Offer - Formation of a Contract

Question 1

What is the definition of a contract?

Answer 1

A contract is an agreement that is legally enforceable. Accordingly, look first for an agreement. Then, second, determine whether the agreement is legally enforceable.

Question 2

What is the contract formation analysis?

Answer 2

In looking for an agreement, watch for information in the question about

(i) the initial communication (“offer”) and
(ii) what happens after the initial communication (“termination of the offer”) and
(iii) who responds and how she responds (“acceptance”)

Question 3

What is the general test for manifestation of commitment in contract formation?

Answer 3

An offer is one person’s (the offeror) manifestation of willingness to contract. Look for words or conduct showing commitment by that person. The basic test is whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract - Watch out for

1. Content; and
2. Context

Question 4

What are the general rules for content in an offer to form a contract?

Answer 4

1. Missing price term in a sales contract; or
   a. In real estate (governed by common law) the price and description are required, or there is no offer
   b. Sale of goods (governed by the UCC) - There is no price requirement for there to be an offer
2. Vague or ambiguous material terms not an offer under either the UCC or Common Law (e.g. words such as “appropriate, fair and reasonable” are too vague); or
3. Requirement/Output Contracts - On their face these contracts have no content problems
   a. Watch for the follow up of subsequent increase - No unreasonably disproportionate increase (for example buyer contracts to buy all of sellers wheat (10 acres), what if seller buys a million acres next , cant expect buyer to be obligated to that

Question 5

HYPO, Content of Contract: Can a communication from S to B relating to S’s sale of Blackacre to B be an offer even though nothing is said about price? Offer?

Answer 5

No - No one would ever commit to a deal until the price has been mentioned - This is the common law

Question 6

HYPO, Content of Contract: Can a communication from S to B relating to S’s sale of her car to B be an offer even though nothing is said as to price?

Answer 6

Yes - The thinking was that sometime the price would be contemplated later (know the difference between UCC sale of goods vs common law)

Question 7

HYPO, Content of Contract: Can a communication from S to B relating to S’s sale of her car to B be an offer relating to the sale of her car if it provides for the sale for a fair price?

Answer 7

No, too vague

Question 8

HYPO, Content of contract: B “offers” to buy grits from S for five years. There is not a specific quantity term in the “offer”; instead, it provides that B shall purchase all its grits from S. Offer?

Answer 8

Yes, not ambiguous commitment of exclusivity; Always the followup question will be whether there is an increase

Question 9

What is the general rule for an increase in output requirements with regards to already made contracts, i.e. S will sell all of his grits to B?

Answer 9

Buyer can increase requirements so long as the increase is in line with prior demands. No unreasonably disproportionate limitation on increases.

Question 10

HYPO, Contents of Contracts: B “offers” to buy grits from S for five years. B buys 1,000 pounds of grits in each of the first three years of the agreement. B then orders 1,020 pounds the fourth year. What result?

Answer 10

Not unreasonably disproporttionate is the standard - That is a permissible increase
Nothing magic in the number 20, just look at the standard
-*The Bar wants to ask questions that are clear

Question 11

What is the general rule for context (i.e. an advertisement or price quote) of the contract?

Answer 11

An advertisement or price quotation is not an Offer.

Question 12

What are the 3 exceptions to the general rule for context (i.e. an advertisement or price quote) of the contract?

Answer 12

1. An advertisement can be a unilateral offer if it is in the nature of a reward. For example, Carbolic Smoke Ball Company promises 100 pound reward to anyone who catches the flu after using its smoke ball as directed.
2. An advertisement can be an offer if it specifies quantity and expressly indicates who can accept. For example, Lefkowitz Department Store advertises “1 fur coat $10 – first come, first served.”
3. Price quotation can be an offer if sent in response to an inquiry.

Question 13

Once an offer is made then what can the offeree do?

Answer 13

Offers generally create the power of acceptance in the person to whom the offer was made (the “offeree”), creating a contract. However, an offer cannot be accepted if it has been terminated. An offer that has been terminated is “dead.”

