Formation of Contracts

Question 1

Offer

Answer 1

To form a valid offer, the offeror must:

1) Manifest an OBJECTIVE WILLINGNESS to enter into an agreement; (the offer is governed by the objective test which means the outward appearances of words and actions are determinative – not subjective hidden intentions.)
2) Create a power of acceptance in the offeree
a) specific offeree: must be directed at a specific offeree, except contest offers and reward offers are OK
b) advertisements: typically NOT offers unless extremely specific and leaves nothing open to negotiation.

Question 2

Terms required in the offer under Common Law

Answer 2

Must have all essential terms under CL.

1) Subject
2) parties
3) Price and
3) quantity.

Question 3

Terms Required under the UCC

Answer 3

The law is more willing to plug in the gaps. Price is NOT required in the offer.

1) Parties
2) Subject; and
3) Quantity

Output contracts: The seller will sell all production to the buyer.
Requirement contracts: The buyer will buy from seller all that he requires.

Question 4

Terminating the offer

Answer 4

Valid offer can be terminated before acceptance. If a valid offer is terminated properly before acceptance, it cannot be revived unless a new offer is made. 7 ways to terminate:

1) revokes offer
2) constructive revocation
3) offeree rejects the offer
4) offeror dies
5) a reasonable amount of time passes
6) counter offer
7) offer is destroyed / becomes illegal.

Question 5

Irrevocable Offers (Four types)

Answer 5

The offeror is normally free to revoke at any time prior to the acceptance, however, there are four types of offers that are irrevocable:

Firm offers: a merchant can make a firm offer to buy or sell goods. A firm offer must be: 1) in writing 2) with an explicit promise not to revoke; and 3) signed by the merchant.
Option
Unilateral
Reliance (Detrimental)

Question 6

Acceptance

Answer 6

a) manifestation of the willingness to enter into the agreement by the offeree (silence generally does not manifest willingness, unless there is a past history of silence serving as an acceptance.)
b) offeror is the master of the offer, which means that the offeree must accept the offer according to the rules of the offer. 1) bilateral ks, the start of performance manifests acceptance.
2) unilateral ks, offer is only accepted once performance is complete.
c) acceptance is governed by an objective test
d) specifically directed to the person trying to accept it.

Question 7

Mailbox Rule

Answer 7

Establishes the moment in time that an acceptance becomes affective.

1) acceptance sent by mail, email, or fax is valid at the moment of dispatch unless:
a) wrong postage
b) the offeror expressly stipulates that it is valid upon receipt
c) an option K is involved
d) the offeree-sender sends a term letter BEFORE the acceptance letter; or
e) the offeror detrimentally relies on a termination BEFORE he receives the acceptance letter.

Question 8

Counteroffer vs. Acceptance.

Answer 8

Rejection that terminates the original offer AND as a formation of a new offer.

Question 9

Mirror Image Rule

Answer 9

Under the common law, the terms in the acceptance MUST match the terms of the offer exactly – otherwise it is NOT an acceptance and is a counteroffer.

Question 10

UCC 2-207 (Battle of the Forms)

Answer 10

Under the UCC, the acceptance does NOT have to mirror the offer. 2-207(1) determines whether the purported acceptance will operate as an acceptance or as a counteroffer. It states:

1) a definite and seasonable expression of acceptance or written confirmation
2) which is sent within a reasonable amount of time
3) operates as an acceptance even though it states terms additional to or different from those offered or agreed upon;
4) unless acceptance is expressly made conditional upon assent to the additional or different terms.

Question 11

UCC 2-207(2)

Answer 11

If the purported acceptance is a valid acceptance under UCC 2-207(1) the next issue is whether the additional or different terms in the acceptance will govern the contract or whether the UCC gap fillers will be implemented. Under 2207(2), different terms/additional terms will govern the contract if BOTH parties are merchants, unless:

1) the first offer expressly limited acceptance to its terms;
2) the additional terms MATERIALLY ALTER the deal
3) offeror objects w/in a reasonable amount of time.

