Formation of Contracts Flashcards
Define a “contract”
An agreement with specific terms, between 2 or more parties, in which there is promise to do something in return for valuable consideration
What is a “bilateral contract”?
A bargained-for K in which the parties exchange a promise for promise
What is a unilateral K?
a contract in which the parties exchange a promise for an ACT
*an offer for a unilateral k may ONLY be accepted by performance
What is an express contract?
An actual agreement between parties in which they declare the terms when they execute the K
*breaking an express K amounts to a breach
What is required to establish an implied-in-fact contract?
If the premises of the parties are inferred from their conduct, or from words that are not explicitly words of agreement, the K is said to be implied-in-fact
*although implied, these contracts are real and enforceable
What is a “quasi-contract”?
(AKA UNJUST ENRICHMENT) imposes liability on a person who receives a benefit from another
*a quasi-k may exist even when there is no promise to pay for the benefit
What are the three requirements for a valid contract?
- offer
- acceptance
- consideration
Define “mutual assent”
occurs when a party uses an expression that they know the other party would reasonably interpret as an offer or acceptance and the other party accepts
*meeting of the minds
What constitutes an “offer”?
An expression of present willingness to enter into a bargain, such that a reasonable person would be able to agree to be bound by the agreement
*the expression of willingness must be reasonable and objective
What constitutes a “bargain” in K law?
an exchange in which each party views their promise or performance as the price of the other’s promise or performance
*distinguish from a GIFT - where one party gives something of value to the other w/out the receiving party providing something of value in return
What are the 3 essential terms of an offer under the common law?
An offer MUST contain:
- identity of the contracting parties
- description of the subject matter of the contract; AND
- the terms and conditions of the contract
**THIS IS COMMON LAW RULE
–> under UCC - THE only ESSENTIAL TERM IS QUANTITY
When will a contract for the sale of goods with missing terms be upheld?
Under UCC - a contract for the sale of goods “does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy”
What are the 5 ways to terminate an offer?
An offer may be terminated by:
- acceptance
- expiration or lapse
- rejection or counteroffer
- valid revocation
- operation of law
*an offer may be terminated by the offeror OR offeree
When is a valid renovation effective?
A revocation is effective ONLY when RECEIVED by the offeree
*a revocation may be effective by DIRECT communication or actions that are inconsistent with the offer
Which 4 types of offers are IRREVOCABLE?
- option contracts
- firm offers under the UCC
- unilateral contracts where the offeree has already begun performance OR
- situations where the offeror could foresee detrimental reliance upon the offer
What are the 3 ways an offeree may terminate an offer?
- rejecting the offer
- making a counteroffer
- dying or becoming incapacitated
**an offeree may NOT revoke an offer
When does an offer lapse?
Under CL - offer lapses after a “reasonable” amount of time
**death of the offeree causes an offer to lapse BUT death of the offeror does not always do so
Will a party’s death or insanity terminate an existing offer?
YES.
If one of the parties dies or becomes incapacitated due to mental illness, most offers will terminate by operation of law
**HOWEVER, contractual obligations will NOT be terminated if the offer was accepted prior to the death or insanity of the party
When the subject matter of an offer is destroyed, what happens to the offer?
TERMINATES THE OFFER
*HOWEVER, if the offer has already been accepted - the offer will not terminate
What are the 2 requirements for a party to have the power of acceptance?
- know of the offer
- manifest the intent to accept the offer
What is the “mirror image” rule?
At COMMON LAW - an acceptance had to be the “mirror image” of the offer
If a purported acceptance deviated from the offer IN ANY WAY (change, add, or omit terms), it was deemed a qualified or conditional acceptance and did NOT forma contract
**the mirror image rule DOES NOT APPLY TO UCC CONTRACTS
What is the “mailbox rule”?
acceptance of an offer is effective upon DISPATCH
**the acceptance of an OPTION CONTRACT is effective ONLY upon RECEIPT NOT DISPATCH
In which 4 scenarios does silence amount to acceptance of an offer?
Generally, an offer may NOT be accepted by silence. However, silence constitutes acceptance of an offer when:
- the offeree has reason to understand that silence constitutes acceptance
- the offeree silently receives the benefit of services
- prior conduct indicates that silence constitutes an acceptance OR
- the contract was “implied-in-fact”
Define consideration
bargained-for enhance with legal value (ie, the benefit that each party gets or expects to get from K)
Define “past consideration”
OR MORAL CONSIDERATION - exists when a promisor does not have a legal obligation to pay, but rather, is morally motivated by past benefit or detriment to the promisee
What is a “gratuitous promise”?
is a promise to make a gift rather than enter into a contract
**the general rules is that a donative promise is UNENFORCEABLE because it lacks consideration
Does a pre-existing legal duty serve as consideration?
