Contract Formation Principles Flashcards

An art collector sent a letter to a painter on May 1st, offering to purchase her latest masterpiece for $50,000. The letter stated, 'This offer will remain open until May 10th.' The painter mailed a letter of acceptance on May 5th. On May 6th, before receiving the painter's acceptance, the collector sent a fax revoking the offer. The painter received the revocation on May 7th, and the collector received the acceptance on May 8th. Is there a valid contract?

Answer: Yes, because the acceptance was effective when mailed.

Under the common law 'mailbox rule,' an acceptance of an offer is effective upon dispatch, not upon receipt, provided it is sent in a commercially reasonable manner. Here, the painter dispatched her acceptance on May 5th, which is before the collector's revocation was effective (revocations are effective upon receipt). Therefore, a contract was formed on May 5th.

Which of the following is an essential element for the formation of any valid common law contract?

Answer: Mutual assent.

Mutual assent, often referred to as a 'meeting of the minds,' is a fundamental requirement for the formation of any valid contract. It consists of a valid offer and a valid acceptance. While some contracts must be in writing under the Statute of Frauds, not all do. Contracts for illegal purposes are void, and formal seals are generally no longer required.

A homeowner, impressed by her neighbor's recent landscaping work, tells the landscaper, 'Because you did such a great job for my neighbor, I'll pay you $500.' The landscaper, surprised, says, 'Thank you!' Is the homeowner's promise enforceable?

Answer: No, because the promise is based on past consideration.

The homeowner's promise is unenforceable because it is based on past consideration. Consideration must be a bargained-for exchange. The landscaper's work for the neighbor was completed before the homeowner made her promise, so it was not given in exchange for the promise. Therefore, it is considered past consideration, which is not legally sufficient to form a contract.

A contractor offers to build a deck for a homeowner for $10,000. The homeowner replies, 'I accept your offer, but you must also agree to stain the deck for the same price.' Which of the following legal principles best describes the homeowner's reply?

Answer: A counteroffer.

Under the common law, the 'mirror image rule' requires an acceptance to be an unequivocal assent to the exact terms of the offer. By adding a new term (staining the deck), the homeowner's reply does not mirror the original offer. Instead, it operates as a rejection of the original offer and constitutes a new offer, known as a counteroffer.

For consideration to be legally sufficient in the formation of a contract, it must involve:

Answer: A bargained-for exchange where both parties incur a legal detriment.

Legally sufficient consideration requires a 'bargained-for exchange.' This means each party must promise to do something they are not legally obligated to do or refrain from doing something they have a legal right to do (incurring a 'legal detriment'). Courts generally do not inquire into the adequacy of consideration, meaning the values exchanged do not need to be equal. Past consideration and performing a pre-existing legal duty are not valid forms of consideration.

A company posts an advertisement stating: 'First 10 customers on Saturday get a new laptop for $1.' A customer is the third person in line on Saturday and attempts to purchase the laptop for $1, but the store refuses. In a breach of contract action, what is the likely legal status of the advertisement?

Answer: A valid unilateral contract offer.

Generally, advertisements are considered invitations for offers. However, an advertisement can be construed as an offer if it is clear, definite, and explicit, and leaves nothing open for negotiation. Here, the ad specifies the price, the product, the quantity (10 laptops), and how to accept (being one of the first 10 customers). This specificity makes it a unilateral contract offer, which the customer accepts by performing the required act.