment to plaintiff Plaintiff altered written offer to include severance package, signed and returned Bell silent regarding alteration and plaintiff worked for more than a year Bell fired plaintiff and refused to pay severance Plaintiff won summary judgment for breach of contract 11 - 14
- 15. McGurn v. Bell Microproducts Reasoning & Ruling: Silence in response to an offer does not constitute acceptance unless offeree takes benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation Restatement (Second) of Contracts §69 Whether Bell accepted plaintiff’s alteration of the contract by its silence and conduct is a matter of fact, thus a matter for the jury; case remanded 11 - 15
- 16. Effect of Acceptance OFFER + ACCEPTANCE AGREEMENT 11 - 16
- 17. Test Your Knowledge True=A, False = B Silence may never indicate acceptance Offeror may specify manner of acceptance Only material variances between an offer and an alleged acceptance result in an implied rejection of the offer UCC 2–207 does not allow contract formation if there is some variance between terms of offer and terms of the acceptance 11 - 17
- 18. Test Your Knowledge Multiple Choice The effect of offer plus acceptance is: (a) Negligible (b) An agreement (c) The mirror image rule (d) None of the above 11 - 18
- 19. Thought Questions Do you read clickwrap agreements when purchasing goods through a website? Do you agree you should be bound by “click” agreements if purchasing via the internet? 11 - 19
Notes de l'éditeur
- Adsit is an Indiana-based retailer of parts and accessories for Mercedes-Benz automobiles, doing business over the phone and the Internet. Mary Gustin lives in Texas and her daughter-in-law, Julie Gustin, lives in Alabama. Mary wanted to buy leather seat covers for her son’s car. To place an online order on Adsit’s Web site, a customer must click an “I Accept” button located at the bottom of a Web page describing the company policy. The policy stated that there would be absolutely no refunds or returns, there was a warranty for 30 days on an exchange basis, all sales were final, AND that Indiana courts would have jurisdiction over disputes (forum selection clause). Mary made the order via the website, clicking the “I Agree” button. Julie Gustin provided the credit card to make the purchase and received the goods, but returned them and reversed the credit card charge. Adsit denied receipt of the goods and filed suit against the Gustins in Indiana court for breach of contract. The trial court entered judgment for Adsit, but awarded a smaller amount of money than Adsit thought it was entitled to. Adsit and Mary and Julie appealed. Among the Gustins’ arguments on appeal was that the Indiana court lacked jurisdiction over Mary and Julie, both of whom lived in other states.
- Court: Parties may consent by contract to the exercise of personal jurisdiction by courts that otherwise might not have such jurisdiction. Forum selection clauses—even those occurring in form contracts—are enforceable if they are reasonable and just under the circumstances and there is no evidence of fraud or overreaching. To complete the transaction, Mary was required to click on a button reading “I Accept” that was placed at the bottom of the web-page containing the policy. This type of web-based contract is commonly referred to as a “clickwrap” agreement. To determine whether a clickwrap agreement is enforceable, courts presented with the issue apply traditional principles of contract law and focus on whether the plaintiffs had reasonable notice of and manifested assent to the clickwrap agreement. Here, the Adsit policy gave reasonable notice of its terms. … we find that Mary had reasonable notice of and manifested assent to the clickwrap agreement containing the forum selection clause. We also find that she was capable of understanding its terms, consented to them, and could have rejected the agreement with impunity. Whether the forum selection clause also binds Julie is a closer call…. If Mary was acting as Julie’s agent, however, then Julie is bound to the terms of the contract, including the forum selection clause…. We find that under these circumstances, Julie’s conduct was sufficient to give Mary actual authority to engage in the transaction on her behalf. Consequently, Julie is likewise bound by Adsit’s forum selection clause. In sum, we find that the trial court properly exercised personal jurisdiction over Mary and Julie.
- Standard Bent Glass, a Pennsylvania corporation, wanted to buy a machine for its factory that would produce cut glass. March 1998, it started negotiations with Glassrobots Oy, a Finnish corporation. By February 1999, negotiations had reached critical juncture. February 1, Standard Bent Glass faxed an offer to purchase a glass fabricating system from Glassrobots. Offer sheet began, “Please find below our terms and conditions related to ORDER #DKH2199,” and defined the items to be purchased; the quantity; the price of $1.1 million; the payment terms; and installation specifics, instructions, and warranties. The letter concluded, “Please sign this ORDER and fax to us if it is agreeable.” On February 2, Glassrobots responded with a cover letter, invoice, and standard sales agreement. The cover letter recited: “Attached you’ll find our standard sales agreement. Please read it through and let me know if there is anything you want to change. If not, I’ll send 2 originals, which will be signed.” The contract included an arbitration clause and several references to arbitration. Glassrobots did not return, nor refer to, Standard Bent Glass’s order. Later that day, Standard Bent Glass faxed a return letter that began, “Please find our changes to the Sales Agreement,” by which it meant Glassrobots’s standard sales agreement. This letter apparently accepted Glassrobots’s standard sales agreement as a template and requested five specific changes. The letter closed, “Please call me if the above is not agreeable. If it is we will start the wire today.” February 4, Standard Bent Glass wired the down payment to Glassrobots, and on February 8, the wire transfer cleared Glassrobots’s bank account. February 5, Glassrobots sent Standard Bent Glass a revised sales agreement that incorporated almost all of the requested changes. Glassrobots’s cover letter stated, “Attached you’ll find the revised sales agreement. . . . Please return one signed to us; the other one is for your files.” A provision of this agreement stated that “this Agreement shall come into force when signed by both parties.” Standard Bent Glass never signed the agreement. February 9, Standard Bent Glass sent another fax to Glassrobots in which it stated, “Just noticed on our sales agreement that the power is 440 5. We must have 480 5 on both pieces of equipment.” There was no further written correspondence after February 9 and no contract was ever signed by both parties. Nevertheless, both parties continued to perform. Glassrobots installed the glass fabricating system and Standard Bent Glass made its final payment to Glassrobots. Standard Bent Glass noticed defects in the equipment and the parties disputed the cause of the defects. Standard Bent Glass sued Glassrobots. Glassrobots filed a motion to compel arbitration under an appendix to the standard sales agreement that Standard Bent Glass claims it never received. The trial court granted Glassrobots’s motion and Standard Bent Glass appealed. Appellate Court: At issue is whether there was a valid agreement and whether that agreement contained a binding arbitration clause…. Where parties perform but do not explicitly agree on a single uniform document, sections 2–207(2) and (3) govern proposed additional or different terms to the contract…. By using the Glassrobots standard sales agreement as a template and by authorizing a wire transfer of the down payment, Standard Bent Glass demonstrated its intent to perform under the essential terms of Glassrobots’s standard sales agreement…In sum, Standard Bent Glass’s conduct constituted a definite and seasonable expression of acceptance that evinced the formation of a contract rather than a counteroffer or rejection. For these reasons, there was a valid contract on the Glassrobots terms of February 2 that incorporated any nonmaterial additions proposed by Standard Bent Glass.
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- Hyperlink is to the opinion by the U.S. Court of Appeals for the First Circuit.
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- False. Silence in response to an offer does not constitute acceptance unless offeree takes benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation Restatement (Second) of Contracts §69 True. True. False. UCC 2–207 allows contract formation even when there is some variance between terms of offer and terms of the acceptance
- The correct answer is (b)
- Courts have held that people who purchase on the internet have “accepted” any underlying contract once the purchaser clicks on the submit or purchase icons.