Chapter 16 - Fundamentals of Contract Formation

Question 1

Contract

Answer 1

Legally binding agreement between 2 or more people.

Question 2

Elements of a Valid Contract

Answer 2

• Offer
• Acceptance
• Consideration
• Capacity
• Legality

Question 3

Offer

Answer 3

• A commitment or promise to do something at a later time.

- Offeror (makes offer), Offeree (to whom offer is made)

Question 4

Elements of a Valid Offer

Answer 4

• The offeror must communicate the offer to the offeree
• Definite Terms
• The offeror intends to be bound (not a joke)

Question 5

Advertisments

Answer 5

• Only considered as invitations to negotiate.

- Not offers

Question 6

Termination of an offer

Answer 6

1) Offeror may REVOKE the offer prior to the offeree’s acceptance.
2) Offeree will REJECT the offer.
3) Offeree makes a COUNTEROFFER (rejects and then new offer)
4) Offer may terminate due to a LAPSE OF TIME (needs to be “reasonable” to accept)
5) DEATH of offeror or offeree
6) DESTRUCTION of the subject matter.

Question 7

Acceptance

Answer 7

• When the offeree voluntarily agrees to the exact terms set forth by the offeror in the offer.
• Offer + Acceptance = Agreement (not a contract)
• Acceptance must be made in a reasonable time and manner.

Question 8

Bilateral Contract - Acceptance

Answer 8

Promise in exchange for a promise

Question 9

Unilateral Contract - Acceptance

Answer 9

Promise in exchange for an action/act.

Question 10

Mirror Image Rule - Acceptance

Answer 10

The acceptance must be exactly what the terms of offer are. If the offeree changes it in any way, it will be rejected and counteroffered. Offeror has to accept.

Question 11

Mailbox Rule - Acceptance

Answer 11

• An offer is accepted when the offeree places the acceptance in the mailbox.

Question 12

Express Contract - Acceptance

Answer 12

When offers and acceptances are communicated either ORALLY or through WRITING wherein the terms of the agreement are explicitly set forth.

Question 13

Implied Contract - Acceptance

Answer 13

Made through the conduct of the parties.

Question 14

Acceptance by Silence

Answer 14

• Usually not acceptable.

- Silence DOES NOT constitute acceptance.

Question 15

Consideration

Answer 15

• Value exchanging hands.
  a) Exchange of value (promise in exchange for a promise)
  b) Refraining from doing something that you have a legal right to do can constitute consideration.

Question 16

Hamer v. Sidway

Answer 16

• Uncle told nephew if he didn’t drink, swear, etc., then he would give him $5000 when 21 yrs. old.
• Nephew refrained, but the uncle didn’t give the $5000.
• Consideration from both sides.
• Court held that the nephew had a right to swear, drink, etc. so it was consideration and he should receive the money.

Question 17

Legal Detriment

Answer 17

Refraining from doing something that a person has a legal right to do.

Question 18

Pre-existing Duty Rule

Answer 18

If a person promises to perform what someone already has a pre-existing duty to perform, the additional promise does not constitute additional consideration.

Question 19

Capacity

Answer 19

• A person must understand the nature of what they are doing.

Question 20

Lack of Capacity

Answer 20

1) Minor
2) Incompetent
3) Intoxication

Question 21

Legality

Answer 21

1) Contracts to commit crimes are not valid.
2) A court will not enforce a contract involving a crime.
3) UNCONSCIONABLE - won’t be enforced. (GROSSLY UNFAIR terms in a contract)

Question 22

Statute of Frauds

Answer 22

• Some contracts must be in WRITING.
  1) Contracts involving LAND
  2) Promising to pay the DEBT OF ANOTHER.
  3) Contract that CANNOT be performed in 1 YEAR.
  4) Sale of Goods OVER $500.

Question 23

Exceptions to Statute of Frauds

Answer 23

1) Partial Performance - Aims at fairness. If contract not in writing but someone performed 70% of the job, contract is enforced.
2) Some contracts between merchants don’t need to be in writing.

Question 24

Parol Evidence Rule

Answer 24

• Extraneous evidence such as oral discussions, pre-contract negotiations, etc. is not allowed in court as evidence.

Question 25

Third Parties’ Rights

Answer 25

1) INTENDED (DONEE and CREDITOR) 3rd party beneficiaries have rights to sue original parties to the contract.
2) INCIDENTAL 3rd party beneficiaries DO NOT have rights to sue.

Question 26

Assignment of Rights - 3rd Party Rights

Answer 26

• I can assign my contract right to someone else.

- Assignor, Assignee

Question 27

Delegation of Duty - 3rd Party Rights

Answer 27

• A party that has an obligation to perform a duty under a contract may DELEGATE that duty.
• Can’t do this if there are specific expectations.

Question 28

Novation

Answer 28

• A new contract between one person and a new person.
• We have a contract and one person can’t fulfill the contract any longer so you enter into a novation and release the old person from their duty.