MEMORANDUM

To: Henry Lowi

From: Olivia Singh
Date: February 21, 2018
Subject: Formation of a Contract Questions (Exercises)

The following are answers to selected questions from the “Exercises” on page 56 of Chapter 3
Formation of a Contract:

1. For a contract to be created, one party must offer to do something, and the other party
must promise to accept that offer. This exchange of promise is referred to as an offer and
an acceptance. Without an offer and an acceptance, a contract cannot exist. Another
important feature of what constitutes a contract is that the offeree must provide
something of value to be paid in return for a promise, known as consideration. In the case
with Willie the electrician and Colin, the contract is valid between the two parties as:

a. an offer is made by Colin to Willie to fix the electricity in his house

b. the said offer is accepted on the condition that the offeror (Colin) understands that
the offeree (Willie) will show up at Colin’s house and charge him extra for the
emergency call
c. the consideration is that the value provided by Willie is his service as an
electrician in exchange for payment of a certain amount, which is higher than his
usual rate
d. this exchange takes place as an arm’s-length transaction, that is, it is treated like a
business deal

Willie fills his contractual obligation of showing up at Colin’s house to fix his power.
However, in this case, the parties did not discuss the actual price of the services rendered
by Willie, save for Willie letting Colin know in advance that he charges extra for
emergency calls. Where there is no mention of price, the implied promise is for payment
of what the services are reasonably worth, or payment for quantum meruit. In cases
where the parties fail to mention the price, the payment for the services or goods is
 understood by the offeree and the offeror. Here, the doctrine of quantum meruit is
applicable: Colin agreed to pay Willie for his services as an electrician, despite no
mention of an actual price that would be charged by Willie upon completion of his
service, which was to fix the power in Colin, the offeror’s, house. Due to the fact that
there was no actual discussion of how much Willie would charge for his services, Colin is
obliged to pay Willie $400 for his services, even if he believes that Willie should not
have charged him that much.

2. The rules of contracts by post (postal rules) include the following:

a. An offer made by post/letter is not effective until received by the offeree.
b. Acceptance is effective as soon as it is posted.
c. For revocation to be effective, it must be received by the offeree before they post
their letter of acceptance.

In the scenario involving Sharri selling her piano for $4,000, she is talking with two
prospective buyers: Aaron and Mary.

Aaron offers Sharri $3,000 for her piano on January 3, to which she inquires if he would
consider increasing his offer. Sharri has not accepted Aaron’s offer yet. Aaron tells her he
will think about it and on January 5, writes to her that he would be willing to buy her
piano for $4,000 where he would pay her $3,000 now and the remaining amount of
$1,000 in a month’s time. Sharri receives this letter on January 8. She accepts his terms
and enters into an oral contract with him to sell her piano for $4,000.

Mary offers Sharri $3,200 for her piano on January 5, to which Sharri responds with a
counteroffer on the very same day stating that she would be willing to sell her piano to
Mary for $3,500. On January 7, Mary accepts Sharri’s counteroffer and agrees to buy the
piano for $3,500. However, Sharri only gets this letter on January 9, dated for January 7.
However, due to the fact that Aaron has offered to buy her piano for $4,000, she wants
Mary to pay her $4,000 as well.

Sharri has gotten herself in a problematic situation by entering into contracts with both
Aaron and Mary for the same piano. One can argue that as per postal rule of an offer
being made by post/letter is not effective until received by the offeree, Sharri and
Aaron’s contract does not come into effect until January 8. Another postal rule states that
acceptance is effective as soon as it is posted. That said, it is Mary who has the claim to
the piano as she accepted and posted the letter to Sharri on January 7, a day before Aaron
and Sharri contacted each other. Her letter was received by Sharri on January 9, but
Mary’s acceptance of Sharri’s counteroffer to sell the piano for $3,500 and not $4,000
became effective as soon as she posted that letter to Sharri on January 7. On January 8 or
9, Sharri cannot counter an acceptance by the other party, Mary, as the contract is already
effective for the same of piano for $3,500 since January 7. Sharri has to communicate to
Aaron that their contract for the $4,000 sale of the piano is not valid as it was drafted on
January 8, while her contract with Mary has been in effect since January 7, a day before
Aaron offered to pay her $4,000 for the piano. As a result, Sharri is obligated to sell her
piano to Mary for $3,500.