Chapter 12: Formation of contracts: Offer And Acceptance Flashcards
(44 cards)
Offer
An expression of the offeror’s willingness to enter into a contractual agreement regarding a particular substance.
Conditional upon an act, forbearance, or return promise from the offeree
Requirements of an offer
- Contractual intention
- Definiteness
- Communication of Offer to offeree
Contractual intention
Offeror must appear to intend to create a binding obligation
Test for a binding offer is whether it induces a reasonable belief in the offeree that they can, by accepting it, bind the offeror
Wigod vs. Wells Fargo bank
- wells Fargo issued Wigod a trial loan modification under a TPP agreement
- if the borrower complied with all the terms of the agreement bank had to offer a permanent mortgage modification
- bank contends the TPP agreement was not a valid offer
- decision for wingod
- there was no language in the TPP conditioning the mortgage modification on anything beyond Wingod’s actions. It was reasonable she would expect her actions to result in the modification of her mortgage based on conditions listed
First statement: offer or invitation to negotiate?
Generally the latter, but have sometimes been deemed a unilateral contract when offer calls for an action on the part of the offeree (offerer setting the terms, offeree accepts or not.)
Often circumstantial
Agreement to make a contract at a future date
No contract exists by this agreement until contract is made
Agreement to reach an agreement is not a contract: Statement of intention to sign is not signature
Contracts to negotiate
Binding promises that protect the deal-making process
Safeguards to the negotiation process that do not lock parties into a contract
Definiteness (requirement of an offer)
An offer and the resulting contract must be definite and certain so that it is capable of being enforced
If too vague courts are not going to enforce
(Minor or nonessential terms left vague do not negate a contract)
Frank Novak & sons vs A-team dba Servicemaster
- general contractor servicemaster hired subcontractor Novak
- servicemaster says novak bound by written, unsigned subcontractors agreement
- novak alleges oral contract
- judgement for Novak
- servicemaster appealed
- appeal judgment for Novak
- record + understood custom of construction industry upholds oral contract
Plankenhorn
“damn good job” is not a material definition of quality with shared understanding and therefore unenforceable
When contract is too indefinite to be enforced
Court will try to determine the intention of the parties in order to enforce the contract
Striking down a contract as indefinite is last resort
Definite by Incorporation
An offer and resulting contract that by themselves appear too indefinite may be made definite by reference to another writing
(Reference to prior dealings, standard format)
Duty of good faith and fair dealing
Applies to enforcement of contracts, not their negotiation
In absence of fraud, special relationships, or statutory or contractual duties negotiators are not obliged to divulge pertinent information to the other party. Legal option is to walk away from negotiation, not sue for lack of good faith
Implied terms
Some terms of a contract may not be explicit but can be implied from the contract
“Best efforts” clauses
Duty defined only in terms of best efforts may be enforced (means at least some effort, not zero effort: Hinc vs Lime-O-Sol)
Divisible contract
Agreement consisting of two or more parts, each calling for corresponding performances of each part by the parties
Requirements contract
Contract to buy all requirements of the buyer from the seller
Output contract
Contract of a producer to sell it’s entire production or output to a buyer
Exceptions to definiteness
Sometimes a contract is desirable but the situation makes it impossible to adopt terms in advance (market price, production volume etc)
Still enforceable despite lacking specifics
Communication of the offer to the offeree
For an offer to be valid it must be communicated directly to the offeree by the offeror or at the offeror’s discretion.
Cannot accept offer when only indirectly offered
Unilateral contract: if offeree performs act without knowing the offer exists is not entitled to retroactively accept offer when they discover it’s existance
Termination of offer
Offers may be terminated by revocation, counteroffer, rejection, lapse of time, death or disability of a party, or subsequent legality.
Offeree cannot accept a terminated offer
Revocation of offer by offeror
An ordinary offer may be revoked at any time before it is accepted even if an express statement is made that the offer is open for a period and the period is not expired.
Any words indicating termination of offer are sufficient, though revocation is only effective once it has been made known to the offeree. (Offeree has to receive the revocation for it to be effective)
Indirect communication of revocation to offeree is acceptable
BUT if offeree accepts the offer before it is revoked a contract is created and breaking must follow process
Option contract
A binding promise to keep an offer open for a stated period of time or until a specified date (essentially contract to refrain from revoking offer)
Promise to keep offer open must receive some consideration in return to be considered a contract
Firm offer
An offer stated to be held open for a specified time, under the UCC, with respect to merchants
Max 3 month irrevocability period
