Contract Formation Elements on the UBE - Offer, Acceptance, Consideration - How Are They Tested?

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            For one reason or another, contract formation is consistently known as one of the more troubling areas for bar examinees year in and year out.  Sure, the quintessential "tricky areas" of contract law are always problematic as well - and those include contract damages (both C-Law and UCC, monetary and non-monetary) - third party problems (assignments, delegation of duties, third party beneficiaries) and the exceptions to the Statute of Frauds are all tricky areas of contract law.  We can throw in the basic elements of contract formation, so let us dissect those a bit more below, with an emphasis on some of the oft-tested nuances.

            NOTE - Take a look at the chart at the end of this blog post to assist with the basic elements of K formation.  Feel free to copy it for your own use!

           The three basic elements to the formation of any contract are: offer, acceptance and consideration.


 Offer


The vast majority of contracts are formed by offers and acceptances of those offers. The offer is legally significant because it establishes the power of acceptance in the offeree. Therefore, if an offer is made, the offeree has the power to conclude a bargain and bind the offeror by accepting the offer in an appropriate manner. 

 

An offer is an expression of willingness to enter into a bargain made in a way so that the offeree understands that he can accept the offer and conclude a bargain. In order for an offer to be adequate, the offer must demonstrate intent to enter into a bargain and definiteness of terms.

Statements of interest in negotiating for a contract and statements of willingness to potentially enter into contracts are not offers. Examples of statements that are not offers include “Would you pay . . .?” “I quote you a price of . . .” “I would consider . . .” etc. An offer must demonstrate intent to be bound. Examples of offers include: “I will sell you…” and “I will buy…”


 BAR NOTE - Now what about advertisements?  The definition of an offer is a manifestation of an intention to be bound but typically, advertisements do NOT constitute an offer.  The exception to the rule is that where the ad specifies a quantity term and the price, that would constitute an offer.


WAS IT AN OFFER?

CONTENT ISSUES - Prohibit Offer

 

COMMON LAW

ARTICLE 2 - UCC

Missing Price Term in Sales K

Real Property requires price + land description

NO price requirement, looks to intent of parties where no price term.

Vague or ambiguous material terms

·      Not an Offer

·      Can’t replace material terms with  “appropriate/fair/reasonable”

 

·      Not an Offer

·      Can’t replace material terms with  “appropriate/fair/reasonable”

 

Requirement Ks or Output Ks

n/a

·      not vague/ambiguous

·      CAN use terms “All/only/exclusively/solely”

·      Buyer MAY increase requirements as long as in line w/ prior demands

·      NO unreasonably disproportionate on increases!!

 

CONTEXT ISSUES – Advertisements as Offers

Advertisements are NOT an offer (unless quantity term specified)

EXCEPTIONS:

1.       REWARD

1.1.     Advertisement can be a unilateral offer if it is in nature of reward

1.2.     EX: Carbolic Smoke Ball promises $100 reward to anyone who catches flu after using product.

2.       Quantity + Indicates who may accept

2.1.     Ad may be an offer if it specifies quantity & expressly indicates who can accept

2.2.     “1 fur coat $10 – first come, first served”

3.       Price Quotation

3.1.     If sent in response to an inquiry


 Acceptance

An offer can be accepted at any time while the offer is still valid. An offer becomes no longer valid when it is revoked by the offeror, when it is rejected by the offeree, or when its time period elapses.

 

An offer can generally be accepted in any reasonable manner. This can be verbal, or, in some cases, by starting to perform. If an acceptance letter is sent through the mail, the offer is deemed accepted as soon as the letter is sent.

 

BAR NOTE-  Acceptance for unilateral contracts can only be accomplished by full performance.  In a bilateral contract, starting performance IS ACCEPTANCE (and therefore carries with it an implied promise to finish the job) and in a unilateral contract, starting performance is NOT ACCEPTANCE (so there is NO obligation to finish the job, COMPLETING PERFORMANCE is acceptance.

 Consideration

  The rule of consideration is what sets the law of contracts apart from the rules of gifts and other property transfers. To be enforceable, a contract must call for each party to give up something of value. Otherwise, the arrangement is not a contract, but a gratuitous (free) promise. A gratuitous promise is not enforceable in court. This rule of consideration is also sometimes known as the “mutuality of obligation” rule.

Conclusion

  It is extremely important to understand the three basic contract elements and how each plays a vital role in general contract formation, individually and collectively.  Success on the likely 4-6 MBE questions in this area of law, and perhaps success on a Contracts MEE issue depends on your knowledge of the law. For more information concerning this section of Contracts, another area of Contracts law, or a different legal topic tested on the UBE, please do not hesitate to contact us at PassYourBarExam@gmail.com


GOOD LUCK!




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