Formation

Question 1

What is required to form a Valid contract?

Answer 1

A valid contract requires: (1) an offer, (2) an acceptance, and (3) valid consideration.

Question 2

What is an Offer?

Answer 2

An offer is: (1) a promise, undertaking or committment, with (2) essential terms that are certain and definite, (3) that are communicated to the offerree

Question 3

What are Essential Terms that need to be certain and definite?

Answer 3

Essential terms include: (1) the identity of the offeree (2) time for the money, and (3) price

Question 4

When can an offer be Revoked?

Answer 4

An offer generally creates the power of acceptance in the person to whom the offer was made. An offer cannot, however, be accepted if it has been revoked.

Termination of an offer can be at will, through either direct or indirect words or actions (such as lapse of time, death, words or conduct).

Question 5

When can an offer not be Revoked?

Answer 5

While offers can generally be freely revoked, there are 4 exceptions:

(1) an option contract,
(2) a merchant’s firm offer (limited to three months),
(3) detrimental reliance, and
(4) part performance of a unilateral contract.

Question 6

What is an Option Contract?

Answer 6

An option contract is an offer that cannot be revoked because the offeror has made an offer and: (1) promised not to revoke, and (2) that promise is supported by consideration.

Question 7

What is a Merchant’s Firm Offer?

Answer 7

A merchant’s firm offer, under the UCC, is where (1) a merchant (2) offers to sell goods in a signed writing and (3) the writing gives assurances it will be held open, the offer is not revocable during the time stated, or if no time is stated, for a reasonable time (3 months).

Question 8

What is Detrimental Reliance?

Answer 8

Detrimental reliance can make an offer non-revocble if a party has relied in a way that is: (1) reasonably foreseeable, and (2) detrimental.

Question 9

What is Part Performance of a Unilateral Contract?

Answer 9

A unilateral contract is an offer that expressly requires complete performance as the only possible method of acceptance (i.e. a reward, prize or contest, or expressly requiring performance for acceptance). While the offer remains revocable where a party has made mere preparations (but look for reliance), once the party begins performing it becomes irrevocable.

Question 10

What is valid Acceptance of an offer?

Answer 10

Acceptance is the unqualified manifestation of assent (communicated to the offeror) to the terms of an offer.

Question 11

What do Additional or Different Terms implicate?

Answer 11

Conditional acceptance and counteroffers are not valid forms of acceptance.

Additional or different terms in a purported acceptance implicate: (1) the mirror image rule under the common law, and (2) the battle of the forms under the UCC (for additional terms), or the knock-out rule under the UCC (for different terms)

Question 12

If there are additional or different terms, under common law, what rule applies?

Answer 12

The Mirror Image Rule applies when response to an offer includes additional or different terms, and are treated like a rejection and a counteroffer, rather than an acceptance.

Question 13

If there are different terms, under the UCC, what rule applies?

Answer 13

Under the UCC, most courts find that different terms are knocked out and replaced by UCC gap fillers. UCC Gap Fillers normally construe the terms according to course of performance or the industry custom of trade.

Question 14

If there are additional terms, under the UCC, what rule applies?

Answer 14

Under the UCC rule of Battle of the Forms, additional terms become part of the contract unless they:

(1) materially alter the original terms of the contract; or
(2) the offeror has objected or objects within a reasonable time after notice, or
(3) the offer expressly limits acceptance to the terms of the offer.

Question 15

What is the Mailbox Rule?

Answer 15

Under the Mailbox Rule, acceptance and revocation are valid at the moment of dispatch.

Question 16

What is Consideration?

Answer 16

Consideration requires a bargained-for exchange of legal value (i.e., a benefit to the promisor or a detriment to the promisee).

Past or moral consideration is inadequate to form a contract, and therefore such a contract can only be enforced under the doctrine of Promissory Estoppel (detrimental reliance).

Question 17

What are the Defenses to Formation?

Answer 17

Defenses to enforcement of a contract include must exist at time of contract formation. They include:

(1) Mistake - where both parties are mistaken about material fact underlying the contract, or the non-mistaken party has reason to know of the mistake made by the other party.
(2) Fraud - If a party induces another to enter a contract by making a knowingly false assertion, the contract is voidable by the innocent party if justifiably relied on the fraudulent misrepresentation.
(3) Illegality - If the subject matter or consideration is illegal, the agreement is not enforceable.
(4) Capacity - Persons without legal capacity to contract include: (1) infants (i.e., under the age of 18); (2) mental incompetents (persons who lack the ability to understand an agreement); and (3) intoxicated persons (if the other party has reason to know).