Session 04: Offers and Contract Formation
Overview
This session covered fundamental principles of offer and acceptance in contract law, including:- Definition and elements of a valid offer
- Objective theory of contracts
- Advertisements as offers vs. invitations to negotiate
- Incapacity and intoxication defenses
- Intent to contract and illusory promises
- Price quotations and quantity requirements
I. Definition of Contract and Offers
A. Definition of Contract
Contract: A promise or set of promises for the breach of which the law provides a remedy, or the performance of which the law in some way recognizes as a duty.B. Definition of an Offer
Offer: A definite expression of willingness to enter into a bargain made so that another person is justified in understanding that their assent will conclude the deal.Elements of a Valid Offer:
- Definite and certain terms communicated to the offeree
- Present willingness to enter into a bargain
- Intent to be bound presently (not future intent)
- Made such that the offeree need only say “I accept” to form a contract
C. Present Intent to Be Bound
- The offeror must have present intent to be bound by certain definite terms
- Time of delivery is irrelevant—what matters is present intent to contract
- Example: “I will sell you my car right now for $5,000, but I’ll deliver it to you next month” = valid offer
- Counterexample: “I will be selling my car next month for $5,000” = NOT an offer (future intent)
II. Objective Theory of Contracts
A. Objective vs. Subjective Intent
Rule: Contracts are measured by objective standards, not subjective intent. Test: What would a reasonable person in the offeree’s position believe based on the offeror’s words and conduct?B. Application to Capacity Issues
Intoxication
- Intoxication does not automatically invalidate an offer
- Analysis focuses on what the offeree knew or should have known about the offeror’s impaired state
- If the offeree knows or has reason to know the offeror lacks capacity, the offer may not be enforceable
- Analysis: No enforceable contract because the friend knew or had reason to know Ben was impaired
- Even though intoxication doesn’t automatically invalidate offers, the friend’s knowledge of the impairment is determinative
- The question is: Could a reasonable person in the friend’s position accept this as a valid offer knowing Ben had been “drinking heavily”?
Statements Made in Frustration/Anger
- Offers made in anger are not automatically void
- Subject to objective theory of contracts
- Test: What would a reasonable person interpret the statement to mean?
- Not automatically void merely because made in frustration
- Must analyze whether a reasonable person would interpret this as a serious offer
- Context matters: relationship between parties, circumstances, reasonableness of terms
C. Lucy v. Zehmer Reference
- Parties were drinking in a bar/restaurant
- Court examined totality of circumstances: 40 minutes of negotiation, exchanging notes, rewriting terms
- Despite some drinking, court found offeror was of sound mind
- Demonstrates that intoxication alone doesn’t invalidate contracts—must look at all circumstances
III. Advertisements as Offers
A. General Rule
General Rule: Advertisements are typically invitations to negotiate, NOT offers. Exception: An advertisement MAY be an offer if it meets the definition of an offer (definite and certain terms).B. Requirements for Advertisement to Be an Offer
Under the UCC (Sale of Goods)
Essential Term: QUANTITY is the only required certain definite term.- Price is NOT required (gap fillers can apply)
- Time of delivery is NOT required
- If quantity is missing or uncertain, the advertisement FAILS as an offer
Classic Examples
Example 1: Valid Offer Advertisement states: “Brand new laptops, $200 each. First come, first served. Limited to 3 units.”- Analysis: This IS an offer because:
- Clear quantity: 3 units
- Clear price: $200 each
- Clear offerees: first three people
- Definite terms—nothing left to negotiate
- Offeree need only walk in with $200 and say “I accept”
- Analysis: NOT an offer because:
- Quantity is unclear (1 unit? 1,000 units? 5 million?)
