Formation of Contracts

Question 1

Requirements to Form a Valid Contract

Answer 1

K = MA (O+A) + C - D

(1) mutual assent (offer and acceptance)
(2) consideration, AND
(3) no defenses to formation.

Question 2

Mutual Assent

Answer 2

Requires:

(1) an offer by one party, AND
(2) acceptance of that offer by another party.

Question 3

What is an Offer?

Answer 3

A manifestation of intent to enter into a contract, with definite or reasonably certain terms, communicated to an identified offeree.

Question 4

How do you terminate an offer?

Answer 4

Offers can be terminated before acceptance by:

• rejection
• counter-offer
• lapse of time
• revocation
• death
• incapacity

Question 5

How can you revoke an offer?

Answer 5

An offer may be revoked at any time before acceptance through unambiguous words or conduct indicating an unwillingness or inability to contract.

Question 6

Indirect Revocation is what?

Answer 6

when (1) offeror takes definite action inconsistent with entering into a proposed contract; AND (2) offeree acquires reliable info to that effect.

Question 7

Irrevocable Offers

Answer 7

• Option contracts – if consideration is given to keep an offer open.
• Merchant’s firm offer – offer by a merchant, in a signed writing, stating offer will be held open with max time up to 3 months, separately signed by offeror.
• The offer was relied on to the offeree’s detriment.

Question 8

What is acceptance?

Answer 8

A manifestation of assent to the terms of the offer.

• Bilateral Contracts – the start of performance manifests acceptance.
• Unilateral Contracts – only makes the offer irrevocable (acceptance only when completed).

Question 9

Rejection

Answer 9

a manifestation of intent not to accept an offer.

• Offer is terminated upon receipt by offeror.
• Cannot accept an offer after it is rejected.

Question 10

Counteroffers

Answer 10

both a rejection and new offer.

Question 11

Timing of Acceptance / Revocation

Answer 11

Acceptance → offer is accepted when sent or communicated.

Revocation → offer is revoked when received by offeree. Cannot revoke an offer after it’s received.

Question 12

Mailbox Rule

Answer 12

• Acceptance sent by mail is deemed to be accepted once placed in the mail (does not apply to option deadlines).
• Revocation sent by mail is deemed effective when received by the offeree.

Question 13

Battle of the Forms - Mirror Image Rule (CL)

Answer 13

Acceptance must exactly mirror the offer; any variations constitute a counteroffer.

Question 14

Battle of the Forms - Mirror Image Rule - UCC Exception

Answer 14

Acceptance DOES NOT have to mirror the offer.

BUT, different or additional terms are included only if:

1) Both parties are merchants;
2) The term is not a material change (any change that affects money, liability, or remedies);
3) Offer does not expressly limit acceptance to the exact offer; AND
4) If the offer is NOT A MATERIAL CHANGE, no objection was made to it by the offeror within a reasonable time.

If the offeree makes their acceptance conditional then it is a counteroffer.

Question 15

Implied-in-Fact Contracts

Answer 15

A contract is created by conduct if:

1) The conduct is intentional; AND
2) Each party knows (has reason to know) the

other party will interpret the conduct as an agreement.

Question 16

Indefiniteness / Absence of Terms

Answer 16

If terms of an agreement are not certain (cannot be ascertained to a reasonable degree of certainty), then it’s NOT enforceable.

Indefinite Duration = contract is generally invalid.

Question 17

Indefiniteness / Absence of Terms - UCC

Answer 17

UCC (sale of goods)→If both parties are merchants, the only essential term is quantity.

− If no agreement on price, a reasonable price term will be supplied under the UCC.

Question 18

Consideration

Answer 18

Bargained for exchange of any act or forbearance that benefits the promisor or causes detriment to the promisee.

Question 19

Past / Moral Consideration

Answer 19

is not sufficient.

Question 20

Consideration Under Merchant’s Firm Offer - UCC

Answer 20

may be enforced without consideration.

Question 21

Illusory Promises

Answer 21

are invalid; occurs when one party has no obligation to perform.

Question 22

What are the (2) Exceptions to Consideration Requirement?

Answer 22

− Material Benefit Rule

− Promissory Estoppel

Question 23

Material Benefit Rule

Answer 23

a promise made in recognition of a benefit previously received is binding to the extent necessary to prevent injustice.

BUT, not applied when: (a) conferred as a gift, or (b) value of the promise is disproportional to the benefit conferred.

Question 24

Promissory Estoppel

Answer 24

Applies when:

(1) a party reasonably and foreseeably relied to his detriment on other party’s promise,
(2) the promisor reasonably expected a change of position in reliance of the promise, AND
(3) it’s necessary to avoid injustice.

Question 25

Modification of Contracts - Pre-Existing Duty Rule

Answer 25

Under the common law, past performance or a pre-existing duty is NOT adequate consideration.

Exceptions: (a) an addition or change in performance; OR (b) a fair and equitable modification due to severe unanticipated circumstances + contract isn’t fully performed by either party.

Question 26

Modification of Contracts - UCC

Answer 26

No consideration is required for contract modifications made in good faith.

But must have a writing if: (a) it falls within the Statute of Frauds; OR (b) the original contract states that modifications must be made in writing.