Contract Formation

Question 1

What is the gateway question for a contract law fact pattern?

Answer 1

Do we apply UCC or the common law?

Question 2

How do you determine whether to apply UCC or contract law?

Answer 2

Use the predominant purpose test. Look to the following factors:

1. Is it really about the good or the service?
2. Is there a large quantity of goods vs a small quantity?

Question 3

What is the idea of mutual assent?

Answer 3

It’s that the contracting parties both intended to enter into a binding agreement and had a meeting of the minds regarding all the essential terms and obligations

Question 4

For an offer to be valid, there must be three conditions met. What are they?

Answer 4

1. There must be an objective manifestation to enter the bargain on the part of the offeror. Subjective hidden intent does not matter – Lucy v. Zhemer
2. The offer must create a power of acceptance in the offeree
3. The offer must specify all necessary terms of the deal and cannot be extremely vague – Sun Printing v. Remington Paper

Question 5

Under common law, what essential terms must an offer specify?

Answer 5

1. The parties
2. The subject
3. The price
4. The quantity (usually not applicable though for services)

Question 6

Under the UCC, what essential terms must an offer specify?

Answer 6

1. The parties
2. The subject
3. The quantity

Question 7

What is a unilateral offer?

Answer 7

An offer where acceptance comes in the form of performance - rewards or contests

Question 8

What is a bilateral offer?

Answer 8

An offer that promises something in exchange for something requested

Question 9

Are option contracts enforceable under common law - Laporte v. Blume, RS 25 and 87

Answer 9

Yes if they are supported by consideration or a recitation of consideration

Question 10

What is a firm offer under the UCC - 2-306

Answer 10

An offer made by a merchant in writing that holds the price of a good for a maximum time of three months without consideration

Question 11

Are advertisements offers - Ford Motor Co.

Answer 11

Nope, just invitations to bargain

Question 12

What is an express revocation of an offer?

Answer 12

It’s when the offeror revokes his offer by telling the offeree

Question 13

When is an offeror not allowed to revoke the offer?

Answer 13

1. For the duration of a valid option contract under common law
2. For the duration of a firm offer under the UCC
3. If the offer is a unilateral one and the offeree has already started performance, the offeror cannot revoke

Question 14

What is a constructive revocation of an offer?

Answer 14

When the offeror entered into an agreement with someone else or put it out of their power to make such an offer before the offeree had a chance to accept

Question 15

What is the effect of the offeree rejecting the offer?

Answer 15

It is dead, the offeree cannot later decide to accept the offer after rejection

Question 16

What is the effect of a counteroffer on the original offer?

Answer 16

The original offer is terminated as soon as the offeree makes a counteroffer. This becomes the new offer

Question 17

What effect does time have on an offer?

Answer 17

After a reasonable amount of time, if an offeree does not respond to an offer, it is terminated

Question 18

Explain the idea of the offeror being the “master of the offer”

Answer 18

The offeror may prescribe the place, time, and manner of acceptance. if the offeror doesn’t specify, then other methods of acceptance are not precluded

Question 19

What is the mirror image rule under common law - Davis v. Satrom

Answer 19

If acceptance does not mirror the offer, it is a counter offer and no contract has been formed

Question 20

What is the last shot rule - Ardent v. Horan

Answer 20

Just an observation that under the common law mirror image rule, whoever makes the last counteroffer controls the terms of a contract

Question 21

Under the UCC, an offer and acceptance may differ. What happens if the acceptance is made “expressly conditional” on terms not in the offer, and the parties perform?

Answer 21

Utilize 2-207 (3). Only terms which are in both the offer and the acceptance become part of the contract. All other terms are “left out” and the court will supply default terms where necessary

Question 22

Under the UCC, what happens when an acceptance adds additional terms to the contract?

Answer 22

Between merchants, those additional terms become part of the contract if they are immaterial and are not objected to within a reasonable time after the other party has notice of them

Question 23

Under the UCC, what happens when an acceptance adds terms that are different from the offer - Gardner Zemke v. Dunham

Answer 23

Different material terms cancel each other out and the court supplies a term instead “knock out”

Question 24

Explain Step-Saver v. Wyse

Answer 24

Contract for the sale of software made over the phone which included price, quantity, shipping, and payment. Court treated this as preliminary when software arrived with a box top agreement which included multiple additional terms. Using UCC, the box top was the true proposed acceptance and under 2-207, disclaimer of warranties, and limitation of remedies were material additional terms to be excluded.

Question 25

What is the takeaway from Arnold Palmer v. Fuqua?

Answer 25

Under common law, just because the parties manifest their intent to prepare a separate written memorialization of their agreement doesn’t preclude the existence of a contract between the parties

Question 26

What should you consider when trying to determine whether there was mutual assent to form a contract or just preliminary negotiations?

Answer 26

1. Whether an express agreement was reached on all terms?
2. Whether the contract is the type usually put in writing?
3. Whether it needs a formal writing for full expression?
4. Whether is has few or many details?
5. Whether the amount involved is large or small?
6. Whether a standard form of contract is widely used in similar transactions?
7. Whether either party takes action in preparation for performance during negotiations?

