Contracts Flashcards
Express contracts are formed by ___.
Language
Implied contracts are formed by ___.
Conduct
Bilateral Contract
Exchange of mutual promises (promise for a promise)
How can a bilateral contract be accepted?
In any reasonable way (i.e., either by promising or begininning performance)
Unilateral Contract
Offeror requests performance rather than a promise (i.e., promise for completion of performance).
Once the act is completed, a contract is formed.
When does a unilateral contract occur?
- When the offeror clearly (unambiguously) indicates that completion of perfomance is the only manner of acceptance
- Where there is an offer to the public (such as a reward offer)
How can a unilateral contract be accepted?
Only by performance
Common Law vs UCC Article 2
Common Law = sales of services and land
UCC Article 2 = sales of goods
What are “goods” under UCC Article 2?
All things that are moveable at the time they are identified as the items to be sold under the contract (i.e., most tangible things except real estate)
What is considered a “merchant” under UCC Article 2?
One who regularily deals in goods of the kind sold or who otherwise by their profession holds themselves out as having special knowledge or skills as to the practices or goods involved.
In contracts involving the sale of both goods and non-goods, which law applies?
The dominant aspect applies (e.g., if the dominant item is a good, the UCC applies)
What two elements make up mutual assent?
- Offer
- Acceptance
What creates an offer?
A reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms.
Consider:
1. Was there an expression of a promise, undertaking, or commitment to enter into a contract?
2. Were there certainty and definiteness in the essential terms?
3. Was there communication of the above to the offeree?
Advertisements, catalogs, circular letters, and the like containing price quotations are usually construed as ___.
Mere invitations for offers
How do you determine whether an offer contains definite and certain terms?
Whether the essential terms have been provided so that a contract including them is capable of being enforced.
Consider:
1. Identification of the offeree
2. Definiteness of the subject matter
3. For real estate, land and price
4. For sale of goods, quantity
Output Contracts
A seller promises to sell to a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller.
However, there cannot be a tender of or demand for a quantity unreasonably disproprotionate to:
1. Any stated estimate; or
2. Any normal or otherwise comparable prior output requirements
Do one or more terms missing from an offer prevent the formation of a contract?
No, if it appears that the parties intended to make a contract and there is a reasonably certain basis for giving a remedy.
Does the failure to state a price prevent the formation of a contract?
No, unless the contract is a sale of real property.
If an agreement does not specify when an act is to be performed, when should it be performed?
Within a reasonable time
When can an offer be terminated by the offeree?
An offer can be terminated at any time UNTIL the offer has been accepted.
How may an offeree terminate the offer?
- Lapse of Time (failure to accept within the time specified)
- Express Rejection
- Counteroffer as Rejection
When is a rejection effective?
When received by the offeror.
What happens when an acceptance is made expressly conditional on the acceptance of new terms?
It is a rejection of the offer. The conditional acceptance is a new offer and the original offeror may form a contract by expressly assenting to the new terms.
How may an offeror reject an offer?
Revocation
- Direct Revocation
a. Offeror directly tells offeree of revocation - Indirect Revocation:
a. Offeree receives correct information
b. From a reliable source
c. Of acts of the oferor that would indicate to a reasonable person that the offeror no longer wishes to make the offer
When is a revocation effective?
When it is received by the offeree
When may an offer be revoked?
Offers can be revoked by at will by the offeror until acceptance UNLESS:
- Consideration for a promise not to revoke
- Merchant’s firm offer under Art. 2
- Detrimental reliance
- Begining performance in response to a unilateral contract offer
Merchant’s Firm Offer Under Article 2
Under Article 2:
1. If a merchant,
2. Offers to buy or sell goods in signed writing; and
3. The writing gives assurances that it will be held open
The offer is not revocable for lack of consideration for the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed 3 months)
When does detrimental reliance prevent revocation of an offer?
When the offeror could reasonably expect that the offeree would rely to their detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time.
What events will terminate an offer by operation of law?
- Death or insanity of either party
- Destruction of the proposed contract’s subject matter
- Supervening illegality
Who may accept an offer?
Only the person to whom an offer is addressed has the power off acceptance
Is silence considered acceptance?
No, generally, an offeree cannot be forced to speak or have their silence treated as acceptance.
Acceptance of an Offer under Art. 2
May be accepted either by a promise to ship or by a shipment of conforming or nonconforming goods
Is a shipment of nonconforming goods acceptance?
Yes, the shipment of nonconforming goods is an acceptance creating a bilateral contract as well as a breach of contract unless the seller reasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation.
Mirror Image Rule
Under common law, acceptance must mirror the terms of the offer. Otherwise, it is a rejection of the offer.
