Two-Minute MBE Question: Contracts (acceptance)
Here, we discuss how to approach the following Contracts MBE question in two minutes. Read the question below then check out the YouYube video below for an answer explanation in less than two minutes!
Contracts MBE Question:
On January 1, a man offered to sell his neighbor his lawn mower for $400. The neighbor was considering whether to purchase the lawn mower. The neighbor said to the man, “I cannot decide whether I want to buy your lawn mower. If I pay you $10.00 will you leave the offer open until January 5?” The man agreed to leave the offer open until January 5, and the neighbor paid the man $10.00.
On January 2, the neighbor told the man, “I reject your offer.” The man did not take any steps in reliance on the neighbor’s rejection. On January 3, the neighbor told the man, “I accept your offer.”
Is there a contract between the neighbor and the man?
(A) No, because the January 3 statement constituted a counteroffer.
(B) No, because $10.00 is not considered to be adequate consideration to hold open an offer.
(C) Yes, because the man did not take any steps in reliance on the neighbor’s January 2 rejection and the neighbor accepted the offer prior to the January 5 deadline.
(D) Yes, because an option contract can always be accepted during the time period that the offer is held open.
Contracts Video Answer Explanation:
Looking for the written answer explanation?
You can find the answer to the Contracts MBE question in the video above or the text below. Just click “SHOW ANSWER”
(C) is the correct answer. The general rule is that once an offer is rejected, it cannot be accepted. However, there is an exception for option contracts. An option contract is created when there is a promise to hold an offer open and consideration to support that promise. The rule for option contracts is that the offer can be accepted during the time the offer is held open even if there is first a rejection. The only exception to this is if the offeror takes steps in reliance on the offeree’s rejection prior to the acceptance.
In this case, there was a valid option contract for $10 to hold open the offer. $10 is not considered to be too “nominal” to hold open an offer. So the option contract is valid. Next, the neighbor rejected the offer on January 2. (Normally this would prevent the neighbor from accepting the offer later; however, option contracts have special rules and state the offer can still be accepted so long as there is not reliance on the rejection.) The facts state that the “man did not take any steps in reliance” on the rejection. Thus, the January 3 acceptance was effective as it took place within the option deadline.
(A) is incorrect because while it would be true if an option contract were not at issue, in this case the man paid to have the offer “open” and he can (generally) accept it within that time frame.
(B) is incorrect as $10 is sufficient consideration to hold open an offer.
(D) is incorrect simply because it is too broad. It uses the word “always” (which you should look out for!). It is not true that an option contract can always be accepted during the time that the offer is held open. In fact, if the man had relied on the neighbor’s rejection, the neighbor would not have been able to accept the offer.
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