Contract Formation

Question 1

What three questions must be answered to know whether a contract was formed?

Answer 1

Was there an offer?
Was the offer revoked before acceptance?
Was the offer accepted?

Question 2

What distinguishes a contract from an agreement?

Answer 2

A contract must be legally enforceable, otherwise it is just an agreement.

Question 3

What ill is restitution designed to repair?

Answer 3

Unjust enrichment by one of the parties.

Question 4

How can a party accept a bilateral contract?

Answer 4

In any reasonable way.

Question 5

How can a party accept a unilateral contract?

Answer 5

By completing performance.

Question 6

Define offer.

Answer 6

A manifestation of an intent to be bound.

Question 7

Dag Fresh advertises: “Amazing offer! Greek Yogurt for only $1/cup!” Is this an offer?

Answer 7

No. Ads are generally not offers; they are invitations for consumers to make an offer.

Question 8

If an offer for the sale of goods is missing the price term, what result?

Answer 8

The court will infer a reasonable price.

Question 9

What happens if a real estate offer lacks the price?

Answer 9

It is not considered an offer.

Question 10

If a contract is indefinite as to its terms, what result?

Answer 10

Not enforceable.

Question 11

“I agree to buy from you all the cans of beans I need.” This is called … ?

Answer 11

A requirements contract.

Question 12

If the offer is missing a quantity term, what result?

Answer 12

It is not an offer unless it is for a requirements contract.

Question 13

What happens if during a requirements contract, the buyer suddenly has a surprising increase in need?

Answer 13

The seller is only responsible for reasonable fluctuations. The seller will not be required to supply anything surprisingly out of the ordinary.

Question 14

When does an offer lapse?

Answer 14

After a stated term or after a reasonable time has passed.

Question 15

What is the general rule about when an offer can be revoked?

Answer 15

Any time before it is accepted.

Question 16

Define direct revocation.

Answer 16

The offeror directly tells the offeree that he has changed his mind about the deal.

Question 17

Define indirect revocation.

Answer 17

offeror acts in a way that indicates he has changed his mind and offeree is aware of the conduct.

Question 18

Define option.

Answer 18

A paid-for or sold promise to keep an offer open. This can be held open forever. Consideration is required regardless of the existence of a writing (MBE).

BUT IN NY, a signed, written promise not to revoke an offer for a set period of time is enforceable even absent consideration.

Question 19

Define firm offer.

Answer 19

Sale of goods, where offeror is a merchant who promises in a signed writing to keep an offer open. The offer has a 3 month time limit regardless of what the writing says.

Question 20

What constitutes a signed writing for purposes of a firm offer?

Answer 20

writing on letterhead, an actual letter, etc. It is a very broadly defined term.

Question 21

If a firm offer states that the merchant promises to keep the offer open for 1 year, what result?

Answer 21

The offer will be a firm offer for a period of 3 months only.

Question 22

A firm offer is missing the time period for which it is to be held open, what result?

Answer 22

The court swill infer a reasonable time not to exceed 3 months.

Question 23

If an offeree foreseeably relies on an offer before excepting, may the offeror revoke the offer?

Answer 23

No, but foreseeability is hard to meet because the general rule is that a person will accept an offer before relying.

Question 24

A offers to sell B a very expensive painting. Before accepting, B purchases an even more expensive frame for the painting. Can A revoke the offer?

Answer 24

Yes. It is not reasonable for B to rely before accepting, so it was not foreseeable that B would rely before accepting.

Question 25

Subcontractor offers to install the A/C system for Contractors bid to work on the new State University science lab. Before contractor accepts, may sub revoke?

Answer 25

No. It is foreseeable that a contractor will rely on a sub’s offer in building his proposal for a project. He need not accept until he’s been awarded the contract.

Question 26

Once an offeree begins performance on a unilateral contract, may the offeror revoke?

Answer 26

MBE: No. Note that mere preparation doesn’t count for beginning performance.

NY: Yes. An offer can be revoked until performance is complete.

Question 27

When is a revocation effective?

Answer 27

Only when it is received.

Question 28

What are the three ways an offer can be rejected (other than flat out rejection)?

