Formation of Contract

Question 1

Applicable law

Answer 1

UCC governs all contracts involving sale of goods, and common law rules govern contracts involving services or real estate.

Question 2

Mixed contract

Answer 2

When contract includes both goods and services, whichever one predominates will determine governing law.

Question 3

Merchants

Answer 3

Merchant is person who regularly deals in type of goods involved in transaction, or who by his occupation holds himself out as having knowledge or skill particular to practices or goods involved in transaction; and in some instances, any businessperson when transaction is of commercial nature.

Question 4

Valid contract

Answer 4

Valid contract requires a mutual assent (valid offer and acceptance), consideration, and no defenses to formation that would otherwise invalidate contract.

Question 5

Valid offer

Answer 5

To form valid offer, offeror must manifest an objective willingness to enter into an agreement and create a power of acceptance in offeree.

Question 6

Offer - Terms required in the offer

Answer 6

Under common law, all essential terms must be provided (parties, subject matter, price, and quantity). Under UCC, essential terms are parties, subject matter, and quantity; court will “gap fill” any other missing terms.

Question 7

Terminating the offer

Answer 7

If valid offer is terminated at any time before acceptance, offer is invalidated. It cannot be accepted or revived unless a new offer is made.

Question 8

Terminating the offer - Methods

Answer 8

Offer is terminated if any of following occur before acceptance: (1) offeror revokes offer; (2) offeree learns that offeror has taken an action inconsistent with continuing to contract; (3) offeree rejects offer by express communication; (4) offeree expressly communicates a counteroffer; (5) offeror dies or otherwise becomes incapacitated; (6) lapse of time; or (7) subject matter of offer becomes illegal or is destroyed.

Question 9

Irrevocable offers - Option contracts

Answer 9

Agreement where consideration is given in exchange to keep an offer open.

Question 10

Irrevocable offers - Firm offers

Answer 10

Under UCC, merchant can make firm offer to buy or sell goods. Firm offer will last as long as stated in offer or for reasonable time not to exceed 90 days.

Question 11

Irrevocable offers - Firm offers - Requirements

Answer 11

Firm offer must: (1) be in writing; (2) contain explicit promise not to revoke; and (3) be signed by a merchant.

Question 12

Irrevocable offers - Offeree has started performance

Answer 12

Unilateral offer to contract cannot be revoked by offeror if offeree has started performance. Unilateral offer arises from promise that requests acceptance by an action of promisee.

Question 13

Irrevocable offers - Detrimental reliance

Answer 13

Offer cannot be revoked if offeree reasonably and detrimentally relies on offer in a foreseeable manner.

Question 14

Acceptance

Answer 14

Acceptance is a manifestation of willingness to enter in an agreement by offeree that is communicated to other party.

Question 15

Acceptance - Bilateral or unilateral contract

Answer 15

Bilateral contract can be accepted by a promise or beginning of performance.
Unilateral contract can be accepted only by complete performance.

Question 16

Acceptance - Manner of acceptance

Answer 16

Any reasonable means of acceptance is allowed, unless offer limits means of acceptance. Silence is generally not acceptance, unless offeree has reason to believe that silence will constitute an acceptance.

Question 17

Acceptance - Mirror image rule

Answer 17

In common law, the acceptance must mirror terms of the offer. Any changes or additions to terms constitute a rejection of original offer and a counteroffer.

Question 18

Acceptance - UCC (one or both not merchants)

Answer 18

When one or both parties are not merchants, an acceptance from offeree with changes or additions will be valid acceptance. However, contract will not include changes or additions unless offeror agrees to them.

Question 19

Acceptance - UCC (both merchants)

Answer 19

When both parties are merchants, an acceptance from offeree with changes or additions will be a valid acceptance. Contract will include changes or additions unless: (1) they materially alter terms of original offer; (2) original offer limits acceptance to terms of offer; or (3) offeror objects to changed or new terms.

Question 20

Mailbox rule

Answer 20

Under the mailbox rule, an acceptance is valid when placed in the mail. If there is an option contract or firm offer, acceptance is valid only when received before offer expires. If a party mails a rejection of an offer and then mails an acceptance to offer, the first communication to be received is effective.

Question 21

Consideration

Answer 21

Consideration requires a bargained-for exchange between parties.

Question 22

Preexisting duty rule

Answer 22

Promise to perform a preexisting duty will not qualify as consideration because promisor is already required to perform by promisor.

Question 23

Past consideration

Answer 23

Under common law, a legal detriment incurred in past does not constitute consideration because it was not bargained for in exchange for a legal detriment.

Question 24

Past consideration - Moral consideration

Answer 24

Under the modern trend, a promise not supported by consideration may be enforceable if it’s made in recognition of a significant benefit previously received by promisor from promisee.

Question 25

Past consideration - Moral consideration (exceptions/rule)

Answer 25

Rule does not apply if promisee conferred benefit as a gift to promisor. Court may reduce amount of money owed under promise if it is disproportionate to benefit conferred by promisee.

Question 26

Promissory estoppel (detrimental reliance)

Answer 26

Promisorry estoppel is a substitute for consideration under a contract. Promise will be binding in absence of considetaion if: (1) promisor should reasonably expect promise to induce action or forbearance; (2) promise actually induces action or forbearance; and (3) injustice can be avoided only by enforcement of promise.

Question 27

Promissory estoppel - Damages

Answer 27

Damages awarded under promissory estoppel are usually limited to reliance damages.