Formation of contract: offer and acceptance

What are the different situations in which an offer cannot be revoked?

1. An option contract. 2. The merchant firm offer rule. 3. Reliance. 4. Performance beginning on a unilateral contract.

Written promise to pay debt barred by statute of limitations enforceable - Consideration substitute

A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration.

What is the merchant firm offer rule?

APPLIES ONLY TO ARTICLE 2: 1. An offer to buy or sell goods; 2. Signed, written promise to keep the offer open; and 3. Party-offeror is a merchant. - An offer under this Rule may not be revoked for (i) time stated; or (ii) up to three months if no time stated. Under common law, the offer may still be revoked even if there is a written offer that leaves it open for four months. If the signed writing to keep the offer open does not state a time period, the court will fix a reasonable time that cannot exceed three months.

What is the mailbox rule?

Acceptance is effective on the date it was put in the mailbox.

Acceptance between merchants

Additional terms proposed become part of contract unless they Materially alter the terms Offer expressly limits acceptance Offeror rejects within a reasonable time.

What happens when an offeree relies on an offer?

An offer cannot be revoked if there has been detrimental reliance by the offeree that is reasonably foreseeable.

What happens if a party dies prior to acceptance?

General rule: death or incapacity of either party terminates offer. Exceptions: 1. Option: an offer that is held open by consideration and the offeror dies, The offeree still has that time period to accept. 2. Part performance of offeree to enter into unilateral contract. If offeree begins performance, death of offeror does not revoke that.

Who can accept an offer?

Generally, an offer can be accepted only by 1. A person who knows about the offer, 2. who is the person to whom it was made. Offers cannot be assigned. Options can be assigned unless the option otherwise provides.

Method of accepting contract: the offeree promises to perform.

Most offers can be accepted by a promise to perform. Remember, offers that expressly require performance for acceptance and reward offers require performance.

Method of accepting an offer: the offeree fully performs.

The main issue is whether notice of performance is required. This turns on (i) What the offer provides, and (ii) Whether offeree has reason to believe that offeror will not learn of the acceptance

What is an option contract?

The offer has promised to keep the offer open and this promise is supported by consideration.

B offers to buy goods for five years. There is no specific quantity in the offer but it provides that B will purchase all of its goods from s. Valid offer?

-,Yes. Legally valid requirement offer. - The requirement can be increased so long as it is not unreasonably disproportionate and in-line with the prior demands.

What is a conditional acceptance?

1. A conditional acceptance is an indirect rejection of an offer. It terminates the offer and becomes a new offer. Look for words such as if, but, provided, so long as, on condition that.

Past consideration

1. A promise to pay AFTER the detriment has already been incurred is not valid consideration (past consideration not valid). 2. Exception: Expressly requested and expectation of payment

Offer - general test

1. An offer is a manifestation of an intention to contract - words or conduct showing commitment. The basic test is whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract 2. Problems to watch out for: - Land sale K: Missing price terms = NO OFFER - Article 2 does not need price; courts fill in reasonable price later -

Method of accepting offer: if the offeree starts to perform.

1. Bilateral contract: offer is open as method of acceptance so start of performance is acceptance. 2. Unilateral contract: offers require performance for acceptance. Performance means completion of performance. Start of performance is not acceptance; completion of performance is required. Remember that when an offeree starts performance on a unilateral contract, it will make that offer irrevocable. So the offeror cannot get out of the contract, but the offeree may leave the contract.

Preexisting contractual or statutory duty rule

1. Common law: doing what you are already legally obligated to do is not consideration for a promise to pay you more to do merely that. You need NEW consideration to modify contract in common law. - exception: change or addition to performance - exception: unforeseen difficulty so severe as to excuse performance - exception: third party promise to pay (new duty to third party) 2. Article 2 has no pre-existing duty rule: good faith is test for existing sale of goods contract.

What are the three methods of indirect rejection from an offeree?

1. Counter offer - saying will only do work for different price - WORKS LIKE REJECTION 2. Conditional acceptance 3. Additional terms (Common-law only).

Method of accepting offer: when a seller of goods sends the wrong goods.

1. General rule: acceptance and breach. 2. Exceptions: - Accommodation exception: counter offer and no breach. For example, seller sends 100 goods that are slightly off from the correct goods with the explanation that they are out of the correct good. The original offeror can decide whether to accept those goods. it is a counter offer but not a breach.

Is an advertisement an offer?

1. General rule: an advertisement is not an offer. 2. Exceptions: - An advertisement can be an offer if it is in the nature of a reward. For example, Company rewards $100 to anyone who catches the flu after taking it's medicine. - An advertisement can be an offer if it is specific as to quantity and expressly indicates who can accept. For example, store advertises for a coat for $10 to the first come, first serve.

Method of accepting offer: where the offeree is silent.

1. General rule: silence is not acceptance. 2. Exception: - If custom indicates silent acceptance is reasonable, or offeree by words or conduct agrees that silence is acceptable, then silence is acceptance.

Party payment as Consideration for Release: promise to forgive balance of debt

1. Key is whether debt is due and undisputed. If debt is due and undisputed, then part payment is NOT consideration for release 2. Debt NOT due or disputed: creditor's promise to accept less than due IS enforceable because debtor is paying an amount earlier than due.

