Chapter 16 - Fundamentals of Contract Formation Flashcards
Contract
Legally binding agreement between 2 or more people.
Elements of a Valid Contract
- Offer
- Acceptance
- Consideration
- Capacity
- Legality
Offer
- A commitment or promise to do something at a later time.
- Offeror (makes offer), Offeree (to whom offer is made)
Elements of a Valid Offer
- The offeror must communicate the offer to the offeree
- Definite Terms
- The offeror intends to be bound (not a joke)
Advertisments
- Only considered as invitations to negotiate.
- Not offers
Termination of an offer
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.
Acceptance
- 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.
Bilateral Contract - Acceptance
Promise in exchange for a promise
Unilateral Contract - Acceptance
Promise in exchange for an action/act.
Mirror Image Rule - Acceptance
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.
Mailbox Rule - Acceptance
- An offer is accepted when the offeree places the acceptance in the mailbox.
Express Contract - Acceptance
When offers and acceptances are communicated either ORALLY or through WRITING wherein the terms of the agreement are explicitly set forth.
Implied Contract - Acceptance
Made through the conduct of the parties.
Acceptance by Silence
- Usually not acceptable.
- Silence DOES NOT constitute acceptance.
Consideration
- 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.
Hamer v. Sidway
- 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.
Legal Detriment
Refraining from doing something that a person has a legal right to do.
Pre-existing Duty Rule
If a person promises to perform what someone already has a pre-existing duty to perform, the additional promise does not constitute additional consideration.
Capacity
- A person must understand the nature of what they are doing.
Lack of Capacity
1) Minor
2) Incompetent
3) Intoxication
Legality
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)
Statute of Frauds
- 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.
Exceptions to Statute of Frauds
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.
Parol Evidence Rule
- Extraneous evidence such as oral discussions, pre-contract negotiations, etc. is not allowed in court as evidence.
Third Parties’ Rights
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.
Assignment of Rights - 3rd Party Rights
- I can assign my contract right to someone else.
- Assignor, Assignee
Delegation of Duty - 3rd Party Rights
- 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.
Novation
- 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.
