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CONTRACTS > Contract Formation > Flashcards

Contract Formation Flashcards

1
Q

General Definition– Contract

A

A legally enforceable agreement

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2
Q

Def: Express Contract

A

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

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3
Q

Def: Implied-in-Fact Contract

A

a legally enforceable agreement created by the parties’ conduct

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4
Q

Def: Bilateral Contract

A

Where an offer can be accepted in any reasonable way.

Note: extremely flexible

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5
Q

Def: Unilateral Contract

A

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
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6
Q

Def: Restitution (AKA Quasi-Contract)

A

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

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7
Q

Def: Offer

A

Offer = manifestation of an intention to be bound

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8
Q

Are advertisements offers?

A

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

Exception= An Ad specifying an quantity is considered an offer

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9
Q

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

A

Generally, no.

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

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10
Q

Requirements Contracts

A
  • 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)
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11
Q

Terminating an offer-

When does an offer lapse?

A

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

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12
Q

Terminating an offer by REVOCATION–

General Rule?
How is it Done?

A

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

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13
Q

Def: Direct Revocation

A

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

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14
Q

Def: Indirect Revocation

A

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.

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15
Q

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

A

(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)

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16
Q

Def: Option

MBE & NY DISTINCTION

A

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

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17
Q

Def: Firm Offer

A

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.

18
Q

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

A

A revocation is effective only when it is RECEIVED

19
Q

Effect of a Counteroffer

A

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

20
Q

Effect of Conditional Acceptance

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

A

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.

21
Q

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

A

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

22
Q

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

A

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

23
Q

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

A

(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.

24
Q

When is starting performance considered valid acceptance?

A

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.

25
Q

Under CL, what is the effect of improper performance?

A

Simultaneous acceptance and breach

26
Q

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

A

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

27
Q

When does an acceptance become effective?

  • ROL
  • exceptions (2)
A

General ROL: acceptance effective when mailed (Mailbox Rule)

Exceptions:

  • Offer expressly states otherwise
  • The offer was irrevocable (ex option) –> acceptance only effective when received
28
Q

What are the defenses against contract formation? (8)

A 
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
29
Q

Lack of Capacity

  • general rule?
  • general exceptions?
A

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
30
Q

NY DISTINCTION

Contracts of Minors

A

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)

31
Q

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

A

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.

32
Q

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.

A

1- No contract due to AMBIGUITY/MISUNDERSTANDING

2- K on S’s terms b/c the innocent party’s meaning prevails

33
Q

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

A

(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

34
Q

Def: Consideration

A

bargained-for legal detriment/benefit

35
Q

Past Consideration

  • MBE
  • NY
A

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.

36
Q

Contract Modification

A

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

37
Q

Time-Barred Debt & consideration

A

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

38
Q

Promissory Estoppel as a SUBSTITUTE for Consideration

A

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.

39
Q

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

A
  • 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
40
Q

Exculpatory Clauses & Pub Pol Limits on Enforceability

A

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

41
Q

Unconscionability as a defense against enforcement of a K

A

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.”

CONTRACTS (8 decks)

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