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Flashcards in Test 2 CH 13 Deck (17)
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1

acceptance

unqualified assent to the act or proposal of another; as the acceptance of a draft (bill of exchange), of an offer to make a contract, of goods delivered by the seller, or of a gift or deed.

2

counteroffer

proposal by an offeree to the offeror that changes the terms of, and thus rejects, the original offer.

3

divisible contract

agreement consisting of two or more parts, each calling for corresponding performances of each part by the parties.

4

firm offer

offer stated to be held open for a specified time, which must be so held in some states even in the absence of an option contract, or under the UCC, with respect to merchants.

5

offer

expression of an offeror’s willingness to enter into a contractual agreement.

6

output contract

contract of a producer to sell its entire production or output to a given buyer.

7

requirements contract

contract to buy all requirements of the buyer from the seller.

8

A contract

consists of enforceable obligations that have been voluntarily assumed. Thus, one of the essential elements of a contract is an agreement. This chapter explains how the basic agreement arises, when there is a contract, and how there can be merely unsuccessful negotiations without a resulting contract.

9

Requirements of an Offer

An offer expresses the willingness of the offeror to enter into a contractual agreement regarding a particular subject. It is a promise that is conditional upon an act, a forbearance (a refraining from doing something one has a legal right to do), or a return promise.

10

Contractual Intention

To make an offer, the offeror must appear to intend to create a binding obligation. Whether this intent exists is determined by objective standards. This intent may be shown by conduct.

There is no contract when a social invitation is made or when an offer is made in obvious jest or excitement. A reasonable person would not regard such an offer as indicating a willingness to enter into a binding agreement. The test for a valid, binding offer is whether it induces a reasonable belief in the offeree that he or she can, by accepting it, bind the offeror, as developed in the Wigod case.

11

Case Summary
A Valid Offer!

Facts:

The U.S. Department of the Treasury implemented the federal Home Affordable Mortgage Program (HAMP) to help homeowners avoid foreclosure amidst the sharp decline in the nation’s housing market in 2008. In 2009, Wells Fargo Bank issued Lori Wigod a fourmonth “trial” loan modification under a Trial Period Plan (TPP). After the trial period, if the borrower complied with all of the terms of the TPP agreement, including making all required payments and providing all required documentation, and if the borrower’s representations remained true and correct, the servicer, Well Fargo, had to offer a permanent mortgage modification. Wigod alleged that she complied with these requirements and that Wells Fargo refused to grant a permanent modification. Wells Fargo contended that the TPP contained no valid offer.

Decision:

Judgment for Wigod. A person can prevent his submission from being treated as an offer by using suitable language conditioning the formation of a contract on some further step, such as approval by corporate headquarters. It is when the promisor conditions a promise on his own future action or approval that there is no binding offer. Here, the TTP spelled out two conditions precedent to Wells Fargo’s obligation to offer a permanent modification. Wigod had to comply with the requirements of the TPP, and her financial representations had to be true and accurate. These conditions had to be satisfied by the promisee (Wigod). Here a reasonable person in Wigod’s position would read the TPP as a default offer that she could accept so long as she satisfied the two conditions. [Wigod v. Wells Fargo Bank, 673 F.3d 547 (7th Cir. 2012)]

12

Invitation to Negotiate.

The first statement made by one of two persons is not necessarily an offer. In many instances, there may be a preliminary discussion or an invitation by one party to the other to negotiate or to make an offer. Thus, an inquiry by a school as to whether a teacher wished to continue the following year was merely a survey or invitation to negotiate and was not an offer that could be accepted. Therefore, the teacher’s affirmative response did not create a contract.

13

Invitation to Negotiate.

Ordinarily, a seller sending out circulars or catalogs listing prices is not regarded as making an offer to sell at those prices. The seller is merely indicating a willingness to consider an offer made by a buyer on those terms. The reason for this rule is, in part, the practical consideration that because a seller does not have an unlimited supply of any commodity, the seller cannot possibly intend to make a contract with everyone who sees the circular.

The same principle is applied to merchandise that is displayed with price tags in stores or store windows and to most advertisements. An advertisement in a newspaper is ordinarily considered an invitation to negotiate and is not an offer that can be accepted by a reader of the paper.

However, some court decisions have construed advertisements as offers that called for an act on the part of the customer thereby forming a unilateral contract, such as the advertisement of a reward for the return of lost property.

14

Invitation to Negotiate.

Quotations of prices, even when sent on request, are likewise not offers unless the parties have had previous dealings or unless a trade custom exists that would give the recipient of the quotation reason to believe that an offer was being made. Whether a price quotation is to be treated as an offer or merely an invitation to negotiate is a question of the intent of the party giving the quotation.

15

Agreement to Make a Contract at a Future Date.

No contract arises when the parties merely agree that at a future date they will consider making a contract or will make a contract on terms to be agreed on at that time. In such a case, neither party is under any obligation until the future contract is made. Unless an agreement is reached on all material terms and conditions and nothing is left to future negotiations, a contract to enter a contract in the future is of no effect.

16

Definiteness

An offer, and the resulting contract, must be definite and certain. If an offer is indefinite or vague or if an essential provision is lacking, no contract arises from an attempt to accept it. The reason is that courts cannot tell what the parties are to do. Thus, an offer to conduct a business for as long as it is profitable is too vague to be a valid offer.

The acceptance of such an offer does not result in a contract that can be enforced. Statements by a bank that it was “with” the debtors and would “support” them in their proposed business venture were too vague to be regarded as a promise by the bank to make necessary loans to the debtors.

The fact that minor, ministerial, and nonessential terms are left for future determination does not make an agreement too vague to be a contract.Footnote


17

Case Summary
What is the Meaning of an Agreement for a “Damn Good Job”?

Facts:

Larry Browneller made an oral contract with Hubert Plankenhorn to restore a 1963 Chevrolet Impala convertible. The car was not in good condition. Hubert advised the owner that his work would not yield a car of “show” quality because of the condition of the body, and he accordingly believed that the owner merely wanted a presentable car. Larry, on the other hand, having told Hubert that he wanted a “damn good job,” thought this statement would yield a car that would be competitive at the small amateur car shows he attended. When the finished car had what Larry asserted were “waves” in the paint as a result of an uneven surface on the body, Larry brought suit against Hubert for breach of the oral contract.

Decision:

There was clearly a misunderstanding between the parties over the quality of work that could and would be obtained. Quality was a material term of the oral contract between the parties, on which there was no shared understanding. Accordingly, a court will not find an individual in breach of a term of the contract where the term did not exist. [In re Plankenhorn, 228 B.R. 638 (N.D. Ohio 1998)]