Question 12

The Knock Out Rule

Answer 12

Most courts will use the knockout rule to determine whether the new terms control or whether the UCC gap fillers must be implemented. Distinction between different and additional terms.

Different term: is a term that was not included in the original offer that conflicts with the terms of the original offer

Additional term: is a term that was not included in the original offer that does NOT conflict with the original offer.

Under the knockout rule, different terms in the original offer and acceptance knock each other out creating a gap in the contract. UCC gap fillers are then used to plug this gap. The knockout rule would not apply to additional terms.

Question 13

Consideration

Answer 13

Legal value/ bargained for exchange.

1) the promisee incurs a legal detriment OR the promisor receives a legal benefit; AND
2) the promise induces the detriment AND the detriment induces the promise. (bargained for exchange)

Legal detriment generally consists of: i) promising to do something that the party has no prior legal duty to do, ii) performing an action that the party is not otherwise obligated to undertake; OR iii) refraining from or promising to refrain from exercising a legal right which the party is otherwise entitled to exercise.

Question 14

What are examples of things that are NOT consideration?

Answer 14

1 - Gift promises
2 - Conditional Gift Promises
3 - Preexisting legal duties are not consideration
4- past consideration
5- sham consideration
6- illusory promise

Question 15

Contract Modification and the Preexisting Duty Rule

Answer 15

Under the common law, contract modifications MUST be supported by consideration. The common law follows the preexisting duty rule, which means that a promise to do something that a party is already legally obligated to do, is NOT consideration.

Under the UCC, there is no consideration requirement for contract modification. A contract modification is valid if it is made in good faith.

Question 16

Consideration Substitutes (Alternative Theories of Enforcement)

Answer 16

1. Promissory Estoppel
2. Quasi-Contract
3. Moral Obligation + Subsequent Promise.

Question 17

Promissory Estoppel

Answer 17

lack of consideration could still be enforced IF,

1) reasonably expect to induce action
2) promisee’s detriment; and
3) enforcement is the only way to avoid injustice.

Question 18

Quasi - Contract

Answer 18

may be enforced to avoid unfair results if:

1) P confers a measurable benefit on the d.
2) P reasonably expected to get paid; and
3) it would be unfair to let the D keep the benefit without paying.

Question 19

Moral Obligation + Subsequent Promise

Answer 19

moral obligation + subsequent promise can be binding in some jdxs

Question 20

Defenses to Contract Formation

Answer 20

1. Incapacity
2. Mistake
3. Misrepresentation: a statement at the time of contracting that is NOT true. It can be intentiontal or accidental. Must show: present fact, material/fraudulent, and justifiably relied.
4. Duress and Undue Influence: A K is VOID if a party to the contract is compelled by physical duress such as the threat to inflict physical harm. Voidable if improper threat.

Undue Influence: voidable by the adversely affected party if the adversely affected party’s assent is induced.

5. Illegality
6. Unconscionability

Question 21

Statute of Frauds (MrSOUR)

Answer 21

Marriage
Suretyship
One Year
UCC 500$+
Real Estate

Modifications: the statute applies to a modification ONLY IF the contract as modified falls within the statute of frauds.

Question 22

Satisfying the Statute of Frauds: WRITING

Answer 22

A writing will satisfy the statute of frauds if the writing:

1) is signed by the party against whom enforcement is sought;
2) the contract was formed; and
3) includes the requisite terms.

Question 23

Satisfaction by Performance - UCC goods contracts 500$+

Answer 23

There are four main ways that a contract can satisfy the statute of frauds under the UCC:

a) Performance. quantity of goods for which payment has been made and accepted or which have been received and accepted
b) admission in court
c) written confirmation between merchants. the SoF is satisfied if: i) after an oral agreement between merchants; ii) either party sends a signed, written. confirmation of the oral contract; and iii) the written confirmation is received by the other merchant to the oral agreement; unless iv) the party receiving the written confirmation gives a written notice of objection within 10 days after receipt of the written confirmation.

Specially manufactured goods: “substantial beginning” towards “custom goods” that are specially made for the buyer..