Contracts

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Valid Enforceable Contract

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In order to determine if any rights exist, an analysis is required to determine if there is a valid enforceable contract which consists of an offer, acceptance, consideration and lack of formation defenses.

In order for a contract to be formed, the parties must reach a legally sufficient bargained for exchange to which they mutually assent. Mutual assent is reached through the "offer" and "acceptance" measured by the objective theory test, a reasonable person's interpretations of the manifested acts and words of the parties. Both sides must have benfit and detriment (or meet a legal exception) for valid consideration to be present. However, an otherwise valid contract can be void, voidable or unenforceable because of a legal defense.

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Offer

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An offer is a manifestation of present contractual intent communicated to an identified offeree containing definite and certain terms.

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Advertisement

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Most advertisements are not offers to sell, but offers to receive offers. This is because they do not contain definite words of commitment or an identified offeree.
When the advertisement contains all material terms of an offer (definite and certain terms) and identifies the offeree, it only invites acceptance and is an offer.

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Offers in Jest

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An offer which the offeree knows or should know is made in jest is not a valid offer. Thus, even if it is “accepted,” no contract is formed.

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Preliminary negotiations

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If a party who desires to contract solicits bids, this solicitation is not an offer and cannot be accepted. Instead, it merely serves as a basis for preliminary negotiations. (includes price lists, solicitation of bids, and auctions with reserve).

An acceptance must be in response to an offer, not in response to something other than an offer such as a solicitation of offers.

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General Rule of Revocation

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An offer can be revoked at any time before acceptance unless offer is irrevocable. Revocation is effective when offeree knows of or receives revocation.

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Offer Termination by Act of the Parties

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1. Revocation
2. Rejection
3. Counteroffer

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Termination of an Offer by Operation of Law

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1. Lapse of time
2. Death or insanity of either party (unless offer is irrevocable)
3. Destruction of the specific subject matter of the contract
4. Intervening illegality

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Option

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A separate contract where the offeree gives consideration to the offeror to hold open the offer for a certain period of time

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Firm Offer

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Offeror is a merchant using a signed writing to assure offer will remain open for a stated period of time without consideration (not to exceed three months).

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Offers irrevocable by estoppel

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Performance Begins on a unilateral contract. If the offeree begins to perform on a unilateral contract, the offer becomes temporarily irrevocable that is the offeree receives an option contract.

Detrimental reliance on a bilateral contract. If the offeree relies on the offer; and the reliance is detrimental, reasonable, substantial and foreseeable; then the offer must stay open for a reasonable time.

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Acceptance of a Bilateral Offer - Common Law

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An acceptance of a bilateral offer is an unequivocal assent to the terms of the offer communicated to the offeror in the manner indicated by the offer (effective when delivered to medium), an impliedly authorized medium (same medium as offer for “mailbox rule”), or any reasonable manner (different method than offer effective upon receipt). Specified means stipulated and not used is a rejection and counter offer.

An acceptance which contains any qualifications, additional or different terms becomes a rejection and counter offer. Once an offer is effectively rejected, the offeree cannot revive the offer and tender an acceptance of it. An inquiry by the offeree is not a rejection, and thus does not terminate the offer. An offer can be revoked at any time before acceptance unless the offer is irrevocable. Revocation is effective when offeree knows of or receives revocation. As long as the acceptance takes place while the offer is still outstanding, a contract is formed.

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Acceptance of Unilateral Offer - Common Law

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Acceptance of unilateral offer takes place upon completion of the act required by the offeror (acceptance by full performance). Under the Restatement of contracts, Second an offer for a unilateral contract cannot be effectively withdrawn once the offeree has begun performance. As long as the offeree continues to perform, the offer remains irrevocable until the offeree has the opportunity to finish.

Where an offer looks to a unilateral contract, the offeree must give reasonably prompt notice of his or her acceptance after s/he has done the requested act unless the offeror promptly learns of the acceptance in some other way. If the offeree does not do this, the contract that was formed by the act is discharged.

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Acceptance of a Bilateral Offer - UCC

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An acceptance of a bilateral offer is an unequivocal assent to the terms of the offer communicated to the offeror in the manner indicated by the offer (effective upon delivery to medium), an impliedly authorized medium (same medium as offer or faster for “mailbox rule”), or any reasonable manner (slower method than offer effective upon receipt). Specified means stipulated and not used is a rejection and counter offer.

