Formation of Contract

Question 1

APPLICABLE LAW

Answer 1

APPLICABLE LAW
UNIFORM COMMERCIAL CODE (UCC)
Applies to transactions of goods. A good is moveable AT THE TIME OF CONTRACT.
1. Merchant: someone who regularly deals with goods involved, has special knowledge or skills with goods or is a businessperson in a commercial transaction.

COMMON LAW
Applied to everything else that UCC does not apply to.

MIXED CONTRACT
A contract that has services and goods. Determine what the main purpose of the contract is services or goods.

Question 2

Contract

Answer 2

A binding contract is created through the process of mutual assent and consideration when no valid defense to contract exists. Mutual assent occurs upon acceptance of a valid offer to contact.

Question 3

OFFER

Answer 3

Objective manifestation of a willingness by the offeror to enter into an agreement that creates power of acceptance in the offeree.
1) Manifestation - Objective, by words and/or actions
2) Intent To Enter - Specific words (will, want, etc.). No secret intent.
3) Certain and Definite terms
a. Common Law – Requires – Parties, Subject, Price, Quantity
b. UCC – Even if terms are missing there is still a contact if the parties intended for one
i. Courts are more willing to fill missing terms than vague
2) Offeree’s acceptance will conclude bargain
a. Advertisement: generally, not a valid offer UNLESS has language showing that all that is required to accept is action by the person who saw the ad
b. Joke: not a valid offer if the offeree knows or should have known it was a joke
c. Preliminary Negotiations – Invitations to bid, price quotes and proposals (not valid)
3) Knowledge – Offeree must have knowledge of the offer to have power to accept

Question 4

TERMINATION OF OFFER

Answer 4

1) Lapse - lapses at time specified in the offer, if no time is specified then at a reasonable time
2) Death or Incapacity - An offeree’s power of acceptance is terminated when the offeror dies or is deprived of legal capacity to enter the proposed contract
a. Unless there is an option Contract
3) Rejection - Offeree’s unambiguous manifestation of intent to not accept the offer
4) Counteroffer – an rejection with new terms that creates a new offer.
5) Revocation – an offeror must communicate their intent to the offeree before acceptance
a. Direct Revocation – direct communication
b. Indirect Revocation – when the offeror takes definite actions inconsistent with an intention to enter the proposed contract and the offeree acquires reliable information about it
c. General Offer – Revoked in manner which is equal to that which the offer was offered, no other reasonable means

Question 5

Irrevocable Offers

Answer 5

a. Commencement of Performance on Unilateral Offer
i. Mere preparation does not count
ii. The more linked to the performance the more it will count
iii. Offeree can withdraw at anytime
b. Optional Contract (CL) – offeree gives consideration for contract to be open for a specified period
c. Firm Offer (2-205)
i. Signed writing by merchant
ii. Assurance it will be held open
iii. No need for consideration
iv. Reasonable time and not over 3 months
d. Even if the offeree rejects, they can still accept if it is within the time frame
a. However, if the offeror reasonably believed offeree rejected and sells to someone else, the offer lapses
b. If counteroffer, option, and firm offer still alive

Question 6

Mirror Image Rule

Answer 6

Every term of offer must be accepted unequivocally. Any additional/different terms in the acceptance makes the response a rejection and counteroffer.

Question 7

UCC Acceptance

Answer 7

1) A definite and seasonable expression of acceptance operates as an acceptance even though it states additional or different terms unless, acceptance is made conditional on assent of additional or different terms
a) Definite
b) Seasonable
c) Expressly Conditional
i) Majority: Requires exact language for conditional offer (counteroffer)
ii) Minority: Need some conditional language
2) Additional terms are to be construed as proposals for additions to the contract unless merchants
a) Additional Terms if merchant apart of contract unless:
i) The offer expressly limits acceptance to the terms (my way or the highway clause)
ii) There materially alter the contract
iii) Objection to the terms is given within a reasonable time
b) Different Terms
i) Majority: Knock out or fall away: look to UCC for default rules
ii) Minority: Offerors terms prevail
3) No acceptance but parties perform – Knockout rule and fill in missing terms with UCC

Question 8

Acceptance

Answer 8

objective manifestation to be bound by the terms of the offer.

Question 9

Auctions

Answer 9

1) Goods auctioned in lots - each lot represents a separate sale.
2) Completion of a sale - when the auctioneer announces its end. A bid made contemporaneously with the falling of the hammer, the auctioneer may, at their discretion, treat the bid as continuing the bidding process or declare the sale completed.
3) Reserve and no-reserve auctions
a. In a reserve auction - auctioneer may withdraw the goods any time before announcing completion of the sale. This is the presumed standard.
b. In a no-reserve auction - after the auctioneer calls for bids on the goods, goods cannot be withdrawn unless no bid is received within a reasonable time.
c. In either type of auction, a bidder may retract their bid until the the completion of the sale. A retraction, however, does not revive any earlier bids.
4) When the seller bids - When an auctioneer knowingly accepts a bid by the seller or procures such a bid to drive up the price, the winning bidder may avoid the sale or take the goods at the price of the last good-faith bid. There are two exceptions to this rule,
a. a seller may bid at a forced sale and
b. a seller may bid if she specifically gives notice that she reserves the right to bid. Debtors and foreclosing creditors are both treated as “sellers” under the forced-sale exception to auction sales.

Question 10

Mailbox Rule

Answer 10

Acceptance is valid upon dispatch once out of offerors possession assuming properly addressed.
1) Acceptance of an option contract is valid upon receipt.
2) Rejection or counter off do not terminate offer until received

Question 11

Silence is not acceptance unless

Answer 11

1) Offeree has reason to believe that the offer could be accepted by silence
2) Previous dealings or patterns of behavior, it is reasonable to believe that the offeree must notify the offeror if the offeree intends not to accept.

