Formation Flashcards
Offer
(1) outward manifestation (oral/written/made via conduct)
(2) signal that acceptance will conclude deal
Did the party making the communication express a willingness to commit without further assent?
Commercial Ads
AMERICAN RULE: Ads addressed to multiple recipients are generally treated as invitations for offers rather than offers
UNLESS “first-come, first-served” type offer.
Legal effect of offer
Power of acceptance in eligible offeree.
Ways to terminate power of acceptance
Lapse of time [if offer does not specify time, power of acceptance will terminate after reasonable time]
Face-to-face conversation rule [ remains open only until the close of conversation]
Death/Incapacity of either party
Revocation by offeror [offeror is free to revoke at any time and for any reason (even if he expressly promised he’d hold offer open) so long as revocation (1) occurs prior to acceptance and (2) is effectively communicated]
Methods of revocation
DIRECT
INDIRECT - offeree learns of offeror’s intention to abandon deal from third-party source. Terminates power of acceptance when:
(1) offeror has taken definite action inconsistent with intention to enter proposed K; and
(2) Offeree acquires reliable information of offeror’s inconsistent action.
Functional equivalents rule
Where offer is made by ad in newspaper (or similar), power of acceptance is terminated when notice of revocation is communicated in manner equivalent to that used for offer and no better means of notification is reasonably available.
Ways to reject an offer
(1) outright rejection
(2) rejection via counteroffer (not just mere inquiry); and
(3) rejection via nonconforming acceptance
Mirror Image Rule
common law – requires that acceptance must mirror terms of offer. Any variation results in counteroffer and rejection of initial offer.
UCC rejects mirror image rule. Recognizes binding contract despite presence of a nonconforming acceptance in two circumstances: shipment of nonconforming goods and battle of the forms.
Revival of offer
Offeror has power to revive an offer that offeree has rejected or which has lapsed, which revives offer’s power of acceptance as well. Just has to communicate revival to offeree.
Option contract
Enforceable option contract must have:
- an offer
- a subsidiary promise to keep offer open
- a valid mechanism for securing enforcement of subsidiary promise (most common way is by giving consideration in return for the promise to keep offer open)
Special construction contracts rule
Majority rule is where a general contractor uses a particular subcontractor’s bid to formulate his own, an implied option contract is created via promissory estoppel.
UCC “firm offer” rule
Merchant can make a firm offer (irrevocable offer) to either buy/sell goods without consideration so long as:
- the offer is made by a merchant
- the offer is made in a writing signed by the merchant
- the offer expressly states by its terms that it will be held open
Offer that meets requirements becomes irrevocable either for period of time stated in the firm offer or for reasonable time if no time specified.
Shelf life cannot be more than 3 months.
Bilateral contract
Offer seeking promissory acceptance. Promise exchanged for a promise.
Offeree can accept offer by making requested promise.
Unilateral contract
Offer seeking performance in return.
- Offeror is bound only when offeree completes performance in accordance with terms of offer; and
- Offeree is never bound to perform because he never promised to perform.
Revocation of offer in unilateral contract
Modern majority rule – once offeree begins performance (not “mere preparations”), option contract is created and offeror may not revoke.
Requirements to effective acceptance under common law
(1) under mirror image rule, acceptance must mirror terms of offer; and
(2) the acceptance must be communicated to offeror (EXCEPT acceptance by silence; acceptance by performance; and acceptance by mail/correspondence)
How to communicate acceptance
If offer stipulates particular means of communicating acceptance - effective acceptance will utilize those means.
If offer is silent - offeree is free to use any reasonable means of transmission (means used by offeror; means customarily used in similar transactions; or means of communication that is as fast and reliable as means used by offeror)
Acceptance by silence
Generally not valid acceptance except in 3 circumstances:
(1) offeree takes benefit of offeror’s services with reasonable opportunity to reject them and with reason to know the offeror’s intention;
(2) where offeror has given offered reason to understand acceptance may be communicated by silence, in which case offer’s silence will operate as acceptance if he intends it as such; and
(3) where, because of previous dealings or other circumstances, it is reasonable that offeree should notify offeror if he does not intend to accept, in which case silence = acceptance.