Question 27

What does Empro have to say about letters of intent?

Answer 27

Letters of intent can signal mutual assent, but if the letter leaves details open for agreement, and the agreement is subject to another final agreement, then there is no enforceable contract yet

Question 28

Are agreements to negotiate in good faith enforceable? What about agreements to agree - Racine

Answer 28

Agreements to negotiate in good faith are enforceable

Agreements to agree are not enforceable

Question 29

What’s the relevance of a “rolling contract” like the one from Hill v. Gateway

Answer 29

You can basically exclude 2-207 from your analysis if you characterize the contract as “rolling”. That is, both the parties knew that additional terms would be expected to follow upon delivery.

If the buyer was provided with an out (sending the goods back within a certain time), and the buyer decides to accept the goods, then those additional terms become a part of the contract

Question 30

Explain Consideration

Answer 30

Mutual Inducement

Consideration consists either of some right, interest, profit, or benefit accruing to one party, in return for some forbearance or detriment by endured by the other

Question 31

What’s an example of valid consideration under Hammer v. Sidway

Answer 31

The waiver of any legal right at the request of another party is sufficient consideration

Question 32

How does consideration work in the context of at-will employment - Lakeland v. Columber

Answer 32

An employer’s forbearance from discharging an employee will form consideration for any new contract if the employment is at will

Question 33

Under common law, requirements contracts would not be supported by consideration. How are they supported under the UCC?

Answer 33

Good faith is viewed as consideration for requirements contracts under the UCC

Question 34

Why was there no consideration in Harrington v. Taylor

Answer 34

Past and moral consideration is generally not sufficient to establish a contract. In Harrington, plaintiff saved the defendant, and only after, the defendant offered to pay out of a sense of moral obligation

Question 35

Why was the requested performance not valid consideration in Carlisle v. Excavating

Answer 35

A requested performance attached to a gratuitous promise is often a condition for enabling such a donation and not consideration

Look to circumstances surrounding the promise to evaluate whether the promisee is offering consideration or merely fulfilling an enabling condition

Question 36

What is an illusory contract?

Answer 36

One which puts complete discretion on one party to willfully forfeit. Such contracts are not supported by consideration

Question 37

Do you need additional consideration to modify contracts under common law?

Answer 37

Usually yes, unless the modification is fair and equitable under circumstances not anticipated by the parties at the time of contract formation

Question 38

Do you need additional consideration to modify a contract under the UCC?

Answer 38

No, so long as the modification is done in good faith

Question 39

Are parties allowed to substitute their contract for a different one?

Answer 39

Yes under both the common law and the UCC

Question 40

When are modifications induced by threat binding?

Answer 40

Modifications induced by threat are binding so long as they are fair and equitable in light of unanticipated circumstances and the threat doesn’t breach the duty of good faith and fair dealing under the contract

Question 41

What is the idea of accord and satisfaction - Wong v. Paisner

Answer 41

If there is a good faith dispute regarding the terms of the contract, and one party offers a solution to the problem, such a dispute is resolved if the other party accepts the solution

In Paisner, although the plaintiff expected more, he cashed a 1000 dollar check made by the defendant as accord and satisfaction, so the issue was resolved.

Question 42

If a UCC contract excludes oral modifications, and such a modification is made without a writing, is it enforceable?

Answer 42

If the goods are shipped and the other party accepts them, it doesn’t matter that the modification was made without a writing

Question 43

Is drunkenness a defense to contract formation?

Answer 43

No unless it was induced by the other party

Question 44

What is a mutual mistake and how does it affect the formation of contract?

Answer 44

A situation where both parties are mistaken as to a basic factual assumption on which the contract was made, and the mistake has a material effect on the agreed upon exchange

In this instance, the contract is voidable by the adversely affected party unless that party bears the risk of the mistake through something like an “as is” clause

Question 45

What is a unilateral mistake and how does it affect the formation of a contract?

Answer 45

A unilateral mistake is where one party was mistaken regarding a factual assumption on which the contract was made

Unilateral mistakes rarely allow the adversely affected party to void the contract unless enforcement either would be unconscionable or the other party knew of the mistake/caused the mistake and still went through with the deal

Question 46

What are the three types of misunderstandings and how do they affect the formation of a contract?

Answer 46

1. A contract is void for lack of mutual assent where neither party knows or has reason to know of the materially different meanings attached to contract by the other
2. A contract is void for lack of mutual assent where both parties know of have reason to know of the materially different meanings attached to the contract by the other
3. The court will enforce a contract and attach the meaning of the terms by the ONE misunderstanding party if that party does not know of any different meaning attached by the other, and the other knows of the meaning attached by the first - Colfax

Question 47

When and how does a fraudulent misrepresentation affect the formation of a contract?

