*DISCLAIMER*
The
notes below are adapted from the Kenyatta University,UoN and Moi Teaching module
and the students are adviced to take keen notice of the various legal
and judicial reforms that might have been ocassioned since the module
was adapted. the laws and statutes might also have changed or been
repealed and the students are to be wary and consult the various
statutes reffered to herein
Manner
of Acceptance
[1] Traditional Approach
Traditionally, the
nature of the contract dictated whether the offer could be accepted by a return
promise or by actual performance of the promised act.
[a]
Acceptance by Performance; Unilateral Contracts
In a unilateral
contract, the offer empowers the offeree to only accept by complete performance
of the promise. The offeree's failure to perform does not constitute a breach
since no contract is formed until the offeree renders full performance.
[b]
Acceptance by Return Promise; Bilateral Contracts
In a bilateral
contract, the offers empower the offeree to only accept by return promise.
Bilateral contracts are formed upon the giving of the promise to perform an
obligation in the future, and failure to fulfill such promise results in
breach.
[2] Modern Approach.
Under the modern
approach, an offer invites acceptance by any means reasonable under the
circumstances, unless otherwise indicated by language or circumstances. [UCC §
2-206; Restatement § 30(2)] This approach reflects the fact that many offers do
not specify whether acceptance is to be by full performance or promise. A
contract may be formed even if an offer clearly indicates that acceptance is to
be by promise if:
1)
the offeree begins to perform, in lieu of making the required promise; and
2) the offeror learns of the commencement
of performance and acquiesces to such manner of acceptance.
[3] Acts Inconsistent with Offeror's
Ownership or Receipt of Benefits
The common law holds
that one who receives goods with knowledge or reason to know that they are
being offered for a price is bound by the terms of the offer if he exercises
dominion or control over such goods or engages in any other act inconsistent
with the offeror's ownership. If the act wrongs the offeror, it is deemed a
valid acceptance only if ratified by the offeror. Similarly, one who receives
benefits from services that he knows or has reason to know are being offered
with the expectation of compensation, and where he has a reasonable opportunity
to reject them, is liable for the reasonable value or stated value of such
services. [Restatement § 69]
[4] Acceptance by silence
Silence may not
constitute an acceptance except where:
* based on prior dealings between the
parties, it is reasonable that the offeree should notify the offeror if he does
not intend to accept; or
* "where the offeror has stated or
given the offeree reason to understand that assent may be manifested by silence
or inaction, and the offeree in remaining silent and inactive intends to accept
the offer." [Restatement § 69]
Medium
of Acceptance
Unless the offeror
indicates otherwise, the offeree may use any medium that is reasonable under
the circumstances [UCC § 2-206(1)(a)] or, in non-goods contracts, the same
medium as was used to communicate the offer or any other medium "customary
in similar transactions at the time and place the offer is received."
[Restatement § 65]
Notice
of Acceptance
The offeror is entitled
to notice of the acceptance. Thus, even if the offeree effectively accepts an
offer and a contract is formed, failure by the offeree to notify the offeror of
the acceptance within a reasonable time may preclude the offerer from enforcing
the contract. [Restatement § 54 and § 56]
[1] Notice of Acceptance by Performance
Under common law, where
an offer invites acceptance by performance, no notice is required to make the
acceptance effective, unless the offeror so specifies. However, if the offeree
has reason to know that the offeror has no adequate means of learning of the
performance with reasonable promptness and certainty, the offeror's contractual
duty will be discharged unless:
* the offeree exercises reasonable
diligence to notify the offeror of acceptance; or
* the offeror learns of the performance
within a reasonable time; or
* the offer indicates that notification of
the acceptance is not necessary.
[Restatement § 54]
In transactions for the
sale of goods, where commencement of performance is a reasonable mode of
acceptance, if the offeror is not notified of acceptance within a reasonable
time, he may treat the offer as having lapsed prior to acceptance. [UCC §
2-206(2)]
[2] Notice of Acceptance by Return Promise.