Note that the mirror image rule DOES NOT apply to the sale of goods under UCC.
Battle of Forms
Under UCC, the Mirror Image Rule is NOT required. The includsion of additional or different terms by the offeree in a definite and timely acceptance does not constitute a rejection and a counteroffer, but rather is effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms.
- Ks involving non-merchants =
a. K is created
b. Additional terms ARE NOT part of the K UNLESS the offeror expressly agrees - Ks involving merchants =
a. K is created
b. Additional terms ARE part of the K UNLESS:
i. They materially alter the original terms of the offer
ii. The offer expressly limits acceptance to the terms of the offer; or
iii. The offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is recevied
When is acceptance effective?
Acceptance by mail or similar means is effective at the moment of dispatch, provided that the mail is properly addressed and stamped, unless one of the exceptions applies:
- The offer stipulates that acceptance is not effective until received
- An option contract is involved
- The offeree sends a rejection and then sends an acceptance (in which case whichever arrives first is effective)
Elements of Consideration
- Bargained-for exchange
- Legal value
Bargained-For Exchange
The promise to induce the detriment and the detriment induces the promise
There is NO bargain if one party gives a gift to another
Is past consideration valid consideration?
No, a promise given in exchange for something already done does not satisfy the bargain requirement
Do courts inquire into the adequacy of consideration?
No; however, if something is entirely devoid of value (i.e., token consideration), it is insufficient
Preexisting Duty Rule
Performing or promising to perform an existing legal duty is insufficient consideration.
Exceptions:
1. New or different consideration is promised
2. Promise to ratify a voidable obligation
3. Preexisting duty is owed to a 3rd person
4. Honest dispute as to the duty
5. Unforseen circumstances sufficient to discharge a party or if the modification is fair and equitable in view of circumstances not anticipated when the K was made
Modification of Ks
Traditional Law = K cannot be modified unless the modification is supported by new consideration
Modern Law = Permits modification w/o consideration if:
1. The modification is due to circumstances that were unanticipated by the parties when the K was made
2. It is fair and equitable
Promissory Estoppel
Consideration is not necessary if the facts indicate that the promisor should be estpped from not performing. A promise is enforceable if necessary to prevent injustice if:
1. The promisor should reasonably expect to induce action or forbearance, and
2. Such action or forbearance is in fact induced
Defenses to Formation of Contracts
- Legal Incapacity (Age)
- Mental Incapacity
- Intoxication
- Duress
- Undue Influence
- Mutual Mistake
- Misrepresentation
- Illegality
- Unconscionability
Legal Incapacity to Contract
Infants (anyone under the age of 18) lack capacity to enter in a K binding on themselves.
A minor may choose to disaffirm a K any time before (or shortly after) reaching the age of majority. The K MUST be disaffirmed as a whole–cannot be disaffirmed in part. If a minor chooses to disaffirm, they must return anything that they received under the K that still remains at the time of disaffirmance.
A minor may disaffirm necessaries (e.g., subsistence, health, or education) BUT will be liable in restitution for the value of the benefits received.
Duress
- The party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances
- There are no adequate means available to prevent the threatened loss
Undue Influence
- Undue susceptibility to pressure by one party
- Excessive pressure by the other party
Mistake/Ambigious Contract Language
- Neither party aware = no K unless both parties intended same language
- Both parties aware = no K unless both parties intended the same language
- One party aware = K based on what the ignorant party reasonably believed to be the meaning of the ambigious words
Mutual Mistake
If both parties enter into a K and are mistaken about existing facts relating to the agreement, the K may be voidable by the adversely affected party if:
1. The mistake concerns a basic assumption on which the K is made
2. The mistake has a material effect on the agreed-upon exchange
3. The party seeking avoidance did not assume the risk of the mistake
Note: Mistake in value is generally not a defense
Unilateral Mistake
If only one of the parties is mistaken about facts relating to the agreement, the mistake will not prevent formation of a K. However, if the nonmistaken party knew or had reason to know of the mistake made by the other party, the K is voidable by the mistaken party.
Misrepresentation
If a party induces another to enter into a K by using fradulent misrepresentation, the K is voidable by the innocent party if they justifiably relied on the fraduluent misrepresentation.
What Ks apply to the Statute of Frauds?
Marriage
Years (>1 year)
Land Sale
Executors
Goods (> $500)
Surety
Statute of Frauds
Requires certain agreements to be evidence by a writing signed by the party sought to be bound (the defendant).
Under the Statute of Frauds, when does the date of performance begin?
The date runs from the date of the agreement and NOT from the date of performance.
