Offer and Termination

Question 1

What are the elements of a valid offer?

Answer 1

• To be an offer, party’s communication must meet two elements:
  o Outward manifestation (oral, written, or via conduct);
  o Signal that acceptance will conclude the deal (power of acceptance).

Question 2

Is an offer made in jest valid?

Is an offer valid if it is to sell something at an objectively ridiculous price?

Answer 2

• EXAMPLE: A seemingly serious offer to sell real property made in secret jest is nonetheless an offer.
• EXAMPLE: A proposal to sell at a price that a reasonable person would regard as “much too good to be true” (e.g., “new HDTVs for $8.99”) DOES NOT constitute an offer.

Question 3

What are some examples of offers including or lacking a power of acceptance?

Answer 3

• EXAMPLE: “Yes, I’d be willing to sell you my car, but what are you willing to pay for it?” This is NOT AN OFFER because the communicating party is obviously reserving the right to decide whether she likes the price suggested by the other party.

Question 4

Do commercial advertisements constitute offers?

Answer 4

• American Rule: Ads, catalogs, price lists are merely invitations for offers since responses may exceed available supply of goods or services.

Question 5

What is an exception to the American rule for commercial ads?

Answer 5

• Language that identifies who gets limited supply of goods count as offers, even if there is an excess demand (i.e. first come, first served, or first 10 customers).

Question 6

Do reward offers constitute valid offers?

Answer 6

• Offers because they are communications that promise $ in exchange for performance of specific tasks.
• EXAMPLE: $500 for finding and returning my lost dog.

Question 7

What are the four ways to terminate the power of acceptance?

Answer 7

• Lapse of time
• Death or incapacity of either party
• Revocation by offeror
• Rejection by offeree

Question 8

How would a lapse in time terminate the power of acceptance?

Answer 8

• Power of acceptance ends at time stated in offer or after a reasonable time

Question 9

How is a reasonable time for accepting an offer calculated?

Answer 9

• Reasonable time determined by:
  o (1) subject matter/market conditions, and
  o (2) degree of urgency and means of transmission.

Question 10

What is the face-to-face conversation rule?

Answer 10

• An offer made in a face-to-face conversation generally lapses at the end of the conversation.

Question 11

Who must die for death to terminate power of acceptance?

Answer 11

• Death or incapacity of either party after offer is made terminates the power of acceptance.

Question 12

For what reasons could an offeror revoke an offer?

Answer 12

• Offeror may revoke an offer at any time, for any reason, as long as revocation happens before acceptance

Question 13

What must the offeror do in order to revoke an offer?

Answer 13

• Revocation must be communicated to the offeree

Question 14

What are the two kinds of revocation?

Answer 14

• Direct revocation
• Indirect revocation

Question 15

What is a direct revocation?

Answer 15

• Offeror directly communicates to offeree an intent to withdraw the offer.

Question 16

What are the elements of an indirect revocation?

Answer 16

• Offeror takes action that is inconsistent with the intent to go through with the offer; and
• Offeree learns of such action from reliable source.
  o EXAMPLE: While deciding whether to accept an offer to sell you a car, you learn from a friend that the car was sold to someone else.

Question 17

Is the offeror barred from revoking if the offeror gave a specific time to accept?

Answer 17

• The offeror can revoke even if he gave a specific time to accept.

Question 18

What are three ways of preventing an offeror’s revocation?

Answer 18

• Option contracts
• Reliance
• Firm offer under UCC

Question 19

What is an option contract?

Answer 19

• A contract made to keep an offer open for a specified period so that the offeror cannot revoke the offer during that period.

Question 20

What are the elements of an option contract?

Answer 20

• Offer +
• Separate promise to keep it open +
• Valid mechanism for enforcing subsidiary promise (consideration is most common way).
  o EXAMPLE: “I hereby offer to sell you Blackacre for $10,000, and in consideration for the $100 received, I hereby grant you a 30-day option on the deal.”

Question 21

How could reliance be used to prevent a revocation?

Answer 21

• Courts will hold offers open when the offeree has detrimentally relied on them, such as when general contractors rely on subcontractor’s bids in forming their own bids on a project.

Question 22

What is a firm offer under the UCC?

Answer 22

• A firm offer is an irrevocable offer by merchant to buy or sell goods without consideration

Question 23

What are the three requirements of a firm offer?

Answer 23

• Offer made by a merchant (in the business of buying or selling goods) +
• In a writing signed by the merchant +
• Expressly stating it will be held open.

Question 24

How long will a firm offer be open if it does not expressly state so?

Answer 24

• Irrevocable for time stated or reasonable time, BUT no longer than 3 months even if stated otherwise.

Question 25

What are the three kinds of rejections by an offeree?

Answer 25

• Outright rejection
• Rejection via counteroffer
• Rejection via nonconforming acceptance

Question 26

What is a rejection via counteroffer?

Answer 26

• A counteroffer includes both a rejection and a new offer
  o EXAMPLE: I am not willing to pay $10K for the car, but I would happily buy your car for $9K.).

Question 27

What would not constitute a valid rejection via counteroffer?

Answer 27

• Offeree can test the waters by making a mere inquiry (e.g., $10k isn’t out of the question but it’s a little high given the age, would you consider a lower offer?)

Question 28

What is the mirror image rule?

Answer 28

• Common law rule stating that acceptance must mirror the terms, and any variation is treated like a counteroffer (rejection via nonconforming acceptance)
  o EXAMPLE: X offers to buy goods from Y, Y says OK, and says he expects payment in 30 days. This will be a violation of the mirror image rule, and thus a counteroffer.

Question 29

What is the difference between a bilateral and unilateral contract?

Answer 29

• Bilateral Contract = Offer seeking acceptance by a promise.
• Unilateral Contract = Offer seeking performance in return (i.e., reward offers).

Question 30

When are the parties bound by a bilateral contract?

Answer 30

• A promise is being exchanged for a promise, so once promises are exchanged, both parties are bound.

Question 31

When are the parties bound by a unilateral contract?

Answer 31

• Offeror not bound until offeree completes performance, and offeree is NEVER bound.

Question 32

May an offeror revoke an offer to perform a unilateral contract?

Answer 32

• Once offeree begins performance, an option K is created and offeror may NOT revoke.
  o Mere preparations do not create an option K, only beginning performance.
• EXAMPLE: X offers Y $100 to “ride my horse Bronco for a minute,” and while Y is putting on his boots X revokes.