Question 14

What are the 4 ways to terminate an offer?

Answer 14

1. Lapse of time – time stated or reasonable time
2. Death of a party prior to acceptance.
3. Revocation of the offer, through words or conduct of the offeror
4. Rejection of the offer, through words or conduct of the offeror

Question 15

HYPO: Lapse of time: During the break, I write in your notes that I offer to sell you my 1973 Cadillac for $400. The writing fails to indicate how long the offer will be kept open. Can you accept the offer five years from now?

Answer 15

No - Lapse of time, time stated or reasonable time
Every fact in the fact pattern is there for a reason, there are no fillers, anytime you get the date, it is there for a reason, not irrelevant

Question 16

What is the general rule for death of a party prior to acceptance for termination of a contract?

Answer 16

Death or incapacity of either party after the offer, but before acceptance, terminates offer.

Question 17

What is the exception to the general rule for death of a party prior to acceptance for termination of a contract?

Answer 17

Irrevocable offers

Question 18

How is an offer revoked?

Answer 18

1) Later unambiguous statement by offeror to offeree of unwillingness or inability to contract, or
2) Later unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of. (Key is offeror initiates, and to complete there must be offeree awareness)

Question 19

HYPO: Revocation: On January 15, I offer to sell Sharon Stone my 1973 Cadillac for $400. The next day, while standing in the shower, I exclaim, “I have changed my mind. I do not want to sell my Cadillac to Sharon Stone.” Is the offer to Ms. Stone revoked?

Answer 19

No - she has not been notified, until Stone is in the shower with Epstein it is not, no offeree awareness

Question 20

HYPO: Revocation: On January 15, I offer to sell Sharon Stone my Cadillac for $400. The next day I sell my Cadillac to Conviser. Is the offer to Ms. Stone revoked?

Answer 20

No - There is no offeree awareness same as 14
Read the facts and give meaning to the facts
Also read the question, you have to answer the question the bar examiners ask (Epstein breached she can recover damages

Question 21

HYPO: Revocation: On January 15, I offer to sell Sharon Stone my Cadillac for $400. The next day I sell my Cadillac to Conviser. Ms. Stone sees Conviser driving my Cadillac on January 16 and learns from him that he has bought the Cadillac. Is the offer to Ms. Stone revoked?

Answer 21

Yes - Offeree awareness

Question 22

HYPO: Revocation: [Multiple offers not revocation]. On January 15, I offer to sell Sharon Stone my Cadillac for $400. The next day I make the same offer to Conviser. Ms. Stone learns that I have made the offer to Conviser. Is the offer to Ms. Stone revoked?

Answer 22

No - Makes offer to 4 people, have not unambiguously told others that have revoked, but once sold notify
**Favorite bar exam question

Question 23

Which offers cannot be revoked (i.e. irrevocable)? 4 types:

Answer 23

1. The Option
2. UCC Firm Offer
3. Reliance
4. Unilateral Contract

Question 24

What is an option contract?

Answer 24

An offer cannot be revoked if the offeror has not only made an offer but also

1) promised to not revoke (or promised to keep the offer “open”) AND
2) this promise is supported by payment or other consideration (“option”)

Question 25

HYPO: [Option]. S offers to sell B her car for $400. B pays S $10 for S’s promise “not to revoke the offer for a week.” Can S still revoke the offer?

Answer 25

No, at least not for the week

Question 26

HYPO: [Not an option]. S offers to sell her car to B for $400. S promises “to keep the offer open for a week.” Can S still revoke the offer notwithstanding her promise not to revoke?

Answer 26

Yes - There is no option, we have a promise not to revoke, an option must be a paid for promise

Question 27

What is the UCC Firm Offer Rule?

Answer 27

An offer cannot be revoked for up to three months if

1) offer to buy or sell goods,
2) signed, written promise to keep the offer open, and
3) party is a merchant. (Merchant is GENERALLY a person in business.)

