Unpublished Flashcard
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Contracts • Formation Requirements
K#023
Legal Definition
Under the UCC, if (1) a merchant (2) offers to sell goods in a signed writing and (3) the writing assures it will be held open, then the offer is not revocable during the time period stated, or for a reasonable time if no time is stated. The time period cannot exceed 3 months.
Plain English Explanation
Generally speaking, an option contract requires the offeree to pay some sort of consideration in order for the offer to be held open. Under the UCC, however, no consideration is required if the offeror is a merchant, and they provide a signed document that says they will keep the offeror open. This is called a "firm offer," and will either stay open for as long as explicitly stated in the signed document from the merchant, or a reasonable amount of time. It cannot be longer than 3 months.
Hypothetical
Hypo 1: Bob is a teacher. He wants to get some extra money, so he puts his car up for sale. Sam is interested in buying the car, but needs time to think about it. Bob writes and signs a note that says, "I will sell you this car for $1,000, and this offer will be good for 7 days." 4 days later, Amy offers to buy the car from Bob. Bob accepts Amy's offer. Result: There's no issue here, because Bob isn't a merchant and Sam didn't pay any consideration to create an option contract. Had Sam paid money for the note promising to keep the offer open, then Bob would be in breach. Likewise, if Bob were a merchant that regularly sold cars, his note would be a valid firm offer, which would prevent him from selling to Amy.
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