Chapter 7: The Nature and Creation of Contracts Flashcards
Contract
An agreement that contains legally enforceable rights and obligations.
Meeting of the Minds
Is s shared decision to enter into a legal transaction on a particular basis.
Exchange of Value
Occurs when the parties each give something up.
What are the three elements required for a contract?
- Intent to create legal relations.
- Offer and acceptance.
- Consideration.
Intention to Create Legal Relations
Arises if a reasonable person would believe that the parties intended to create a legally enforceable agreement.
Rebuttal of Presumption
Disproval of a presumption (such as that contracts usually occur in a commercial setting).
Comfort Letter
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.
Offer
An indication of a willingness to enter into a contract on certain terms.
Offeror
A party who offers to enter into a contract.
Offeree
A party who receives an offer to enter into a contract.
Invitation to Treat
An indication of a willingness to receive an offer.
Revocation
Occurs if the offeror withdraws an offer. Has to be communicated to the offeree.
Firm Offer
Occurs when the offeror promises to hold an offer open for acceptance for a certain period.
When can a firm offer not be revoked?
When the promise was placed under seal, or if the offer paid for the right to accept within a certain period.
Option
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.
Tender
An offer to undertake a project on particular terms.
Why do cities use tenders instead of normal contracts?
It need assurance that the offers will remain open while it considers them.
Contract A
Offer by city to hold a fair tendering process.
Acceptance by company of offer.
Contract B
Invitation to treat issued by city.
Offer by company to build library.
Acceptance by city of offer.
How long is an offer typically open?
For a reasonable period.
An offer is automatically revoked if either the offeror or the offeree dies. True or false?
Most of the time it is true.
What is an exception to the rule that an offer is automatically revoked if either the offeror or the offeree dies.
If the contract pertains to the sale of land (as opposed to the performance of a concert).
Rejection
Occurs when the offeree refuses an offer.
Can you change your mind once you reject a contract?
No.
Counter-Offer
Occurs when an offeree responds to an offer by indicating a willingness to enter into a contract but on different terms.
How do you avoid the harshness of using a counter-offer (which involves rejecting the first offer)?
Phrase your counter-offer as a harmless inquiry.
Battle of the Forms
Occurs when each party claims to have entered into a contract on the basis of its own standard form document.
Bilateral Contract
Occurs when a promise is exchanged for a promise.
Acceptance
Occurs when an offeree agrees to enter into the contract proposed by the offeror.
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?
No, since there are two offers with no acceptance. There is no meeting of the minds.
Can silence be considered acceptance?
Not unless it has been previously agreed upon.
An ___ takes into effect when and where it is received.
Acceptance.
General Rule
States that acceptance by instantaneous communication is effective when and where it is received by the offeror.
Instantaneous Communication
Any form of communication in which there is little or no delay in the interaction between the parties.
Non-Instantaneous Communication
Any form of communication that involves a substantial delay between the time that it leaves one person and reaches another.
Postal Rule
States that an acceptance that is communicated in a non-instantaneous way is effective where and when the offeree sends it.
How do you mitigate the risks involved with the postal rule?
- 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.
Postal rule applies only to ___.
Acceptances.
What is the rule for an offer, a revocation, a rejection, or a counter-offer?
Effective only when and where it is received by the offeree.
Unilateral Contract
Occurs when an act is exchanged for a promise.
In unilateral contracts, no contract exists unless and until the offeree ___ performs.
Fully.
In unilateral contracts, if the offeree performs and the contract is created, the ___ is the only one with an outstanding obligation to perform.
Offeror.
Do courts prefer unilateral or bilateral contracts, and why?
Bilateral, as neither party has to worry about wasting time and expense. Unilateral contracts may operate unfairly (see hypothetical Carbolic Smoke Ball Co. case).