Answer 47

The contract is voidable by the adversely affected party if:

1. The misrepresentation concerns a fact which the deceived party considers material
2. The misrepresentation was made knowingly or recklessly
3. With the intent to induce assent from the deceived party

Question 48

What are the different types of fraudulent misrepresentation - Weintraub v. Krobatsch

Answer 48

1. Straight up lie (making contradictory statements)
2. Deliberate Concealment (hiding it)
3. Deliberate non-disclosure (saying nothing)
4. Reckless non-disclosure (not disclosing something you should have known about and disclosed)

Question 49

When does duress by threat make a contract voidable by the adversely affected party?

Answer 49

When the treat is improper and leaves the threatened party with no other alternative but to accept

Question 50

What are improper threats?

Answer 50

1. Threatening to bring a civil action against someone if they don’t assent to a contract when the potential action has no legal basis
2. Threatening to breach the implied covenant of good faith and fair dealing under the contract

Question 51

What will a court do if it finds that the contract contained or induced illegal activities - Clouse v. Myers

Answer 51

The court will void the contract

Question 52

When are contracts in the restraint of trade unenforceable as matter of public policy - Hopper v. All Pet

Answer 52

1. The restriction is greater than required to protect the employer’s interest
2. The restriction is overly injurious to the employee
3. The restriction will unduly harm the public

Question 53

What will the majority of courts do with contracts relating to sex, family, and procreation as a matter of public policy - Szafranski v. Dunston

Answer 53

The court will enforce the terms of the contract

Question 54

When is a liquidated damages provision unenforceable as a matter of public policy?

Answer 54

When it serves as a penalty by fixing an unreasonably large sum

Question 55

What does the court have to say about unconscionability between sophisticated parties - Batfilm v. Warner Bros

Answer 55

Two sophisticated parties should know if they are entering into an unconscionable deal, the court will usually just enforce it

Question 56

What is the modern test for unconscionability?

Answer 56

Procedural Unconscionability:

1. Oppression - differences in bargaining power or lack of a meaningful alternative
2. Surprise - obfuscatory language

Substantive Unconscionability: an unfair result

Its a sliding scale between the two but you need both for a contract to be voidable by the adversely affected party

Question 57

Under the UCC, when courts employ the test for modern unconscionability, is the whole contract void or only part?

Answer 57

Courts will use this test along with the surrounding circumstances of the contract to determine whether the agreement is valid, whether the agreement is void, or whether only part of the contract is void

Question 58

What does the federal arbitration act have to say about unconscionability?

Answer 58

Arbitration agreements are enforceable unless a mechanism in law or equity would otherwise make them not so - I.E., unconscionability

Question 59

What factors should you consider when determining whether an arbitration agreement is unconscionable?

Answer 59

1. Does the other party lack meaningful choice, can they modify the arbitration clause?
2. Does the arbitration clause cause the other party to bear expenses beyond that which they would have paid in court to sue? (if so it’s void)
3. Does the arbitration clause significantly favor the party who drafted it by imposing unreasonable limitations on what types of lawsuits can be brought, how many individuals from the drafter’s corporation can be deposed, etc.?

Question 60

What did the supreme court say about arbitration agreements which prohibit class action in AT&T v. Concepcion

Answer 60

Arbitration is supposed to be privileged over court proceedings because its quick and easy. Thus, forbidding class arbitration is not unconscionable because the whole purpose of arbitration is supposed to be simple

Question 61

Under common law, the statute of frauds requires a writing for what kinds of contracts?

Answer 61

1. Contracts that by their terms cannot be completed within one year
2. Contracts for the sale of land or real estate
3. Contracts to stand surety for another’s debt
4. Contracts relating to marriage/pre-nuptial agreements
5. Contracts relating to executorship

Question 62

Under the UCC, when you do you need a statue of frauds writing?

Answer 62

For the sale of goods more than $500

Question 63

What is required of a UCC statute of frauds writing under 2-201?

Answer 63

The must be:

1. Sufficient to show a contract for sale has been made
2. Signed by a party against whom enforcement has been sought
3. Writing must specify a quantity
4. Writing need not be a complete, final ,or accurate statement. It doesn’t need to contain all the material terms of the contract

Question 64

What the exceptions to needing a statute of frauds writing under the UCC?

Answer 64

1. Judicial Admission Exception: The party against whom enforcement is sought admits in court that a contract existed
2. Business to Business Exception: between merchants, if a party against whom enforcement is sought receives a written confirmation of an oral contract and has reason to know of its contents, you do not need a separate signed writing unless written objection is given to the confirmation within 10 days after its received
3. Contracts for the sale of goods specially manufactured for the buyer and that wouldn’t be suitable for sale to someone else do not need a writing
4. If the goods have been paid for and accepted, or if the goods have been received and accepted, you don’t need a statue of frauds writing

Question 65

Does a statute of frauds writing have to be one document - Migerobe v. Certina

Answer 65

No, a writing may be pieced together from multiple individual writings between the parties

Question 66

What factors should you look for when considering whether detrimental reliance proves the existence of a contract in the absence of a statute of frauds writing?

Answer 66

1. The availability and adequacy of other remedies
2. The definite and substantial character of the action or forbearance in relation to the remedy sought
3. The extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence
4. The reasonableness of the action or forbearance
5. The extent to which the action or forbearance was foreseeable