Contracts 1L Flashcards
Learn 1L Contracts Formation
Name and describe two sources of law governing international contracts.
CISG-Convention on Contracts for International Sale of Goods. A UN Treaty which applies when parties do business in countries which ratified the CISG.
UNIDROIT-Independent organization which seeks to harmonize law of different countries. Persuasive, not binding unless adopted; similar legal force as Restatement, but domestically.
What is the definition and elements of a contract?
A CONTRACT is a promise or set of promises, for which the law provides a remedy in event of a breach.
Elements are mutual assent (offer & acceptance) and consideration.
When is an advertisement an offer?
An advertisement is generally an invitation to offer. An exception to rule that advertisements aren’t offers, are ads that are “clear, definite, explicit & leave nothing open for negotiation.” (Lefkowitz)
Ads can be offers if all requirements of an offer are met.
What is the definition and elements of a promise?
A PROMISE is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding a commitment has been made.
Must include (1) a statement of commitment (2) certain in terms, (3) communicated to the promisee.
What are three general ways in which contracts can be made.
Express- mutual assent explicitly manifested, orally or in writing.
Implied in Fact- when mutual assent is established by the conduct of the parties or non-explicit words of agreement.
Implied in Law- Quasi contract, no contract exists but party relied on promise and was unjustly enriched by it, meriting restitution.
What are the elements of an Offer?
An offer must contain: (1) A manifestation of intent to bargain; (2) communicated to the offeree; (3) Definite as to price, terms, quantity, parties, and time for performance.
If accepted, no further negotiation would be needed.
What is the legal significance of an Offer?
An Offer creates the “power of acceptance” in the offeree.
What is the difference between a bilateral and unilateral offer?
A bilateral offer involves a mutual exchange of promises by the parties.
A unilateral offer is only one promise, accepted by offeree’s full performance of the terms.
What are the ways an Offer can be terminated?
Termination of Offer. An offer lasts until:
* rejection
* counteroffer
* revocation
* lapse; or
* death/incapacity of either party.
What is an Offer?
An **OFFER **is a manifestation of willingness to enter a bargain, so made as to justify another person in understanding that his assent to the bargain is invited and will conclude it
or
A manifestation of present contractual intent, definite in its terms and communicated to the offeree.
When does an offer usually lapse?
An offer lapses at the time specified in the offer, or if not specified, within a reasonable time.
Reasonableness depends on circumstances at time of offer, including the nature of contract and manner communicated.
In face-to-face/instantaneous discussion, lapse is end of conversation
What are the rules for termination by Death or Incapacity?
The Offeree’s power of acceptance terminates upon death of *either *offeror or offeree.
1) This applies whether or not offeree knows of it.
2) This does not apply to option contracts, including unilateral contracts where performance has begun.
What is a rejection, and when is it effective?
A rejection is a communication that manifests the offeree’s intent to reject the offer.
A rejection is generally effective upon receipt subject to mailbox rule exceptions.
When does a rejection not terminate an offer?
Rejection does not terminate offer:
(1) if the offeror indicates that the offer will stand despite rejection; or
(2) if the offeree indicates it will continue to consider the offer, despite initial rejection. (Restat. 2d. § 38, 39.)
What is a Counteroffer?
A Counteroffer is an offer made by the offeree regarding the same subject matter as the original offer, but proposing alternative terms.
What is the legal significance of a counteroffer?
A counteroffer functions as a rejection of the initial offer, terminating the offeree’s power of acceptance, but is also a new offer, creating a new power of acceptance in the original offeror.
How is a counteroffer distinguished from an inquiry or request which does not terminate the original offer?
A counteroffer is distinct from an inquiry or request, in which offeree accepts but makes a request incidental to contract.
i) Test to distinguish between counteroffer/inquiry, is whether RPP would have believed it to be a separate offer inviting acceptance.
ii) If request is unconditional and incidental to the offer, it is not a counteroffer.
