Chapter 7: The Nature and Creation of Contracts

Question 1

Contract

Answer 1

An agreement that contains legally enforceable rights and obligations.

Question 2

Meeting of the Minds

Answer 2

Is s shared decision to enter into a legal transaction on a particular basis.

Question 3

Exchange of Value

Answer 3

Occurs when the parties each give something up.

Question 4

What are the three elements required for a contract?

Answer 4

1. Intent to create legal relations.
2. Offer and acceptance.
3. Consideration.

Question 5

Intention to Create Legal Relations

Answer 5

Arises if a reasonable person would believe that the parties intended to create a legally enforceable agreement.

Question 6

Rebuttal of Presumption

Answer 6

Disproval of a presumption (such as that contracts usually occur in a commercial setting).

Question 7

Comfort Letter

Answer 7

A business owner sends a letter to a bank promising to help out even if the company folds in order to get a loan. Creates a moral obligation, but not a legal one.

Question 8

Offer

Answer 8

An indication of a willingness to enter into a contract on certain terms.

Question 9

Offeror

Answer 9

A party who offers to enter into a contract.

Question 10

Offeree

Answer 10

A party who receives an offer to enter into a contract.

Question 11

Invitation to Treat

Answer 11

An indication of a willingness to receive an offer.

Question 12

Revocation

Answer 12

Occurs if the offeror withdraws an offer. Has to be communicated to the offeree.

Question 13

Firm Offer

Answer 13

Occurs when the offeror promises to hold an offer open for acceptance for a certain period.

Question 14

When can a firm offer not be revoked?

Answer 14

When the promise was placed under seal, or if the offer paid for the right to accept within a certain period.

Question 15

Option

Answer 15

A contract in which the offeror is paid in exchange for a binding promise to hold an offer open for acceptance for a specific period.

Question 16

Tender

Answer 16

An offer to undertake a project on particular terms.

Question 17

Why do cities use tenders instead of normal contracts?

Answer 17

It need assurance that the offers will remain open while it considers them.

Question 18

Contract A

Answer 18

Offer by city to hold a fair tendering process.

Acceptance by company of offer.

Question 19

Contract B

Answer 19

Invitation to treat issued by city.
Offer by company to build library.
Acceptance by city of offer.

Question 20

How long is an offer typically open?

Answer 20

For a reasonable period.

Question 21

An offer is automatically revoked if either the offeror or the offeree dies. True or false?

Answer 21

Most of the time it is true.

Question 22

What is an exception to the rule that an offer is automatically revoked if either the offeror or the offeree dies.

Answer 22

If the contract pertains to the sale of land (as opposed to the performance of a concert).

Question 23

Rejection

Answer 23

Occurs when the offeree refuses an offer.

Question 24

Can you change your mind once you reject a contract?

Answer 24

No.

Question 25

Counter-Offer

Answer 25

Occurs when an offeree responds to an offer by indicating a willingness to enter into a contract but on different terms.

Question 26

How do you avoid the harshness of using a counter-offer (which involves rejecting the first offer)?

Answer 26

Phrase your counter-offer as a harmless inquiry.

Question 27

Battle of the Forms

Answer 27

Occurs when each party claims to have entered into a contract on the basis of its own standard form document.

Question 28

Bilateral Contract

Answer 28

Occurs when a promise is exchanged for a promise.

Question 29

Acceptance

Answer 29

Occurs when an offeree agrees to enter into the contract proposed by the offeror.

Question 30

Say you sent a letter to a seller offering to buy their car for $5000. At the same time, they send you a letter offering to sell their car to you for $5000. Does a contract result?

Answer 30

No, since there are two offers with no acceptance. There is no meeting of the minds.

Question 31

Can silence be considered acceptance?

Answer 31

Not unless it has been previously agreed upon.

Question 32

An ___ takes into effect when and where it is received.

Answer 32

Acceptance.

Question 33

General Rule

Answer 33

States that acceptance by instantaneous communication is effective when and where it is received by the offeror.

Question 34

Instantaneous Communication

Answer 34

Any form of communication in which there is little or no delay in the interaction between the parties.

Question 35

Non-Instantaneous Communication

Answer 35

Any form of communication that involves a substantial delay between the time that it leaves one person and reaches another.

Question 36

Postal Rule

Answer 36

States that an acceptance that is communicated in a non-instantaneous way is effective where and when the offeree sends it.

Question 37

How do you mitigate the risks involved with the postal rule?

Answer 37

• Draft your business proposals to ensure they are invitations to treat, not offers.
• Postal rule only applies if it is consistent with the parties’ intentions. You may eliminate the postal rule.
• Postal rule does not apply where it is unreasonable.

Question 38

Postal rule applies only to ___.

Answer 38

Acceptances.

Question 39

What is the rule for an offer, a revocation, a rejection, or a counter-offer?

Answer 39

Effective only when and where it is received by the offeree.

Question 40

Unilateral Contract

Answer 40

Occurs when an act is exchanged for a promise.

Question 41

In unilateral contracts, no contract exists unless and until the offeree ___ performs.

Answer 41

Fully.

Question 42

In unilateral contracts, if the offeree performs and the contract is created, the ___ is the only one with an outstanding obligation to perform.

Answer 42

Offeror.

Question 43

Do courts prefer unilateral or bilateral contracts, and why?

Answer 43

Bilateral, as neither party has to worry about wasting time and expense. Unilateral contracts may operate unfairly (see hypothetical Carbolic Smoke Ball Co. case).