Contracts Flashcards
Acceptance
(ALL Contracts Don’t Stink)
An acceptance is a manifestation of a willingness to enter into the agreement by the offeree.
Governed by objective test.
Offeror is the master of the offer. Offeree must play by their rules. (Bilateral - promise or performance, Unilateral - performance).
Directed - must be directed at the offeree.
Must know about the offer to accept it, even with an open-to-all offer (advertisement).
Convey - must convey acceptance to offeror.
Common Law - When it Applies
Common Law Universe:
Contracts for services and real estate.
Under common law, contracts may be oral or written, unless specific statutory or common law requirements mandate a written agreement.
UCC - When It Applies
The Uniform Commercial Code (UCC) Universe:
Contracts for the sale of goods (movable things).
UCC- Merchant Definition
Under the UCC, a “merchant” is someone who regularly deals in goods of the kind sold, and has specialized knowledge or skill. The UCC requires merchants to act in good faith in all their dealings, and to adhere to certain standards for warranties and remedies in the sale of goods.
Offer
(ALL Contracts Don’t Stink)
Objective manifestation of willingness by offeror to enter into an agreement. Creates power of acceptance in recipient.
Intent - objective intent to be legally bound to a contract. Offeree can reasonably interpret it as an offer.
Direction - must be directed at a specific offeree. Contests or rewards that promise in exchange for specific task count.
Language - must contain words of promise, undertaking, or commitment, and target people who can actually accept.
Advertisements are not valid offers, unless they specify quantity and explicitly state who can accept.
Terminating an Offer
(Squashing the caterpillar)
(ALL Contracts Don’t Stink)
An offer may be terminated in several ways:
- Revocation - offeror revokes offer by express communication.
- Constructive Revocation - offeror takes an action absolutely inconsistent with continuing ability to contract
- Rejection - the offeree rejects the offer.
- Counteroffer - the offeree makes a counteroffer. Operates as a rejection + new offer.
- Death - the offeror dies.
- Lapse - a reasonable amount of time passes.
Option Contract
An option contract is a promise that keeps an offer open for a specified period of time in return for consideration. This option is irrevocable during the option period, binding the offeror to their promise not to withdraw the offer.
Merchant’s Firm Offer
A firm offer by a merchant under the Uniform Commercial Code (UCC) can create a similar irrevocable offer without the need for consideration. For the offer to be valid, it must be:
(1) in writing,
(2) signed by the merchant, and
(3) provide assurances that it will be held open.
Remains open for up to three months. To be enforceable, whether it’s an option contract or a merchant’s firm offer, the terms of the offer must be specific, definite, and unambiguous.
MIrror Image Rule
Common law principle, requires an acceptance of an offer to match each and every term of the offer. Any deviation from the terms of the offer is a rejection of the original offer and creates a counteroffer.
If the offeree creates a counteroffer, the original offer is terminated, and the parties must reach a new agreement. If the offeree’s acceptance matches the terms of the offer, then a binding contract is formed.
Battle of the Forms
Under the UCC, additional or different terms in an acceptance do not automatically become part of the contract, unless the terms do not constitute a material alteration of the agreement and the offeror does not object. Conditional acceptance also does not create a contract.
The additional terms must not be material, and if the contract is between merchants, they must be commercially reasonable.
If at least one of the parties involved is not a merchant, additional terms in a response are treated as proposals for modifying the contract, which do not become part of the contract unless explicitly agreed upon by both parties.
Acceptance - Mailbox Rule
(ALL Contracts Don’t Stink)
Applies only to Bilateral contracts, not unilateral contracts.
An acceptance is effective and a contract is formed when the acceptance is sen, by the offeree, even if the acceptance is lost in transmission and never received by the offeror.
Exception: the offeror can specify that acceptance is not effective until it is received. Then the Mailbox Rule doesn’t apply.
Consideration
(All CONTRACTS Don’t Stink)
A mutual, bargained-for exchange of value or commitment, usually required to enforce a contract.
A promise, an action, or a forbearance of a right.
Must have legal value, cannot be a gift.
Exceptions:
(1) Promissory estoppel, where a promise may be binding if it induces detrimental reliance, even without consideration.