What are the four methods that can terminate an offer?

1. Lapse of time: time stated or under reasonable time has passed. 2. Words or conduct of offeror: revocation of an offer 3. Words or conduct of offeree: rejection. 4. Death of a party prior to acceptance.

ANALYSIS

1. Mutual Assent - offer: promise / undertaking / certain terms communicated to offeree - acceptance: before termination by revocation, rejection, or operation of law 2. Consideration - Bargained-for exchange of somethin go legal value - substitute: promissory estoppel; detrimental reliance; good faith modification 3. No Defenses - mistake (mutual or unilateral) - lack of capacity (void or voidable K) - Illegality (renders K void) - statute of frauds

Consequences of incapacity on contract formation

1. Right to disaffirm by person without capacity 2. implied affirmation by retaining benefits after gaining capacity - infant turns 18 and then contains benefits of contract after gaining capacity. 3. Liability for necessaries: a person who does not have capacity is legally obligated to pay for things that are necessary such as food/clothing/medical care but that liability is not based on contract law - quasi contract law.

What happens when there is the start of performance on an offer?

1. The start of performance pursuant to an offer on a unilateral contract makes that offer irrevocable for a reasonable period of time to complete performance. Performance makes it irrevocable, not preparation for performance. However preparation, may trigger reliance.

What happens when an offeree adds additional terms to a common-law contract?

1. Under common law, and acceptance that adds new terms is treated like a counter offer rather than acceptance. The original offer would be dead. Mirror image rule.

What happens when an offeree adds additional terms to a UCC article 2 contract? Battle of the forms...

1. Under the UCC, a response to an offer that adds new terms [But does not make the new terms a condition of acceptance], is treated as an acceptance - a seasonable expression of acceptance. 2. If both parties are merchants, the new term is part of the contract unless the new terms materially change the offer, or the offeror objects to the change. 3. If one or both of the parties are not merchants, the additional term is merely a proposal that will be separately accepted or rejected. 4. Material alteration: change that substantially affects economic risks / benefits / remedies / money - arbitration clause is material clause.

Consideration

1. a bargained-for exchange between the parties; 2. an element of legal value to that which is bargained for. - legal value is present if promise has incurred a detriment. - to have a bargained-for exchange, the promise must induce the detriment, and detriment must induce the promise

Who lacks capacity to contract?

1. infant - under 18 2. mental incompetents - lacks agreement to understand agreement 3. intoxicated persons if other party has reason to know

Reasons why Agreement is NOT legally enforceable

1. lack of consideration or a consideration substitute for the promise at issue 2. lack of capacity of person who made promise 3. statute of frauds 4. existing law prohibits performance 5. misrepresentations 6. duress 7. unconscionability 8. Ambiguity in words of agreement 9. mistakes at the time of the agreement as to the material facts

Promissory estoppel as CONSIDERATION substitute

1. promise 2. reliance that is reasonable, detrimental, and foreseeable c. Enforcement necessary to avoid injustice.

How might the words or conduct of an offer or indicate a revocation of an offer?

1. unambiguous statement by the offeror to the offeree of unwillingness or inability to contract, or 2. unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of. The offeree must know about the revocation in order for it to be effective. If the offer he gets the information from a reasonable and reliable source, the revocation is effective. A rumor is probably insufficient.

Requirement contract/output contract offer

A contract is valid under UCC if it states the goods to be delivered in terms of the buyers requirements or sellers output or in terms of exclusivity. Words like all, only, Solely, and requirement indicate and out put situation.

What is a counter offer?

A counter offer is a method of rejection. It terminates the original offer and becomes a new offer. Example of counter offer: in response to $10,000 for the goods, I say "I will only pay $9000" Example of bargaining: in response to $10,000 offer for the goods, I say "Will you take $9000?".

Does an offer to contract must contain a price?

Common law: price and description required. Article 2 sale of goods: no price requirement, still an offer if parties so intend. If an offer to sell goods does not have a price, it is assumed that the price will be filled in later. If the offer contains vague or ambiguous material,that is not an offer under common law or the UCC. "Appropriate", "fair", "reasonable" = vague or ambiguous terms.

Can an offer be revoked after it has already been accepted?

No. It cannot be revoked after it has been accepted. At that point it would be a breach to revoke.

General acceptance

Promise to ship goods Promptly shipping goods -acceptance and breach if non conforming goods sent - counteroffer if no conforming goods sent plus a notice of accommodation.

State of frauds cud 2-201

Requires certain types of contracts be in writing, especially if over $500. Specially manufactures goods Exception: Goods must be specially manufactured for buyer, Seller must have made substantial beginning on their manufacture or entered into a commitment to purchase them from someone else, and goods cannot be resold in the ordinary course of business

When does revocation of an offer become effective?

Revocation of an offer sent through the mail is not effective until received.

Termination of offer: lapse of time

This is a reasonableness standard. However, this issue should be raised if the offer and acceptance dates are longer than 30 days.

Method of accepting offer: when the offeror and the offeree are at different places.

Three rules: 1. Generally, communications are effective only when received. 2. Generally, acceptance is effective when sent. 3. If rejection is sent first, ignore rule 2. - REvocation, then acceptance: revocation must be received before acceptance sent - rejection then acceptance: Rejection controls unless acceptance gets there first.