Contracts - THE OFFER (and lapse, revocation, rejection and termination)

Question 1

Contract

Answer 1

a legally enforceable agreement

Question 2

Express Contract

Answer 2

A contract created by the parties’ words (oral or written)

Question 3

Implied-in-fact Contract

Answer 3

contract created by the parties’ conduct

Question 4

Restitution (Quasi-Contract)

Answer 4

protects against unjust enrichment whenever the contract law yields an unfair result. Restitution is a remedy of last resort

allows P to recover the “reasonable value of the benefit conferred” NOT the contract price

(generally speaking, restitution gets you less than contract price)

e.g. Ben Affleck orally agreed to work for Sony Pictures for 5 years for $20 million per film. “Gigli” bombed and Sony refused to pay Ben for the film. The Statute of Frauds bars Ben from recovering. – Ben can recover in RESTITUTION to avoid an unfair result (Sony getting ben’s labor for free) he can recover the “reasonable value of the benefit he conferred, NOT the contract price

BRKU - “Bobby Ripped Kim’s Uggs”

(1) P conferred a BENEFIT
(2) P REASONABLY EXPECTED to be compensated for its value
(3) D KNEW or had reason to know of P’s expectation
(4) D would be UNJUSTLY ENRICHED if he were allowed to retain the benefit without compensating the P

Question 5

Bilateral Contract

Answer 5

Where an offer can be accepted in ANY REASONABLE WAY (very flexible)

Question 6

Unilateral Contract

Answer 6

Where an offer can be accepted only by performing (very inflexible)

2 fact patterns on MBE

(1) where offer expressly states it can be accepted only by completing performance (offeror is the master of the offer and can create the offer in this fashion)
(2) offer to the public , such as reward, contest or price - e.g. only way to win is by “catching the bad guy” - clearly contemplates acceptance by performance rather than a promise

Question 7

When a contract suit is brought - first question that must be resolved is WAS THER A CONTRACT?

what three things need to be present for a contract to have been formed?

Answer 7

(1) mutual assent (i.e. offer [that hasn’t lapsed] and acceptance)
(2) consideration
(3) defenses to creation of the contract?

Question 8

Definition of an “Offer”

Answer 8

Manifestation of an intention to be bound

in other words - for a communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms

may ask 3 questions:
(I) was there an expression of a “promise, undertaking, or commitment” to enter into a contract?
(ii) was there CERTAINTY AND DEFINITENESS in the essential terms?
(iii) was there communication of the above to the offeree?

note: objectively measured - each party is bound to the “apparent intention” that he manifested to the other

Question 9

Rule for advertisements

Answer 9

generally, an advertisement is NOT an offer
-e.g. catalogs containing price quotations are just invitations for offers, they are announcements of prices at which seller is willing to receive offers

why? they lack definiteness

EXCEPTION: where the ad specifies a QUANTITY, or specifically identifies offeree(s) - e.g. store advertised a coat for $140 on “first come, first served” basis - held valid offer

Question 10

INDEFINITENESS:

How do courts treat open price terms?

Answer 10

court will read in a “reasonable” price except in a contract for the sale of REAL PROPERTY

article 2 gap fillers
if contract is silent on price or says they will agree later - price is “reasonable price at time of delivery”

Question 11

INDEFINITENESS:
Quantity Terms

Requirement Contracts

Answer 11

In a contract for the sale of goods, the QUANTITY being offered must be certain or capable of being made certain

Under article 2, REQUIREMENTS CONTRACTS are OK despite uncertain quantity (because it is “capable” of being made certain by reference to objective facts)
HOWEVER, any increase on one’s requirements cannot be UNREASONABLY DISPROPORTIONATE to any stated estimate or any normal or otherwise comparable prior output requirement

for new businesses, article 2 reads in a “good faith” agreement into the contract, must be a reasonably foreseeable figure

Question 12

Was the OFFER TERMINATED?

What are the ways in which an offer can be terminated?

Answer 12

(1) Lapse
(2) Revocation
(3) Rejection
(4) Death - of either party before acceptance terminates a revocable offer, but not an irrevocable one, like an option

Question 13

LAPSE

Answer 13

An offer lapses after a STATED TERM or a REASONABLE TIME has passed

Question 14

REVOCATION

Answer 14

An offer terminates when the offeror revokes the offer

GENERAL RULE: an offer can be revoked any time before acceptance

DIRECT REVOCATION: the offeror indicates directly to the offeree that he has changed his mind about the deal

INDIRECT REVOCATION: the offeror engages in conduct that indicates he changed his mind AND the offeree is aware of the conduct

Question 15

Four Exceptions where OFFER CANNOT BE REVOKED (ie Irrevocable Offers)

(and a 5th exception in NY***)