What is the definition and legal significance of a Revocation?
A revocation is a communication that manifests the offeror’s intention to retract the previously proposed offer.
It terminates the offeree’s power of acceptance. (Restat.2d. § 42.)
How must a revocation be communicated to the offeree?
Revocation can be communicated either expressly or through conduct. This is called direct and indirect revocation.
Direct revocation is when the offeror expressly revokes offer. This is the favored manner of revocation.
Indirect revocation is made if (i) the offeror takes action that clearly shows that they no longer intend to commit to the offered bargain; and (ii) the offeree learns of that action from a reliable source. (Restat. 2d. 43.)
When may revocation of an offer be made?
Revocation is possible at any time before acceptance, even if the offeree says it will be held open, subject to exceptions:
i) This does not apply in option contracts, where there was separate consideration for holding open.
ii) This does not apply to otherwise irrevocable contracts, such as those made irrevocable by statute (i.e. UCC § 2-205 Firm Offers).
What is an option contract, and what are examples of same?
Option Contracts are contracts which are held open for an “option period” during which the contract is irrevocable, supported by separate consideration.
Examples are (1) unilateral contracts in which performance has begun; (2) UCC firm offer contracts; (3) any other contract where an option is created by separate consideration.
What are the rules for Unilateral Option Contracts?
Once the offeree begins performance of a unilateral offer, an “option contract” is created.
The courts distinguish between beginning performance, and preparing to begin performance, which does not establish an option.
If the offeree does not complete performance, this is not an acceptance and the offeror may withdraw the offer. (Restat.2d. § 45.)
What is the UCC § 2-205, “Firm Offer Rule”
An offer that is (1) for the sale of goods; (2) by a merchant; (3) signed & in writing, is irrevocable, without consideration, for either the time stated, or up to three months.
When is acceptance of an option contract effective?
Acceptance of option contracts is effective on receipt.
What is the definition of Acceptance?
Acceptance is “an unequivocal assent to the terms of the offer, communicated to offeree”
-or-
“a manifestation of assent to the terms of the offer, made by the offeree in a manner invited or required by the offer.”
What is the Mirror Image Rule?
**The Mirror Image Rule: **
Acceptance of an offer must be positive, unconditional, unequivocal, and unambiguous, and must not change, add to, or qualify the terms of the offer.
When does a purported acceptance constitute a counteroffer?
If an acceptance is conditional or materially alters the terms, it is not an acceptance but a counteroffer.
Requests which are incidental to/don’t materially change the offer, are not counteroffers, so the initial offer remains in force.
What was the “Last Shot Rule” of Acceptance?
The **Last Shot Rule **was an old rule under common law wherein, in an exchange of offers and acceptance, the last form sent controlled; other terms were discarded.
In what manner and method can a bilateral offer accepted?
Bilateral offers are accepted by a return promise.
The method may be made explicitly or implicitly, in the manner specified in the offer, or if not specified, in any reasonable manner not precluded by the offer.
Reasonable means the one used by the offeror or customarily used for that type of transaction
Old rule: if unspecified in the offer, the method must be as fast or better than that used by the offeror
In what manner and method can a unilateral offer be accepted?
Unilateral offers are accepted ONLY by performance.
Only one party makes an promise, the offeree accepts by completing the requested performance.
Reward offers usually meet this definition.
What is the rule for acceptance of offers which are ambiguous as to bilateral/unilateral?
Offers ambiguous as to manner of acceptance (performance or promise) are construed as either unilateral or bilateral, which essentially amounts to bilateral (because a unilateral contract is one that ONLY can be accepted by performance.
(Restat. 2d. 295, Restat. 1st 294.)
What are the rules for acceptance by conduct?
Acceptance may be implied by conduct, when the party intends to engage in the conduct and knows or should know the other party may infer assent from it. (Restat.2d. 19.)
