Yes, that’s a mouthful, but do yourself a favor and memorize it. The more you memorize statements like these, the easier it is to perform on an essay.
By “objective intent to be bound” we mean that whether or not an offeror intends to be bound is judged by the objective standard – the reasonable person standard. Intent is judged based on reasonable, objective interpretation of the party's words and actions, not on their subjective intent. Of course this does not mean that a party’s subjective intent is irrelevant. Some things a party says or does can be interruptive of the objective intent. So look to facts that will help to show the objective intent, not what one says s/he was thinking because that would be that person’s subjective intent.
So, what are the essential terms? The first is price. Here it is important to note that an agreement to agree in the future as to a material term such as price, fails for lack of certainty unless the parties also expressly agree to negotiate and use reasonable efforts to reach an agreement. Some modern courts hold that an agreement to agree is an implied promise to negotiate in good faith. It is important to note that an Agreement to Agree – an agreement in the future about an essential term, such as price, suggests that the parties don't really have an agreement.
The next term to consider is the time for performance. There is no requirement that a specific date need be set in the offer since courts will admit evidence of the parties’ subjective intent and other extrinsic evidence if helpful to clarify any particular ambiguity.
The next term to consider is quantity. As a general principle, quantity must be expressed in the offer.
The objectively expressed intent to be bound with the essential terms, must be communicated by the offeror to the offeree.
Another issue in this area is that of whether or not an advertisement (or a bid) is an offer. The general rule is that advertisements are not offers – but they CAN be under certain circumstances. The problem with advertisements is that they usually lack an express or implied promise to be bound to the terms of the ad, and do not sufficiently show the advertiser’s intent to enter into a contract. However, if an ad is specific as to quantity and number of offerees, it can be construed as an offer if a reasonable person who reads the offer would conclude that the ad was intended to give him the power to accept.
A final note on terms being definite and certain is that this issue can arise even if the facts of the question, or even the call of the question, state that the parties properly formed a contract. If this is the case, you need not discuss offer and acceptance more than a brief mention, but you should still look to see if any terms are ambiguous. Under the traditional rule, an agreement to agree in the future as to a material term, such as price, fails for lack of certainty unless the parties also expressly agree to negotiate and use reasonable efforts to reach an agreement. Modern courts hold that an agreement to agree carries with it an implied promise to negotiate in good faith. Where there is an ambiguity, the courts should admit evidence of the parties’ subjective understanding and other extrinsic evidence to help clarify the ambiguity. Vagueness of terms is a sub-issue of the overall mutual assent element.
Next we’ll look at “Revocation.”
Professor Doug Holden
© 2010 Douglas S. Holden. All Rights Reserved.