I. An Offer You Can't Refuse
What is an offer?
An offer is some showing or manifestation of willingness to enter into a bargain that is made by an offeror and justifies acceptance by an offeree. An offer is the first step in contract formation.
To form a contract, an offer must be reasonably certain, communicated to the offeree, and must not have terminated prior to acceptance.
What constitutes valid acceptance of an offer?
An acceptance is the showing or manifestation of assent to an offer’s terms by an intended offeree with knowledge of the offer. An acceptance may consist of a promise or performance by the offeree, depending upon the terms of the offer.
If the offer stipulates the method of acceptance, then acceptance must conform to the terms of the offer for the acceptance to be valid. Otherwise, any reasonable method of acceptance will be valid, including either acceptance by promise (forming a bilateral contract) or acceptance through performance (forming a unilateral contract).
What is consideration?
Bargained-for-exchange of value.
Consideration is something of value given (e.g., money, a return promise, or forbearance) by a promisee to a promisor. Consideration can constitute either a benefit to the promisor or a detriment to the promisee. To have sufficient consideration to form a contract, the parties must both (1) bargain for and (2) exchange something.
When would it make sense to bring a promissory estoppel claim?
When the facts of the case do not support a breach of contract action but the elements of promissory estoppel are met.
What are "pleadings"?
Complaint; answer
How certain must the terms of an offer be in order for the offer to be valid?
A valid offer must set forth reasonably certain terms. Reasonably certain terms are terms from which a reasonable person would conclude that (1) an offer has been made and (2) understand that communication of acceptance is all that is necessary to form a binding contract.
See Lonergan v. Scolnick
At common law, is a contract created if an offeree accepts an offer but also adds an additional term not in the offer?
No. At common law, a contract is not created if an offeree accepts an offer but also adds an additional term not in the offer. A response to an offer does not qualify as an acceptance unless it manifests the intention to enter the transaction on the terms proposed by the offer—and only on those terms. The response must therefore be exactly in accord with the offer and may not vary or add to the terms proposed in the offer.
The strictest application of this principle—the mirror-image rule—admits of absolutely no variation in the response. S
ome courts have moved away from this rigid approach and treat a response to an offer as an acceptance if it clearly manifests intent to accept and contains only minor, non-material variations from the offer.
Can the parties to a contract determine for themselves whether consideration is adequate?
Yes. The parties to a contract normally decide for themselves whether consideration is adequate. Any exchange of value is generally sufficient for adequate consideration. The values that are exchanged do not have to be equivalent. Courts do not usually second-guess the parties’ determination of the relative value of the detriments exchanged, but they may do so if the purported consideration is so trivial in value that it could not possibly have induced the promisor’s promise.
To which of the following situations would the doctrine of promissory estoppel NOT apply as a potential theory to enforce a promise?
A. Lack of consideration
B. Lack of formal acceptance
C. Lack of reliance
D. Lack of a writing
C. Lack of reliance
Why might a court grant a motion to dismiss? When is a motion to dismiss typically filed?
If the complainant has failed to state a claim upon which relief can be granted, the court will dismiss the claim. Motions to dismiss are filed in lieu of an answer to a complaint.
What is an option contract?
An option contract guarantees, in exchange for something of value, that an offer will not be revoked for a specified amount of time. Essentially, the offeree provides something of value in exchange for irrevocability. Option contracts cannot be revoked.
Are there circumstances where an offeree’s silence can constitute a valid acceptance?
An offeree’s silence constitutes acceptance if:
These four scenarios are exceptions to the general rule that silence is not an acceptance.
In which 1891 New York case was a nephew’s giving up drinking, smoking, swearing, and gambling until age 21 enough to support his uncle’s promise of $5,000?
Hamer v. Sidway
Is promissory estoppel relief available to a promisee who would have taken the same action allegedly induced by reliance on a promise even if the promise had not been made?
No. Promissory estoppel relief is not available to a promisee who would have taken the same action allegedly induced by reliance on a promise even if the promise had not been made.