If the offeree makes a definite expression of acceptance, a contract is formed even though it states terms additional or different to those offered, unless the offeree conditions acceptance upon the offeror's assent to the additional terms. If one or both parties are non-merchants, the additional or different terms do not become part of the contract. If both are merchants, additional terms are on the offeree's terms unless they are material, the offer was expressly limited, or an objection occurs within a reasonable time.

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Acceptance of offer by buyer for shipment of goods - UCC

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An offer by buyer for shipment of goods can be accepted by the seller in any one of three methods; the seller’s delivery of conforming goods, prompt promise to ship, and delivery of non-conforming goods with or without notice that the shipment is sent as an accommodation (automatic breach unless notified as an "accommodation only" which is not treated as an acceptance). A buyer accepts non-conforming goods when, after an opportunity to inspect, s/he fails to make an effective rejection.

Under the UCC, if the seller tenders non-conforming goods (buyer rejects) or seller refuses to deliver conforming goods, one of the buyers remedies includes “cancel and with notice rescind” the contract restoring the parties back to the position they would have been before entering the contract. Or, if goods are rejected or acceptance is revoked, another option for the buyer is to “Sue for Breach of Contract” to recover damages at the time buyer learned of breach (Market price –K price + Incidentals + Consequenti

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Consideration

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A legally sufficient bargained for exchange for legal value, benefit induces legal detriment or current performance, detriment to promisee and binding obligation on both parties. If either party to a contract has not given valid consideration, the binding agreement (contract) is unenforceable (unless it meets a legal exception).

Consideration is the benefit promised by the offeror (promisor) and the legal detriment promised or performed by the offeree (promisee). It is a bargained for exchange, the promise induces the detriment on each side. Legal value can be measured by market value, but it can also be giving up or acting on a legal right (doing or not doing what one is free to do). As long as the consideration is actually exchanged or serious to be paid (a binding obligation on both parties), it is legally sufficient.

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Consideration for Modifications

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Pre-existing obligations are not sufficient consideration; a party cannot get more money for what s/he is already obligated to do. Common law requires additional consideration for a modification. UCC does not require additional consideration if, out of good faith, the parties agree to the modification.

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Conduct of the Parties - UCC

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When no definite expression of acceptance exists or no contract would have been recognized on the basis of the writings, the subsequent conduct of the parties particularly performance under what they apparently believed to be a contract is sufficient to establish a contract.

If a contract is found through the conduct of both parties, the terms of the contract will be the terms to which both parties have agreed supplemented by the UCC "gap fillers." If the parties have omitted any attempt to express an intention regarding price, time for payment, time for delivery and place for delivery, the court will supply reasonable terms. Inconsistent terms cancel each other out so that neither enters the contract, and the “different” terms are supplied by a relevant UCC “gap filler” if applicable, otherwise common law controls.

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Silence as Acceptance - UCC

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Silence is not acceptance under the UCC unless the offeree's actions indicate an attempt to accept (an offer by buyer for shipment of goods).

Prompt shipment of conforming goods is an effective acceptance upon dispatch. Prompt shipment of non-conforming goods is an acceptance and breach.

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Conduct of the Parties - Common Law ("implied-in-fact")

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An offeree who silently receives the benefits of services will be held to have accepted a contract form them if s/he had a reasonable opportunity to reject them and knew or should have known that the provider of the services expected to be compensated.

The true implied-in-fact contract situation in which each party, by his conduct, knowingly leads the other to believe that they have an agreement is not a situation in which at least one party fails to take any action that would justify the other in believing that a contract is intended (intra-familial transactions).

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Last Shot "Acceptance by Conduct" - Common Law

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Under common law silence is not acceptance. However, acceptance by conduct often occurs during the course of extended negotiations that fail to culminate in words or documents that constitute an acceptance.

While the parties go back and forth in their attempts to form an explicit contract, one will start to perform, and this start of performance may justify the conclusion that that party was non-verbally accepting the outstanding offer (last shot rule).

An offer may not make the offeree's silence an acceptance.

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Are the parties merchants?

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A merchant is one who regularly deals in goods of this kind or who, by his/her occupations holds himself/herself out as having some special skill or knowledge as to this type of good.

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Acceptance of offer that invites either promise or performance - Common Law

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If the offer does not make clear whether acceptance is to occur through promise or performance, the offeree may accept by either.

The offeree must give reasonably prompt notice of his acceptance unless the offeror promptly learns of the acceptance in some other way.

The notice-of-acceptance of unilateral contracts is required and given by reasonably prompt notice the requested act has been accepted and after complete performance.