Acceptance by performance
Maker of an offer to enter a unilateral k CAN make communication of acceptance a part of required performance. If he doesn’t, acceptance is effective upon offeree’s completion of requested performance (regardless of whether he notifies offeror).
Mailbox rule
Acceptance by mail is effective upon dispatch so long as the acceptance is properly posted.
ONLY APPLIES TO ACCEPTANCES. Other communications are effective upon receipt by other party.
Parties are bound even if acceptance is lost in transmission and offeror has no knowledge of it.
DEFAULT RULE - offeror is free to establish his own rules for effective acceptance.
Mailbox DOES NOT APPLY when an offeree dispatches a first response purport to REJECT offer, and the second purporting to accept. In these cases, mailbox rule does not apply. Parties’ obligations depend on which of offer’s communications reach offeror first (if rejection arrives first, subsequently arriving acceptance is considered a counteroffer).
UCC acceptance
Unless k language or circumstances unambiguously indicate otherwise, acceptance can be made in any manner and by any medium reasonable under the circumstances.
Rejects mirror image rule of common law. Instead recognizes a binding k despite the presence of nonconforming acceptance in two situations: shipment of nonconforming goods and the “battle of the forms”
UCC Seller’s shipment of conforming and nonconforming goods
Seller can accept a buyer’s offer to purchase goods for prompt/current shipment in 1/3 ways:
(1) promise to ship goods in conformity with terms of offer;
(2) a prompt or current shipment of goods in conformity with terms of offer; OR
(3) shipping nonconforming goods (also constitutes a breach of resulting k under perfect tender rule).
Shipment of nonconforming goods will not constitute acceptance if seller notices buyer that shipment is offered as an “accommodation”. Then shipment is counteroffer. Buyer free to reject.
UCC Battle of the forms
May occur when a buyer places an order (offer) and the seller’s acceptance form contains terms which differ from the buyer’s order or are not addressed in the order at all.
Seller’s response = nonconforming acceptance. It will operate as an effective acceptance unless acceptance is expressly made conditional on assent to the additional/different terms.
UCC Nonconforming acceptance or confirmation
Involving a Consumer: Additional/different terms are construed as proposals for addition to k. Not part of the k unless offeror expressly aggress to additional terms.
Both parties are merchants:
Depends on whether nonconforming acceptance contains “additional terms” (provisions address an issue or topic not addressed in original offer) or “different terms” (offer says one thing about particular issue and would-be acceptance says something else).
UCC Nonconforming acceptance - Additional terms
Additional terms become part of k unless:
(1) offer expressly limits acceptance to terms of the offer;
(2) the offeror objects to the additional terms within a reasonable time after receiving notice of them; or
(3) additional terms would materially alter the contract (would result in surprise/hardship if incorporated without express awareness of other party).
UCC Nonconforming acceptance - Different terms
Majority of decisions employ KNOCKOUT RULE - omit both offeror’s original provision and offer’s differing provision from resulting k.
UCC Written confirmations of contracts entered into in real time
Also governed by battle of the forms.
If at least one party is a consumer, then any additional or different terms are mere proposals for addition to k which the receiving party is free to accept/reject.
If transaction is between merchants:
(1) any ADDITIONAL terms are automatically part of contract unless they would materially alter k OR receiving party objects to them within reasonable time.
(2) any terms in confirmation that DIFFER from terms of prior agreement are proposals for inclusion in contract, which receiving party is free to accept/reject.
(3) If both merchants send written confirmations and they contain conflicting terms, knockout rule applies and neither party’s term is in the k.
UCC Conditional Acceptance
If acceptance is made expressly conditional on assent to additional/different terms, the nonconforming acceptance will NOT be effective to form k.
Majority rule - would-be acceptance which tracks language of the exception as set out in §2-207 constitutes a conditional acceptance if language in question is clear and conspicuous.
Minority rule - would-be acceptance constitutes a conditional acceptance only if it clearly communicates that offeree is unwilling to do business with the offeror unless and until offeror agrees to offer’s terms.
