Sample Questions #2

1. Justin owned three speedboats named Porpoise, Prudence and Providence. On April 2, Justin made written offers to sell one of the three boats in the order named for $4,200 each to Charles, Diane, and Edward respectively, allowing ten days for acceptance. In which, if any, of the following three situations was a contract formed? Please explain.

a. Five days later, Charles received notice from Justin that he had contracted to sell Porpoise to Mark. The next day, April 8, Charles notified Justin that he accepted Justin’s offer.

b. On the third day, April 5, Diane mailed a rejection to Justin that reached Justin on the morning of the fifth day. At 10 A.M. on the fourth day, Diane sent an acceptance by telegram to Justin, who received it at noon the same day.

c. Edward, on April 3, replied that he was interested in buying Providence but declared the price appeared slightly excessive and wondered if, perhaps, Justin would be willing to sell the boat for $3,900. Five days later, having received no reply from Justin, Edward accepted Justin’s offer by letter and enclosed a certified check for $4,200.

2. On April 8, Crystal received a telephone call from Akers, a truck dealer, who told Crystal that a new model truck in which Crystal was interested would arrive in one week. Although Akers initially wanted $10,500, the conversation ended after Akers agreed to sell and Crystal agreed to purchase the truck for $10,000, with a $1,000 down payment and the balance on delivery. The next day, Crystal sent Akers a check for $1,000, which Akers promptly cashed. One week later, when Crystal called Akers and inquired about the truck, Akers informed Crystal he had several prospects looking at the truck and would not sell for less than $10,500. The following day Akers sent Crystal a properly executed check for $1,000 with the following notation thereon: "Return of down payment on the sale of truck." After notifying Akers that she will not cash the check, Crystal sues Akers for damages. Should Crystal prevail? Please explain.

3. On May 1, Melforth Realty Company offered to sell Greenacre to Dallas, Inc, for $1,000,000. The offer was made by telegraph and stated that the offer would expire on May 15. Dallas decided to purchase the property and sent a registered letter to Melforth on May 10 accepting the offer. As a result of unexplained delays in the postal service, the letter was not received by Melforth until May 22. Melforth wishes to sell Greenacre to another buyer who is offering $1,200,000 for the tract of land. Has a contract resulted between Melforth and Dallas? Please explain.

ANSWERS:

Question 1a. 

There is no contract.  Justin informed Charles of his decision to sell the boat to another buyer.  This notification took place before Charles accepted the offer.  The law would regard Justin’s notification to be a revocation of the original offer.  This rendered the acceptance Charles sent to be ineffective.

Question 1b. 

There is a contract.  This is the case of the vacillating offeree.  When an offeree responds to an offer by rejecting it and then accepting it, whichever response that reaches the offeror first will control.  The normal rule that an acceptance is effective upon dispatch when a reliable medium is used no longer apply.  In this case, the acceptance reached the offeror before the rejection.

Question 1c.

There is a contract.  The essential point about this question has to do with what Edward said in response to Justin’s offer.  Was this a counter offer or was it something else.  If Edward’s response is a counter offer, this would have the effect of automatically nullifying Justin’s original offer.  Once rejected, the original offer would no longer be available for Edward to accept.  A close examination of Edward’s response indicates that it could not be an offer.  He “wondered if, perhaps Justin would be willing to sell the boat for $3,900.”  Wondering if, perhaps are words indicative of an inquiry as to the firmness of the price, not a counter offer.  Can you understand the difference between an offer saying, “I will give you $3,900 for your boat,” and saying, “I wonder if you would accept $3,900?”  The former is a counter offer, the latter is an inquiry. 

Since Edward did not receive a response to his inquiry, he went ahead and accepted the offer and did so within the established deadline.  There is a contract.

Question 2.

The fact situation says very little about the negotiation between Akers and Crystal, but it clearly states that there was an offer, an acceptance, and a resulting contract.  The contract called for the sale of a new model truck to Crystal for $10,000.  Crystal was required to make a down payment of $1,000 with the balance due when the truck was delivered.  The delivery was scheduled in approximately one week.  The next day, Crystal mailed a $1,000 check as promised. 

Is there an enforceable contract between Akers and Crystal at this point?  No.  There is one serious problem.  The negotiation and the exchange of offer and acceptance were done verbally.  Since this transaction involved a sale of personal property with a value in excess of $500, the Statute of Frauds requires some sort of writing to show that such a transaction was created.  Otherwise, the agreement would be unenforceable.

The question, therefore, is whether there is sufficient writing to show that there was an agreement between Crystal and Akers for the sale of the truck?  The answer in this instance is yes.  The return check that Akers sent to Crystal clearly indicated that there was an agreement for the sale of a truck, and the writing (the check) was signed by Akers, the party who is trying to deny the existence of the agreement to sell the truck.   

Question 3.

Melforth Realty Co made an offer to Dallas, Inc.  This offer had to be accepted by May 15.  Dallas, Inc responded to the offer by issuing an acceptance on May 10, well within the deadline.  The response was made using a registered letter, and the law regards the U.S. Mail as a reliable medium.  For this reason, although the letter of acceptance was not received until May 22, the offer was deemed to have been accepted and a contract came into existence the moment the letter of acceptance was sent on December 10. 

It is important to state the legal principle (an acceptance using a reliable medium is effective upon dispatch) and the correct conclusion (a contract resulted the moment the acceptance was dispatched).

Although the offer was communicated to Dallas Inc by telegram, modern courts allow responses to be made using any reasonable or reliable medium.

In cases such as this, because the subject matter of the contract is so substantial, it is always a good idea for the offeree to place a confirming telephone call or an email after the letter of acceptance has been dispatched indicating that the offer has been accepted.  In order to avoid misunderstandings, the offeror could also have indicated in the offer that an acceptance must be received by May 15 in order to be effective.