Mutual Assent - Offer and Acceptance

Question 1

What is an Offer?

Answer 1

Rule: An offer must create a reasonable expectation in the offerree that the offeror is willing to enter into a contract on the basis of the offered terms.

To determine if there is a reasonable expectation ask:

• Was there a promise, undertaking, or commitment to enter the contract?
• Were there certainty and definiteness in the essential terms?
• Was there communication of the above to the offeree.

Question 2

Real Esate Transactions

Answer 2

Rule: An offer involving realty must identify the land and the price terms.

Question 3

Sale of Goods

Answer 3

Rule: In a contract for the sale of goods the quantity of goods must be specified under Article 2.

Question 4

Requirement and Output Contracts (Sale of Goods)

Answer 4

Requirement Contract: Buyer promises to buy from certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer.

Output Contract: Seller promises to sell to a certain buer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller.

NOTE: Either of these require the parties act in good faith, and there may not be a tender of or demand for a quantityt unreasonably disproportionate to (i) any stated estimate, or (ii) any noremal or otherwise comparable prior output or requirements.

Question 5

Service Contract

Answer 5

Rule: The nature of the work is required in an offer for services.

Question 6

Missing Terms

Answer 6

Rule: The fact that one or more terms are left open does not prevent the formation of a contract if it appears that the parties intended to make a contract and there is a reasonable certain basis for giving a remedy.

• Except in contracts for real property the failure to state a price will not prevent contract formation if the parties intended to form a contract without the price being settled.
• Article 2 provides that the price will be a **reasonable price at the time of delivery. **

Question 7

Vague Terms

Answer 7

Rule: If there is intent to form a contract a presumption goes to including missing terms but not vague terms. However, a vague term can be cured by part performance.

Question 8

Terms to be agreed on later

Answer 8

Rule: If the term is a material term, the offer is too uncertain.

Question 9

Firm Offer

Answer 9

Rule: Under Article 2:

• If a merchant;
  
  • offers to sell goods in a signed writing; and
  • the writing gives assurances that it will be held open;
• Then:
  
  • the offer is not revocable for lack of consideration during the time stated, or
  • if no time is stated, for a reasonable amount of time but no longer than three months.

NOTE: If the firm offer is longer than three months, the firm offer is still enforceable for up to three months.

Question 10

Option Contract

Answer 10

Rule: An option is a contract in which:

• The offeree gives consderation;
• for a promise by the offeror not to revoke an outstanding offer.

Effect: Options make the offer irrevocable.

Question 11

Deterimental Reliance

Answer 11

Rule: When the offeror could reaonably expect that the offeree would rely to her detriment on the offer, and the offeree does so rely, the offer will be held **irrevocable as an option contract for a reasonable amount of time. **

Question 12

Part Performance (Limitation on Revocation)

Answer 12

Rule: An offer for a unilateral contract becomes irrevocable once performance has begun. The offeree is not bound to complete performance (she may withdraw at any time) but there is no acceptance until performance is complete.

• Note: Mere preperation is not enough to render the contract irrevocable (e.g. buying paint in a contract to paint a house).

Question 13

Express Rejection

Answer 13

Rule: Statement by offeree that she does not accept the offer terminates the offer.

Question 14

Counteroffer as Rejection

Answer 14

Rule: A counteroffer is both a rejection of the original offer and a new offer.

• However, an i**nquiry into the offer is not a counteroffer. **
• Test for inquire vs. offer: Reasonable person standard.

Question 15

When is a rejection effective?

Answer 15

Rule: A rejection of an offer is effective when it is recieved.

Question 16

Rejection of Option

Answer 16

Rule: A rejection of or a counteroffer to an option does not constitute a termination of the offer.

• Therefore, an offeree is free to accept the original offer within the option period regardless of whether he has rejected the offer, so long as the offeror has not detrimentally relied on the recjection.

Question 17

Termination by Operation of Law

Answer 17

Rule: The following events will terminate an offer by operation of law:

• Death or insanity of either party (unless the offer is of a kind the offeror could not terminate, e.g., option contract).
• Destruction of the proposed contract’s subject matter.
• Supervening illegality.

