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1. As of July 22, which of the following is an accurate statement as to whether a contract was formed?
On July 18, a shovel manufacturer received an order for the purchase of 500 snow shovels from a wholesaler. The wholesaler had mailed the purchase order on July 15. The order required shipment of the shovels no earlier than September 15 and no later than October 15. Typed conspicuously across the front of the order form was the following: «[the wholesaler] reserves the right to cancel this order at any time before September 1.» The manufacturer's mailed response, saying «We accept your order,» was received by the wholesaler on July 21.
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A promise that reserves for the promisor several alternative performances is generally consideration only if each of the alternative performances would have been consideration if it had been bargained for alone.
A is correct. A promise is not consideration to support a return promise if, by its terms, the promisor unconditionally reserves the right of alternative performances, such as reserving the right to cancel an order. Such a promise is illusory. When the wholesaler reserved the right to cancel the order at any time before September 1, this meant that as of July 22, the wholesaler gave only an illusory promise to purchase the shovels. Therefore, as of that time, the contract was not enforceable against either party.
B is incorrect. The most common manner in which the power of acceptance can be terminated is through expiration or lapse of the offer. Termination of an offer can also arise through a valid revocation of the offer by the offeror. A revocation is a retraction of the offer. In general, offers are revocable and a contract may be formed as long as an offer is not actually revoked. Because there is no indication in the fact pattern that the offer was revoked, a valid contract may have been formed.
C is incorrect. As explained above, an illusory promise is not sufficient consideration to create an enforceable contract because it will not commit the promisor to give up anything of their own. A contract was not formed as of July 22 because only the wholesaler reserved the right to terminate.
D is incorrect. In a typical option contract, the seller agrees to keep an offer open for a certain amount of time. A potential buyer has to give the seller some payment in exchange. In other words, in an option contract, the seller is agreeing to keep the «option» open for the buyer. A contract was not formed as of July 22 because the facts do not suggest that the manufacturer gave the wholesaler an option.