- Without quantity, fails as an offer
- General rule: advertisements are invitations to negotiate
- Analysis: This IS an offer because:
- VIN number makes it specific (quantity = 1 specific car)
- Clear price and terms
- If car is available, dealer must sell it
C. Lefkowitz v. Great Minneapolis Surplus Store (Leading Case)
Facts: Defendant published newspaper announcement: “Saturday, 9 a.m. sharp. 3 brand new fur coats worth to 1 each.” Mr. Morris Lefkowitz arrived with dollar in hand but was told offer was only for ladies, not gentlemen. Holding: Contract was formed. Reasoning:- Advertisement was specific and left nothing open for negotiation
- Plaintiff fulfilled all terms
- Clear quantity (3 coats)
- Clear price ($1 each)
- Clear acceptance method (first come, first served)
IV. Case Law: Leonard v. PepsiCo, Inc. (Harrier Jet Case)
Facts
- Pepsi ran commercial showing items available for Pepsi points
- Commercial showed Harrier jet landing at school with “7 million Pepsi points” displayed
- Leonard raised ~$700,000, bought Pepsi points to reach 7 million
- Demanded Harrier jet
- Pepsi refused
Holding
No contract formed; commercial was not an offer.Reasoning
-
Not Sufficiently Definite
- Commercial reserved details to separate catalog
- No mention of steps required to accept
- No “first come, first served” or quantity limitation
-
Distinguished from Lefkowitz
- Lefkowitz had specific, clear terms
- Absence of limiting words like “first come, first served” renders offer indefinite
- No clear acceptance mechanism
-
Objective Theory Applied
- “Tongue-in-cheek attitude” of commercial
- No reasonable person would conclude soft drink company giving away fighter planes
- Context matters: military jet worth millions vs. Pepsi points value
-
Statute of Frauds (mentioned but not primary basis)
- Court noted no writing between parties
- Though commercial had written words on screen, not sufficient for this type of contract
V. Incapacity Defenses
A. General Rule
Valid capacity defenses can override objective theory of contracts.B. Minors
- Minor entering into contract can generally invalidate it
- Doesn’t matter that objective theory would support contract formation
- Example: Minor buying real estate—likely unenforceable if minor wishes to void
C. Intoxication (Detailed Analysis)
Two-Part Test:- Was the person intoxicated?
- Did the other party know or have reason to know of the intoxication?
- NOT enforceable
- Test: What should a reasonable person in Chris’s position know?
- Chris knew or should have known Emily lacked capacity
- Knowledge element is measured objectively: “knew or should have known”
- Similar to consent issues in criminal law (e.g., sexual assault)
- If you know or should know someone is heavily intoxicated, cannot reasonably rely on their consent/assent
- Courts will not enforce contracts where one party knew or should have known of impairment
VI. Price Quotations and Quantity Requirements
A. Fairmount Glass Works v. Crunden-Martin (Leading Case)
Facts:- Crunden-Martin requested quote by telegram for mason jars
- Fairmount replied with “offer for immediate acceptance” including detailed price and shipment info
- Crunden-Martin accepted
- Fairmount refused to fill order, claiming no contract formed
-
Response to Inquiry: Communication came in response to plaintiff’s specific inquiry
- Key Principle: When responding to an inquiry, communication is MORE LIKELY to be an offer
- Language of Commitment: “For immediate acceptance” = language of commitment
-
Detailed Terms Including Quantity: 10 carloads = 1,000 gross
- Quantity of “10 carloads” was incorporated by implication from plaintiff’s inquiry
- Court rejected defendant’s argument that quantity was too indefinite
- “10 carloads” = trade talk equivalent to 1,000 gross
B. Quantity Must Be Clear and Definite
Rule: Quantity cannot be a range; must be a specific, certain number.Moulton v. Kershaw (1884)
Facts: Defendant wrote: “In consequence of a rupture in the salt trade, we are authorized to offer Michigan fine salt in full carload lots of 80 to 95 barrels, delivered at your city at $85 per barrel. At this price it is a bargain. Shall be pleased to receive your order.” Plaintiff responded: “You may ship me 2,000 barrels Michigan fine salt as offered in your letter.” Issue: Was there a contract? Holding: No contract. Reasoning:- Failure to specify quantity prevents communication from being an offer
- “80 to 95 barrels” is a RANGE, not a specific quantity
- Plaintiff’s response of “2,000 barrels” doesn’t cure defect—must look at whether OFFER had certain quantity
- No certain quantity in offer = no valid offer = no contract
- UCC still requires fixed quantity (gap fillers do NOT apply to quantity)
- Court cannot pick a number from a range (10 laptops to 5 million laptops?)
