Chapter 12: Formation of contracts: Offer And Acceptance Flashcards
Offer
An expression of the offeror’s willingness to enter into a contractual agreement regarding a particular substance.
Conditional upon an act, forbearance, or return promise from the offeree
Requirements of an offer
- Contractual intention
- Definiteness
- Communication of Offer to offeree
Contractual intention
Offeror must appear to intend to create a binding obligation
Test for a binding offer is whether it induces a reasonable belief in the offeree that they can, by accepting it, bind the offeror
Wigod vs. Wells Fargo bank
- wells Fargo issued Wigod a trial loan modification under a TPP agreement
- if the borrower complied with all the terms of the agreement bank had to offer a permanent mortgage modification
- bank contends the TPP agreement was not a valid offer
- decision for wingod
- there was no language in the TPP conditioning the mortgage modification on anything beyond Wingod’s actions. It was reasonable she would expect her actions to result in the modification of her mortgage based on conditions listed
First statement: offer or invitation to negotiate?
Generally the latter, but have sometimes been deemed a unilateral contract when offer calls for an action on the part of the offeree (offerer setting the terms, offeree accepts or not.)
Often circumstantial
Agreement to make a contract at a future date
No contract exists by this agreement until contract is made
Agreement to reach an agreement is not a contract: Statement of intention to sign is not signature
Contracts to negotiate
Binding promises that protect the deal-making process
Safeguards to the negotiation process that do not lock parties into a contract
Definiteness (requirement of an offer)
An offer and the resulting contract must be definite and certain so that it is capable of being enforced
If too vague courts are not going to enforce
(Minor or nonessential terms left vague do not negate a contract)
Frank Novak & sons vs A-team dba Servicemaster
- general contractor servicemaster hired subcontractor Novak
- servicemaster says novak bound by written, unsigned subcontractors agreement
- novak alleges oral contract
- judgement for Novak
- servicemaster appealed
- appeal judgment for Novak
- record + understood custom of construction industry upholds oral contract
Plankenhorn
“damn good job” is not a material definition of quality with shared understanding and therefore unenforceable
When contract is too indefinite to be enforced
Court will try to determine the intention of the parties in order to enforce the contract
Striking down a contract as indefinite is last resort
Definite by Incorporation
An offer and resulting contract that by themselves appear too indefinite may be made definite by reference to another writing
(Reference to prior dealings, standard format)
Duty of good faith and fair dealing
Applies to enforcement of contracts, not their negotiation
In absence of fraud, special relationships, or statutory or contractual duties negotiators are not obliged to divulge pertinent information to the other party. Legal option is to walk away from negotiation, not sue for lack of good faith
Implied terms
Some terms of a contract may not be explicit but can be implied from the contract
“Best efforts” clauses
Duty defined only in terms of best efforts may be enforced (means at least some effort, not zero effort: Hinc vs Lime-O-Sol)
Divisible contract
Agreement consisting of two or more parts, each calling for corresponding performances of each part by the parties
Requirements contract
Contract to buy all requirements of the buyer from the seller
Output contract
Contract of a producer to sell it’s entire production or output to a buyer
Exceptions to definiteness
Sometimes a contract is desirable but the situation makes it impossible to adopt terms in advance (market price, production volume etc)
Still enforceable despite lacking specifics
Communication of the offer to the offeree
For an offer to be valid it must be communicated directly to the offeree by the offeror or at the offeror’s discretion.
Cannot accept offer when only indirectly offered
Unilateral contract: if offeree performs act without knowing the offer exists is not entitled to retroactively accept offer when they discover it’s existance
Termination of offer
Offers may be terminated by revocation, counteroffer, rejection, lapse of time, death or disability of a party, or subsequent legality.
Offeree cannot accept a terminated offer
Revocation of offer by offeror
An ordinary offer may be revoked at any time before it is accepted even if an express statement is made that the offer is open for a period and the period is not expired.