Question 12

Bilateral vs Unilateral

Answer 12

1) Bilateral – Exchange of promises
2) Unilateral – Promise for a performance, acceptance upon completion
a. Required to notify offeror within a reasonable after performance is complete if offeror would not learn of performance within a reasonable time.

Question 13

Conduct as Manifestation of Assent

Answer 13

Intend to engage in the conduct and knows OR has reason to know that the other party may infer acceptance

Question 14

Shipment of goods.

Answer 14

An order of offer to buy goods is accepted either by a prompt promise to ship or by the prompt or current shipment of conforming goods. Shipment of nonconforming goods is an acceptance but also a breach. Not an acceptance if state nonconforming goods are an accommodation.

Question 15

CONSIDERATION

Answer 15

Promises must be supported by consideration to be enforceable. There must be a bargained-for exchange in the legal position between the parties. Each side must give up something they wouldn’t have but for the promise.
1) Adequacy of consideration - courts will not interfere with valuation but a moral consideration will not bind
2) No Consideration if:
a. Past Consideration: not enough because it was after the performance
b. Gratuitous Gift: Promise made with no inducing promise made in return
c. Pre-existing Duty: not qualify as consideration because promisor is already required to perform by promisor. Not applicable if third-party

Question 16

Modification of Contract

Answer 16

1) Old CL - new contract, unenforceable unless support by new consideration
2) New CL - Modification is fair and equitable considering unanticipated circumstances
3) UCC 2 -209 - Does not require new consideration if it is in good faith
4) If modification falls under SOF must be in writing.

Question 17

Illusory Promise

Answer 17

When performance is completely within promisor’s discretion
1) Courts apply good faith and best effort test
2) UCC –contract does not express quantity, it is limited by an implied obligation of good faith

Question 18

Settlement

Answer 18

surrendering can still constitute consideration if 1) the claim is in fact doubtful, or 2) The surrendering party believes the claim is well founded.

Question 19

Accord and Satisfaction

Answer 19

When there is a dispute over the amount owed.
1) Accord – Parties agree to accept a different performance than what was agree upon
2) Satisfaction –when the different performance, discharges the original contract and accord.

If no dispute, can be discharged if:
1) person against whom claim is asserted in good faith tenders a negotiable instrument that is accompanied by a statement indicating that the instrument was tendered as full satisfaction of claim and
2) the claimant obtains payment of the instrument.

Question 20

Moral Obligation

Answer 20

Prior existing obligation becomes unenforceable by operation of law; however, revived if a new promise is made to pay and becomes enforceable up to the new amount promised

Question 21

Promissory Estoppel

Answer 21

1) A clear and definite promise was made but there is no consideration
2) The promisor should reasonably expect the promise to induce action or forbearance
3) The promise induces action or forbearance
4) Injustice can be avoided only by enforcement of the promise
5) Court can adjust the remedy. They typically give reliance damages.
6) A charitable subscription (i.e., a written promise) is enforceable without proof that the charity relied on the promise.

Question 22

Quasi-K (AKA restitution, quantum meruit, implied-in-law K

Answer 22

1) The plaintiff has conferred a measurable benefit on the defendant.
2) The plaintiff acted without gratuitous intent and
3) It would be unfair to let the defendant retain the benefit because either
a. the defendant had an opportunity to decline the benefit but knowingly accepted it or
b. the defendant had a reasonable excuse for not giving the defendant such support.

Question 23

Capacity

Answer 23

1. Minor - Can only enter voidable contracts – can void while minor and until a reasonable time after infancy
2. Mental capacity –
   a. Unable to understand the nature and consequences of actions OR
   b. Can’t act in a reasonable manner and the other person knows
3. Intoxicated
   a. Unable to understand the nature and consequences of the transaction and
   b. Other party has reason to know
4. Exception
   a. contracts for necessities than must pay
   b. once capacity is regained and keep benefit than can enforce contract.

Question 24

Misrepresentation

Answer 24

1) A fraudulent misrepresentation:
a. The misrepresentation is fraudulent;
b. False assertion of fact made knowingly, or recklessly without knowledge of its truth; and
c. With intent to mislead the other party;
d. The misrepresentation induced assent to the contract; and
e. The adversely affected party justifiably relied on the misrepresentation.
2) Innocent Misrepresentation
1. Misrepresentation is material
2. The misrepresentation induced assent to the contract
3. The adversely affected party justifiably relied on the misrepresentation

Question 24

Mistake

Answer 24

1) Mutual Mistake – Both parties are mistaken about the same thing
a) Mistake of a fact that existed at the time of the deal
b) Mistake is a basic assumption of the contract
c) Mistake has a material impact on the contract
d) Mistaken party did not bear the risk.
i) Assumed risk of mistake if party knew at the time of contract they had limited knowledge of the facts and accepted this knowledge as sufficient
ii) Negligence is not sufficient to show the party bore the risk.

Question 25

Misunderstanding

Answer 25

When both parties believe they are agreeing to the same terms, but they agree to different terms.

Question 26

Nondisclosure

Answer 26

Plaintiff show that Defendant
1) Did not disclose a material fact that;
2) Formed the basic assumption of the agreement;
3) The Plaintiff reasonably relied on his statement.

Question 27

Duress

Answer 27

Improper threat that gives affected party no meaningful choice to contract.

Question 28

Undue Influence

Answer 28

The unfair persuasion of a party to assent to a contract. Look for special relationship