Formation Of A Contract Flashcards
Formation of Contract Theory
Subjective: Meeting of minds - both agree to all terms and both parties know everything about the contract
Objective: Mutual assent - perspective of a reasonable person
Objective theory of Formation
The intent of the parties is not to be looked at, only the actions of a reasonable person (S21 of contracts goes by this theory)
Ex: one party believes they are signing a contract to hold onto a deal for a condo but they are actually buying the condo, intent does not matter, only the actions)
Subjective theory of contract formation
The intent of the parties should be looked at and not just the actions
Ex: one person reasonably believed they were paying for X but they really were paying for Y, court can analyze the actual intents of the parties and their mind
Unilateral and Bilateral contract
Unilateral : Promise by offeror is made and there is acceptance if the offeree PERFORMS THE ACT
(One party is making the terms and its up to theindividual to respond)
Ex: Suppose Connie offers to pay Tom $300 if he mows her lawn by the end of the week. Tom must complete the task of mowing the lawn to accept the offer and create a unilateral contract. Until Tom completes the task, there is no binding contract, and Connie is not obligated to pay him
Bilateral: Promise by offeror is made and there is acceptance if the offeree PROMISES TO PERFORM THE ACT
(Two parties negotiate and hash out a contract)
Ex: employee wants $20, employer wants to give $15, they agree upon $17
Advertisement Rule
- An advertisement is not an offer most of the time
- Seen as a preliminary negotiation or an invitation for an offer
Offer: 3 things (doesn’t need all 3)
1. Definite terms
2. Targets a specific person or limited group
3. Publication makes it clear to be an offer
Mailbox Rule (common law)
Common law: the offer will be effective on the day the offeree (one purchasing) has mailed a written form of acceptance regardless of whether or not the offeror (one making offer) revoke post the day of the mailing
Exception: if the offeror states expressly or implies that he must receive the letter in order for acceptance to occur
(Exception for option contracts)
Revoke
To cancel an offer before acceptance
Anticipatory Repudiation
(2-610)
Either party repudiates the contract with performance not yet due or the loss will substantially impair the value of the contract, the aggrieved party can
- (a) for a COMMERCIALLY REASONABLE time await performance by the breaching party
- (b) resort to remedies for a breach (2-703 or 2-711) EVEN THOUGH he notified the repudiating party that he would wait on performance and
- (c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller’s right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704).
Rescind
Usually used as a defense against a formation of a contract: if one is induced by fraud to form a contract, no contract is formed and that is a recision of the contract
Option contract
The offeree has put money down for a good or service and will be granted a certain amount of time (ie: 30 days) of exclusive right to be first buyer
Mailbox rule (CISG)
Same as common law except the acceptance must reach the offeror in a timely fashion and a lost acceptance will not grant acceptance
(Meant to put the burden on the one accepting the offer because they are in a position to choose the best means of delivery
Types of damages
- Expectation damages
- Reliance damages
- Restitutionary damages
Expectation damages (S 347)
putting the aggrieved party in as good a position (ex post) as it would have reasonably expected to be in had both parties fully performed as promise
Formula: LOSS OF VALUE (from failure of other party) + ANY OTHER LOSS (including incidental or consequential caused by breach) - COST AVOIDED - LOSS AVOIDED
Limitation
1. Mitigation (have to mitigate quickly, new contract -old contract= loss avoided)
2. Foreseeability
Reliance Damages
Reimbursing Plaintiff his OUT OF POCKET LOSS caused by RELIANCE on the contract (or even the prospect of a contract), thus putting P in as good a position as he would have been in had he NEVER made the contract
(EX: P spent $100 on shirts for a deal, D backs out last minute, D owes P $100)
Restitutiory Damages
Restoring to the P any benefit that D has gained at the expense of P as to avoid unjust enrichment
Ex: Alexis stole Rachel’s cell phone valued at $100, but Alexis is able to sell the phone for $120. Rachel only lost $100; this is calculated as damages, and Rachel could be compensated for those damages if she chooses. However, Alexis gained $120, so Rachel’s restitution award would be $120.