(2) Past consideration doesn’t usually support current promises.
(3) UCC = enforceable modifications without extra consideration, provided they’re made in good faith.
Acceptance - Bilateral Contract
Common law = a bilateral contract is accepted by a promise that is made in response to an offer and is communicated to the offeror. Acceptance may also be evidenced by the beginning of performance.
UCC = accepted in any manner that is reasonable, including by promise to ship or shipment of conforming or non-conforming goods.
Statute of Frauds
Certain contracts must be in writing to be legally enforceable. The contract must be signed by the party to be charged. This includes:
(1) contracts for the sale of land,
(2) contracts that cannot be performed within one year from the date of formation,
(3) contracts for goods worth $500 or more, and
(4) suretyship contracts.
Some jurisdictions also require written contracts for agreements made in consideration of marriage.
Acceptance - Silence
Silence does not work as acceptance of offer, unless:
i) The offeree has reason to believe that the offer could be accepted by silence, and he was silent with the intent to accept the offer by silence; or
ii) Because of previous dealings or patterns of behavior, it is reasonable to believe that the offeree must notify the offeror if the offeree intends not to accept.
Statute of Frauds - Writing Requirement
At common law, certain types of contracts must be evidenced by a written agreement to be enforceable.
The written agreement must contain all material terms and be signed by the party to be charged (or by the party’s authorized agent).
UCC = a written agreement is required for the sale of goods priced at $500 or more and must be signed by the party against whom enforcement is sought.
Statute of Frauds - Merchant Confirmatory Memo
A merchant’s confirmatory memo can satisfy the writing requirement if:
(1) Both parties to the contract are merchants;
(2) The writing accurately reflects the agreement;
(3) The writing is signed by the party seeking to enforce the contract.
(4) The recipient of the memo does not object to its terms within 10 days of receipt.
Statute of Frauds - Performance
Real Estate = usually require a written agreement.
Part Performance Exception = can be enforceable if partial payment, possession, or substantial improvements.
Goods = a written agreement is generally required. BUT part performance can satisfy the Statute of Frauds ONLY for the performed portion.
Services = typically not subject to the Statute of Frauds, allowing full performance as evidence of the contract’s existence and terms.
Statute of Frauds - Estoppel
A defendant may be estopped from raising the statute of frauds defense if:
(1) the plaintiff reasonably relied on the defendant’s oral promise, and
(2) it would be unjust to allow the defendant to use the statute of frauds defense.
Unilateral Mistake
A unilateral mistake is a mistake made by one party to a contract that does not affect the other party.
In general, a unilateral mistake does not make a contract void or voidable, unless the mistaken party can show that the other party knew or should have known of the mistake and took advantage of it.
In such cases, the mistaken party may have the option to rescind the contract. But if the mistake was due to the mistaken party’s negligence or failure to read the contract, the contract will generally be enforced.
Mutual Mistake
Mistake by the parties = no true mutual assent and thus no contract.
When both parties entering into a contract are mistaken about facts, the contract may be voidable by the adversely affected party if:
(1) the mistake concerns a basic assumption on which the contract was made,
(2) the mistake has a material effect on the agreed-upon exchange, and
(3) the party seeking avoidance did not assume the risk of the mistake.
Ambiguity
A contract may be unenforceable or subject to interpretation if:
(1) a material term in a contract is ambiguous,
(2) both parties had a reasonable interpretation of the term, and
(3) neither party knew or had reason to know of the other party’s interpretation.
Fraud or Misrepresentation
A party may be liable for fraud or misrepresentation if they make a false statement regarding an existing fact with the intent to deceive, and the other party relies on that false statement in entering into the contract.
The false statement must have been made before the contract was formed, and the reliance must have been reasonable.
No duty to disclose information, except in certain circumstances, such as when a special relationship exists between the parties.
Illegality of Subject Matter
A contract is void if its subject matter is illegal, unless the illegality is due to the purpose of the contract rather than its subject matter.
Parties are presumed to know the law and have a duty not to enter into an illegal contract, or a contract that would require them to engage in illegal activity.
