Formation of Contracts

Question 1

Offer

Answer 1

An offer is an objective manifestation of a willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree.

Question 2

Intent

(offer)

Answer 2

A statement is an offer only if the person to whom it is communicated could reasonably interpret it as an offer. It must express the present intent of a person to be legally bound to a contract.

Question 3

Knowledge by the offeree

(offer)

Answer 3

To have power to accept an offer, the offeree must have knowledge of it.

Question 4

Essential Terms

Answer 4

Under the common law, the parties, subject matter, price, and quantity. Under the UCC, only quantity.

Question 5

Invitation to deal

Answer 5

Offers must be distinguished from invitations to deal.

Advertisements are generally invitations to deal, unless they are sufficiently specific and limit who may accept.

Generally, the more definite the statement, the more likely it is to be an offer.

Question 6

Revocation

Answer 6

In general, an offer can be revoked by the offeror at any time prior to acceptance. An offer is revoked when the offeror makes a manifestation of an intention not to enter into the proposed contract. A revocation may be made in any reasonable manner an by any reasonable means, and it is not effective until communicated.

Question 7

UCC firm offer rule

Answer 7

1) The offeror is a merchant;
2) There is an assurance that the offer is to remain open; and
3) The assurance is contained in a signed writing from the offeror.

Question 8

Acceptance

Answer 8

An acceptance is an objective manifestation by the offeree to be bound by the terms of the offer.

Question 9

Rejection following acceptance

(mailbox)

Answer 9

If the offeree sends an acceptance and later sends a communication rejecting the offer, then the acceptance will generally control even if the offeror receives the rejection first. If, however, the offeror receives the rejection first and detrimentally relies on the rejection, then the offeree will be estopped from enforcing the contract.

Question 10

Acceptance following rejection

Answer 10

If a communication is sent rejecting the offer, and a later communication is sent accepting the contract, then the mailbox rule will not apply, and the first one to be received by the offeror will prevail. An acceptance or rejection is received when the writing comes into the possession of the offeror or her agent, or when it is deposited in her mailbox. The offeror need not actually read the communication that is received first for it to prevail.

Question 11

One or both parties are not merchants

(UCC acceptance contains additional or different terms)

Answer 11

A definite and seasonable expression of acceptance or written confirmation that is sent within a reasonable time operates as an acceptance of the original offer. This is true even if it states terms that are additional to or different from the offer, unless the acceptance is made expressly conditional on the offeror’s consent to the additional or different terms.

The additional terms are treated as a proposal for addition to the contract that must be separately accepted by the offeror to become a part of the contract.

Question 12

Acceptance includes additional terms

(both parties are merchants)

Answer 12

An additional term is automatically included when both parties are merchants, unless:

i) The term materially alters the original contract;
ii) The offer expressly limits acceptance to the terms of the offer; or
iii) The offeror has already objected to the additional terms, or objects within a reasonable time after notice of them was received.

Question 13

“Materially Alter”

Answer 13

A term that results in surprise or hardship if incorporated without the express awareness by the other party.

Question 14

Acceptance includes different terms

(both parties are merchants)

Answer 14

Most jurisdictions apply the knock-out rule, under which different terms nullify eachother.

Question 15

Gift distinguished

Answer 15

Whether the offeree could have reasonably believed that the intent of the offeror was to induce the action.

Question 16

Preexisting-duty rule

(common law)

Answer 16

A promise to perform a preexisting legal duty does not qualify as consideration because the promisor is already bound to perform.

Question 17

Exception for a third party

(preexisting duty rule)

Answer 17

When a third party’s promise is exchanged for the promise to perform an act that the promisor is already contractually obligated to perform. The party’s promise to the third party is sufficient consideration.

Question 18

Promissory Estoppel

Answer 18

A promise is binding if:

1) The promisor should reasonably expect it to induce action or forbearance on the part of the promisee or a third person;
2) The promise does induce such action or forbearance; and
3) Injustice can be avoided only by enforcement of the promise.

Question 19

Mutual mistake

Answer 19

Occurs when both parties are mistaken as to an essential element of the contract. It may be voidable if:

1) Mistake of fact existing at the time the contract was formed;
2) The mistake relates to a basic assumption of the contract;
3) The mistake has a material impact on the transaction; and
4) The adversely affected party did not assume the risk of the mistake.

Question 20

Unilateral mistake

Answer 20

When only one of the parties was mistaken as to an essential element of the contract, either party can generally enforce the contract on its terms. However, it can be voided if the elements for mutual mistake exist and either:

i) The mistake would make enforcement of the contract unconscionable; or
ii) The non-mistaken party caused the mistake, had a duty to disclose, or knew that the other party was mistaken.

There must be an absence of serious prejudice to the other party to form the basis of recission.

Question 21

Misunderstanding

Answer 21

Occurs when both parties believe that they are agreeing to the same material terms, but are in fact agreeing to different terms.

Question 22

Neither party knows or should know of the misunderstanding

Answer 22

There is no contract

Question 23

One party knows or should know of the misunderstanding

Answer 23

There will be a contract formed based on the meaning of the term as understood by the unknowing party.

Question 24

Both parties know of the misunderstanding

Answer 24

There is no contract unless both parties intending the same meaning.

Question 25

Fraudulent misrepresentation

Answer 25

1) The misrepresentation is fraudulent;
2) The misrepresentation induced assent to the contract; and
3) The adversely affected party justifiably relied on the misrepresentation.

Question 26

Unfair persuation

Answer 26

Occurs by virtue of a relationship in which one party is dominant and the other dependent.

The key is whether a party has been able to exercise free and competent judgment or whether the persuation of the other party has seriously impaired that judgment.

Question 27

Improper threat

Answer 27

Threats of a crime, a tort, or criminal prosecution, or bad faith civil action.

Question 28

Implied-in-Law (Quasi) Contracts

Answer 28

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.

Question 29

Express Warranty

Answer 29

Any promise, affirmation, description, or sample that is part of the basis of the bargain is an express warranty, unless it is merly the seller’s opinion or commendation of the value of the goods.

Question 30

Express Warranty

Answer 30

Any promise, affirmation, description, or sample that is part of the basis of the bargain is an express warranty, unless it is merly the seller’s opinion or commendation of the value of the goods.

Question 31

Implied Warranty of Merchantability

Answer 31

Implied whenver the seller is a merchant.

The goods must be fit for their ordinary purpose.

Question 32

Implied Warranty of Fitness for a Particular Purpose

Answer 32

Implied whenever the seller has reason to know (from any source, not just the buyer) that the buyer has a particular use for the goods, and the buyer is relying upon the seller’s skill to select the goods.