- Becomes unenforceable promise
Problem: Millet Seed (1915 Case)
Facts: Farmer sent letter to multiple seed dealers: “I have 1,800 bushels of millet seed, of which I am mailing you a sample. This millet is re-cleaned and was grown on sod and is good seed. I want $2.25 per 100 weight for this seed FOB.” Plaintiff answered: “I accept your offer.” Issue: Was there a contract? Holding: No contract. Reasoning:-
Could Be Argued as Offer:
- Appears directed to one individual
- States quantity (1,800 bushels) and quality
- “Want” appears equivalent to an offer
-
Court’s Conclusion:
- Language “might be used in a circular letter” (mass mailing)
- Treated as advertisement to solicit offers
- Plaintiff’s acceptance didn’t specify quantity desired
- No meeting of the minds on quantity
VII. Gap Fillers Under the UCC
A. General Rule
Gap fillers apply when parties are silent on a term (e.g., price, time of delivery). UCC § 2-305: If parties say nothing about price, court will supply reasonable price.B. Exception: Agree to Agree
Rule: If parties say “we will agree on price later,” gap fillers do NOT apply. Reasoning: Court will not substitute its judgment when parties explicitly reserved a term for future agreement. Example: “I’ll sell you my oil, but we’ll agree on a price later.”- NO contract
- One essential term parties agreed on is missing
- Court won’t use gap fillers because parties didn’t leave it silent—they specifically said they’d agree later
- This is critical when dealing with high-value commodities (millions of gallons of oil, billions of dollars)
C. What Gap Fillers Cover
Gap fillers apply ONLY to UCC (sale of goods):- Price: If silent, reasonable price
- Time of delivery: If silent, reasonable time
- Place of delivery: If silent, seller’s place of business
- Time of payment: If silent, due at time of delivery
D. What Gap Fillers Do NOT Cover
QUANTITY: Gap fillers do NOT apply to quantity.- If quantity not stated, offer is DEAD
- Exception: Output and requirements contracts (discussed below)
VIII. Output and Requirements Contracts (Exception to Quantity Rule)
A. General Rule
Quantity must be specified in a valid offer EXCEPT for output and requirements contracts.B. Output Contracts
Definition: Seller agrees to sell ALL output they produce. Example: Ford Motor Company contracts with leather manufacturer: “All the leather you output this year, we’ll buy all of it.”- Enforceable under UCC
- Even though specific quantity not mentioned
- Subject to reasonableness standard
C. Requirements Contracts
Definition: Buyer agrees to buy ALL requirements from seller. Example: Leather company to Ford: “All the leather Ford requires for 2025, we will produce.”- Enforceable even though quantity not mentioned
- Subject to reasonableness
D. Reasonableness Limitation
Key Limitation: Subject to reason—cannot dramatically deviate from normal course of business. Example: If Ford usually sells 500,000 units per year:- Ford CANNOT sue saying “I wanted 5 million this year and you failed to produce”
- Must be reasonable based on past dealings and industry standards
- Prevents abuse of output/requirements contracts
IX. Illusory Promises
A. Definition
Illusory Promise: A promise that is not really a promise; appears to be a commitment but contains language that negates the obligation. Rule: An illusory promise is NOT a promise and does NOT create a contract.B. Larry Flynt / Hustler Magazine Example (2017)
Facts:- Full-page ad in Washington Post offering $10 million reward for information leading to impeachment and removal of Donald Trump
- Bottom of ad stated: “I will pay the reward if I am willing to publish the information provided.”
- Initial expression appears to be a commitment ($10 million reward)
- Conditional language ELIMINATES the commitment
- “If I am willing to publish” = condition dependent entirely on offeror’s discretion
- This is NOT a promise
- Not a valid offer
- Condition is: maybe I’ll do it, maybe I won’t—I’ll decide later
- No commitment = no promise = no offer
X. Letters of Intent and Binding Provisions
A. Logan v. D.W. Silvers (2007)
Facts:- Letter of intent for purchase/sale of shopping mall at $5.28 million
- Letter stated: “This letter of intent is NOT a binding agreement… Only a fully executed purchase and sale agreement shall constitute a binding transaction.”
