2. Formation of a Contract

Question 1

Basic test to determine if something is an offer:

Answer 1

Whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract.

Question 2

What two things does a sale of real estate require?

Answer 2

1. A land description

2. The price

Question 3

Can a communication from S to B relating to S’s sale of her car to B be an offer if it provides for the sale for a fair price?

Answer 3

No, because the term “fair” is vague or ambiguous

Question 4

B “offers” to buy grits from S for five years. There is not a specific quantity term in the “offer”; instead, it provides that B shall purchase all its grits from S. Offer?

Answer 4

Yes, because the term “all” is not vague or ambiguous

Question 5

What if there is an increase in the buyer’s requirements?

Answer 5

Buyer can increase requirements so long as the increase is in line with prior demands.

Question 6

When may an advertisement or price quotation be considered an offer?

Answer 6

1. An advertisement can be a unilateral offer if it is in the nature of a reward. For example, Carbolic Smoke Ball Company promises 100 pound reward to anyone who catches the flu after using its smoke ball as directed.
2. An advertisement can be an offer if it specifies quantity and expressly indicates who can accept. For example, Lefkowitz Department Store advertises “1 fur coat $10 – first come, first served.”
3. Price quotation can be an offer if sent in response to an inquiry.

Question 7

Ways that an offer can be terminated:

Answer 7

1. Lapse of time – time stated or reasonable
   time
2. Death of a party prior
   to acceptance.
3. Revocation of an offer

Question 8

How an offer is revoked:

Answer 8

1. Later unambiguous statement by offeror to offeree of unwillingness or inability to contract, or
2. Later unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of.

Question 9

When may an offer not be revoked?

Answer 9

An offer cannot be revoked if the offeror has not only made an offer but also

(i) promised to not revoke (or promised to keep the offer “open”) AND
(ii) this promise is supported by payment or other consideration (“option”)

Question 10

S offers to sell her car to B for $400. S promises “to keep the
offer open for a week.” Can S still revoke the offer notwithstanding her promise
not to revoke?

Answer 10

No, because there was no consideration for the option

Question 11

UCC “Firm Offer Rule”:

Answer 11

An offer cannot be revoked for up to three months if

(i) offer to buy or sell goods,
(ii) signed, written promise to keep the offer open, and
(iii) party is a merchant.

Question 12

Reliance:

Answer 12

An offer cannot be revoked if there has been

(1) reliance that is
(2) reasonably foreseeable and
(3) detrimental.

Question 13

What effect does performance have on an offeror’s ability to revoke a unilateral contract

Answer 13

The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance. Mere preparation is not enough to make offer irrevocable.

Question 14

On January 15, S offers Blackacre to B for
$10,000. B pays S $2 for S’s promise not to revoke the offer until April 5. On
March 3, B makes a counteroffer to S of $9,000. Can B still accept S’s offer?

Answer 14

Yes, because there was a valid option.

Question 15

S offers Blackacre to B for $10,000. B’s response is, “Will you
take $9,000?” Can B later accept S’s offer?

Answer 15

Yes, because B’s response was just bargaining.

Question 16

What effect does a conditional acceptance have on an offer?

Answer 16

A conditional acceptance terminates the offer

Question 17

Mirror Image Rule:

Answer 17

Under common law, a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance.

Question 18

Under Article 2 of the UCC, what if there is a fact pattern in which there is an offer to buy or sell goods and a response with additional or different terms?

Answer 18

First question: Is there a contract? - Under the UCC, a response to an offer that adds additional or different terms, but does not make the new terms a condition of acceptance, is generally treated as an acceptance

Second question: Is the additional term a part of the contract? - The additional term is not a part of the contract unless both parties are merchants. Even If both parties are merchants, the additional term is not a part of the contract if the additional term is “material” [fact question] or if the additional term is objected to by original offeror.

Question 19

What control may the offeror assert over the method of acceptance?

Answer 19

The offeror can control :
1. the method of acceptance,

2. the time that a distance acceptance is effective, or
3. whether the offeree must give notice that it has accepted by performance.

Question 20

Is performance, without more, considered acceptance?

Answer 20

Generally, yes

Question 21

Is the start of performance acceptance of a unilateral contract offer?

Answer 21

No. Completion of performance is required.

Question 22

The four rules dealing with mailing of communications:

Answer 22

1. All communications OTHER THAN ACCEPTANCE are effective only when received.
2. Acceptance is GENERALLY effective when mailed (i.e., the “mailbox rule”).
3. If a rejection is mailed before an acceptance is mailed, then neither is effective until received.
4. You cannot use the mailbox rule to meet an option deadline.

Question 23

What is the general ruler what happens if a seller sends the wrong goods?

Answer 23

Acceptance and breach

Question 24

B orders 100 red widgets. S sends 100 blue widgets with the explanation “out of red, hope that you can use blue instead.”
Is there a contract? Is there a breach?

Answer 24

No, there is a counteroffer but no breach

Question 25

Generally, an offer can be accepted only by:

Answer 25

(1) A person who knows about the offer at the time she accepts and
(2) Who is the person to whom it was made.