Question 28

HYPO: Firm offer rule: S, a used car dealer, offers to sell B a 1973 Cadillac for $400. The offer is in writing, signed by S, and expressly promises it will be kept open for a week. Can S revoke?

Answer 28

Not for a week because of the firm offer rule with the option you needed money to hold the option, here you just need the three prongs to be met

Question 29

HYPO: Firm Offer Rule: S, a used car dealer, offers to sell B a 1973 Cadillac for $400. The offer is oral and includes a promise that it will be kept open for a week. Can S revoke?

Answer 29

Yes

Question 30

HYPO: Firm Offer Rule: S, a used car dealer, offers to sell B a 1973 Cadillac for $400. The written offer is signed by S and states it will not be revoked for six months. Can S revoke?

Answer 30

After three months he can revoke, there is a statutory limit of three months

Question 31

HYPO: Firm Offer Rule: S, a used car dealer, offers to sell B a 1973 Cadillac for $400. The written offer is signed by S and states it will not be revoked but does not state a time period. Can S revoke?

Answer 31

Irrevocable for three months

Question 32

HYPO: Firm Offer Rule: S, a used car dealer, offers to sell B a 1973 Cadillac for $400. The written offer is signed by S. Can S revoke?

Answer 32

Yes - Does not state that it is irrevocable

**Most Commonly tested on the Bar Exam

Question 33

HYPO: Firm Offer Rule: S offers to sell B her house for $100,000 and the written offer states that it cannot be revoked for the next four months. Can S revoke?

Answer 33

Yes - Real Estate - if you wanted to keep the offer open you would have to give some kind of consideration

Question 34

What is reliance to an offer, and why is it irrevocable? 3 things

Answer 34

An offer cannot be revoked if there has been

(1) reliance that is
(2) reasonably foreseeable and
(3) detrimental.

Question 35

HYPO: Reliance: G is a general contractor who is bidding on a contract to build a new hotel, using various subcontractors. S, a subcontractor, submits a bid to G to do the painting work for $100,000. G relies on S’s bid in making its bid and is awarded the hotel construction contract. Can S still revoke its bid?

Answer 35

No, relied

Question 36

What is a unilateral contract, and why is it irrevocable?

Answer 36

The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance.

Question 37

HYPO: Unilateral Contract: O offers P $1,000 to paint O’s house. O’s offer states that it can be accepted only by performance. P starts painting. Can O still revoke?

Answer 37

No - Rule he started to perform and there is reliance

*This is a unilateral K, the combination of words “offer” and “only by”

Question 38

HYPO: Unilateral Contract: O offers P $1,000 to paint O’s house. O’s offer states that it can be accepted only by performance. P buys paint. Does this trigger rule #4 so that O cannot revoke?

Answer 38

This is not performance, this is preparation, not enough (need performance) Not under rule #4, but could be under Rule #3, if it is detrimental then it could be
*More likely to get this question on the bar exam, this is a unilateral contract

Question 39

What is rejection of an offer?

Answer 39

Word or conduct of the offeree rejecting the offer of the offeror (this is distinct from revocation, here it is the offeree who is initiating the process)

Question 40

What are the ways in which the offeree may reject the offer? 3

Answer 40

1. Counteroffer
2. Conditional Acceptance
3. Additional terms

Question 41

How is a counteroffer a “rejection” of the offer?

Answer 41

A Counteroffer generally terminates the offer and creates a new offer. Thus generally, where a counteroffer has been made there is no express contract unless that counteroffer has itself been accepted. Counteroffers need to be distinguished from bargaining. Bargaining does not terminate the offer. And, counteroffers do not terminate options.

Question 42

HYPO: Counteroffer: S offers Blackacre to B for $10,000. B responds, “I will only pay $9,000.” Can B later accept S’s offer to sell for $10,000?

