Formation

Question 1

Offer

Answer 1

An objective manifestation of a present intent to contract

• Demonstrated by a promise, undertaking, or commitment; definite and certain terms; and communication to an offeree

Objective manifestation of intent - offer must give offeree a reasonable expectationthat offeror is willing to enter into a K

• Would a reasonable person believe the communication is an offer inviting acceptance?

Definite and certain terms - terms included must be sufficient to allow a court to enforce the K (e.g. quantity, time for performance, price, etc.)

• Vague terms or terms of negotiation are insufficient

Communication to an identified offeree - offeree must know of the offer and have the power to accept it

• Advertisements - generally not offers, unless highly specific as to quantity and clearly indicate who may accept

UCC offers - quantity must be certain or capable of being made certain

• Requirement & Output Ks - no unreasonably disproportionate increase in quantity allowed
• Missing terms OK, particularly price, if parties clearly intended to make a K and there is a reasonably certain basis for giving a remedy

Question 2

Termination of Offer

Answer 2

An offer may be terminated by an act of a party or by operation of law

Acts of parties:

1. Revocation by offeror
2. Rejection by offeree
3. Lapse of time
   
   • Offeror can set a time limit for acceptance, at the end of which offeree’s power of acceptance automatically terminates

Operation of law:

1. Death or insanity of either party
2. Destruction of proposed K’s subject matter
3. Supervening illegality

Question 3

Revoking Offers & Irrevocable Offers

Answer 3

An offeror may revoke her offer, which effectively terminates the offer and the offeree’s power of acceptance

Methods of revocation:

1. Unambiguous statement by the offeror to the offeree
2. Offeree becomes aware of offeror’s unambiguous conduct or statement indicating an unwillingness or inablity to contract

Limitations on revocation:

• Revocation is only effective upon receipt by offeree
• Offer cannot be revoked once it has been accepted
• Unilateral Ks - start of performance makes the offer irrevocable for a reasonable time to complete performance
  
  • Start of performance must go beyond mere preparation

Irrevocable offers - offer is irrevocable if:

• Option K - promise to keep an offer open
  
  • Common law - consideration required in exchange for option
  • UCC - no consideration required
• UCC firm offers - a mercant’s offer made in a signed writing that assures the offer will be held open is irrevocable for the time stated; no consideration required
  
  • if no time stated, irrevocable for up to three months
• Detrimental reliance by offeree - reliance must be reasonable

Question 4

Rejection of Offer

Answer 4

Rejection by offeree terminates the offer and the offeree’s power of acceptance

Methods of rejection:

1. Express rejection - effective when received
2. Counteroffer - terminates the original offer and becomes a new offer; bargaining is not a counteroffer
3. Conditional acceptance - terminates the original offer and becomes a new offer (look for terms such as “if,” “only if,” “but,” “provided,” “so long as,” “on condition that,” etc.)
   
   • E.g. offer for lawn mowing service; offeree says “I’ll accept if you also trim the hedges”; this is a new offer and original offeree is now the offeror
4. Acceptance with additional terms
   
   • Common law - acceptance must mirror the offer; acceptance with additional terms creates a rejection and counteroffer
   • UCC - depends on whether both parties are merchants
     
     • K involing non-merchant - terms of offer govern; K is formed, but additional terms are excluded and considered mere proposals to modify the K
     • Both parties are merchants - additional terms become part of the K unless certain exceptions apply

Question 5

Acceptance

Answer 5

Acceptance arises upon offeree’s clear expression of assent to the terms of the offer

• Offeror controls method - offeror is the master of the offer and can dictate the manner by which an offer is accepted

Mirror Image Rule (common law) - acceptance msut mirror the offer’s terms; it cannot add, omit, or change terms of the offer

UCC Acceptance - two issues often arise:

• Acceptance with additional terms - are both parties merchants?
  
  • Yes - K is formed with additional terms unless either:
    
    • Additional terms materially change the offer,
    • Offer expressly limits acceptance to the offer’s terms, or
    • Offeror objects within a reasonable time
  • No - K is formed, but without additional terms
• Acceptance by shipment - a merchant may accept an offer to buy goods by either:
  
  1. Providing a promise to ship goods (usually by written confirmation), or
  2. Promptly shipping conforming goods
• Shipment of nonconforming goods - acts as an acceptance, but may give rise to breach

Question 6

Mailbox Rules

Answer 6

Offers and acceptance transmitted via mail or other similar methods become effective upon either dispatch or receipt

Offers - effective upon receipt

Acceptance - effective upon dispatch

Method of communication - unless otherwise provided, offers invite acceptance in any reasonable manner under the circumstances

• E.g. A sends offer to B via e-mail and B accepts via text message; valid K has been formed
• If acceptance is via instantaneous two-way communication (e.g. phone), it is treated as if the parties are in each other’s presence

Limitations:

• If the offer stipulates acceptance is not effective until received, the offer controls (i.e. offeror can opt out of mailbox rules)
• If offeree sends both a rejection and acceptance, first to arrive controls
• Option Ks - acceptance is effective upon receipt

Revocation - revocation is effective only upon receipt

• i.e., mailbox rules do not apply

Question 7

Acceptance by Performance

Answer 7

Unless acceptance is limited by terms of the offer, offeree may accept by partial performance (for bilateral Ks) or complete performance (for unilateral Ks)

Unilateral Ks - complete performance required

• Offeree is not obligated to start or complete performance
• Failure to perform does not give rise to breach b/c no K is formed absent complete performance
• Revocability - offer may become irrevocable upon the start of performance until completion
• Notice only required upon completion - offeree is not required to give notice upon start of performance, but must notify offeror within a reasonable time upon completion

Bilateral Ks - partial performance gives rise to acceptance

• Offeree must make offeror aware of acceptance

Offers requiring acceptance by promise - an offer requiring acceptance by promise may still be accepted by performance if:

1. Offeree begins to perform; and
2. Offeror knows offeree has begun performance and acquiesces

Note - an offer may always limit methods of acceptance

Question 8

Consideration & Substitutes for Consideration

Answer 8

Consideration is a bargained-for exchange of legal value between parties; there must be a benefit to promisor or detriment to promisee

• A required element of every K

“Bargained-for exchange” - the promise must induce the detriment and the detriment must induce the promise

• Detriment = an obligation to do or refrain from doing something one would otherwise not be obligated to do or refrain from doing
• Past or moral consideration - a promise to perform a pre-existing duty or obligation generally does not constitute consideration

Invalid consideration - the following do not constitute consideration

• Promises of gifts or conditional gifts
• Illusory promises - a promise where there is no obligation to perform (e.g. A promises to do B’s chores if he has time; A is not actually obligated to do anything, thus no consideration)

Promissory estoppel - consideration substute

• Requirements - courts may enforce a promise if:
  
  1. Promisor reasonably expects reliance by promisee;
  2. Promisee acts or refrains from acting such that his reliance is detrimental; and
  3. Injustice will occur without enforcement of the promise