Contract Formation Principles Flashcards

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?

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.

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?

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.

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?

Answer: No, because Frank's offer was revoked when he sold to Harry, even without direct notice.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.

Which of the following is NOT a recognized exception to the rule that offers are freely revocable?

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.

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?

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.

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?

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.

Under the common law, when parties exchange emails and dispute whether they reached an agreement, courts use which standard to determine contract formation?

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.