Contracts Ch. 1-7 – Offer, Acceptance, Consideration

Question 1

Has an enforceable K been formed?

Answer 1

All Contracts Don’t Stink — Agreement, Consideration, Defenses, Statute of Frauds

A legally enforceable K is typically created through the process of mutual assent (i.e., offer and acceptance) and consideration, provided no valid defense to contract exists

Question 2

Offer

Answer 2

An offer is a manifestation of a willingness to enter into an agreement (by the offeror) that creates a power of acceptance (in the offeree)

Key question—whether an offeror displays an objectively serious intent to be bound

Question 3

How specific must an offer be?

CL vs. UCC Distinction

Answer 3

CL –All essential terms must be covered in the agreement.
Ps&Qs = PPQS = Parties, price, quantity, subject matter

UCC – Only essential term is quantity (not even price needs to be stated). UCC fills the gaps for some terms. Exception: Requirement Ks and Output Ks are specific enough under the UCC, even though they don’t state an exact quantity term

Question 4

Requirement K

Answer 4

The buyer is offering to buy 100% of whatever amount is needed from this individual seller.

“I don’t know how many I need over the next year, but I promise to buy all of them from you.”

UCC Essential Term Exception –Both output and requirements Ks are specific enough under the UCC, even though they don’t state an exact quantity term—they provide a formula for calculation

Question 5

Output K

Answer 5

The seller is offering to sell 100% of whatever amount is produced to this individual buyer.

“I don’t know how many I will make over the next year, but I promise to sell all of them to you.”

UCC Essential Term Exception –Both output and requirements Ks are specific enough under the UCC, even though they don’t state an exact quantity term—they provide a formula for calculation

Question 6

Offers vs. Invitations to Deal (e.g., ads)

Answer 6

Offers must be distinguished from invitations to deal.

I2D –Preliminary communication that reserves a final right of approval with the speaker. It does not convey a power of acceptance to the other side.

Advertisements –Generally considered invitations to receive offers from the public, unless associated with a stated reward. An advertisement that is sufficiently specific and limiting as to who may accept may also qualify as an offer. E.g., “Used car for sale for $5,000. First come, first served.”

Question 7

How to terminate an offer?

6 Common Fact Patterns

Answer 7

1. Express Communication by Offeror – offeror revokes offer by express communication to the offeree
2. Constructive Revocation by Offeror – offeree learns that the offeror has taken an action that is absolutely inconsistent with a continuing ability to K
3. Rejection by Offeree –offeree rejects offer
4. Counteroffer by Offeree –offeree makes counteroffer (CL Mirror Image Rule vs. UCC § 2-207(1))
5. Offeror Death –offeror dies
6. Lapsed Time – reasonable amount of time passes

Question 8

Acceptance with Additional or Different Terms under CL Mirror-Image Rule

Answer 8

The terms in the acceptance must match the terms of the offer exactly—or it is not an acceptance, but a counteroffer. A conditional acceptance is another form of a counteroffer.

Apply to real estate and services.

Compare to UCC § 2-207 – In some cases, a purported acceptance that does not match the terms of the offer exactly can still count as a legal acceptance.

Question 9

Acceptance with Additional or Different Terms under UCC § 2-207

Answer 9

In some cases, a purported acceptance that does not match the terms of the offer exactly can still count as a legal acceptance. But, do not assume that all terms in the purported acceptance will govern the K.

“A definite and seasonable expression of acceptance [or a written confirmation] which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, UNLESS acceptance is expressly made conditional upon assent to the additional or different terms.”

1. Additional Terms –Very difficult for the new terms in the acceptance to govern the K. Governs IF: 1) BOTH parties are MERCHANTS; 2) new term does not materially alter the deal; 3) initial offer did not expressly limit acceptance to its terms, AND 4) offeror does not reject or object within a reasonable time to the new term.
2. Different Terms / Knock-Out Rule / Majority Rule –“Knock out” both of the different terms; neither term will govern and the general gap-filling provisions of the UCC will apply
3. Different Terms / Minority Rule –When different term does not govern under add’l term rule, the initial offer controls the terms.
4. Confirming Memo – Arises when the parties have a K (usually by verbal agreement) and one party sends a confirming memo with add’l terms. If you see this fact pattern (early agreement + written confirmation with new terms), work through the same steps as above for add’l terms. But recognize that the new terms will very rarely come in.

Question 10

Acceptance with Additional or Different Terms

CL vs. UCC Distinction

Answer 10

CL –Mirror-Image Rule – Terms in acceptance must match terms of offer exactly—or it is not an acceptance, but a counteroffer.