Any words indicating termination of offer are sufficient, though revocation is only effective once it has been made known to the offeree. (Offeree has to receive the revocation for it to be effective)
Indirect communication of revocation to offeree is acceptable
BUT if offeree accepts the offer before it is revoked a contract is created and breaking must follow process
Option contract
A binding promise to keep an offer open for a stated period of time or until a specified date (essentially contract to refrain from revoking offer)
Promise to keep offer open must receive some consideration in return to be considered a contract
Firm offer
An offer stated to be held open for a specified time, under the UCC, with respect to merchants
Max 3 month irrevocability period
Counteroffer
Proposal by an offeree to the offeror that changes the terms of, and thus rejects, the original offer
Any acceptance that comes with changes to terms/new terms is a counteroffer
Still no contract unless offeror accepts the counteroffer
Rose vs Rowan
Example of counteroffer serving as a rejection
- plaintiff (Rose) brought suit against ex employer (Rowan university) for discrimination
- counsel for rose made the offer
- offer accepted by Rowan BUT with additional terms
- when rose rejected settlement Rowan tried to have him held to it
- 1st judge found that contract help
- rose appealed
- 2nd judge found that contract didn’t hold due to the counteroffer
Rejection of offer by offeree
If the offeree rejects the offer and communicates their rejection the offer is terminated even if period offer is to be held open is not passed
(Though offeree may still renew the offer later)
Offer termination over lapse of time
If offer states it is open till a particular date then if that date pases without acceptance the offer is terminated
Acceptance after the time limitation does not give rise to a contract - is effectively a counteroffer and isn’t a contract unless offeror accepts
If no time specified contract considered to expire in “reasonable time” (a circumstantial concept based on the nature of the agreement)
Offer termination via death or disability of either party
Offer is automatically terminated if either party dies or becomes mentally incompetent before offer is accepted
Offer termination due to subsequent legality
Offer is terminated if performance of the contract becomes illegal after the offer is made (change of laws)
Acceptance of offer
Unqualified asset to the act or proposal of another; as the acceptance of a draft (bill of exchange), or an offer to make a contract. Of goods delivered by the seller, or of a gift or deed
Determined via objective standards - not particular worlds but a clear acceptance to be bound by terms of offer in the form of manifested outward intent to accept
Offeror may specify a required time and manner for acceptance (could be acceptance by performance of an act)
Offeree may refuse to accept an offer and only the person (or persons) to whom an offer was directed can accept
If acceptance has conditions it is not an acceptance but rather a counteroffer
Effect of offer acceptance
Creates a binding agreement or contact, assuming all the other elements of a contract are present. Neither party can subsequently withdraw from or cancel the contract without consent of the other party
Attempt to accept offer by someone other than offeree
If another party tries to accept an offer not made to them that acceptance becomes an offer to the original offeror
Can silence be regarded as an acceptance of an offer
Mostly no, generally offeror’s are not allowed to frame an offer such that lack of response = acceptance
Postal reorganization act and unordered goods
A person who receives unordered goods is not considered to have accepted an offer simply by receiving the goods. Reorganization act states that person who receives unordered goods has the right to retain them with no obligation to hw sendwr
Keryakos V. CRA
- tenant (Keryakos) lease was about to expire
- landlord (CRA) sent terms for lease renewal
- tenant wanted changes to terms (counteroffer)
- landlord rejected counteroffer
- tenant tried to accept original terms
- landlord sought to evict on basis of contract
- case decided for the landlord. Tenant’s counteroffer terminated original offer, so no contract existed when tenant tried to accept original offer
Communication of acceptance and commencement of contract
When offeror receives acceptance by offeree the contract is formed and terms apply
Mailbox rule
Rule for when contracts negotiated at a distance take effect.
A properly addressed, postage-paid mailed acceptance takes effect when acceptance is placed into the control of USPS or a private third party carrier
(Can override by stating in the contract that offer is not accepted till offeror receives acceptance)
Morrison v. Thoelke
Offer to buy land was accepted and signed contract mailed back
Offer revoked after acceptance in the mail
Mailbox rule= since acceptance had been mailed revocation had no effect
Auctions and contracts
Statements by auctioneer = invitation to negotiate
Bids= offer
Offer not accepted until bid is accepted as final
Once bid is accepted sale cannot be cancelled
Auction without reserve
Property on auction must be sold to highest bidder regardless of actual amount of bid
(With reserve= bid does not have to be accepted by seller)
Acceptance by fax or email
Not yet ruled on by court
Expected to be acceptance upon dispatch
Acceptance by teleohone
Mailbox rule applied, acceptance where and when dispatched
When acceptance and revocation cross paths
If acceptance was mailed before revocation was received the acceptance creates a contract because mailbox rule + revocation effective on receipt