Modification (Common Law) (Non Merchant)
A change to the original contract while the original contract is in current effect (S89)
- new consideration by BOTH parties is required (can be minimal) that is FAIR and EQUITABLE in view of circumstances not anticipated by the parties
- provided by statute
- justice might require the enforcement
Pre-existing Duty Rule (Restatement)
A preexisting duty to perform
A modification to the contract requires new consideration
Ie: working at job for $20, doing the same job for $40 is not a modification because new consideration is needed
Doing something you are required to do is not consideration (novation is exception)
Ex: legally mandated to do x, no consideration for modification is needed
(Applies to what you MUST do and what you MUST REFRAIN from)
Ex: police solve crimes, not drink until 21
Pre-existing Duty Rule Exceptions
A promise to a third party to do the performance that was owed to the second party is valid consideration; even though the performance was owed to the second party in any case. (Ex: modification on pipe cost, plumber asks for more money, homeowner agrees, plumber gets third party contractor, modification is good on deal)
- If there is a valid defense to the deal, agreeing not to raise that defense is valid consideration.
- Pre-existing duty rule doesn’t apply if contract is rescinded and then re-formed (Novation).
- A good faith modification based on unforeseen changed circumstances can be valid even without new consideration.
UCC: modifications are binding even without changed circumstances; as long as they are made in good faith and without any duress or coercion (unforeseen circumstances)
Cl: Consideration is required, FAIR and EQUITABLE
Pre-existing Duty Rule Specific Scenario rule (Partial Payment Check Rule)
Partial Payment Check Rule
Scenario:
- A debtor sends a check to the creditor for less than the full amount of the debt; and the check says “IN FULL PAYMENT” on it. The creditor cashes the check and then sues for the rest.
- Basic Rule: Cashing the check could fairly be construed as accepting the offer. Thus, it would be a binding compromise, assuming that there is consideration for taking the lower amount.
Thus:
- If there was no dispute as to the original amount of the debt, there is no consideration for the compromise, and so the original amount of the debt stands.
- If there was a good faith dispute as to the original amount of the debt, there is consideration for the compromise, and so the debt is discharged.
Modification (UCC) (goods) (Merchant - Merchant)
S2-209 (merchant to merchant)
- no consideration is needed for modification
(Must meet good faith)
- signed writing stating no modification or rescission cannot be modified except through a signed writing supplied by the writing and requires both signatures
(Protect against false oral modifications)
- must satisfy SOF
- can modify a waiver
Parole evidence rule
Prevents parties from presenting extrinsic evidence to either modify, contradict, or alter a written agreement that has already been completely integrated (finalized)
Patrol evidence rule exceptions
Outside evidence can be presented to:
- clarify term(s) which are either missing or ambiguous
- evidence of a collateral agreement (second agreement)
Collateral agreement CAN NOT contradict the first agreement
Collateral agreement CAN NOT contain terms normally found in the present agreement
- show the party was induced by FRAUD or was fraudulently induced (even if it contradicts the contract)
Firm offer
UCC 2-205 (goods)
Non Merchant: An offer made by a NON MERCHANT is NON REVOCABLE as long as there is consideration made by the other party (usually open for max 30 days)
- basically an option contract
Merchant: an offer written and signed (by offeror) is NON REVOCABLE even WITHOUT consideration and can be REVOKED after a REASONABLE TIME (if no time stated) up to 3 months (even if the contract states hold open for 6 months, will still be open for 3 months) (unless there is consideration with the offer)
Note: reasonable time can be 2 months or shorter, 3 is just the cap, look at what is reasonable
4 exceptions to revocability of an offer
- Firm offer
- Option Contract
- Beginning performance on a unilateral contract
- Reasonable foreseeable reliance on contract
