2-205 Firm Offers
Prof. Bill Long 2/3/05
Under the CLC there had to be consideration in order for an offer to remain open for a definite period of time. That is, if someone, prior to the enactment of the UCC, had promised to "keep the sale open" of her car for a week, and you came by six days later with an offer for the price asked only to find that the car had been sold the day previously, you would have no cause of action under the CLC. Such an offer could only be sustained by consideration. Consideration made such a contract an "option contract." The purpose of 2-205 is to revise the CLC by providing that consideration isn't necessary bind a person to a particular length of time that a contract is open. But there are several other things that are necessary in order to have a firm offer. This mini-essay explores those things.
2-205 in a Nutshell
2-205 consists of only one section and is fairly easy to understand. It provides:
"An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror."
There are four requirements in order for a buyer to take advantage of a 2-205 firm offer. First, the offer must be made by a merchant. Which definition of merchant are we using here? The relaxed definition. See Cmt. 2 to 2-104. We do not have to do a factual analysis of the level of knowledge or skill that the seller has. If you are purely selling personal things, you are not a merchant, but if you are selling items used in business, you are a merchant, even if you are not selling the good that is the major part of your practice. Selling your car will generally be a private transaction, and not be implicated by 2-205 (so that if you promise to someone that he can buy your car for $1000 anytime in the next week, you are not bound by the promise under 2-205).
Second, in order for the offer to be held open, it must be in a signed writing. Cmt 2 goes into the signing requirement in greater detail, and we have already examined the definition of "signed" in 1-201(37) and Cmt. Note the language of Cmt 2--"A handwritten memorandum on the writer's letterhead purporting in its terms to 'confirm' a firm offer already made would be enough to sastify this section."
Third, the signed writing must "by its terms give assurance that it is not revocable." Something like "firm offer until 3/1" is necessary. However, a clause like "offer will lapse on 3/1" has been held not to be a firm offer because the language suggests that it will lapse of its own accord at that time--not that the offeror is specifically holding it open. A revocation effectively communicated before 3/1 would take it off the table.
Fourth, the offer can only remain firm and open for a maximum of three months. The three month period may be extended, but for each period of extension a new "firm offer" must be articulated. Thus, there is no such thing as an indefinite firm offer. Cmt 3 speaks of this issue.
Finally, the last words of the section, the "separately signed" words, deserve mention. Normally it is the offeror who makes the firm offer. That makes sense. But the offeror may give an "oral firm offer" (which is not binding) and the offeree, in order to "get this in writing," might jot down what the offeror has said, thrust it under his nose and say "Sign this." The separately signed provision requires that in order for this kind of firm offer to be binding, the offeror has to sign a separate sheet of paper (at least that is how I read the language) indicating that there is a firm offer. This adds a cautionary note to the process for the protection of the one giving such an offer.
I will give an example/problem in class for us to work on, but I also assigned two very short cases on the subject. The Friedman case (p.124; Friedman v. Sommers, 63 N.Y.2d 788, 481 N.Y.S.2d 326, (N.Y. 1984)) had to do with whether the sixteenth amendment to a cooperative ownership plan granting every tenant a nonexlcusive right to purchase his or her apartment for 30 days constituted a firm offer under 2-205. Courts will disagree, first of all, whether the transaction was really a transaction in goods, but assuming that it was (as the court did), it held that the nonexclusivity of the right precluded the offer from being a firm offer.
The Coronis case didn't apparently deal at all with 2-205. But I assigned the case because often if the firm offer claim doesn't work, a party will argue promissory estoppel to preclude the revocation of an offer. The argument is always as stated in the case. "Defendant argues tha tit relied on plaintiff's bid in making its own bid and that injustice would result if plaintiff could now revoke." The court actually held that promissory estoppel was available, and thus reversed the lower court. Thus we see that these sections of Art. 2, though learned separately, often need to be seen "at work" in an actual lawsuit.
Copyright © 2004-2007 William R. Long