To succeed in a promissory estoppel claim, a promisee must show that the promise induced the action. If the promisee would have taken the same action even if the promisor had not made the promise (e.g., because the promisee had made the decision to take the action before the promise was made, or because the promisee would have had no choice but to take the action), then the promisee cannot claim that he or she acted in reliance on the promise.
What is the standard for summary judgment?
There is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law. (Filed before trial upon completion of discovery)
Under what circumstances can an advertisement constitute a valid offer?
An advertisement is not considered a valid offer unless the language makes an express promise to adhere to specific terms. Although many advertisements are properly interpreted as mere solicitations for offers, an advertisement can qualify as an offer to the public if it:
In particular, mere puffery (i.e., describing a product or service in flattering language meant to attract potential buyers) is not a valid offer.
If an offer for a unilateral contract permits acceptance exclusively by non-instantaneous performance, must the offeree complete performance to accept the offer?
Yes. If an offer for a unilateral contract permits acceptance exclusively by non-instantaneous performance, then the offeree must complete performance in order to accept the offer. An offer for a unilateral contract invites acceptance only by performance, not by a promise to perform. Acceptance occurs, and a contract forms, only once the performance is complete. Even if the performance cannot be completed instantaneously (e.g., painting a house), the offeree’s consideration is full performance, so acceptance occurs only once the performance is complete.
Today, courts recognize that once an offeree begins performance, the offeror may not revoke the offer unless the offeree fails to complete performance in a reasonable time. (Partial performance is acceptance)
What is a gratuitous promise?
Essentially a gift. A gratuitous promise is a promise to do or refrain from doing something, made without the expectation of or actual compensation. A gratuitous promise is not enforceable as a contract because it is not supported by consideration. A contract requires an exchange of value between the parties. If a party receives nothing of value, there is no consideration and thus no contract. The exchange of values can be very unequal and even nominal, but each party must receive something.
A man told his sister that he would give her a gift certificate for a certain hotel as a birthday present. On the strength of this promise, the sister booked a non-refundable two-night stay at the hotel for the weekend after her birthday. The cost of the two nights’ accommodation was $450. The man never gave his sister the promised gift certificate, and the sister had to pay the $450 for the hotel herself. The man’s promise was clearly gratuitous.
Does the doctrine of promissory estoppel provide a basis to enforce the man’s promise?
Yes. Promissory estoppel provides a basis to enforce the promise. The doctrine of promissory estoppel may permit enforcement of a promise that is not otherwise enforceable under contract law if:
Promissory estoppel relief is premised on detrimental reliance—i.e., justifiable reliance by the promisee that causes it economic cost or loss.
May a contract stipulate that the sufficiency of one party’s performance depends on the other party’s satisfaction with that performance?
Yes. A contract may stipulate that the sufficiency of one party’s performance depends on the other party’s satisfaction with that performance. This is a condition of satisfaction.
A satisfaction clause in a contract states that the sufficiency of one party’s performance is measured by the satisfaction of the second party, making the second party’s performance contingent on that satisfaction (e.g., a party promises to pay for photographs taken by the other party only after judging the photographs as satisfactory). The second party’s promise constitutes valid consideration because the law implies that the second party has an obligation to exercise the judgment of satisfaction either in good faith or reasonably. This limits the second party’s discretion and gives enforceable content to the promise.
At 8:00 a.m., a homeowner called a plumber and left a voicemail message reporting that a water pipe in the homeowner’s house had burst and needed urgent repair as soon as possible. The homeowner told the plumber, “If you come to my house and repair the pipe at 11:00 a.m., I will pay you $500 for the repair work. I’ll leave the front door unlocked for you to come in and fix the pipe while I’m out for the day.” At 11:00 a.m., the plumber went into the homeowner’s house, entered through the unlocked front door, and repaired the pipe.
Did the homeowner and the plumber form a contract? If yes, what kind?
Yes. The parties formed a contract. A unilateral contract is formed when a promise is exchanged for a performance. To be an offer for a unilateral contract, the language or circumstances of the offer must make clear that the offeree can accept the offer only by rendering the performance that constitutes the offeree’s consideration under the contract. The offeree can then accept the offer by rendering the performance that constitutes the offeree’s consideration under the contract. Once the offeree has performed, the offeror is bound by the promise.