Where the offeree accepts
by promise, the offeree must exercise reasonable diligence to notify the
offeror of the acceptance or ensure that the offeror seasonably receives the
acceptance. [Restatement § 56]
When
an Acceptance Becomes Effective
An acceptance becomes
effective according to the following rules:
1) The offeror may specify when the
acceptance will be effective.
2) Absent such specification, an acceptance
is effective when sent, if sent by reasonable means, e.g., by an authorized
medium and with proper postage and correct address.
3) If an acceptance is sent by means that
are not appropriate or reasonable under the circumstances or if it is
improperly dispatched, the acceptance will be effective upon receipt.
[Restatement § 66] However, if the acceptance is seasonably but improperly
dispatched, it will still be deemed effective when sent if it is received
within the time in which a properly dispatched acceptance would have been
received. [Restatement § 67]
4) In the case of option contracts, an
acceptance is not operative until received by the offeror. [Restatement §
63(b)]
5) In transactions governed by the CISG,
the acceptance becomes effective when it reaches the offeror.
Late
Acceptance.
A number of approaches
are applied to communications that are intended as an acceptance but sent after
the offer expires:
1) the communication may qualify as a
counter-offer;
2) the offeror may waive the lateness and
honor the acceptance;
3) if the acceptance is nevertheless sent
within a reasonable time, albeit after the offer's stated expiration, the
acceptance is valid and results in the formation of a contract if the offeror
does not reject it within a reasonable time;
4) in transactions governed by the CISG, if
the acceptance is late because of a delay in transmission that is apparent from
the circumstances, a contract is formed unless the offeror informs the offeree
that the acceptance is too late.
Terms
of Acceptance.
[1]
Non-goods Contracts
Under the "mirror
image" rule, applied in common law transactions, an acceptance must
conform to the terms set forth in the offer. No contract is formed if the
acceptance contains terms that are different from or additional to those set
forth in the offer. Such communication merely constitutes a counter-offer. The
formation of a contract is generally precluded even if the discrepancy is
trivial, although courts are now increasingly giving effect to an acceptance if
the additional or different terms relate to an immaterial detail.
A contract is formed if
the offeree unequivocally accepts the offeror's terms, despite a simultaneous
suggestion of alternative terms. Such circumstances merely represent an attempt
to modify the terms of an already formed contract based on the original terms,
as long as the acceptance is not contingent on the offeror accepting the
proposed changes.
[2]
Contracts for the sale of goods
The UCC rejects the
mirror image rule. It give effect to a definite and seasonable expression of
acceptance even though it contains additional or different terms from those
offered, unless the offeree expressly makes the acceptance conditional on the
offeror's assent to the different or additional terms. [UCC § 2-207]
[a]
Additional Terms.
In contracts where at
least one party is a non-merchant, if the offeree unambiguously accepts but
states additional terms, the terms are construed as mere proposals for
modification and the terms of the existing contract are those set forth in the
offer.
Where both parties are
merchants, the additional terms become part of the contract unless:
* the offer expressly limits acceptance to
the terms of the offer;
* they materially alter it; or
* notification of objection to them has
already been given or is given within a reasonable time after notice of them is
received. [UCC § 2-207(2)]
Proposed revised §
2-207 eliminates the distinction between transactions where both parties are
not merchants and those where both parties are merchants. Regardless of the
nature of the parties, terms in a contract under the UCC are those that:
1) appear in the records of both parties;
2) are agreed to by both parties, whether
or not contained in a record; and
3) are supplied by the UCC by default or
gap filler provision.
[b]
Different Terms.
Section 2-207 is silent
regarding the treatment of different terms but some authorities suggest that
they require the offeror's assent, regardless of the merchant-status of the
parties.
[c] Electronic Agents
Where an offer is
communicated by an electronic program and the offeree has reason to know that
he is dealing with an electronic agent not programmed to responds to additional
terms or queries, any additional or different terms stated in the acceptance
are ineffective. [proposed UCC § 2-211(4)]
[d] Requirements and Output Contracts
A requirement contract
is one in which the term of quantity to be delivered is measured by the needs
of the buyer. In such contracts, the buyer is not permitted to buy from a
third-party supplier; the seller must deliver the required amount of product to
the buyer but any excess produced may be sold to third parties.
