1. Contract Basics

Question 1

Contract Requirements:

Answer 1

1. Mutual assent
   • demonstrated by an offer and valid acceptance
2. Consideration
   • Bargain-for exchange of legal value between the parties
3. No defenses to contract formation

Question 2

Void, voidable and unenforceable

Answer 2

Void: contract never had any legal effect

Voidable: one or both parties may elect to void the contract

Unenforceable: otherwise valid contract that is unenforceable because a defense applies.

Question 3

Types of Contracts

Answer 3

1. Bilateral
   ♣ exchange of mutual promise
   ♣ each party is a promisor and a promisee
2. Unilateral
   ♣ offer requires performance as the manner of acceptance
   ♣ Offeror-promisor agrees to pay upon completion of the act requested by the promise; once act is completed, contract is formed
3. Quasi-contract
   ♣ not a contract, but rather a restitution remedy designed to prevent unjust enrichment; usually arises when there is an unenforceable agreement, but one side has realized the benefits
   ♣ Look for
   • 1. P has conferred a benefit to D;
   • 2. P reasonably expects to be paid;
   • 3. D knowingly accepted the benefit; and
   • 4. D will be unjustly enriched if P is not compensated

Question 4

Applicable Law

Answer 4

Common Law:
♣ Most often arises in the form of contracts for real estate or services

UCC Article 2:
♣ Governs all sale of goods
♣ If both parties to a contract are merchants, the UCC has additional special rules

Mixed Contracts:
♣ When contract involves both goods and services, the predominant purpose of the contract dictates the applicable law.
♣ Exception:
• If contract terms divide payment between the goods and services, apply the UCC to the sale of goods portion of the contract and common law to the remainder.

Question 5

OFFER:

Answer 5

Demonstrated by a promise; definite and certain terms; and communication to an offeree.

Question 6

OFFER: Objective manifestation of intent

Answer 6

Offer must give offeree a reasonable expectation that offeror is willing to enter into a contract

Question 7

OFFER: Definite and certain terms

Answer 7

Terms must be sufficient to allow court to enforce contract

Vague terms are insufficient

Question 8

OFFER: Communication to an identified offeree

Answer 8

♣ Offeree must know of offer and have power to accept it

♣ Advertisement: generally not offers, unless highly specific as to quantity and clearly indicate who may accept.

Question 9

UCC Offers

Answer 9

♣ Quantity must be certain or capable of being made certain

♣ Missing terms is o.k., particularly price, if parties clearly intended to make a contract and there is a reasonable certain basis for giving a remedy.

Question 10

Termination of Offer:

Answer 10

Offer may be terminated by an act of a party or by operation of law

Question 11

Termination of Offer: Act of Parties

Answer 11

♣ 1. Revocation by offeror
♣ 2. Rejection by offeree
♣ 3. Lapse of time

Question 12

Termination of Offer: Operation of Law

Answer 12

♣ 1. Death or insanity of either party
♣ 2. Destruction of proposed contract’s subject matter
♣ 3. Supervening illegality

Question 13

Methods of revocation:

Answer 13

♣ 1. Unambiguous statement by the offeror to the offeree

♣ 2. Offeree becomes aware of the offeror’s unambiguous conduct or statement indicating an unwillingness or inability to contract.

Question 14

Limitations on revocation:

Answer 14

♣ Revocation is only effective upon receipt by offeree

♣ Offer cannot be revoked once it has been accepted

♣ Unilateral Contracts:
• Start of performance makes the offer irrevocable for a reasonable time to complete performance
• Start of performance must go beyond mere preparation

Question 15

Irrevocable offers

Answer 15

♣ Option contracts: promise to keep an offer open
• Common law: consideration required in exchange for option
• UCC: no consideration required

♣ UCC firm offers: a merchant’s offer made in a signed writing that assures the offer will be held open is irrevocable for the time stated; no consideration is required
• If no time states, irrevocable for up to 3 months.

♣ Detrimental reliance offers: reliance must be reasonable

Question 16

Rejection of Offer:

Answer 16

o Rejection by the offeree terminates the offer and the offeree’s power of acceptance
o Methods of rejection:
♣ 1. Express rejection: effective when received
♣ 2. Counteroffer: terminates the original offer and becomes a new offer (bargaining is not a counteroffer)
♣ 3. Conditional acceptance: terminates the original offer and becomes a new offer (e.g. if, only if, but, provided, so long as, on condition that, ect.)
♣ 4. Acceptance with additional terms:
• Common law: mirror image rule
• UCC: depends on whether both parties are merchants
o Non-merchant: terms of offer govern; contract is formed but additional terms are excluded and considered mere proposals to modify the contract.
o Both parties are merchants: additional terms become part of the contract unless certain exceptions apply.

Question 17

ACCEPTANCE:

Answer 17

Acceptance arises upon offeree’s clear expression of assent to the terms of the offer

Question 18

ACCEPTANCE: Mirror Image Rule

Answer 18

♣ ONLY in common law

♣ Acceptance must mirror the offer’s terms; cannot add, omit or change terms

Question 19

ACCEPTANCE: UCC Acceptance

Answer 19

♣ Acceptance with additional terms: Are both parties merchants?
• YES contract is formed with additional terms unless:
o Offeror object within reasonable time
o Offeror expressly limits acceptance to the offer’s terms; or
o Additional terms materially change the offer
• NO contract is formed but without additional terms

♣ Acceptance by shipment: merchant may accept an offer to buy goods by either:
• Providing a promise to ship goods; or
• Promptly shipping conforming goods
• Shipment of nonconforming goods: acts as an acceptance but may give rise to breach

Question 20

Mail Box Rule

Answer 20

o Offers: effective upon receipt
o Acceptance: effective upon dispatch
o Revocation: effective upon receipt
o Limitations:
♣ Offeror can opt out of a mailbox rule
♣ If offeree sends both a rejection and acceptance, first to arrive controls
♣ Option contracts: acceptance is effective upon receipt

Question 21

Acceptance by Performance

Answer 21

o Unless acceptance is limited by terms of the offer, offeree may accept by partial performance (bilateral contracts) or complete performance (for unilateral contracts)
o Unilateral
♣ Complete performance required
♣ Failure to perform does not give rise to breach because no contract is formed absent complete performance
♣ Revocability: offer may become irrevocable upon the start of performance until completion
♣ Notice only required upon completion: offeree is not required to give notice upon start of performance, but must notify offeror within reasonable time upon completion.

Question 22

Promissory Estoppel:

Answer 22

♣ Consideration substitute
♣ Requirements:
• 1. Promisor reasonably expects reliance by promise
• 2. Promisee acts or refrains from acting such that his reliance is detrimental; and
• 3. Injustice will occur without enforcement of the promise

Question 23

Consideration

Answer 23

o Consideration is a bargained-for exchange of legal value between parties; there must be a benefit to promisor or detriment to promise

o Bargained for exchange:
♣ Promise must induce the detriment and the detriment must induce the promise
♣ Past or moral consideration: a promise to perform a pre-existing duty or obligation generally does not constitute consideration

o Invalid consideration:
♣ Promises of gifts or conditional gifts
♣ Illusory promises: a promise where there is no obligation to perform