When a party accepts by conduct, the moment performance begins is construed as the moment of acceptance. (Restat. 2d. 32, 62.)
When can acceptance be made by silence (inaction) ?
Generally silence is not acceptance. However, it can be if either:
1) Offeree takes benefit of offered services, knowing there was an expectation of compensation, with a reasonable opportunity to reject the offered benefits.
2) Offeror has stated or given reason to believe silence will be assent.
3) Previous dealings or circumstances reasonably indicate that offeree should notify offeror if he doesn’t wish to accept.
When must notice be given for a bilateral contract?
Generally, an acceptance must be communicated to offeror.
However, an acceptance is permitted by conduct, when the offeree intends to accept and knows acceptance will be inferred by the offeror.
If it wouldn’t come to offeror’s notice within reasonable time, the offeree must take reasonable steps to notify them of acceptance, unless offeror waived notice or learns of it within reasonable time.
When must notice of acceptance of a unilateral offer be given?
No notice needed of intent to perform for unilateral contracts. But notice of completed performance required within reasonable time if offeree has reason to know offeror won’t learn of it in reasonable time; if not given, promisor’s performance can be discharged.
When is an acceptance effective?
General Rule-acceptance is effective upon receipt if made by face to face or other instantaneous communication.
Mailbox Rule- If mailed, acceptance is effective upon dispatch. Established in *Adams v. Lindsell. *Sources are mixed on whether this includes email or fax. Some caveats, notes and exceptions apply.
What are exceptions to the mailbox rule?
A (mailed) acceptance is effective on receipt when:
* It is made late, after termination/lapse, and thus has the force of a counteroffer.
* When offeror expressly negates mailbox rule.
* When acceptance is made in a manner or method not reasonably invited by the offer.
* Option contracts
How are crossed acceptance & rejection treated under the mailbox rule?
If acceptance was sent before a rejection, acceptance is valid as it is effective on dispatch.
-Exception, if offeror received rejection first and detrimentally relied on it, rejection may control.)
If rejection was mailed before acceptance, whichever arrives first determines if a contract was formed.
- If rejection arrives first no contract is formed and subsequent acceptance is treated as counteroffer.
- If acceptance arrives first, contract is formed.
What does UCC 2-204 state, and when does it apply?
This section applies when 2-206 & 2-207 don’t fit, and there exists a question as to whether a contract existed at all.
1) States a contract for sale of goods can be made in any manner sufficient to show agreement, including conduct.
2) The moment of formation can be uncertain.
3) The terms can also be uncertain if a reasonable basis for a remedy exists, and the parties intended to form a contract.
What does UCC 2-206 state, and when does it apply?
UCC 2-206 concerns manner of acceptance.
1a) An offer invites acceptance by any reasonable method or manner, unless language or circumstances unambiguously say otherwise. (same as common law rule).
1b) The offeree can accept by promise to ship, or performance of shipping, any conforming or nonconforming goods. If goods are nonconforming, and offeree gives reasonable notice that said goods are an accommodation, it is not an acceptance, but a counteroffer.
2) When performance is begun by reasonable means, an offeror who is not notified of acceptance can treat the offer as lapsed.
What does UCC 2-207, subd. (1) state, and when does it apply?
UCC 2-207(1) determines whether a contract for sale of goods was formed.
It states that a definite and seasonable expression of acceptance, or a written confirmation sent within a reasonable time, operate as acceptance even if different or additional terms are stated, unless the acceptance is conditional upon acceptance of the additional/different terms
What does UCC 2-207, subd. (2) state, and when does it apply?
UCC 2-207(2) Determines what to do with additional terms.
It provides that: Additional terms are construed as separate proposals for addition/rejection. However, between two merchants, additional terms become part of the contract, unless:
i) The offer expressly limits additional terms
ii) The terms materially alter the contract; or
iii) Notification of objection to the additional/different terms is given within a reasonable time.