An output contract
measures the contract quantity by the output of the seller. The seller is not
permitted to sell any of its products to a third party; the buyer must purchase
all of the seller's output but may purchase from third party suppliers any
excess it needs beyond the seller's output.
[3]
CISG
In transactions
governed by the CISG, a trivial variation of terms in an acceptance from those
set forth in the offer does not prevent the formation of a contract unless the
offeror objects. [CISG art. 19]
[4]
UNIDROIT.
A contract is formed
with agreed terms and any standard terms that are not knocked out due to
inconsistency. However, if one party objects to the knocking out of any of its
standard terms, no contract is formed. [UNIDROIT art. 2.11]
[5]
UCITA.
Applying a similar
approach to the common law "last shot" rule, the UCITA provides that
where a purchaser offers to license software, if an acceptance by the software
licensor contains materially different terms, and the software is delivered to
the offeror, the terms of the acceptance govern. [UCITA § 204(b)]
Rejection
of Offer.
A rejection of an offer
by the offeree is effective when received by the offeror. If an offeree
dispatches more than one response to an offer, regardless of whether the
rejection is sent before or after the acceptance, if the rejection is received
later than when the acceptance was dispatched, a contract is formed since an
acceptance is effective upon dispatch but a rejection is effective upon
receipt. Nevertheless, estoppel may operate to bar enforcement of such a contract
where the offeror receives the rejection before the acceptance, and acts in
reliance on such rejection.
Acceptance
of Terms on Packaging and in Shrinkwrap and Clickwrap
Standard terms
presented on or within product packaging present special problems with respect
to contract formation.
[1] Shrinkwrapped Warranties.
Cases are divided on
whether a purchaser is bound by an arbitration clause contained in a limited
warranty that is packed within the product box and shrinkwrapped at the factory
where the purchaser is unaware of such clause. Compare Hill v. Gateway 2000,
105 F.3d 1147 (7 th Cir. 1997) (arbitration clause upheld) with Klocek v.
Gateway, 104 F. Supp. 2d 1332 (D. Kan. 2000) (arbitration clause not binding on
the purchaser).
Similarly, when a
shrinkwrap package containing a software program contains a printed warning to
the effect that unwrapping the package constitutes consent to the terms of the
license contained therein, jurisdictions are split as to the binding effect of
such license terms on the purchaser. Compare ProCD v. Zeidenberg, 86 F.3d 1447
(7th Cir. 1996) (license terms upheld) with Novell v. Network Trade Ctr., 25 F.
Supp. 2d 1218 (D. Utah 1997) (terms not upheld). Under the UCITA, enacted only
in Maryland and Virginia, such software license terms are binding on the
licensee.
[2]
Box-Top Licenses.
At least one court has
held that if a purchaser is unaware of license terms printed on the box because
the transaction was conducted over the telephone, with no mention by the seller's
representative of the license terms, such terms were not binding on the
purchaser. Step-Saver Data Systems v. Wyse Technologies, 939 F.2d 91 (3rd Cir.
1991). Reversing the trial court finding that a box-top license was intended as
the final expression of the parties' agreement, the court noted that
"[w]hen a disclaimer is not expressed until after the contract is formed,
UCC § 2-207 governs the interpretation of the contract, and, between merchants,
such disclaimers, to the extent they materially alter the parties' agreement,
are not incorporated into the parties agreement."
[3]
Clickwrap
Where software is
downloaded from the internet, with the licensee being required to click on the
"I agree" button indicating agreement to the licensor's terms, such
conduct is deemed to be a binding acceptance of the licensor's offer. E.g.,
Specht v. Netscape, 306 F.3d 17 (2nd Cir. 2002).
Proposed revised UCC §
2-204 adds new subsection (4)(b), recognizing the validity of acceptances in
click-through transactions. (see text at § 2.03 supra )
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