UCC –§ 2-207 –Purported acceptance that does not match terms of offer exactly can still count as a legal acceptance. But, do not assume that all terms in purported acceptance will govern the K. See additional terms (2 merchants) and different terms (Knock-Out Rule/Gap-Filling Rule)

Question 11

Irrevocable Offers

4 Ways

Answer 11

1. Option K – an independent promise to keep an offer open for a specified period of time; consideration required
2. Firm Offer (UCC) –an offer by an offeror merchant with assurance that the offer is to remain open and assurance is contained in a signed writing from the offeror merchant
3. Started Performance of Unilateral K – offeree has started to perform under UK
4. Promissory Estoppel / Detrimental Reliance – offeree reasonably and detrimentally relies on the offer in some foreseeable manner

Question 12

Option

Answer 12

Option –an independent promise to keep an offer open for a specified period of time, i.e., an offer not to revoke

Such a promise limits the offeror’s power to revoke the offer until after the period has expired, while also preserving the offeree’s power to accept.

If the option is a promise not to revoke an offer to enter a new K, the offeree must generally give separate consideration for the option to be enforceable.

If the option is within an existing contract, no separate consideration is required.

Option = IRREVOCABLE offer

Question 13

Firm Offer (UCC)

Answer 13

3 Elements –1) offeror = merchant/businessperson; 2) assurance offer remains open; 3) signed writing from merchant

Under UCC, an offer to buy or sell goods is irrevocable IF: 1) offeror is a merchant; 2) there is assurance that the offer is to remain open; and 3) and assurance is contained in a signed writing from the offeror merchant

NO CONSIDERATION by the offeree is needed to keep the offer open under the UCC firm offer rule

Firm Offer = IRREVOCABLE offer

Time Period – if time period is not stated, reasonable term is implied, not to exceed 3 months regardless whether time period is stated/implied, unless offeree gives consideration to validate beyond 3 months

Question 14

Promissory Estoppel / Detrimental Reliance

Answer 14

Promissory Estoppel / Detrimental Reliance – Offeree reasonably and detrimentally relies on the offer in some foreseeable manner. PE/DR is referred to as a consideration substitute.

Consideration substitute –PE/DR can be used under certain circumstances to enforce a promise that is not supported by consideration.

3 Elements –Promise is binding IF: 1) promisor should reasonably expect it to induce action or forbearance on part of promisee or a 3rd person; 2) promise does induce such action or forbearance; AND 3) injustice can be avoided only by enforcement of the promise

Exception –Charitable subscriptions; charities need not rely on promise (DR is sometimes presumed)

EXAM NOTE –Always consider whether there is a VALID K BEFORE considering PE/DR as the correct answer choice.

Construction Ks –PE/DR often used with construction Ks; it would be unjust to permit a subcontractor to revoke a bid after inducing justifiable and detrimental reliance in the general contractor. Thus, an agreement not to revoke a sub-bid o ffer can be enforceable under the theory of PE/DR. Because the sub-bid is only an outstanding o ffer, the general contractor is NOT BOUND to accept it upon becoming the successful bidder for the general K. A general contractor can enter into a subcontract with another subcontractor for a lower price.

Question 15

Consideration (MBE & FL)

Answer 15

Valuable consideration is evidenced by a bargained-for change in the legal position between the parties.

For the legal detriment to constitute sufficient C, it must be bargained for in exchange for the promise. The promise must induce the detriment, and the detriment must induce the promise (“mutuality of consideration”).

C can take form of: 1) return promise to do something; 2) return promise to refrain from doing something legally permitted; 3) actual performance of some act; or 4) refraining from doing some act

FL: C can be satisfied by either a benefit, a legal detriment, or both.

Question 16

Gift vs. Valid Consideration

Answer 16

EXAM NOTE: The test to distinguish a gift from valid consideration is whether the o fferee could have REASONABLY BELIEVED that the INTENT of the o fferor was to INDUCE THE ACTION. If yes, there is C, and the promise is ENFORCEABLE.

A party’s promise to make a gift is enforceable under the doctrine of PROMISSORY ESTOPPEL if the promisor/donor knows that the promise will induce substantial reliance by the promisee, and the failure to enforce the promise will cause substantial injustice.

In general, a party cannot challenge a K on the grounds that the C is inadequate.

Question 17

Quasi-K or K Implied-in-Law

Answer 17

Quasi ≈ Queezy ≈ IIL (like ill/sick)

Arises when you would have made a K if you could have, but you could not, or when one party conferred a benefit on another party, and it would be fair to pay for that benefit.

3 Elements –1) plaintiff confers a measurable benefit on defendant; 2) plaintiff reasonably expected to get paid; and 3) it’d be unfair to let D keep benefit without paying

Question 18

Installment K

Answer 18

CL – A divisible or installment K is one in which the obligations imposed on the contracting parties can be separated into corresponding pairs of part performances such that each pair constitutes agreed equivalents.

Recovery is limited to the performance promised for the corresponding portion of the K that has been performed.

Damages may be recoverable for breach of other obligations under other portions of the K.

UCC –Special rules apply to IK for the sale of goods. The most important difference between IK and other Ks is that the PERFECT TENDER RULE does NOT apply; instead, the RIGHT TO REJECT is determined by a “SUBSTANTIAL CONFORMITY” standard.

Canceling entire K –Under UCC, a buyer may cancel IK only if the nonconformity substantially impairs the value of the entire K