Answer 28

1. counter offer
2. conditional acceptance
3. acceptance varying offer

Question 29

“You offered a price of $500, but would you accept $400?” Has the $500 offer been rejected?

Answer 29

No; this is mere bargaining and not a counter offer.

Question 30

“You offered a price of $500, but I will only pay $400.” Has the $500 offer been rejected?

Answer 30

Yes; statement that he will only pay a price less than that offered is a rejection and a counter offer.

Question 31

“I will accept your offer only if you throw in a free night’s stay.” This is an example of …

Answer 31

A condition acceptance, aka no acceptance at all! It is a rejection and a counter offer.

Question 32

What happens under common law if the terms in the acceptance do not perfectly match the terms in the offer?

Answer 32

This violates the mirror image rule, and no contract has formed. The varying “acceptance” becomes a rejection and counter offer.

Question 33

What happens if - for a sale of goods - the terms of the acceptance don’t match the terms of the offer?

Answer 33

The mirror image rule is not required. Changing or adding terms doesn’t prevent acceptance. The new terms are excluded unless accepted within a reasonable time.

Question 34

In what instance are the new terms included in an offer but not acceptance incorporated into the contract?

Answer 34

1. Both parties are merchants
2. The new terms are not a material change
3. The other party does not object within a reasonable time (objection can be a simple as “that’s not convenient for me).

Question 35

What happens in a sale of goods contract between merchants when a new term in the offer constitutes a material change likely to cause hardship or surprise to the offeror?

Answer 35

The offeror is still bound to the contract, but the hardship inducing/surprising term will not be part of the contract.

Question 36

What happens in a sale of goods contract between marchants when there is a seemingly material change that is customary in the industry?

Answer 36

The change is not considered material.

Question 37

In what case does the death of a party before acceptance terminate an offer?

Answer 37

When the offer was revocable, but not when it was irrevocable. If it was an irrevocable offer, the offeree can demand performance by the estate if she accepts before it expires/lapses.

Question 38

If a bilateral offer states “this offer can only be accepted by running down the street with a bowler hat on,” how can the offer be accepted?

Answer 38

Only by running down the street with a bowler hat on, and no other way. The language of the offer controls the method of acceptance, no matter how strange.

Question 39

What type of contract is it if the offeror does not specify how to accept?

Answer 39

A bilateral contract, and offeree can accept in any reasonable way (including beginning performance).

Question 40

If on a bilateral contract the offeree starts performing, what result?

Answer 40

This is acceptance with an implied promise to finish performing.

Question 41

If on a unilateral contract, the offeree begins performance, must she finish?

Answer 41

No. The offer is not accepted until performance is complete.

The offer is irrevocable (remember, revocable in NY until complete), but the offeree can always start and then walk away = no acceptance.

Question 42

Under common law, what result if performance is done improperly?

Answer 42

This is simultaneous acceptance and breach.

Question 43

Under Art. 2, what result if performance is done improperly?

Answer 43

Simultaneous acceptance and breach unless seller is sending the goods as “an accommodation” and tells buyer he’s not accepting but rather sending the accommodation.

Question 44

Is the following enforceable? “I offer to sell you my car for $5,000. If I don’t hear from you by 9pm tonight, you have accepted.”

Answer 44

This would be unenforceable. Offeree’s silence is never acceptance.

Question 45

In general, when is acceptance effective?

Answer 45

When mailed, even if it gets lost in the mail. The offeror bears the burden of loss.

Question 46

If an acceptance is mailed, but 5 minutes later, the offeree calls the offeror to revoke, what result?

Answer 46

The offer was accepted the moment it was mailed, and a contract has been formed even though revocation was received before the acceptance was received.

Question 47

What result if an offer is open until May 9, offeree sends acceptance by mail on May 9, but it doesn’t arrive until May 11?

Answer 47

No acceptance. The offer lapsed before it arrived. There is an exception to the mailbox rule when the offer states a specific time for which it will be held open. This exception applies to option contracts.

Question 48

When is an option contract accepted?

Answer 48

When acceptance is received (when mailed is irrelevant).