Answer 15

(1) Option
(2) Firm Offer
(3) Foreseeable Reliance Before Acceptance (very rare!)
(4) Starting Performance in a unilateral contract (BUT NOT IN NY*** in NY an offer can be revoked all the way up until performance has been completed)

(5) NY*** only, a signed written promise not to revoke IS ENFORCEABLE, even without payment (sort of like a firm offer but doesn’t need to be between merchants)

Question 16

Option

Irrevocable offers

Answer 16

an OPTION is a promise to keep an offer open that is PAID FOR

NY DISTINCTION***: a signed written promise not to revoke IS enforceable, even without payment

Question 17

Firm Offer (Article 2)

Answer 17

In a sale of goods, if a MERCHANT promises in a SIGNED WRITING to keep an OFFER OPEN, the offer is irrevocable
** 3 MONTH TIME LIMIT ON FIRM OFFERS

Note: the term “merchant” and “signed” are broadly defined under article 2

e. g. CarMax makes written offer on CarMax letterhead to sell BMW, that says offer will not be revoked for 2 weeks - letterhead counts as “signed writing” so this is a firm offer, cant revoke for 2 weeks
- e.g 2 - if says will leave offer open but doesn’t state time, reasonable time not to exceed 3 months, if states offer but doesn’t state that it will be left open - REVOCABLE, NOT A FIRM OFFER

Question 18

Foreseeable Reliance Before Accepting

IRREVOCABLE OFFERS

Answer 18

must be FORESEEABLE RELIANCE - e.g. if I offer to sell you a painting and you go buy an expensive frame, I can still revoke bc that wasn’t foreseeable

EXCEPTION**: SUBCONTRACTORS should always know their bid offer is IRREVOCABLE because contractor is going to rely on it before accepting

Question 19

Starting Performance in a Unilateral Contract

IRREVOCABLE OFFERS

Answer 19

Once you begin to perform, on MBE, the offer is irrevocable, and given a reasonable time to complete performance (note: offeree not bound to complete performance, can walk away before completing)
-however MERE PREPARATIONS do not count as beginning performance and therefore don’t make the offer irrevocable (however, could be foreseeable reliance)

***NY DISTINCTION: in NY an offer can be revoked all the way up until performance has been completed

Question 20

TIMING: When is Revocation effective?

Answer 20

A revocation is effective only when it is RECEIVED!!

e.g. Monday I offer to sell Jess my Honda, Tuesday I mail her a letter revoking, Wednesday she accepts, Thursday she receives my letter
MY REVOCATION IS NOT EFFECTIVE because she didn’t RECEIVE it until Thursday, and she had already accepted by then

Question 21

REJECTION

Answer 21

An offer terminates when the offeree rejects it (inappropriate response)

Question 22

COUNTEROFFER

Answer 22

Operates as a rejection, but MERE BARGAINING DOES NOT

e. g. Chelsea offers to sell her house to Whitney for $500k, Whitney responds, “I will only pay $460k.”
- – THIS IS A COUNTEROFFER and operates as a REJECTION, terminating the offer

e.g.2 - if instead Whitney says “will you take $460k?” - this is mere bargaining and offer is still open, she can still accept

Question 23

CONDITIONAL ACCEPTANCE

Answer 23

NOT AN ACCEPTANCE AT ALL!!!

It is a REJECTION and operates as a Counteroffer

e.g. Disney asks Bill to be in a new film - he agrees PROVIDED HE GETS TOP BILLING - this is a conditional acceptance, aka no acceptance at all - rejection and counter offer

Question 24

Acceptance that varies terms of the offer

Answer 24

Common Law: MIRROR IMAGE RULE - acceptance must mirror the offer - if it doesn’t if operates as a REJECTION and COUNTEROFFER

Article 2 (sale of goods) - Acceptance does not have to mirror offer (ie NO MIRROR IMAGE RULE)
Offeree's adding or changing terms does not prevent acceptance

Question 25

If, in a contract for a sale of goods, the offeree changes an adds terms what happens?

Answer 25

BATTLE OF THE FORMS!!!
STILL AN ACCEPTANCE (not a rejection) and the OFFEREE's TERM IS INCLUDED IF:
(1) both parties are MERCHANTS
(2) There is no MATERIAL CHANGE
(3) No OBJECTION with a reasonable time

Note: if the term is customary in the industry it is NOT material

BAR TIP: watch to see if offerees terms will make it into the contract

NOTE(not in lecture outline): if one of the parties is NOT a MERCHANT, terms of the offer govern, the additional or different terms are considered to be mere proposals to modify the contract and do NOT become part of the contract unless the offeror expressly agrees

Question 26

TERMINATION OF OFFER:

DEATH

(remember: Lapse, Revoction, Rejection and Death are all ways in which an offer can terminate)

Answer 26

Death of EITHER PARTY before acceptance terminates a REVOCABLE offer, but not an irrevocable one, like an option