Formation of Contracts Flashcards
When is there adequate consideration?
- Something of substance
- Look to subjective value
What is the pre-existing duty rule?
Common Law: Not consideration.
Exceptions
- When a third party’s promise is exchanged for promise to perform act that promisor already obligated to do.
- Something new is offered.
What is past consideration?
Common Law: Not consideration.
Modern Trend (2nd Restatement) - Allowed under material benefit rule.
When is there valid consideration?
Bargained for exchange
- Majority: legal detriment to promisee
- Minority: Detriment or benefit.
Return promise to do something, refrain from doing something, actual performance, or refraining from performance.
Is a settlement of a legal claim valid consideration?
No.
Unless: claim is doubtful or believes in good faith it is valid.
When can an offer be terminated?
- Lapse in Time (if no date: reasonable time)
- Death/Mental Incapacity
- Destroyed/Illegal
- Rejection by offeree.
- Revocation by offeror
Note: A terminated offer can be revived by the offeror.
What are requirements and output contracts?
Both are valid consideration.
Requirements: “I will buy all you make”.
Outputs: “I will sell you all I make”.
Note: Cannot be disproportionate to prior agreements.
What is an illusory promise?
Too vague. “if I feel like it”.
Not consideration.
Is a gift valid consideration?
Generally, no. But if bargained for consideration, then yes.
I.e. gifts B $100 to quit smoking.
What are the three defenses to formation?
- Undue influence (unfair bargaining power)
- Duress.
- Void if physical. Voidable if other.
- Threat of criminal prosecution is improper.
- Threat of civil action is ok. - Capacity
- Infancy: Voidable by minor. Exception: necessities.
- Mental illness: If adjudicated, then void. If not, then
voidable.
-Understand transaction or act in reasonable
manner and knows this (other party) - Intoxication: voidable if unable to understand.
What are the UCC special rules for auction sales?
- Each lot is a separate sale.
- Fall of the hammer = completion.
- Reserve auction: auctioneer may withdraw goods before completion of sale. This is presumed.
- No-Reserve auction: once begun, no withdrawal unless no bids.
- When seller bids, buyer may avoid sale or take last good-faith bid.
-Exceptions for forced sale and a seller may bid if
he gives notice.
What is the effect of UCC 2-207(3)
Acceptance based on conduct
- No physical contract.
- Whatever is agreed to in writing are now terms of
contract and UCC fills in the rest.
What is the effect of additional or different terms in an acceptance?
Common Law
- Mirror Image Rule
- Any difference = counteroffer.
- Suggestions, clarifications, inquiries are ok.
UCC
- 2-207(1)
- Only one merchant.
- Still an acceptance, new terms must be agreed to
separately.
- “Definitive and seasonable” or written confirmation
within reasonable time.
- 2-207(2)
- Both merchants
- Acceptance and additional terms are ok unless
they materially alter, acceptance conditional on
terms, or offeror objects.
- Different terms = knockout rule.
Can silence act as an acceptance?
Yes. But only if;
- Prior dealings
- Reason to believe offer can be accepted by silence.
What is the difference between a bilateral and a unilateral offer?
Unilateral: promise to do something in return for an act of other party.
- Requires complete performance.
Bilateral: Promise for a promise.
When is an offer revocable?
Option: consideration needed.
UCC Firm Offer
- Merchant is offeror
- Assurances to remain open
- Assurance is in a signed writing.
- No longer than 3 months.
- No consideration needed.
What are the different warranties in sale of goods contracts?
Express
- Exception: opinion
Implied Warranty of Merchantability
- Merchant
- Fit for ordinary purpose
Implied Warranty for fitness for Particular Purpose
- Particular use
- Relies on skill of seller
Note: All can be waived if conspicuous
What is an implied-in-fact contract and a quasi-contract?
Implied-In-Fact
- Implied by conduct. Person must intend conduct but also know conduct causes offeror to know it is assent.
Implied-In-Law
- Measurable benefit
- Without gratuitous intent
- Unfair to keep because opportunity to decline or reasonable excuse for not giving opportunity.
What is required for a valid offer?
Intent: Reasonably interpret and present intent
Knowledge by offeree
Terms
- common law: essential elements (parties, subject matter, price, quantity).
- UCC quantity only.
Duration Terms
- If none, reasonable time.
Power of Acceptance in Offerree
Note: Invitations to deal are not offers. Exception for reward offers or if they are specific.
What are the three defenses to formation?
- Mistake
a. Mutual
- Voidable by adversely affected party if; (1) mistake of fact at time formed; (2) basic assumption; (3) material impact; and (4) adversely affected party did not assume risk of mistake.
b. Unilateral
- Void if (mutual mistake elements) and unconscionable or non-mistaken party caused mistake, duty to disclosure, or knew of mistake.
- Misunderstanding
- Neither party knows: no contract
- One party knows: meaning by other party
- Both parties know: no contract. - Misrepresentation
- Fraudulent when knowingly false, intent to mislead, inducement, or reliance. If not fraudulent, still voidable if material, induced assent, and reliance.
- Non-disclosure - necessary to prevent misrepresentation, correct basic assumption or mistake, entitled to know due to relationship
- Fraud in the factum; essential terms - void
- Fraud in the inducement: voidable.
When are there promises that are binding without consideration?
Promise to pay a debt after statute of limitations has run out = ok.
Material Benefit Rule
- Unrequested service, expectation of compensation.
Promissory Estoppel
- Reasonably expect promise to induce
- Does induce; and
- Avoid injustice
- Exception: for construction contracts, general contractor not bound to sub-bid.
When does the common law or UCC govern?
Common Law: Services
UCC: Goods
Note: Predominant Purpose Test
What is the common law and UCC rules for divisible or installment contracts?
Common Law
- Recovery limited to portion preformed. Obligations can be separated to agreed equivalents.
UCC
- Multiple shipments, each must be separately accepted and paid.
- Non-conforming segments: buyer can reject only if it substantially impairs value and cannot be cured. May cancel if non-conformity impairs value of entire contract.
When is there an accord and satisfaction?
Accord: A party to a contract agrees to accept a different performance
Satisfaction: Discharges both old and new contract. If breach, can sue under either.
Can a contract be modified?
Yes.
Common Law
- Must have consideration. But agreements to modify may still be enforced if; (1) recession by destruction; (2) unanticipated difficulties and agree to compensate; (3) new obligations on both sides.
UCC
- No consideration needed.
- Good-faith required.
What is the difference between a void, voidable, and unenforceable contract?
Void: never existed.
Voidable: Can be voided, discretionary.
Unenforceable: Valid, but not enforceable.
What are the defenses to enforcement?
Illegality
- Exceptions: ignorance (one party knows and other does not). And lack f illegal purpose.
Unconscionably
Public Policy
When is a revocation of an offer, sent by mail, effective?
Upon receipt
Under the mailbox rule, when is acceptance effective?
An acceptance that is mailed properly (i.e., correct postage and address) within the allotted response time is effective when sent as opposed to on receipt, unless the offer provides otherwise.
