Question

On October 1, Baker, a wholesaler, sent Clark, a retailer, a written, signed offer to sell 200 pinking shears at $9 each. The terms were FOB Baker's warehouse, net 30, late payment subject to a 15% per annum interest charge. The offer indicated that it must be accepted no later than October 10, that acceptance would be effective upon receipt, and that the terms were not to be varied by the offeree. Clark sent a telegram, which arrived on October 6, and accepted the offer expressly subject to a change of the payment terms to 2/10, net/30. Baker phoned Clark on October 7 to reject the change of payment terms. On the phone, Clark then indicated it would accept the October 1 offer in all respects and expected delivery within 10 days. Baker did not accept Clark's oral acceptance of the original offer. Which of the following is true?

A. Baker's original offer is a firm offer, hence irrevocable.
B. The statute of frauds would preclude the formation of a contract in any event.
C. Clark actually created a contract on October 6. The modifications were merely proposals and did not preclude acceptance.
D. There is no contract. Clark's modifications effectively rejected the October 1 offer, and Baker never accepted either of Clark's proposals.

Answer 1

Clark's initial modification to the payment terms constituted a counteroffer and rejection of Baker's original offer. When Clark later agreed to the original terms, no contract was formed as Baker did not affirm that acceptance; hence, there is no contract.

Step-by-step explanation:

The question involves contract law and specifically deals with the issue of offer and acceptance in contract formation. Initially, Baker's offer to Clark was clear, definitive, and required acceptance by a particular date. When Clark responded with a telegram that included different payment terms, this constituted a counteroffer, which effectively rejected Baker's original offer. Upon Clark's subsequent indication during a phone conversation to accept Baker's original terms, no contract was formed because Baker did not accept Clark's oral acceptance. Therefore, the correct answer is D. There is no contract. Clark's modifications effectively rejected the October 1 offer, and Baker never accepted either of Clark's proposals.