Formation of Contracts Flashcards
Requirements to Form a Valid Contract
K = MA (O+A) + C - D
(1) mutual assent (offer and acceptance)
(2) consideration, AND
(3) no defenses to formation.
Mutual Assent
Requires:
(1) an offer by one party, AND
(2) acceptance of that offer by another party.
What is an Offer?
A manifestation of intent to enter into a contract, with definite or reasonably certain terms, communicated to an identified offeree.
How do you terminate an offer?
Offers can be terminated before acceptance by:
- rejection
- counter-offer
- lapse of time
- revocation
- death
- incapacity
How can you revoke an offer?
An offer may be revoked at any time before acceptance through unambiguous words or conduct indicating an unwillingness or inability to contract.
Indirect Revocation is what?
when (1) offeror takes definite action inconsistent with entering into a proposed contract; AND (2) offeree acquires reliable info to that effect.
Irrevocable Offers
- 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.
What is acceptance?
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).
Rejection
a manifestation of intent not to accept an offer.
- Offer is terminated upon receipt by offeror.
- Cannot accept an offer after it is rejected.
Counteroffers
both a rejection and new offer.
Timing of Acceptance / Revocation
Acceptance → offer is accepted when sent or communicated.
Revocation → offer is revoked when received by offeree. Cannot revoke an offer after it’s received.
Mailbox Rule
- 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.
Battle of the Forms - Mirror Image Rule (CL)
Acceptance must exactly mirror the offer; any variations constitute a counteroffer.
Battle of the Forms - Mirror Image Rule - UCC Exception
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.
Implied-in-Fact Contracts
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.
Indefiniteness / Absence of Terms
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.
Indefiniteness / Absence of Terms - UCC
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.
Consideration
Bargained for exchange of any act or forbearance that benefits the promisor or causes detriment to the promisee.
Past / Moral Consideration
is not sufficient.
Consideration Under Merchant’s Firm Offer - UCC
may be enforced without consideration.
Illusory Promises
are invalid; occurs when one party has no obligation to perform.
What are the (2) Exceptions to Consideration Requirement?
− Material Benefit Rule
− Promissory Estoppel
Material Benefit Rule
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.
Promissory Estoppel
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.
Modification of Contracts - Pre-Existing Duty Rule
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.
Modification of Contracts - UCC
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.