- HOWEVER, letter also included: “Seller agrees to provide required due diligence documents and NOT to seek nor enter into a letter of intent or purchase agreement with any third party for 60 days.”
- Seller accepted offer from third party during 60-day period
- Overall Agreement Not Binding: Letter of intent as a whole was not an enforceable purchase contract
- Specific Provisions Were Binding: Letter contained THREE binding provisions:
- Seller’s promise to provide due diligence materials
- Seller’s promise to comply with non-solicitation provision (NOT sell to others for 60 days)
- Purchaser’s promise to review due diligence in good faith
- Breach of Specific Promise: Seller breached the non-solicitation provision by selling to third party
XI. Case Law: Sullivan v. O’Connor (Nose Job Case)
Facts
- Plastic surgeon performed nose job
- Plaintiff’s nose ended up “nub-like” configuration that could not be improved by further surgery
- Jury found NO negligence but awarded damages for breach of contract
- Jury included pain and suffering damages
Court’s Analysis
A. Policy Concerns with Medical Contract Claims
Court’s Skepticism:- Doctors can seldom promise specific results in good faith
- Doctor statements are usually opinions, not guarantees
- Patients may transform statements into firm promises in their minds
- Risk: disappointed patients will testify to sympathetic juries claiming breach of contract
B. Countervailing Policy
If Contract Actions Outlawed:- Public might be exposed to charlatans making wild promises
- Doctors could promise anything without accountability
- Example: “Don’t worry, you’ll be 100% cured of cancer—just pay $200,000”
- If patient dies, no breach of contract remedy available
- Would shake confidence in medical profession
C. Remedies (Not Covered in Detail This Semester)
Court discusses three types of interests (covered next semester):- Restitution interest
- Reliance interest
- Expectation interest/damages
- Generally NO pain and suffering damages for breach of contract
- Generally NO punitive damages for breach of contract (absent fraud)
- Medical malpractice contracts may be exception in some jurisdictions
XII. Auction Without Reserve
Behnke v. First Citizens Bank and Trust (N.Y. 1936)
Facts:- Defendant distributed circulars announcing auction “without reserve” of famous Smith collection of antiques
- Plaintiff flew from California to New York for auction
- On arrival, discovered auction canceled due to recession in antique market
- Circular was merely statement of intention to do something in the future
- NOT an offer that could be accepted
- Similar to concert venue announcing show then canceling before tickets sold
- If tickets already sold = binding contract (with refund provisions if canceled)
- If no tickets sold yet = can cancel anytime
- Once tickets sold, venue bound (but usually has force majeure/Act of God provisions)
- May owe refund but generally not consequential damages (flights, hotels)
XIII. Chicago Tribune Advertising Rates Case
Chicago Joint Board v. Chicago Tribune (1969)
Facts:- Chicago Tribune published booklet: “General Advertising Rates” (listing charges)
- Also published “Advertising Acceptability Guide” (indicating Tribune will refuse dishonest, indecent, or illegal ads)
- Labor union tendered advertisement urging readers not to patronize department store (due to low-wage foreign labor policy)
- Advertisement concededly not dishonest, indecent, or illegal
- Union tendered sufficient funds per advertising rates
- Tribune refused to print
-
Not Language of Commitment:
- Fact that Tribune will refuse certain types of ads does NOT mean it must accept all others
- “Necessary but not sufficient” test
-
No Statement of Quantity:
- Not clear how many advertisements Tribune must accept
- What if union wanted 50,000 ads published this Sunday?
- No obligation to accept unlimited quantity
XIV. Reasonable Time for Acceptance
A. Default Rule
If no time specified for acceptance: Offer expires after reasonable time. What is reasonable time? Depends on subject matter:- Cherries: Hours (4 hours—they’ll spoil)
- Laptop: Week to month
- Crude oil: 1 minute (volatile pricing)
- Gold: 5 minutes or less (stock market fluctuations)
- Real estate: Longer period
B. Example
“I offer you this laptop for $2,000.” (No time stated)- Can offeree come next year and accept?
