1. Contract Basics Flashcards
Contract Requirements:
- Mutual assent
• demonstrated by an offer and valid acceptance - Consideration
• Bargain-for exchange of legal value between the parties - No defenses to contract formation
Void, voidable and unenforceable
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.
Types of Contracts
- Bilateral
♣ exchange of mutual promise
♣ each party is a promisor and a promisee - 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 - 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
Applicable Law
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.
OFFER:
Demonstrated by a promise; definite and certain terms; and communication to an offeree.
OFFER: Objective manifestation of intent
Offer must give offeree a reasonable expectation that offeror is willing to enter into a contract
OFFER: Definite and certain terms
Terms must be sufficient to allow court to enforce contract
Vague terms are insufficient
OFFER: Communication to an identified offeree
♣ 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.
UCC Offers
♣ 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.
Termination of Offer:
Offer may be terminated by an act of a party or by operation of law
Termination of Offer: Act of Parties
♣ 1. Revocation by offeror
♣ 2. Rejection by offeree
♣ 3. Lapse of time
Termination of Offer: Operation of Law
♣ 1. Death or insanity of either party
♣ 2. Destruction of proposed contract’s subject matter
♣ 3. Supervening illegality
Methods of revocation:
♣ 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.
Limitations on revocation:
♣ 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
Irrevocable offers
♣ 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
Rejection of Offer:
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.
ACCEPTANCE:
Acceptance arises upon offeree’s clear expression of assent to the terms of the offer
ACCEPTANCE: Mirror Image Rule
♣ ONLY in common law
♣ Acceptance must mirror the offer’s terms; cannot add, omit or change terms
ACCEPTANCE: UCC Acceptance
♣ 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
Mail Box Rule
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
Acceptance by Performance
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.
Promissory Estoppel:
♣ 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
Consideration
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
