Contract Formation: Mutual Assent - Offer and Termination

Question 1

What is “mutual assent”?

Answer 1

Offer + acceptance

Question 2

What is the standard to determine whether there was mutual assent?

Answer 2

Objective standard

• Did words or conduct manifest intention to enter into K?

Question 3

What is an offer?

Answer 3

Offer creates power of acceptance in offeree and corresponding liability on the part of offeror.

Question 4

What is required to determine whether there has been an offer?

Answer 4

Offer must create a “reasonable expectation” in offeree that offeror is willing to enter into K on basis of offered terms.

REQUIREMENTS –>

1. promise, undertaking, commitment
2. certainty and definiteness of essential terms
3. communication to offeree

Question 5

What is the rule regarding “promise, undertaking, commitment” with regards to an “offer”?

Answer 5

Offer MUST contain a promise, undertaking or commitment to enter into K (aka INTENT)

Mere invitation to negotiate is NOT enough

Courts will consider:

1. language;
2. surrounding circumstances;
3. prior practice/relationship of parties

Note:

• the broader the communication, less likely it is to be an offer.
• advertisements are usually considered invitations for offers unless very specific

Question 6

What is the rule regarding “definite and certain terms” with regards to an “offer”?

Answer 6

Offer must be definite and certain in its terms. There must be enough ESSENTIAL TERMS so that it’s capable of being enforced.

Question 7

With regards to “definite and certain terms” with regards to an “offer”, what is the rule for real estate?

Answer 7

Must identify land (with some particularity) and price terms

Question 8

With regards to “definite and certain terms” with regards to an “offer”, what is the rule for Sale of Goods?

Answer 8

Quantity must be certain or capable of being made certain.

• Requirements/outputs contracts are OK, but:
  There may not be demand that is unreasonably disproportionate to:
  1. any stated estimate; or
  2. normal/otherwise comparable prior requirements/output

Question 9

With regards to “definite and certain terms” with regards to an “offer”, what is the rule for employment/service contracts?

Answer 9

Employment –> if duration is not specified, it’s at will

Other services –> nature of work performed must be specified

Question 10

With regards to “definite and certain terms” with regards to an “offer”, what is the rule for missing terms?

Answer 10

General Rule –> The fact that there are 1 or more missing terms does NOT prevent formation of K if:

1. parties intended to make K; AND
2. there is reasonably certain basis for remedy

Effect –> common law and UCC 2 provide that court can supply reasonable terms for thos missing.

Question 11

With regards to “definite and certain terms” with regards to an “offer”, what is the rule for missing price term?

Answer 11

Except for real estate, failure to state price does not prevent K formation, if parties intended to form K without price settled.

If SOG –> art 2 provides that price will be “reasonable price at time of delivery”

Question 12

With regards to “definite and certain terms” with regards to an “offer”, what is the rule for missing time term?

Answer 12

law implies that it will have to be performed “within reasonable time”

Question 13

With regards to “definite and certain terms” with regards to an “offer”, what is the rule for terms to be agreed upon later?

Answer 13

If the term is a “material term”, the offer is too uncertain

Question 14

With regards to offer, what is the rule re: communication to offeree?

Answer 14

To create a power of acceptance, offeree must have knowledge of the offer. Therefore, offer must be communicated to offereee.

Question 15

What is the rule re: a continuing offer?

Answer 15

Offer may be a continuing offer (offer to form a series of contracts).

Example –> S offers to sell widgests to B up to $100K widgets at 1 dollar. B orders 10K widgets in June. A K is formed as to 10K widgets. However, B still has power of acceptance for remainder of offer.

Question 16

What is the rule re termination of offer?

Answer 16

An offer cannot be accepted after it is terminated.

Question 17

What are the four general ways an offer may terminate?

Answer 17

1. Revocation (by offeror)
2. Rejection (by offeree)
3. Lapse of Time
4. Operation of Law

Question 18

How may an offer be revoked?

Answer 18

1. direct revocation
2. indirectly if:
   (i) offeree receives correct info;
   (ii) from reliable source;
   (iii) of acts by offeror inconsistent w continuing offer

NOTE: if offer was made by publication, it must be revoked by similar publication

Question 19

What is the effective date of revocation?

Answer 19

• when received (although not necessarily when read)

- if by publication, when published

Question 20

What are the limitations on offeror’s ability to revoke?

Answer 20

1. Options contract
2. Merchant’s firm offer (UCC Art. 2)
3. Detrimental reliance
4. Beginning performance

Question 21

With regards to offeror’s ability to revoke, what is the rule re: Merchant’s firm offer under UCC Art. 2?

Answer 21

IF:

(i) merchant
(ii) offers to buy/sell goods in SIGNED WRITING; AND
(iii) writing gives assurances that it will be held open

Then –> offer is not revocable for stated period even without consideration, or, if no time is stated, for a reasonable time not to exceed 3 months

NOTE –> if offeror states it will be open beyond 3 month limit, he will be bound only for 3 months

NOTE –> if there IS consideration, it’s not a firm offer, but an option contract

Question 22

With regards to offeror’s ability to revoke, what is the rule re: detrimental reliance?

Answer 22

Offer will be held irrevocable as an option contract for a reasonable time IF:

1. Offeror could “reasonably expect” that offeree would rely to her detriment on offer; AND
2. Offeror does so rely

Question 23

With regards to offeror’s ability to revoke, what is the rule re: beginning performance?

Answer 23

If true unilateral contract –> if performance has begun, offeror must give reasonable time to complete, so they can’t revoke. HOWEVER, offeree is not bound to complete performance, and there is no acceptance unless performance is complete.

Bilateral contract —> If it can be accepted by performance, then once offeree begins performance, it can’t be revoked. (NOTE: notification of start of performance may be necessary)

Question 24

How may an offer be rejected?

Answer 24

1. Express rejection;
2. Conditional acceptance (Art 2 & Common Law)
3. Counteroffer as rejection + new offer (but distinguish mere inquiry) (see also, exception for UCC Art 2 - battle of forms)

Question 25

What is the test to determine if an offer has been rejected by counteroffer, or if it’s mere inquiry?

Answer 25

Whether a reasonable person would believe offer has been rejected

Question 26

When is a rejection effective?

Answer 26

-when received by offeror

Question 27

What is the rule re: termination of offer due to lapse of time?

Answer 27

Offer is terminated by failure to accept by deadline. If there is no deadline, then reasonable time.

Question 28

What is the rule re: termination of offer by operation of law?

Answer 28

1. death or insanity of either party unless option (need not be communicated)
2. destruction of subject matter
3. supervening illegality