Contract Formation Flashcards
What is a contract?
A contract is a voluntary agreement mutually assented to by competent parties supported by valid consideration to do or not do a specific thing. It is a promise or set of promises for which law or equity will provide a remedy if breached.
Elements of a Contract
- Offer
- Acceptance
- Consideration
What is an offer?
An offer is an objective manifestation of a willingness to enter into an agreement by the offeror that creates a power of acceptance in the offeree.
What is required for terms of an offer?
Under the Common Law, the offer must contain all essential terms (price, parties, quantity, subject).
Under the UCC, the only essential term is quantity (law is more willing to fill in the gaps).
Methods of Terminating an Offer
Termination of an offer can occur by:
* Operation of Law
* Revocation
* Rejection
* Counteroffer
* Lapse of Time
Offers that Cannot Be Revoked
- Firm Offer Rule
- Option Contracts
- Part Performance
- Detrimental Reliance
Firm Offer Rule
Under the UCC, an offer to buy or sell goods is irrevocable if:
1. The offeror is a merchant;
2. There is an assurance that the offer is to remain open; AND
3. The assurance was contained in a signed writing from the offeror.
Elements of Acceptance
Valid Acceptance…
1. Must be dispatched within a reasonable time and while the offer is still open;
2. Must be unconditional; AND
3. Must be communicated to the offeror.
Acceptance of Non-Conforming Goods
Acceptance of non-conforming goods creates a contract and simultaneous breach.
Acceptance of non-conforming goods accompanied by a written explanation constitutes a counteroffer.
The Mailbox Rule
Acceptance of the offer occurs on dispatch.
Revocation of the offer occurs on receipt.
Exceptions to the Mailbox Rule
- The Mailbox Rule does not apply where the offer expressly states that acceptance will not be effective until received.
- The Mailbox Rule does not apply where the acceptance is in response to an option contract; acceptance must be received to be effective.
- The Mailbox Rule does not apply when a rejection is sent before an acceptance; whichever is received first controls.
- An acceptance is not effective upon dispatch if not properly addressed.
Mirror Image Rule
Under Common Law, for an acceptance to form a contract, the acceptance must be a “mirror image” of the offer. Any deviation from the terms (i.e. new or additional terms) is a counteroffer; no contract is created.
Under the UCC, offer and acceptance with new or additional terms…
* Where at least one party is not a merchant, additional terms are treated as a proposal for addition to the contract that must be separately accepted by the offeror to become part of the contract
* When both parties are merchants, a contract is created that includes the new or additional terms, unless (i) objection, (ii) the new or additional term is a material alteration; or (iii) the original offer expressly states that it can only be accepted as stated.
Consideration
Valuable consideration is evidenced by a bargained-for change in the legal position between the parties.
Most courts conclude that consideration exists if there is a detriment to the promisee, irrespective of the benefit to the promisor.
Consideration may take the form of a commitment to pay, to perform, or to surrender a right in exchange for another’s promise to act. A promise for a promise is sufficient consideration.
Inadequate Consideration
Past consideration is inadequate consideration. Under the Common Law, something given in the past is typically not good consideration because it could not have been bargained for.
A promise to perform a pre-existing duty does not qualify as consideration because the promisor is already bound to perform.
