Chapter 12: Formation of contracts: Offer And Acceptance

Question 1

Offer

Answer 1

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

Question 2

Requirements of an offer

Answer 2

1. Contractual intention
2. Definiteness
3. Communication of Offer to offeree

Question 3

Contractual intention

Answer 3

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

Question 4

Wigod vs. Wells Fargo bank

Answer 4

• 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

Question 5

First statement: offer or invitation to negotiate?

Answer 5

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

Question 6

Agreement to make a contract at a future date

Answer 6

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

Question 7

Contracts to negotiate

Answer 7

Binding promises that protect the deal-making process

Safeguards to the negotiation process that do not lock parties into a contract

Question 8

Definiteness (requirement of an offer)

Answer 8

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)

Question 9

Frank Novak & sons vs A-team dba Servicemaster

Answer 9

• 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

Question 10

Plankenhorn

Answer 10

“damn good job” is not a material definition of quality with shared understanding and therefore unenforceable

Question 11

When contract is too indefinite to be enforced

Answer 11

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

Question 12

Definite by Incorporation

Answer 12

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)

Question 13

Duty of good faith and fair dealing

Answer 13

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

Question 14

Implied terms

Answer 14

Some terms of a contract may not be explicit but can be implied from the contract

Question 15

“Best efforts” clauses

Answer 15

Duty defined only in terms of best efforts may be enforced (means at least some effort, not zero effort: Hinc vs Lime-O-Sol)

Question 16

Divisible contract

Answer 16

Agreement consisting of two or more parts, each calling for corresponding performances of each part by the parties

Question 17

Requirements contract

Answer 17

Contract to buy all requirements of the buyer from the seller

Question 18

Output contract

Answer 18

Contract of a producer to sell it’s entire production or output to a buyer

Question 19

Exceptions to definiteness

Answer 19

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

Question 20

Communication of the offer to the offeree

Answer 20

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

Question 21

Termination of offer

Answer 21

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

Question 22

Revocation of offer by offeror

Answer 22

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

Question 23

Option contract

Answer 23

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

Question 24

Firm offer

Answer 24

An offer stated to be held open for a specified time, under the UCC, with respect to merchants

Max 3 month irrevocability period

Question 25

Counteroffer

Answer 25

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

Question 26

Rose vs Rowan

Answer 26

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

Question 27

Rejection of offer by offeree

Answer 27

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)

Question 28

Offer termination over lapse of time

Answer 28

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)

Question 29

Offer termination via death or disability of either party

Answer 29

Offer is automatically terminated if either party dies or becomes mentally incompetent before offer is accepted

Question 30

Offer termination due to subsequent legality

Answer 30

Offer is terminated if performance of the contract becomes illegal after the offer is made (change of laws)

Question 31

Acceptance of offer

Answer 31

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

Question 32

Effect of offer acceptance

Answer 32

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

Question 33

Attempt to accept offer by someone other than offeree

Answer 33

If another party tries to accept an offer not made to them that acceptance becomes an offer to the original offeror

Question 34

Can silence be regarded as an acceptance of an offer

Answer 34

Mostly no, generally offeror’s are not allowed to frame an offer such that lack of response = acceptance

Question 35

Postal reorganization act and unordered goods

Answer 35

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

Question 36

Keryakos V. CRA

Answer 36

• 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

Question 37

Communication of acceptance and commencement of contract

Answer 37

When offeror receives acceptance by offeree the contract is formed and terms apply

Question 38

Mailbox rule

Answer 38

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)

Question 39

Morrison v. Thoelke

Answer 39

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

Question 40

Auctions and contracts

Answer 40

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

Question 41

Auction without reserve

Answer 41

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)

Question 42

Acceptance by fax or email

Answer 42

Not yet ruled on by court

Expected to be acceptance upon dispatch

Question 43

Acceptance by teleohone

Answer 43

Mailbox rule applied, acceptance where and when dispatched

Question 44

When acceptance and revocation cross paths

Answer 44

If acceptance was mailed before revocation was received the acceptance creates a contract because mailbox rule + revocation effective on receipt