Contract Formation

Question 1

General Definition– Contract

Answer 1

A legally enforceable agreement

Question 2

Def: Express Contract

Answer 2

a legally enforceable agreement created by the parties’ words (oral or written)

Question 3

Def: Implied-in-Fact Contract

Answer 3

a legally enforceable agreement created by the parties’ conduct

Question 4

Def: Bilateral Contract

Answer 4

Where an offer can be accepted in any reasonable way.

Note: extremely flexible

Question 5

Def: Unilateral Contract

Answer 5

Where an offer can be accepted only by performing

NOTE:

• extremely inflexible
• MBE prompt will either expressly say that it can only be accepted by performing OR will say there is an award and/or prize

Question 6

Def: Restitution (AKA Quasi-Contract)

Answer 6

Protects against unjust enrichment whenever contract law yields an unfair result.

Restitution is a remedy of last resort.

Recovery = reasonable value of the benefit conferred, not the price set in the unenforceable contract

Question 7

Def: Offer

Answer 7

Offer = manifestation of an intention to be bound

Question 8

Are advertisements offers?

Answer 8

General ROL= Ads are not offers; merely invitations to make an offer

Exception= An Ad specifying an quantity is considered an offer

Question 9

Does an offer fail for indefiniteness if it does not include a price term?

Answer 9

Generally, no.

Court’s will read in a “reasonable price” EXCEPT in a contract for the sale of real property.

Question 10

Requirements Contracts

Answer 10

• Allowed under Article 2 despite uncertain quantity
• quantity can be measured by the buyers needs or requirements
• there can be fluctuation in a requirements contract, but any increase cannot be way out of line w/ past orders (can’t take the seller by surprise)

Question 11

Terminating an offer-

When does an offer lapse?

Answer 11

An offer lapses after a stated term or a reasonable term has passed

Question 12

Terminating an offer by REVOCATION–

General Rule?
How is it Done?

Answer 12

General ROL- An offer can be revoked at any time before acceptance by either direct or indirect revocation.

Question 13

Def: Direct Revocation

Answer 13

Method of revoking an offer whereby the offeror indicates DIRECTLY TO THE OFFEREE that he has changed his mind about the deal.

Question 14

Def: Indirect Revocation

Answer 14

Method of revoking an offer whereby the offeror ENGAGES IN CONDUCT that indicates that he has changed his mind AND the OFFEREE IS AWARE of the conduct.

Question 15

What are the four exceptions to the general rule that an offer can be revoked pre-acceptance?

Answer 15

(1) Option
(2) Firm Offer
(3) Foreseeable reliance before acceptance (rare)
(4) Starting to perform in a UNILATERAL contract (MBE only– NY offer to enter a unilateral K may be revoked all the way up until performance is completed)

Question 16

Def: Option

MBE & NY DISTINCTION

Answer 16

MBE- a promise to keep the offer open that is paid for

NY- a written and signed promise not to revoke is ENFORCEABLE even w/o payment for the option

Question 17

Def: Firm Offer

Answer 17

In a sale of goods, if a MERCHANT promises in a SIGNED WRITING to keep an offer open, the offer is irrevocable for either the time expressly stated or for a “reasonable time,” but in no event will it be irrevocable past 3 months even if expressly stated.

Note: The terms “merchant” and “signed” are broadly defined under Article 2. Virtually everyone in the business world is a merchant and virtually anything (incl. letterhead) qualifies as signed.

Question 18

At what time does a revocation of an offer become effective?

Answer 18

A revocation is effective only when it is RECEIVED

Question 19

Effect of a Counteroffer

Answer 19

Counteroffer operates as a rejection, BUT mere bargaining does not. A question is considered mere bargaining.

Question 20

Effect of Conditional Acceptance

ex- Disney sends Clinton an offer to appear in a film. Bill agrees provided that he gets top billing.

Answer 20

Under both CL and Art 2, a conditional acceptance is not an acceptance at all. It has the effect of a rejection and operates as a counteroffer.

Question 21

What happens under the CL if an acceptance does not mirror the offer?

Answer 21

Common Law Mirror Image Rule– Acceptance must mirror offer. Adding or changing virtually any term operates as a rejection + counteroffer.

Question 22

What happens under Article 2 if an acceptance does not mirror the offer?

Answer 22

Acceptance does not have to mirror the offer. However, the offeree’s added/changed terms are not guaranteed to be included.

Question 23

Under Article 2, when are an offeree’s added/changed terms included in the contract?

Answer 23

(1) Both parties are merchants; and
(2) There is no material change; and
(3) the offeror does not object w/in a reasonable time

NOTE: if a term is customary in the industry than it is not material.

Question 24

When is starting performance considered valid acceptance?

Answer 24

Bilateral K- starting performance is acceptance and therefore carries w/ it an implied promise to finish the job

Unilateral K- starting performance is NOT acceptance (so there is no obligation to finish the job). Completing performance is acceptable.