Here, the homeowner promised to pay $500 if the plumber repaired the pipe at 11:00 a.m. The plumber went to the house at 11:00 a.m. and performed the repairs as the homeowner directed. The homeowner thus made an offer for a unilateral contract, which the plumber accepted. Therefore, the parties formed a contract, and the homeowner must pay $500.
What is an illusory promise?
An illusory promise looks like or sounds like a promise but in fact promises nothing. If a promise depends on the happening of a future event, or if the promisor reserves a choice for alternative performance, the promise is illusory. Unlike true promises, illusory promises do not bind the promisor.
If a promise is illusory, the promisor is free to choose on a whim not to fulfill the promise. Therefore, an illusory promises is not actually a detriment to the one making the illusory promise, and it is not guaranteed to benefit the one receiving the illusory promise. This means an illusory promise cannot provide the consideration necessary to create a binding agreement.
Does the following promise include valid consideration?
“Since you helped me last year, I’ll pay you $500."
No. Past performance is generally not considered to be valid consideration.
A man had an extra ticket to the opera. He offered to take his sister, who accepted. In anticipation of the night at the opera, the sister purchased a new dress and jewelry and went to an expensive salon to have her hair and makeup done. The man then called his sister and told her that he was taking someone else instead.
If the sister sues the man under a theory of promissory estoppel for the cost of her dress, jewelry, hairdo, and makeup, what is the man’s best defense?
A The man did not reasonably expect his promise to induce the sister’s actions.
Answer option A is correct. Section 90 of the Second Restatement of Contracts provides that “a promise which the promisor should reasonably expect to induce action or forbearance . . . and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.” This is known as the doctrine of promissory estoppel. Under this doctrine, a promise may be partially or fully enforced, even if it is not supported by consideration.
Here, the man promised to take his sister to the opera. He reasonably may have expected his sister to dress nicely for the event, but he probably would not have reasonably expected her to buy a new dress and jewelry and have her hair and makeup done at an expensive salon in anticipation of attending. Therefore, a court likely would conclude that the sister was not justified in incurring such expense in reliance on the man’s promise.
Answer option B is incorrect because the sister took a definite and substantial action in her purchase of a dress and jewelry, and having her hair and makeup done.
Answer option C is incorrect because the sister did rely on the promise, given that she incurred expenses in anticipation of the night at the opera.
Answer option D is incorrect because the sister suffered a detriment by incurring costs, even if she received something in exchange for the money she spent.
What remedy will a court provide for a successful promissory estoppel claim?
The remedy for promissory estoppel will be limited to the promisee’s actual loss based on the extent of the promisee’s extent of reliance. The remedy for promissory estoppel is not based on the terms of any promise.
A company sent a letter to a vendor. The letter detailed the company’s intent to purchase materials and closed with: “Your acceptance of this offer will become effective upon the approval of this transaction by our board of directors.”
Did the letter from the company to the vendor qualify as a valid offer?
No. The letter was not a valid offer because the vendor's acceptance alone would not form a binding contract. An offer is the manifestation of an offeror’s willingness to enter into a contract, justifying acceptance by an offeree. A valid offer contains reasonably certain terms from which a reasonable person would (1) conclude that an offer has been made and (2) understand that communication of acceptance is all that is needed to form a binding contract. A communication reserving the right to have the final say on contract creation cannot be an offer, even if it manifests a desire to enter into a contract on stated terms.
Here, the letter stated that acceptance of the offer would not be effective until approved by the board. A reasonable person would not conclude that communicating acceptance was all that was needed to form a binding contract, because the company reserved the final say on contract creation for itself. Thus, there was not a valid offer.
Which are six events or circumstances that will terminate an offer before the offer has been accepted? (Full credit for naming 3)
The six events or circumstances that will terminate an offer before the offer has been accepted are
Will grossly inadequate consideration that shocks the conscience result in an enforceable contract?
No. While courts generally defer to the parties’ judgment on the adequacy of any consideration, consideration that is a gross inadequacy and shocks the conscience may support a defense against the contract’s enforceability. For example, grossly inadequate consideration that shocks the conscience can support a defense that the contract is unenforceable as procured through fraud or duress.