- Technically yes, but offeror can refuse
- Court will say acceptance not within reasonable time
- Offer effectively expired even if not explicitly revoked
C. Merchant Firm Offer Exception (UCC)
- Under UCC, merchant firm offers may be irrevocable for up to 90 days
- Different rule—specific to merchants and written signed offers
- Will be covered in more detail later
XV. Price Tags and In-Store Pricing
General Rule
Price tag on item (e.g., sweater for $50): NOT an offer.- This is an advertisement/invitation to negotiate
- Buyer makes offer at checkout
- Store can refuse (though typically accepts)
- Quantity unclear (how many sweaters at that price?)
- General rule: in-store pricing is invitation, not offer
- Customer’s bringing item to register = making an offer
- Cashier accepting payment = acceptance
XVI. Revocation of Offers
General Principle (Mentioned)
- Offeror can revoke own offer before acceptance
- Even if offeror stated “you must accept by Friday,” can still revoke before Friday
- Exception: Option contracts and merchant firm offers (covered later)
- This IS an offer (invites acceptance on definite terms)
- Deadline setting doesn’t make it NOT an offer
- But offeror can still revoke before Friday (absent consideration for keeping offer open)
XVII. Key Exam Tips and Takeaways
A. Reading MBE Questions
-
Read call of question FIRST (bottom of question)
- Don’t start at top with long fact pattern
- Know what you’re looking for before reading facts
-
Time Management:
- Approximately 1 minute 27 seconds per MBE question
- No time to re-read or second-guess
- Must practice taking MBEs under time pressure
-
Process of Elimination:
- Immediately cross out answers you know are false
- Often one answer is clearly wrong
- Two answers may be close
- Pick the BEST answer (may not be perfect, but better than others)
-
Circle and Move On:
- If stuck on question, circle it and move on
- Come back later with fresh perspective
- Better to answer all questions than get stuck on one
B. Subjective vs. Objective Language
Automatic Elimination: Any answer referencing “subjective intent” is almost certainly WRONG.- Law uses objective theory
- Throw out answers mentioning subjective intent
C. Context Clues in Fact Patterns
Pay attention to:- Relationship between parties (friends, coworkers, business associates, strangers)
- Circumstances of conversation (after frustrating day, at bar, in business setting)
- Knowledge of parties (did offeree know or should have known of impairment?)
- “Red herring” vs. meaningful facts
D. Common Tricky Answer Patterns
- Answers that are partially correct but contain one fatal flaw
- “Automatically void” language (rarely true—usually subject to analysis)
- Missing elements (e.g., “no contract because no writing” when statute of frauds doesn’t apply)
- Reasonable person standard vs. subjective belief
E. Offer vs. Enforceable Contract
Critical Distinction:- Question may ask: “Is this an offer?” vs. “Is there an enforceable contract?”
- Can have valid offer but unenforceable contract (due to Statute of Frauds, capacity, etc.)
- Read question carefully to know what’s being asked
XVIII. Summary of Key Rules
- Offer Definition: Definite expression of willingness to enter bargain such that offeree justified in believing assent concludes deal
- UCC Quantity Rule: Quantity is THE essential term; gap fillers don’t apply to quantity (except output/requirements contracts)
- Objective Theory: Contracts measured by reasonable person standard, not subjective intent
- Advertisements: Generally invitations to negotiate UNLESS specific, definite terms including quantity and clear acceptance mechanism
- Incapacity: Valid defense that can override objective theory if other party knew or should have known
- Price Quotations: More likely to be offers when responding to specific inquiry with language of commitment
- Illusory Promises: Not really promises; language that negates commitment means no offer
- Letters of Intent: May contain binding specific provisions even if overall agreement not binding
- Gap Fillers: Apply when parties silent on term, but NOT when parties agree to agree later
- Reasonable Time: Default expiration for offers when no time specified; varies by subject matter