Question 18

Who has the right to accept?

Answer 18

Rule: Generally, the person (or member of a class), to whom the offer is adressed to has the power of acceptance. The power of exceptance is not transferable.

• Exception: The power of acceptance is transferrable when the offeree has paid consideration to keep the offer open (i.e. option contract).

Question 19

Acceptance of Unilateral Contract

Answer 19

The following rules apply when the offer states that it can only be accepted by performance:

Completion of Peformance:

• Unilateral offer is not accepted until performance is completed. However, the beginning of performance may create an option contract.

Notice:

• The offeree is NOT required to give notice that he has begun performance, but only required to notify the offeror wihtin a reasonable time period after completion.
• No Notice required when: (i) Offeror waived notice; (ii) the offeree’s performance would normally come to the offeror’s attention within a reasonable amount of time.

Question 20

Acceptance of Bilateral Contract

Answer 20

Rule: Bilateral contract can be accepted either by beginning performance or promising to perform.

• Generally, acceptance of an offer must be communicated to the offeror unless the offer provides that it need not be communicated.

Question 21

Method of Acceptance

Answer 21

Rule: Unless otherwise provided, an offer is contrued as inviting acceptance in any reasonable manner and by any medium reasonable under the circumstances.

Offers to buy goods for current or prompt shipment:

• Under Article 2, an offer to buy goods for current or prompt shipment is construed as inviting acceptance either by a promise to ship or by current or prompt shipment of conforming or nonconforming goods.

Question 22

Shipment of Nonconforming Goods

Answer 22

Rule: The shipment of nonconforming goods is an acceptance creating a bilateral contract as well as a breach of the contract unless the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation.

• The buyer need not accept the accommodated goods, and the seller can reclaim the goods.

Warning: Accommodation only applies when shipment is used as a form of acceptance, not when one party accepts an offer by a promise to ship and then doesn’t have the goods. That is a breach.

Question 23

Mirror Image Rule

Answer 23

Rule: Common law requires that each and every term of the offer must be unequivocally accepted.

• Any different or additional terms in the acceptance make the response a rejection and counteroffer.

Question 24

Battle of the Forms

Answer 24

Defined: Article 2 has abandoned the common law mirror image rule, providing instead the battle of the forms rule.

Setup: Written offer with place for buyer to sign. Buyer does in fact sign, but makes changes to the offer.

Memorize 3 Rules:

• If offeree makes a material change then there is a valid contract under the original terms.
• If the change is not material change then the change and both parties are merchants then change is incorporated in the contract UNLESS offeror rejects change and notifies offeree in a reasonable amount of time.
• A material change is a change that substantially affects the economic risks or benefits OR changes the usual remedy for breach of contract.

Question 25

Conditional Acceptance

Answer 25

Rule: A conditional acceptance of an offer is a rejection of the offer. It can be considered a counteroffer only to the extent that the original offeror may expressly assent to the new terms and thus form a contract.

• If parties ship or accept goods after a conditional acceptance then a contract is formed by their conduct.

Question 26

Mailbox Rule

Answer 26

Rule: Acceptance by mail or similar means creates a contract at the moment of dispatch, provided that the mail is properly addressed and stamped, unless:

• The offer stipulates that acceptance is not effective until recieved.
• An option contract is involved.
• If the offeree sends an acceptance and then a rejection then whichever arrives first is effective.
• If the offeree sends and acceptance and tehn a resjcetion, the acceptance is effective unless the rejection arrives first and the offeror detrimentally relies on it.

Question 27

Advertisements

Answer 27

Rule: Ads are generally not offers.

• For a communication to be an offer it must contain a promise, undertaking, or commitment to enter into a contract rather than a mere invitation to begin negoitations.
• The broader the communicating media the more likely it is that the courts will view the communication as merely a solicitation for an offer.

Example:

• Ads in trade journals are generally construed as invitations to negotiate.