Contracts Formation

Question 1

Offer

Answer 1

A communication that creates a reasonable expectation in the offeree, that the offeror is willing to enter into a contract on the basis of the offered terms
- For a communication to constitute an offer, it must manifest a commitment to do something: must contain a promise, undertaking, or commitment to do or refrain from doing something

Question 2

Essential Terms of an Offer

Answer 2

An offer must be definite and certain in its terms. The basic inquiry is whether enough of the essential terms have been provided so that a contract including them would be capable of being enforced.

The offeree must be reasonably identified and the subject matter must be reasonably definite

UCC: need quantity terms for the offer to be certain (can be state as the seller’s output or the buyer’s requirements)

Land: have to have a price terms and description of the land (just enough for a court to identify the property)

Services: description of the work

Question 3

Termination - 3 categories

Answer 3

(1) termination by offeror (revocation)

(2) termination by offeree (rejection)

(3) termination by operation of law

Question 4

Termination by Offeror: Revocation General Rule

Answer 4

The offeror can revoke an offer at any time before the offer is accepted

Question 5

How to revoke

Answer 5

(1) Direct Revocation - offeror just says they revoke

Indirect Revocation: offeree gets information from a reliable third party that the offeror is not longer willing or able to contract

Question 6

Irrevocable offers - 4 specific situations where the offeror is not permitted to revoke

Answer 6

(1) Option contract

(2) Merchant’s firm offer (UCC)

(3) Detrimental Reliance

(4) Beginning Performance under Unilateral Offer

Question 7

Option Contract

Answer 7

A promise to hold an offer open for a certain period of time PLUS consideration by offeree

(no 3 month limit)

Question 8

Merchant’s Firm Offer

Answer 8

(UCC ONLY) - Merchant: anyone who regularly deal in goods being sold or otherwise by his occupation holds himself out has having knowledge or skill peculiar to the practices or goods involved

Rule: if a merchant promises in writing to keep an offer open and signs the promise in writing, the offer cannot be terminated for the time stated OR, if none, for a reasonable time BUT no longer than 3 months
- no consideration necessary here
*- if the contract says its irrevocable for 6 months, the offeror can still revoke after 3

Question 9

Detrimental Reliance

Answer 9

Where the offeror could reasonably expect that the offeree would rely to her 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. Case law indicated that this may be limited to those situations in which the offeror would reasonably contemplate reliance by the offeree in using the offer before it is accepted.

-ex: subcontractors bid

Question 10

Beginning Performance under Unilateral Contract Offer

Answer 10

Unilateral Contract: one that can be accepted only by performance

Rule: If an offer is truly unilateral, the offeror cannot revoke once the offeree begins to perform - the offer is irrevocable for a reasonable period of time for offeree to complete performance

*The rule does not apply when the offeree is only preparing to perform

Question 11

Termination by Offeree: Rejection

Answer 11

Direct Rejection: occurs when the offeree says “no” to the offer

Counteroffer: an offer made by the offeree to the offeror that contains the same subject matter as the original offer but differs in its terms. A counteroffer serves as a rejection of the original offer as well as a new offer
- Rejection + proposal of new terms

Mere Inquiry (distinguish from counteroffer): NOT a rejection to the original offer
- ex: would you consider 12 instead of 13/?

Question 12

Termination by Offeree: Rejection by Conditional Acceptance

Answer 12

“I accept so long as you do X, Y, X”

Has the same effect as a counteroffer - kills the original offer and provides a new offer

Question 13

Termination by Offeree: Acceptance that contains new or additional terms - Common Law vs. UCC

Answer 13

CL: rejection and counteroffer
- Mirror Image Rule: acceptance has to mirror the terms of the offer

UCC: no mirror image rule
- Acceptance can contain new or different terms, unless the acceptance is expressly made conditional on consent to the additional or different terms
- *Does not matter if offeror/offeree is a merchant

Question 14

Termination by Offeree: Lapse

Answer 14

The offeree must accept the offer within the time period specified in the offer, or is no time period specified, within a reasonable time

-*Reasonable time depends on the facts - be suspicious of any offer that is not accepted within 30 days

Question 15

Termination by Operation of Law

Answer 15

(1) Death or Incapacity of the offeror or the offeree instantly kills the offer
- Exception: irrevocable offers - the offer survives through the term of the irrevocable offer

(2) Subject matter of the contract becomes illegal
- ex: a gun collector offers to sell another collector his machine gun and before the offeree accepts, a law is passed that makes the sale of machine guns illegal

(3) Subject matter of the offer is destroyed
-ex: the house that was going to be sold is destroyed

Question 16

Acceptance

Answer 16

An acceptance is a timely manifestation of assent to the terms of the offer

Question 17

Who can Accept? (Who is the offeree?)