Question 26

Can an offer be assigned?

Answer 26

No

Question 27

Can an option be assigned?

Answer 27

Yes, unless the option otherwise provides.

Question 28

I offer a $500 reward to the person who finds my lost dog. You find and return my dog, not knowing of the reward. Is that acceptance of my offer?

Answer 28

No, because I did not know of the offer.

Question 29

S promises to sell and B promises to buy 600 sacks of grits in six equal installments. In the agreement, S reserves the right to terminate the agreement at any time without notice. Is there consideration for B’s promise?

Answer 29

No, because the promise was illusory

Question 30

Can something that one did in the past be used as consideration?

Answer 30

Generally, no

Question 31

Homer sees Lisa in danger and asks Apu to save her, knowing that Apu would expect to be paid. After Apu saves Lisa, Homer promises to pay Apu $3,000. Is this promise legally enforceable?

Answer 31

Yes, because he knew that Apu would expect to be paid

Question 32

May a pre-existing contractual duty be considered consideration under common law?

Answer 32

General rule: doing what you are already legally obligated to do is not new consideration for a new promise to pay you more to do merely that.

Question 33

When might a pre-existing contractual duty be considered consideration?

Answer 33

1. If there is an addition or change to the pre-exiting contractual duty
2. If an unforeseen difficulty is so severe as to excuse performance
3. A third party is requesting the performer to perform pursuant to his pre-existing obligations

Question 34

May a pre-existing contractual duty be considered consideration for a sale of goods?

Answer 34

Article 2 does not have a pre-existing legal duty rule. New consideration is not required to modify a sale of goods contract. Good faith is the test for changes to an existing sale of goods contract.

Question 35

Rule for when part payment as consideration for release, i.e., promise to forgive balance of debt:

Answer 35

Key is whether debt is due and undisputed. If debt is due and undisputed, then part payment is not consideration for release.

Question 36

A promise is legally enforceable even though there is no consideration if there is one of the following consideration substitutes:

Answer 36

1. A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration.
2. Promissory estoppel (detrimental reliance)

Question 37

elements of Promissory Estoppel

Answer 37

1. Promise,
2. Reliance that is reasonable, detrimental, and foreseeable, and
3. Enforcement is necessary to avoid injustice.

Question 38

Who lacks capacity to contract?

Answer 38

1. infant – under 18,
2. mental incompetents – lacks ability to understand agreement, or
3. intoxicated persons if other party has reason to know.

Question 39

Consequences of incapacity:

Answer 39

1. Right to disaffirm by person without capacity
2. Implied affirmation by retaining benefits after gaining capacity (ratification)
3. Quasi-contract liability for necessaries: A person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care or shelter, but that liability is based on quasi-contract law, not contract law.

Question 40

Four contracts within the Statute of Frauds

Answer 40

1. Promises to answer for the debts of another
2. Service contract not “capable” of being performed within a year from the time of the contract
3. Transfers of interest in real estate
4. Sale of goods for $500 or more

Question 41

Epstein agrees to pay $7,000 to Dexter to injure Conviser. If Dexter does not injure Conviser, can Epstein recover from Dexter for breach of contract?

Answer 41

No, because it is for an illegal act

Question 42

Is a contract for an illegal purpose enforceable?

Answer 42

If the subject matter is legal, the agreement is enforceable if the plaintiff did not have reason to know of the defendant’s illegal purpose.

Question 43

S tells B that Redacre has no environmental problem. S honestly believes that Redacre has no environmental problems, but Redacre has environmental problems. B agrees to buy Redacre in reliance on S’s representation. Can B rescind the agreement to buy Redacre?

Answer 43

Yes, because the misrepresentation was material

Question 44

What disclosure duty does a person making a contract have?

Answer 44

Generally, a person making a contract has no duty to disclose what she knows.

Question 45

D has a contract to sell 1,000 pounds of kosher grits to P for Chanukah sales in 2015 for $2,000. D refuses to perform this contract until P agrees to pay $2,500 instead of $2,000. P has no other source of kosher grits and so agrees in writing to pay $2,500. D delivers the kosher grits. Can P get out of the agreement to pay the additional $500?

Answer 45

Yes, because there was an improper threat which is usually threat to breach existing contract,and there was no reasonable alternative.

Question 46

When does an ambiguous term cause a contract to become unenforceable?

Answer 46

There will be no contract if

1. parties use a material term that is open to at least two reasonable interpretations, and
2. each party attaches different meaning to the term, and
3. neither party knows or has reason to know the term is open to at least two reasonable interpretations.

Question 47

When is relief available if there is a mutual mistake of fact?

Answer 47

Relief for mutual mistake only if both parties are indeed mistaken (not just uncertain) about an existing fact (not about something that might or might not happen in the future) that is material (i.e. important) and person seeking relief does not bear the risk of mistake.

Question 48

When will relief be granted for a unilateral mistake of fact?

Answer 48

There will be relief for situations in which the other party had reason to know of the mistake, i.e., palpable mistake.