Offers to Contract

• Author: Franklin G. Snyder, Mark Edwin Burge
• Pages: 55-75

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UNIT 4: OFFERS TO CONTRACT 55

Unit 4

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CONTRACT FORMATION

Part Two

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Offers to Contract

FOCUS OF THIS UNIT

Formation in Steps or All at Once? How are contracts formed? Historically,

most of them tended to be made in one of three ways: a face-to-face agreement

followed by a handshake, a meeting at which a contract document that had been

prepared in advance was signed by the parties, or an exchange of correspondence

through physical mail—“snail mail” as many of you might know it—or (later)

telegrams.

In the handshake and contemporaneous-signature situations, the questions of

who first proposed the exchange and who said what during the discussion are largely

irrelevant. The important facts are the substance of the final terms agreed to by the

parties. Using modern terminology, we can think of these as “synchronous”

transactions, because the creation of the agreement takes place in real time with the

contracting parties having a largely simultaneous experience.

The Place of Offer and Acceptance. In the third situation, however, where

the parties are sending communications back and forth in an “asynchronous”

transaction, a potential problem arises. Suppose A sent a letter proposing to sell

Blackacre to B for $500,000, and B sent a letter in response. We have to put the two

together and see if there is an agreement. In this case we would ask whether A made

an offer in his letter, and whether B’s letter in return accepted the offer. To answer

that question we would have to define what an “offer” and an “acceptance” are for

purposes of contract law. If A’s letter is not an “offer” in the legal sense, then there is

no contract no matter what B wrote. If A’s letter is an offer, but B’s response is not

an “acceptance” in the legal sense, there is (again) no contract. In this kind of

asynchronous transaction we need, legally speaking, an offer and an acceptance. In

this analysis, A (the person making the offer) is called the offeror, and B (the recipient

of the offer) is the offeree.

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56 CHAPTER II: CONTRACT FORMATION

In the modern world, the question of who made the offer and who made the

acceptance is often irrelevant because the existence of mutual assent is so clear.

When you carry the goods to the checkout counter, or click the “buy” button on a web

site, or buy a burger at a fast-food window, or haggle with your friend about buying

her car, the question of whether you are the offeror or offeree in such transactions

makes little difference. Yet while issues of offer-and-acceptance are relatively

unimportant in some transactions, they are critical in others—especially in a world

in which parties deal with each other at great distances. You need think back only to

Augsberg v. Leslie, in the last unit, to recall the argument that Ryan Leslie’s internet

pleas were not offers.

Asynchronous Contracts. The issue of contracts entered into by exchanges of

communications at a distance is a comparatively new thing in the many centuries of

the common law. Until there were reliable means of exchanging communications (the

post and the telegraph) and recipients who could actually read, contracts were rarely

formed at a distance. In the rapidly industrializing 19th century, however, such

contracts began appearing with some frequency. One obvious question was how the

minds of two parties can meet if they are not acting at the same time. As commerce

in England was more advanced than that in the young United States, English courts

often dealt with these issues before their American counterparts, and their decisions

had a substantial impact.

Another important point addressed in Augsberg v. Leslie is the idea that a

public offer of a reward is (in the legal sense) an offer—as Mr. Leslie discovered. This

rule was settled in important English cases like Williams v Carwardine, 10 E.R. 590

(K.B. 1833). That the mere fact that the reward seems extravagant does not

necessarily let the offeror off the hook, as another English court held in Carlill v.

Carbolic Smoke Ball Co., 1 Q.B. 256 (C.A. 1892), which also held that a newspaper

advertisement could be an offer. “If a person chooses to make extravagant promises,”

wrote Lord Justice Bowen, “he probably does so because it pays him to make them,

and, if he has made them, the extravagance of the promises is no reason in law why

he should not be bound by them.” You will meet Carbolic Smoke Ball again in the

cases below.

1

Offer Inviting Acceptance. We now start with the idea of the “offer.” What

kinds of statements qualify as “offers” for purposes of contract law? As you will see,

there are no magic words—everything depends on wording of the communication and

1

[The infamous advertisement—which you can easily find online—stated that a £100 “reward

will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic

influenza, colds, or any disease caused by taking cold, after having used the ball three times daily f or

two weeks, according to the printed directions supplied with each ball.” 1 Q.B. at 257. Mrs. Louisa

Elizabeth Carlill used the vapor-emitting ball in her nose three times daily for about two months before

she contracted the flu. Upon Carlill’s demand for £100—equivalent to about $30,000 as these materials

are written—Carbolic refused to pay, claiming, among other things, that the advertisement was not

an offer. They lost. – Eds.]