Answer 42

No, there has been a counteroffer (the $9,000), the $10,000 offer was never accepted

Question 43

HYPO: Counteroffer: On January 15, S offers Blackacre to B for $10,000. B pays S $2 for S’s promise not to revoke the offer until April 5. On March 3, B makes a counteroffer to S of $9,000. Can B still accept S’s offer?

Answer 43

Yes, there is an option exception

Question 44

HYPO: Bargaining: S offers Blackacre to B for $10,000. B’s response is, “Will you take $9,000?” Can B later accept S’s offer?

Answer 44

Yes, this is bargaining; Interrogative Sentence - If it ends in a question it is bargaining, if it ends in a period than it is a declarative sentence

Question 45

What is a conditional acceptance and why is it a rejection of the offer?

Answer 45

A conditional acceptance terminates the offer. Look for a response to an offer with the word “accept” followed by one of these words or phrases: “if,” “only if,” “provided,” “so long as,” “but,” or “on condition that.”

a) Common law: rejects and becomes a counteroffer that can be accepted by conduct
b) UCC rejects (similar to the common law rationale but not entirely the same)

Question 46

HYPO: UCC Conditional Acceptance:

1) B sends S a purchase order for polyester pant suits. The purchase order makes no mention of arbitration of disputes. S sends an acknowledgment form that provides for arbitration of disputes and states “accept only if you agree that all disputes shall be submitted to arbitration.” No further communications or actions. Has S accepted B’s offer creating an express contract?
2) If S sends B the polyester pant suits and B pays for them, is there a contract?
3) Is the arbitration term a part of the contract?

Answer 46

1) No - Indirect rejection, conditonal acceptance
* Rationale - Express insistence - That is what is happening, it is not just adding a term but it is insisting on it, it is a deal breaker
2. Yes - Consisting solely or based solely on their conduct, S sending was an offer B paying was the acceptance, based solely on conduct
3) No

Question 47

What is the common law “Mirror Image Rule,” or additional terms to the contract and why does it create rejection?

Answer 47

Under common law, a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance.

Question 48

HYPO: Mirror Image Rule:

1) L offers to lease a building to T by sending T a signed lease that is silent about arbitration of disputes. T adds a sentence that states that “All disputes shall be resolved by arbitration of disputes,” and signs. Has T accepted L’s offer creating an express contract?
2) Can T later accept L’s offer?

Answer 48

1) No, no, Killed the offer

2) No - Killed offer

Question 49

Are Additional or different terms a rejection under UCC Article 2 (2-207)?

Answer 49

No, Seasonable expression of acceptance: A fact pattern in which there is
1) offer to buy or sell goods and
2) a response with additional or different terms raises two separate questions:
1) First question: Is there a contract?
Under the UCC, a response to an offer that adds additional or different terms, but does not make the new terms a condition of acceptance, is generally treated as an acceptance – a “seasonable expression of acceptance.” Whether the parties are merchants is irrelevant in answering this first question.
2) Second question: Is the additional term a part of the contract?
The additional term is not a part of the contract unless both parties are merchants. Even If both parties are merchants, the additional term is not a part of the contract if the additional term is “material” [fact question] or if the additional term is objected to by original offeror.

Question 50

HYPO: Additional Terms under the UCC:

1) Epstein offers to sell his 1973 Cadillac to Conviser for $400. Conviser responds: “I accept. Deliver it on Saturday.” No further communications or actions. Is there a contract?
2) With Saturday delivery as a contract term?
3) What if both Epstein and Conviser were merchants?
4) Conviser’s response is, “I accept on the condition that you agree to Saturday delivery.” Is there a contract?

Answer 50

1) Yes - The offer is the term of the K, if in doubt it is usually a UCC question than a common law, not express insistence
2) No - Unless both parties are merchants.
3) Additional term a part of the K if it is not material
Bar exam strategy: Questions that will mislead material term will depend on all of the facts, so never a bar exam question No way to know if Sat. delivery is a material fact
4) No K - We have express insistence

Question 51

15

Answer 51

Acceptance of an offer