OFFER AND ACCEPTANCE
By
D. Reed Freeman, Jr.
Arent Fox Kintner Plotkin & Kahn, PLLC
A contract is formed when one party (the "offeror") makes an offer which is accepted by the other party (the "offeree"). An offer - a proposal to form a contract - can be as simple as the words, "I'll wash your car for you for $5." An acceptance - the offeree's assent to the terms of the offer - can be as simple as, "You've got a deal." Sometimes acceptance can be shown by conduct rather than by words.
When an offer has been made, no contract is formed until the offeree accepts the offer. When you make an offer, never assume that the offeree will accept the offer. Contractual liability is based on consent.
Example: Developer offered to pay Photographer $500 to use Photographer's photo in Developer's multimedia work. Photographer said, "Let me think about it." Developer, assuming that Photographer would accept the offer, went ahead and used the photo. Photographer then rejected Developer's offer. Developer has infringed Photographer's copyright by reproducing the photograph for use in the multimedia work. Developer must now either remove the photo from the multimedia work before distributing the work (or showing the work to others) or reach an agreement with Photographer.
When you are an offeree, do not assume that an offer will remain open indefinitely. In general, an offeror is free to revoke the offer at any time before acceptance by the offeree. Once the offeror terminates the offer, the offeree no longer has the legal power to accept the offer and form a contract.
Example: Animator offered his services to Developer, who said, "I'll get back to you." Developer then contracted with Client to quickly produce a multimedia work involving animation (making the assumption that Animator was still available to do the animation work). Before Developer could tell Animator that he accepted Animator's offer, Animator sent Developer a fax that said, "Leaving for Mexico. I'll call when I get back." Developer and Animator did not have a contract. Developer should not have assumed, in entering into the contract with Client, that Animator was still available.
When you are the offeree, do not start contract performance before notifying the offeror of your acceptance. Prior to your acceptance, there is no contract. An offer can be accepted by starting performance if the offer itself invites such acceptance, but this type of offer is rare.
Example: Big Co. offered to pay Developer $5000 to create a corporate presentation multimedia work for Big Co. Before Developer's president notified Big Co. that Developer accepted the offer, Big Co. sent Developer a fax that said, "We've changed our minds. Due to budget cuts at Big Co., we can't afford to do the multimedia project." In the meantime, Developer's staff had begun preliminary work on the project. Developer and Big Co. did not have a contract, so Developer has no legal recourse against Big Co. for loss of the deal or for the costs of the preliminary work.
Until an offer is accepted, the offeror is free - unless it has promised to hold the offer open - to revoke the offer.
Example: On June 1, Big Co. offered to hire Developer to create an interactive training work for Big Co. On June 4 (before acceptance by Developer), Big Co. notified Developer that it was giving the contract to Developer's competitor. Big Co. terminated the offer to Developer. Developer has no legal recourse against Big Co.
If you need time to make up your mind before accepting an offer, get the offeror to give you a written promise to hold the offer open for a few days. That will give you time to decide whether to accept.
Don't reject an offer and then try to accept it. Once an offeree rejects an offer, the offer dies and the offeree's legal power to accept the offer and form a contract terminates.
Example: Publisher offered to buy all rights in Developer's multimedia work for $100,000. Developer, hoping for a better offer, said no. Then Developer realized that Publisher's offer was the best Developer could do. Developer called Publisher and said, "I accept your offer." Because the offer was no longer open, Developer cannot form a contract by trying to accept the offer.
Except for the simplest deals, it generally takes more than one round of negotiations to form a contract. Often, the offeree responds to the initial offer with a counter-offer. A counter-offer is an offer made by an offeree on the same subject matter as the original offer, but proposing a different bargain than the original offer. A counter-offer, like an outright rejection, terminates the offeree's legal power of acceptance.
Example: Publisher offered to buy all rights in Developer's multimedia work for $100,000. Developer responded by saying, "I'll give you the right to distribute the work in the U.S. for $100,000." Developer's response to the offer was a counter-offer. Developer no longer has the legal power to form a contract based on Publisher's offer to purchase all rights in the work.
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