A member of a church promised the pastor that she would donate $10,000 to the church the following January. The pastor recorded the promised amount as prospective income in its budget. The church member failed to donate the money.
Can the church invoke promissory estoppel to enforce the promise?
No. The church cannot invoke promissory estoppel to enforce the promise. Promissory estoppel may permit enforcement of a promise that is not otherwise enforceable under contract law if:
Promissory estoppel relief is premised on detrimental reliance—i.e., justifiable reliance by the promisee that causes it economic cost or loss.
Here, the pastor’s mere recording of a prospective donation in the church budget is just a book entry. The church did not incur any economic cost or loss in reliance on the member’s promise to donate $10,000. Because there was no detrimental reliance, the church cannot invoke promissory estoppel to enforce the promise.
While walking along a beach, a woman saw a swimmer struggling in the rough surf and calling for help. The woman jumped into the water and saved the swimmer. The swimmer was very grateful and promised to pay $10,000 to the woman as a reward.
Did jumping into the water and saving the swimmer constitute consideration for the swimmer’s promise to pay $10,000?
No. The woman’s actions in saving the swimmer did not constitute consideration for the swimmer’s promise to pay $10,000. The parties to a contract must bargain for and exchange something of value to have sufficient consideration. The promisee must suffer a detriment, i.e. the relinquishment of a legal right. Past consideration cannot support a contract. In other words, the promisor cannot make a promise in recognition of something the promisee has already done.
Here, the woman suffered a legal detriment in jumping into the water to save the swimmer, and the rescue induced the promise of a reward. However, the woman’s detriment preceded the swimmer’s promise to pay the reward and was not exchanged for it. Thus, jumping into the water and saving the swimmer did not constitute consideration for the swimmer’s promise to pay the woman $10,000.
A car dealership advertised online that it was selling a convertible for $15,000 to celebrate the dealership’s fifteenth anniversary. Underneath a photo of the convertible, the advertisement stated, “Just $15,000. First come, first purchased!”
Was the dealership’s online advertisement an offer?
Yes. The email was an offer. An offer is the manifestation of an offeror’s willingness to enter into a contract that justifies acceptance from an offeree. Such a manifestation of willingness will bind the offeror even if he did not subjectively intend to make an offer. A valid offer contains reasonably certain terms from which a reasonable person would (1) conclude an offer has been made and (2) understand that communication of acceptance is all that is needed to form a binding contract.
Here, though the farmer did not subjectively intend to make an offer, the email was a binding manifestation of willingness to enter into a contract. The farmer knew the man wanted the farm, and the email offered to sell him the farm for a stated price. A reasonable person would conclude that a genuine offer was made, and that a contract would be formed if the man accepted. Thus, the email was an offer.
On February 1, the offeror mailed a letter to the offeree, offering to sell a building for $2 million. The offeree received the letter on February 2 and mailed a rejection at 2:00 p.m. on that day. At 6:00 p.m., the offeree had second thoughts and decided to accept the offer. The offeree placed an acceptance in the mailbox at 6:00 p.m. The rejection arrived at the offeror’s office on February 3, and the acceptance arrived on February 4.
Was the offeree’s acceptance effective?
No. The acceptance was not effective. Under the mailbox rule, acceptance by promise occurs when a properly addressed and stamped letter accepting an offer is deposited in the mail. This applies regardless of when or whether the offeror receives the acceptance. However, if an offeree first mails a rejection of the offer and then has a change of mind and mails an acceptance, the mailbox rule does not apply, and whichever letter the offeror receives first will determine whether the parties have a contract.
Here, the offeree first rejected the offer and then decided to accept. Because the offeree mailed the rejection first, the mailbox rule did not apply, and the first letter to reach the offeror determined whether the parties had a contract. The rejection arrived first, so it terminated the offer. Thus, because the acceptance arrived after the offer had been terminated, it was not effective.
A man promised to give a gift to his neighbor. The neighbor and the man executed a written agreement stating that the man’s promise was made “in exchange for good and valuable consideration.” In actuality, the neighbor gave no consideration to the man.
