Recording-2025-03-12 CH 12

Option Contracts

• Definition: An option contract is a separate contract allowing a party to keep an offer open for a specified period of time, preventing revocation.

• Example: John offers to sell a classic car to Susan. He creates an option to keep the offer open by receiving a payment (like the Laker game tickets situation).

Types of Offers

• Irrevocable Offers: Certain types of offers, such as option contracts, cannot be revoked once made.

• Counteroffers: An offer made in response to another offer that effectively rejects the first offer.

• Firm Offers: An offer made by a merchant in a signed writing that states the offer will remain open.

Ads and Offers

• Advertisements: Generally not considered offers. They are invitations to negotiate. The actual offer is made when a customer expresses intent to buy the item.

• Auctions: Bids are not offers; instead, each bid is an offer that the auctioneer can either accept or reject.

Legal Concepts in Contracts

• Seven Elements of a Contract: Offer, acceptance, consideration, capacity, consent, legality, and writing (when applicable).

• Definiteness: Offers must be clear about the terms so that parties know what is expected.

  • Example: Ambiguity can lead to legal disputes as to what was promised.

UCC Gap Filling Provisions

• Gap Fillers: UCC provides ways to fill in missing terms such as price and quantity to form a contract that is enforceable.

  • Price: If unspecified, a reasonable price is inferred based on market conditions.

  • Quantity: Can be determined through output contracts (buying all products produced) or requirements contracts (seller provides all of the buyer's needs).

Termination of Offers

• Revocation: Offers can be revoked before acceptance unless they are irrevocable (e.g., option contracts).

• Rejection: If an offer is rejected, it cannot be accepted afterward.

• Expiration: An offer may have a designated expiration period, or it expires after a reasonable period.

• Operation of Law: An offer can be terminated due to legal principles like mental incapacity or destruction of the subject matter.

Acceptance of Offers

• Manner of Acceptance: The manner requested by the offeror must be followed for valid acceptance, with options for authorized and unauthorized means.

  • Authorized Means: Acceptable means specified by the offeror (e.g., certified mail).

  • Mailbox Rule: Acceptance is effective upon dispatch if sent via an authorized means; otherwise, it is effective upon receipt.

• Clickwrap and Browsewrap Agreements: Users agree to terms by clicking a checkbox or browsing a site, which must be clear and accessible for enforceability.

Battle of the Forms

• Original and Acceptance Forms: When different terms are present, the original offer takes precedence unless the changes are inconsequential, or the offeror insists on their terms.

  • Contradictory Terms: When offer and acceptance forms have contradictory terms, courts often favor the original terms.

Examples of Service and Goods

• Hybrid Contracts: Contracts may involve both goods and services, complicating legal interpretations about which laws apply (e.g., haircuts may involve a product and the service).

Recap on Contracts and their Complexity

• The law surrounding offers and acceptance may seem convoluted, but understanding the basics assists in navigating contracts effectively.

• Recognition of various types of contracts and their enforceability is crucial in legal or business contexts.