Contract Formation

Question 1

Common Law

Answer 1

The common law governs contracts for services or anything that is not for the sale of goods.

Question 2

U.C.C.

Answer 2

The Uniform Commercial Code (UCC) applies to contracts for the sale of goods. “Goods” are all things movable at the time they are identified to the contract.

Question 3

Offer

Answer 3

An offer is promise, undertaking, or commitment to enter into a contract. Offers require a present intent to be legally bound to a contract with definite and certain terms communicated to an identifiable offeree.

Question 4

Advertisements

Answer 4

Generally, advertisements are not offers, but instead invitations to deal. However, advertisements can be considered an offer if it can be construed as containing a promise, definite and certain terms, and clearly identifies offeree.

Question 5

Requirements Contract

Answer 5

A requirements contract is one in which buyer promises to buy from seller all of the good that buyer requires and seller agrees to sell that amount to buyer.

Question 6

Output Contract

Answer 6

An output contract is one in which seller promises to sell to buyer all of the goods that seller produces and buyer agrees to buy the amount from seller.

Question 7

Offer Termination

Answer 7

An offer can be terminated by:
1. Lapse of time,
2. Death or incapacity,
3. Revocation by the offeror,
4. Rejection by the offeree, or
5. Supervening illegality

Question 8

Lapse of Time

Answer 8

If the offeree fails to accept the offer within the time stated in the offer, or a reasonable time if no time is stated, then the offer terminates by lapse of time.

Question 9

Death or Incapacity

Answer 9

An offer terminates on the death of either party after the offer but before the acceptance has been made.

Question 10

Supervening Illegality

Answer 10

If a proposed contract that was legal at the time of the offer becomes illegal, the power of acceptance is terminated.

Question 11

Revocation

Answer 11

The revocation of an offer terminates the offeree’s power of acceptance if it is communicated before he accepts. An offer may be directly or indirectly revoked. Indirect revocation results when the offeree receives (i) correct information, (ii) from a reliable source, (iii) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer.

Question 12

Rejection

Answer 12

An offeree may terminate an offer by expressly rejecting the offer or by supplying a counteroffer. A counteroffer with express rejection will terminate an offer. A counteroffer that makes acceptance conditional upon additional terms will also terminate an offer.

Question 13

Merchant’s Firm Offer Rule

Answer 13

The firm offer rule provides that an offer to buy or sell goods is irrevocable for up to three-months if: (i) the offeror is a merchant; (ii) there are assurances that the offer is to remain open; and (iii) assurances are contained in an authenticated writing from the offeror. Under this rule, an offer cannot be revoked for lack of consideration.

Question 14

Option Contract

Answer 14

A promise by the offeror not to revoke the offer for a specified period of time in which the offeree gives consideration creates an option contract.

Question 15

Unilateral Contracts

Answer 15

A unilateral contract is one that requires acceptance by the doing of an act. An offer for a unilateral contract can only be accepted by completing performance.

Question 16

Promissory Estoppel

Answer 16

A court will enforce a promise without consideration if necessary to avoid injustice when: (i) the promisor should have expected the promisee to change his position in reliance on the promise; (ii) the promisee did change his position; and (iii) the change in position was to the promisee’s detriment.

Question 17

Acceptance - CL

Answer 17

Acceptance is a manifestation of assent to the terms of the offer. At common law, an acceptance must follow the mirror image rule such that the terms of the acceptance must contain the same terms as the offer.

Question 18

Acceptance - Merchants

Answer 18

Under the UCC, an acceptance may contain additional terms. Additional terms become part of the contract when both parties are merchants unless (i) the additional terms would materially alter the contract, (ii) the offeror objects to the additional terms in a reasonable time, or (iii) the offer expressly limits acceptance to the terms of the offer.

Question 19

Acceptance - Nonmerchants

Answer 19

Under the UCC, acceptance forms a contract under the terms in original offer when only one party is a merchant. Additional terms become proposals which the offeror may accept or reject.