Question 25

Under CL, what is the effect of improper performance?

Answer 25

Simultaneous acceptance and breach

Question 26

Under Art 2, what is the effect of improper performance?

Answer 26

Simultaneous acceptance and breach UNLESS seller is sending the goods as an accommodation to buyer. Ex- B orders a Drake CD from S. S ships a JCole CD instead --> S accepted B's offer and simultaneously breached Ex- B B orders a Drake CD from S. S ships a JCole CD including the note, "I am out of Drake but am sending JCole as an accommodation to you." --> no acceptance and therefore no breach

Question 27

When does an acceptance become effective? - ROL - exceptions (2)

Answer 27

General ROL: acceptance effective when mailed (Mailbox Rule) Exceptions: - Offer expressly states otherwise - The offer was irrevocable (ex option) --> acceptance only effective when received

Question 28

What are the defenses against contract formation? (8)

Answer 28

``` 1- lack of capacity 2- Economic Duress 3- Fraud (Misrepresentation/Non-Disclosure of a Material Fact even if honest) 4- Ambiguity/Misunderstanding 5- Mistake about a Material Fact 6- Lack of Consideration 7- Public Policy 8- Unconscionability ```

Question 29

Lack of Capacity - general rule? - general exceptions?

Answer 29

minors; intoxicated; mentally incompetent General ROL--incapacitated DEFENDANT may disaffirm the contract Exceptions - Cannot disaffirm if the retained the benefit of the K after gaining capacity (operates as implied affirmation) - liable for necessaries (food, shelter, clothing, medical care), but only for the reasonable value, not the K price

Question 30

NY DISTINCTION | Contracts of Minors

Answer 30

By statute, minors also cannot void Ks in the following situations: 1- life insurance K (14+) 2- Educational loans (16+) 3- Realty Ks related to the marital home 4- contracts involving artistic or athletic services (think protégées)

Question 31

Economic Duress-- what are the necessary elements in order to be a successful defense against formation?

Answer 31

1- threat to break an existing K 2- the only reason buyer agreed to second deal was to get the first deal done 3- there was no reasonable alternative ex- S contracts to sell B 100 blue widgets for $2,000. S later refuses to deliver them unless B also agrees to buy 50 black widgets for $600. S is the only source for blue widgets, which B needs right away. B agrees to buy the black widgets. Agreement to buy black widgets is unenforceable due to economic duress.

Question 32

HYPO-- B and S contract for the delivery of cotton on the peerless. B means the one sailing in May; S means the one in July. Result when . . . 1- neither knows or has reason to know there are 2 ships named peerless. 2- B knows or has reason to know there are 2 ships.

Answer 32

1- No contract due to AMBIGUITY/MISUNDERSTANDING 2- K on S's terms b/c the innocent party's meaning prevails

Question 33

When will a mistake about a material fact make a K unenforceable?

Answer 33

(1) If there is mutual mistake (2) If there is a unilateral mistake AND the other party knew or had reason to know about it Not- mistake as to value is generally not considered to be material

Question 34

Def: Consideration

Answer 34

bargained-for legal detriment/benefit

Question 35

Past Consideration - MBE - NY

Answer 35

MBE- past consideration is not consideration at all; you can't bargain for something that has already been done NY- past consideration is consideration if it is EXPRESSLY stated in a SIGNED WRITING and CAN BE PROVEN.

Question 36

Contract Modification

Answer 36

CL/MBE- new consideration is required to modify a contract NY- don't need new consid if modification in a signed writing Article 2- new consideration is not required, but you must show good faith for the modification

Question 37

Time-Barred Debt & consideration

Answer 37

a written promise to pay a debt, collection of which is barred by SOL, is enforceable even w/o consideration

Question 38

Promissory Estoppel as a SUBSTITUTE for Consideration

Answer 38

Foreseeable reliance may make a promise enforceable even without consideration. ex- Tenants lease expires next month. LL promises to renew. In reliance, T paints. LL refuses to renew. There was no consid for the promise to renew but T can enforce LL promise on the grounds of promissory estoppel.

Question 39

Covenant Not-to-Compete & Pub Pol Limits on Enforceability

Answer 39

- NY construes these very strictly - court will invalidate or narrow a covenant not to compete that operates as a restraint on trade - courts will look to the reasonableness of the duration, the geography, and the need for the covenant based on uniqueness of the services

Question 40

Exculpatory Clauses & Pub Pol Limits on Enforceability

Answer 40

can eliminate liability for negligence, but NOT for gross negligence or intentional torts

Question 41

Unconscionability as a defense against enforcement of a K

Answer 41

Substantive- terms are unfair Procedural- agreement process was unfair "A K may be voidable where the clauses are so one-sided as to be patently unfair. Whether a K is unconscionable is tested at the time the K was made. Unconscionability is often found where one party has substantially superior bargaining pwoer, or in contracts of adhesion whereby an offeree is told "take it or leave it."