Contracts 1 Flashcards
What is the definition of a contract (according to Hansen)?
A promise or set of promises, the breach of which the law provides a remedy, or the performance of which the law in some way recognizes as a duty.
What law applies to the sale of goods?
Article 2 of the UCC applies to the sale of goods. Goods are defined as tangible, movable items.
For the sale of real property, services, or construction contracts, common law applies.
If a merchant enters into a contract to sell items and provide services to a buyer, does the common law or the UCC apply?
The dominant aspect of the contract applies. If the goods are the dominant part, then Article 2 applies. If the services are the dominant aspect, common law would apply.
In the event the contract calls for separate payments for goods and services, then the contract is separated and Article 2 applies to the goods, common law applies to the services.
How is a merchant defined under Article 2 of the UCC?
A merchant is one who regularly deals in the kind of goods sold or has particular knowledge or skill in the goods being sold.
What is the difference between a bilateral and a unilateral contract?
A bilateral contract is an exchange of promises, or a promise for a promise.
A unilateral contract is a promise for performance and is complete when performance is complete.
What are the essential elements to creating a valid contract?
Offer
Acceptance
Consideration, or consideration substitute
Absence of valid defenses
What is the definition of an offer (according to Hansen)?
“Offer is an outward manifestation to the world that acceptance will conclude the deal.”
An offer creates a reasonable expectation the offeror is willing to enter a contract.
What must an offer include?
(1) An expression of promise, undertaking, or commitment
(2) Certain and definite essential terms
(3) Communication of the above to the offeree
What standard is used to evaluate mutual assent?
Mutual assent is measured by the objective standard of the apparent intention manifested.
Mutual assent is the “same bargain at the same time” or “a meeting of the minds”
Are advertisements an offer?
No. Generally advertisements are an invitation to treat or deal.
However, when the terms are definite and certain, and the offeree is identified, advertisements can be an offer.
What terms are required in the offer for the sale of real estate?
The subject matter (real estate) must be identified to a reasonable certainty, and some price must be included.
What terms are essential in an offer for a sale of goods?
Quantity of goods must be included in the offer, or a quantity that is discernible.
Requirement and output contracts don’t supply a specific quantity, but the quantity is discernible by the court.
A reasonable range of choices is allowed in an offer. (Will sell you any of these for $XX each)
If the price is absent from a contract for the sale of goods, how does the court respond?
Under Article 2, gap fillers can be used to supply the price based on a reasonable price at the time of delivery if the price is not in the contract or the contract price was based on an external factor that is no longer available.
If a time frame is not specified in a contract, under Article 2 what is the appropriate gap-filler?
If time is not supplied, Article 2 allows for a reasonable time to be substituted.
Why is communication of the offer required?
If the possible offeree does not have knowledge of the offer, there is no power to accept the offer.
This is often hypo’d in reward offers, turning in a wallet without knowledge of a reward.
What are the 4 general ways an offer can be terminated?
An offer can be terminated by: Revocation Rejection Lapse of Time Termination by Law
When can an offer be revoked?
An offer can be revoked at any time prior to acceptance. After acceptance, the power to revoke is gone.
A revocation must be communicated to the offeree either directly or from a reliable source, and is effective when it is received by the offeree.
What can limit the offeror’s power to revoke?
Option contracts where consideration has been given are non-revocable.
Merchant’s Firm Offer under Article 2, when a merchant gives assurances without consideration that offer is good for xx days (can’t exceed three months)
When the offeror could reasonable expect the offeree to have a detrimental reliance on the offer (ex. subcontractor bids)
When a unilateral offeree has begun performance, she has a reasonable time to complete.
What is a counteroffer considered?
A counteroffer is considered a rejection of the offer and a new offer in itself.
Both a counteroffer and an expressed rejection terminate the offer when received by the offeror.
What circumstances create a termination by law of an offer?
Death, or insanity, of either party prior to acceptance (except option contracts)
Destruction of the subject matter
Illegality of the subject matter
Who may accept an offer?
The party, or class of people, to whom the offer was directed.
The power of acceptance is not assignable, except in option contracts.
In a unilateral offer, when is acceptance?
Acceptance of a unilateral offer is given upon completion. Beginning performance creates an option that cannot be revoked.
Notice of acceptance to a unilateral offer is not generally required, but notice of completion is unless waived or obvious to the offeror.
In a bilateral offer, what constitutes acceptance?
Acceptance of a bilateral offer can be given by manifesting a promise to perform or beginning performance.
Acceptance must generally be communicated to the offeror.
When does silence constitute acceptance?
Silence almost never constitutes acceptance.
The exception is offeree knowingly reaps the benefits of the offer and doesn’t notify of rejection, especially if prior dealings or trade practice lead to this.
What method should acceptance be communicated to the offeror?
Acceptance must be communicated as indicated in the offer. If the offer is silent on method of acceptance, any reasonable manner is valid.
When must the acceptance be unequivocal?
Under the mirror image rule of common law contracts, the acceptance must unequivocally mirror the offer. Any variation in the acceptance is a rejection and new offer.
However, a request for clarification is not a rejection (ex. will you take $300 less?)
Under Article 2, what happens to the offer when the seller ships non-conforming goods?
The shipment of non-conforming goods is both a breach and a new bilateral offer.
However, if the buyer accepts non-conforming goods, or the seller notifies the non-conforming goods are an accommodation, then it is not a breach.
How does the mirror image rule apply to Article 2?
The mirror image rule does not apply to contracts under Article 2. If new or different terms are part of the acceptance, the acceptance is effective unless the added terms are expressly conditional.
When are additional terms not included in dealings between merchants?
Additional terms between merchants are generally included unless the terms materially alter the contract.
When are bilateral contracts formed by performance?
When both parties act as if there is a contract even if a contract was never formed, the transaction is treated as if there is a contract.
What is the Mailbox Rule?
Under the mailbox rule, an acceptance is valid when dispatched. This applies to offers and acceptance where there is an expectation of delay in delivery unless the offer stipulates otherwise.
What is consideration?
Consideration is a bargained for exchange of something with a legal value. Consideration is required to form a contract.
What is a bargained for exchange?
A bargained for exchange occurs when a promise induces a detriment, and that detriment induces the promise.
An act or forbearance of the promisee can be consideration, if it is a benefit to the promisor. This benefit does not have to be an economic benefit.
Is past-consideration adequate to bind a promise?
Generally no. Past consideration is not sufficient to bind a promise. There are 2 exceptions:
(1) When the past-consideration is based on a material benefit that improves, cares for, or preserves the promisor.
(2) A new promise to pay old, legally barred, obligations.
What constitutes a legal value?
Legal value is anything that is a benefit to the promisor or a detriment to a promisee.
Courts don’t generally consider the adequacy of consideration, even a peppercorn.
Modification to contracts requires new consideration under common law, because the existing contract creates a legal duty bound by the original consideration. (Common law Pre-existing legal duty rule)
What are the exceptions that make a pre-existing legal duty adequate consideration?
(1) When a new or different consideration is promised.
(2) For a voidable obligation, such as a minor ratifying a contract or a defrauded person enforcing a contract.
(3) When unforeseen circumstance arise and the modification is fair and equitable.
A good faith modification to the sale of goods under Article 2 also does not require new consideration for a modification.
