FYLSX Contract Formation Principles 2 — Questions and Answers
Question 1: A store displays a jacket with a price tag of $150. A customer brings it to the register and says, 'I'll take it.' The store clerk refuses to sell it. Is there a contract?
- Yes, the display was an offer that the customer accepted.
- No, the price tag is an invitation to make an offer, not an offer itself. (Correct answer)
- Yes, because the price was clearly stated.
- No, because the customer did not sign anything.
Correct answer: No, the price tag is an invitation to make an offer, not an offer itself.
Price tags and store displays are generally treated as invitations to make an offer, not offers themselves, so no contract is formed when the store refuses.
Question 2: Donna mails an offer to Ed on Monday. Ed mails his acceptance on Wednesday. The acceptance is lost in the mail and never arrives. When, if ever, was a contract formed?
- When Donna mailed the offer.
- When Ed mailed the acceptance on Wednesday. (Correct answer)
- When the acceptance would have normally arrived.
- No contract was formed because acceptance never arrived.
Correct answer: When Ed mailed the acceptance on Wednesday.
Under the mailbox rule, acceptance is effective upon dispatch, so a contract formed when Ed mailed his acceptance on Wednesday.
Question 3: Frank offers to sell his car to Grace for $5,000, stating the offer is open for two weeks. After one week, Frank sells the car to Harry. Grace then accepts within the two-week window. Is there a contract with Grace?
- Yes, because the offer was irrevocable for two weeks.
- No, because Frank's offer was revoked when he sold to Harry, even without direct notice. (Correct answer)
- Yes, because Grace had not received notice of revocation.
- No, because Frank had the right to revoke at any time.
Correct answer: No, because Frank's offer was revoked when he sold to Harry, even without direct notice.
An offer can be revoked before acceptance, and an offeree's knowledge that the offeror has taken an inconsistent action (like selling to another) constitutes effective revocation.
Question 4: Which of the following is NOT a recognized exception to the rule that offers are freely revocable?
- An option contract supported by consideration.
- A firm offer under the UCC made by a merchant in a signed writing.
- An offer where the offeree has begun performance on a unilateral contract.
- An offer that has been open for more than 30 days. (Correct answer)
Correct answer: An offer that has been open for more than 30 days.
The passage of time alone does not make an offer irrevocable; irrevocability requires consideration, a merchant firm offer, or detrimental reliance/part performance.
Question 5: Ivan offers to hire Julia as a consultant for $200/hour. Julia responds, 'I'll do it for $250/hour.' Ivan says nothing. Is there a contract?
- Yes, at $200/hour because Ivan made the original offer.
- Yes, at $250/hour because Ivan's silence constitutes acceptance.
- No, because Julia's response was a counteroffer that rejected Ivan's offer. (Correct answer)
- No, because neither party signed a written agreement.
Correct answer: No, because Julia's response was a counteroffer that rejected Ivan's offer.
Julia's counteroffer terminated Ivan's original offer, and Ivan's silence is not acceptance, so no contract exists.
Question 6: Karl promises to give his nephew $10,000 if the nephew quits smoking for one year. The nephew quits for the full year. Karl then refuses to pay. The nephew sues. What is the most likely outcome?
- Karl wins because the promise was a gift with no consideration.
- The nephew wins because he provided consideration by forbearing a legal right. (Correct answer)
- Karl wins because a family promise is unenforceable.
- The nephew wins only if the promise was in writing.
Correct answer: The nephew wins because he provided consideration by forbearing a legal right.
Forbearance from a legal right (the right to smoke) constitutes valid consideration, making Karl's promise enforceable.
Question 7: Under the common law, when parties exchange emails and dispute whether they reached an agreement, courts use which standard to determine contract formation?
- The subjective standard — what each party privately intended.
- The objective standard — what a reasonable person would believe the communications meant. (Correct answer)
- The written instrument standard — only signed documents count.
- The majority rule standard — whatever most courts have decided in similar cases.
Correct answer: The objective standard — what a reasonable person would believe the communications meant.
Contract formation is judged by an objective standard: whether a reasonable person observing the parties' communications would conclude they agreed.
FYLSX Contract Formation Principles 2
A store displays a jacket with a price tag of $150.
A customer brings it to the register and says, 'I'll take it.' The store clerk refuses to sell it.
Is there a contract?