Did the written agreement bind the man to his promise to make the gift?
No. The written agreement did not bind the man to his promise to make the gift. To form a valid contract, the parties must bargain for and exchange performances or promises. If nothing is given in return for a promise, i.e., nothing is exchanged, there is no consideration and thus no contract. Parties cannot validate the promise of a gift merely by making a formal recital that consideration was given for the gift.
Here, although the written agreement stated that the man promised the gift “in exchange for good and valuable consideration,” the neighbor actually gave nothing in return for the man’s promise. Accordingly, there was no consideration, and no contract was created between the neighbor and the man. The man thus was not bound to his promise to make the gift.
A man decided to retire after working for the same company for 40 years. At the man’s retirement party, the company owner told the man that the company would pay him a yearly pension for the rest of his life. For five years, the company paid the man a pension. The man used the extra money from the pension to take several vacations, which he otherwise would not have taken. After five years, the company told the man that it was experiencing financial difficulties and would no longer pay him a pension.
If the man sues the company under a theory of promissory estoppel, what issue is likely to be dispositive in deciding the case?
A. That the man took several vacations that he otherwise would not have taken.
Answer option B is correct. Section 90 of the Second Restatement of Contracts provides that “a promise which the promisor should reasonably expect to induce action or forbearance . . . and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.” This is known as the doctrine of promissory estoppel. Under this doctrine, a promise may be partially or fully enforced, even if it is not supported by consideration.
Here, the man already had decided to retire when the company promised him a pension. Therefore, the promise did not induce the man to leave his job earlier than he would have otherwise, and he will likely be unable to recover under a theory of promissory estoppel. If the man had decided to retire early based on a promise of a lifetime pension, he likely would have a case. Therefore, this issue will be dispositive in determining the outcome of the case.
Answer option A is incorrect for two reasons. First, there is no evidence that the company reasonably should have expected the promise of the pension to induce the man to take vacations. Second, the man did not suffer any detriment, because he was actually paid the pension for the first five years, when he took the vacations. If the man had booked a vacation in anticipation of receiving a pension payment that was then not provided, the man might have an argument. But the man actually received the pension money that he spent on the vacations, so he suffered no detriment. Therefore, this fact will be irrelevant in deciding the case.
Answer option C is incorrect because there is no indication that the company was experiencing financial difficulties at the time it promised the man the pension. If the company had been experiencing financial difficulties at that time, that fact might have been relevant in determining the reasonableness of the man’s reliance on the promise.
Answer option D is incorrect because the fact that the company actually paid the pension for five years will not be relevant in determining whether the man can recover based on a theory of promissory estoppel. As explained above, because the man did not retire due to the promise of a pension, the man will be unlikely to recover regardless of whether the company ever paid the pension.
A patient had surgery to fix a painful knee, but the surgery did not alleviate the pain. The patient consulted a lawyer about suing the surgeon for malpractice. The lawyer hired medical experts to evaluated the surgeon’s work; the experts concluded that the surgeon had operated competently. The lawyer told the patient that there was no prospect of proving malpractice at trial, but the lawyer nevertheless recommended suing the surgeon to try and get a quick settlement. The patient agreed, and the lawyer commenced suit. The surgeon responded with an offer to settle the suit for $10,000, which the patient accepted.
By agreeing to drop the suit, has the patient given valid consideration to the surgeon in exchange for the surgeon’s promise to settle the suit by paying $10,000?
No. The patient has not given valid consideration. An agreement to settle a genuine dispute is supported by consideration because both parties to the dispute incur the legal detriment of giving up their rights to sue or defend. For a dispute to be genuine, neither the claim nor the defense can be vexatious. In determining whether a dispute is genuine, some courts focus on the party’s good-faith belief in the merits of the claim, and others require the claim or defense to have an objectively reasonable basis in fact and law.
Here, the patient did not have a good-faith belief in the merits of the claim, and the claim was objectively meritless—the experts concluded that there was no malpractice, but the patient decided to bring the claim anyway to try for a settlement. Thus, the dispute was not genuine, and the patient has not given valid consideration for the surgeon’s promise to settle.