Answer 17

Rule: only the person to whom the offer was made can accept (only the person who knows of the offer can accept the offer)

Crossing offers: ex: I mail you an offer to buy a tractor for $1,200. The next day, before delivery, you send a letter offering to buy - no acceptance because neither party knew about the offer

Question 18

How to accept an offer?

Answer 18

The offeror is the master of their offer - generally the offeror gets to set the terms, including how the offer is accepted

• if no method is specified, can accept by any reasonable means
• silence typically cannot be considered an acceptance

Question 19

How to accept an offer under UCC?

Shipment of Nonconforming Goods

Answer 19

An offer to buy goods for current or prompt shipment can be accepted by a promise to ship or through actual prompt shipment

Shipment of Nonconforming Goods
- the shipment is both an acceptance and a breach of the contract UNLESS the seller notifies the buyer within a reasonable time that the nonconforming goods are offered as an accommodation (in this case, its a counteroffer)

Question 20

UCC Battle of the Forms

Answer 20

Mirror Image Rule does not apply - the terms of the acceptance do not have to match the terms of the offer

New terms: What terms are included in the contract?
- if both parties are NOT merchants, the terms of the offer govern

• if both parties are merchants, additional terms in the acceptance automatically become part of the contract unless the new terms:

(1) materially alter the original terms (anything that changes the party’s risk or remedies - ex: adding a clause disclaiming a warranty)

(2) The offer expressly limits acceptance to the terms of the offer, or

(3) The offeror has already objected to that particular items

Different Terms: Knock-Out-Rule
- The conflicting terms knock each other out of the contract, and the UCC substitutes a reasonable term in its place

Question 21

When is Acceptance effective? (Mailbox Rule)

Answer 21

Acceptances are effective upon dispatch when properly posted

(rejections and revocations: effective when received)

Question 22

Exceptions to Mailbox Rule

Answer 22

(1) offeror can opt out of mailbox rule

(2) an acceptance under an option contract is effective only upon receipt

(3) MB rule does not apply if the offeree uses unauthorized means to accept (ex: if offeror said to use UPS and the offeree uses FedEx)

Question 23

Consideration

Answer 23

A bargained for exchange of something of legal value

Legal value: a benefit to the promisor or a detriment to the promisee
- a promise to do something or the actual doing of something one is not already legally obligated to do; OR a promise to refrain from doing something or refraining from doing something that one is legally allowed to do

Question 24

Sham Consideration

Answer 24

Something that’s not really intended to serve as consideration, is NOT consideration

ex: selling a car for a single dollar

Question 25

Past Consideration

Answer 25

Something that was done - usually an act - that would have been consideration if it were bargained for when done, but it wasn’t bargained for noe

Question 26

The Preexisting Duty Rule

Answer 26

A promise to perform something a party is already legally obligated to do is NOT consideration

*So it follows that a contract cannot be modified without consideration

Question 27

Exceptions to Preexisting Duty Rule

Answer 27

(1) if there is a promise to do anything new or different from the original promise, no matter how slight the change, there is consideration

(2) Unanticipated Circumstances - no consideration is necessary to modify a contract where circumstances arise that were not anticipated at the time the contract was made, so long as the modification is fair and equitable (only works fi the contract is not fully performed by either party)

(3) UCC does not follow the preexisting duty rule
- a contract can be modified without consideration as long as the modification is sought in good faith

Question 28

Mutuality and Illusory Promises

Answer 28

Mutuality: both parties must give consideration

Illusory Promises: an empty promise manifesting no commitment

Question 29

Satisfaction Clauses

Answer 29

Satisfaction Clauses do not make promises illusory

ex: I agree to pay you $1k to paint a portrait of me to my personal satisfaction
- this is not an illusory promise, but the law implies an obligation of good faith - can’t use the clause as a pretext to get out of my obligation to pay

Question 30

Exclusive Agency Contracts

Answer 30

one party agrees to represent a bran as their exclusive agent

courts imply an obligation on exclusive agents to use best efforts to represent the brand (so not illusory)