Term
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Definition
| An actual or implied-in-law binding promise to not revoke an offer for a particular amount of time. |
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Term
| What is the effect of an option? |
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Definition
| An offeree's power of acceptance is not terminated by the offeror's or offeree's death or by revocation, rejection, or counteroffer, but is still terminated by lapse of time or the non-occurrence of a condition of acceptance. |
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Term
| Does the dispatch rule apply to the acceptance of an offer when there is an option? |
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Definition
| No, unless the offer indicates that the dispatch rule applies. In general, when there is an option the acceptance is only effective upon receipt. |
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Term
| In general, what is necessary to create an option? |
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Definition
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Term
| What are three ways an option can arise that are exceptions to the general rule that consideration is necessary to create an option? |
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Definition
| Formality, equitable options, and promissory estoppel. |
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Term
| What is the common law's majority rule with respect to whether formality can create an option? |
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Definition
| An option cannot be created through formality. |
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Term
| What is the common law's minority rule with respect to the creation of an option through formality? |
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Definition
| An offeror's promise to keep an offer open is enforceable if the promise (1) is in writing; (2) is signed by the offeror; (3) recites a purported consideration for the promise; and (4) proposes an exchange on fair terms (5) within a reasonable amount of time. Of course, the seal will make a promise binding if delivered provided the jurisdiction follows the minority rule with respect to a promise under seal. |
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Term
| What is the U.C.C.'s firm-offer rule? |
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Definition
| An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months. |
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Term
| Who is a "merchant" for purposes of the U.C.C.'s firm-offer rule? |
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Definition
| Either a merchant as to goods or a merchant as to business practices. Essentially, any businessperson as long as he or she is acting in a business, rather than a personal, capacity. |
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Term
| In general, have courts been receptive to the argument that a very small amount paid for an option is sham consideration and thus ineffective? |
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Definition
| No, at least where the amount was in fact provided. |
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Term
| A U.C.C. firm offer for longer than three months is binding for how long? |
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Definition
| Three months, but it can be renewed by a subsequent firm offer. |
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Term
| If a promise to buy or sell goods is supported by consideration, may it exceed three months? |
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Definition
| Yes. There is no time limit. |
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Term
| Is an oral promise to keep an offer open for the sale of goods binding if given for consideration? |
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Definition
| Yes. The U.C.C.'s firm-offer rule requirements only apply when there is a lack of consideration and no other way to create an option. |
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Term
| What is the equitable option rule? |
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Definition
| When an offeree begins performance in response to an offer of a unilateral contract, an option is formed. |
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Term
| If an equitable option is formed, is the offeree required to complete performance? |
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Definition
| No (that is why it is called an option). |
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Term
| When an equitable option arises, when does the offeror have a duty to perform as promised? |
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Definition
| Only when and if the offeree completes performance, unless completed performance is excused. |
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Term
| What factors will a court consider in deciding whether an offeree's conduct in response to an offer of a unilateral contract is the start of performance or simply preparations to perform? |
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Definition
| (1) The extent to which the offeree's conduct is clearly referable to the offer; (2) the definite and substantial character of that conduct; (3) the extent to which it is of actual or prospective benefit to the offeor rather than the offeree; and (4) the terms of the communications between the parties, their prior course of dealings, and any relevant usages of trade. |
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Term
| For an option to arise through promissory estoppel, must the offeree's reliance on the promise to keep the offer open be the start of performance? |
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Definition
| No. Unlike an equitable option, it can constitute mere preparations to perform. |
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Term
| For an option to arise through promissory estoppel based on an express or implied-in-fact promise to keep an offer open, what must the offeree establish? |
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Definition
| (1) A promise by the offeror to keep the offer open; (2) the offeror should reasonably have expected the offeree to detrimentally rely on the promise before accepting the offer; (3) the offeree in fact detrimentally relied on the promise to keep the offer open before accepting the offer; and (4) injustice can be avoided only by enforcing the promise to keep the offer open. |
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Term
| An implied-in-law promise to keep an offer open is inferred and an option formed through promissory estoppel if what elements are established? |
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Definition
| (1) The offeree should reasonable expect the offeree to detrimentally and substantially rely on the offer before accepting it; (2) the offeree in fact detrimentally and substantially relied on the offer before accepting it; and (3) injustice can be avoided only by creating an option. |
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Term
| When an auction is held without reserve, who is the offeror and who is the offeree? |
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Definition
| The seller is the offeror and the buyer is the offeree. |
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Term
| When a buyer makes a bid at an auction without reserve, what happens? |
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Definition
| The buyer accepts the offer (conditional on being the highest bidder), but retains the power to withdraw from the agreement prior to the auctioneer announcing that the sale is complete. The seller, however, has no similar power to withdraw after the buyer accepts the offer by making a bid. |
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Term
| At an auction with or without reserve, does the withdrawl of a bid revive any previous bid? |
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Definition
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Term
| What is the exception to the general rule that a rejection does not terminate the power of acceptance when there is an option? |
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Definition
| If an offeree with an option rejects the offer and the offeror then detrimentally relies on the rejection, the offeree's power of acceptance is terminated under the doctrine of estoppel. |
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Term
| What is the classic situation in which an impiled-in-law promise to keep an offer open is inferred and then enforced under the doctrine of promissory estoppel? |
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Definition
| Subcontractor's bid to a general contractor. |
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Term
| When will a general contractor lose the ability to use promissory estoppel to enforce an implied-in-law promise by a subcontractor to not revoke its bid? |
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Definition
| When the general contractor delays acceptance after being awarded the general (or prime) contract in the hope of getting a better price, or when he reopens the bargaining with the subcontractor. |
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