GENERALLY NO.
A pre-existing legal duty will not amount to consideration under the pre-existing duty rule
*however there are exceptions
What is an “illusory promise”?
A statement that appeared to be a real promise but did not commit the promisor to performance or gives the promisor a free way out of their apparent commitment
What is an alternative promise?
one that allows the promisor to discharge their obligation by choosing between 2 or more alternatives
*to be valid, each alternative must be supported by consideration
Which 4 types of bargains do NOT constitute consideration?
- nominal consideration (ie, transactions that are bargains in form but not in substance)
- unreasonable promises to surrender or forbear from asserting a legal claim (under some authorities, if unreasonable and not in good faith)
- bargains involving an illusory promise
- bargains where one party promise to of what they are already legally obligation to do (pre-existing duty)
What is promissory estoppel?
means that a promise is enforceable by law even if there was no formal consideration when promisor made the promise, and the promisee then relies through action or forbearance on the promise to their detriment
*if the promisor should have reasonable expected that the promise would induce reliance, courts will find promissory estoppel
What is the legal standard for promissory estoppel based on reliance upon a donative promise?
If the promisor should have reasonably expected that the promise would induce reliance, the court will find promissory estoppel
What are 3 possible outcomes of a contract w/ a latent ambiguity?
A latent ambiguity serves as a defense to contract formation when:
- neither party realizes the ambiguity (no contract unless both parties understood the ambiguous term in the same way)
- both parties realize the ambiguity (no contract unless both parties meant the same meaning)
- one party realizes the ambiguity (there IS a contract w/ terms based on what the ignorant party reasonable believed the ambiguous terms to mean)
**Look to the subjective intent of the parties to determine whether these defenses will apply
What is a promise?
An oral or written expression of an intention to do or not do something
*when promises are exchanged or a promise is made in exchange for consideration, only then do parties form an agreement
Is new consideration required to modify a contract under UCC?
NO.
Under UCC, modifications are valid WITHOUT additional consideration as long as they were sought in GOOD FAITH
*a modification is in good faith IF it is based on valid commercial reason outside the control of the party seeking modification
What is a “firm offer”?
An offer that, by its express or implied terms, will remain open for a certain period
**distinguish from an option contract (the COMMON LAW COUNTERPART)
What is valid acceptance under the UCC?
AN offer “shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances”
*this is the applicable standard unless the language of the offer or other circumstances “unambiguously indicated” otherwise
Which essential term is required for a valid K under UCC?
UCC requires every K to specify the QUANTITY of goods being sold
*distinguish from CL rule which requires MORE essential terms
Will additional terms contained in the acceptance automatically become part of a contract between non-merchants under the UCC?
NO.
Under UCC additional terms contained in the acceptance are construed as proposals for additions to a contract between NON-merchants
What is required to modify a K under the UCC?
GOOD FAITH is all that is required to modify
*UCC does NOT require new consideration to modify a K
What are the 3 scenarios in which past performance IS valid consideration?
Pas performance IS valid consideration when the promise is to:
- pay a debt barred by the statute of limitations
- perform a voidable obligation
- pay a debt discharged by bankruptcy
*these are exceptions to the GENERAL RULE that past performance is NOT valid consideration
Do courts inquire into the sufficiency of consideration?
No
*however a lack of consideration or insufficient consideration may be an independent basis for a claim
What is the basis of consideration for a requirement or output contract?
Although the promises in a requirement or output contract appear to be illusory, the parties have limited their options, thus suffering the legal detriment required for consideration
Are conditional promises enforceable?
YES.
The promisor is providing consideration by limiting their future options
*if the condition is entirely in the promisor’s control the conditional promise is UNENFORCEABLE
Does the right to cancel or w/draw cause a contract to be invalid?
It depends.
If it is an unqualified right to cancel or w/draw under the K, this may render the promise illusory for lack of consideration
If the right is in any way restricted though, the consideration is valid
What is the 2 part legal standard for mutual assent?
- a party uses an expression that they know or have reason to know that the other party would reasonably interpret as an offer or acceptance AND
- the other party does interpret the expression as an offer or acceptance
What is the “objective theory of contracts”?
Is the principle that mutual assent occurs when a reasonable person would have interpreted a party’s conduct as an intent to form a K
*aka “meeting of the minds” - this theory protects the parties’ reasonable expectations
What is an “implied-in-fact contract”?
A contract that exists b/c of the parties’ acts or conduct, or words NOT explicitly understood as terms of acceptance
A contract may be implied when the conduct was intentional, and each party knows that the other party would interpret the contract as an agreement to enter into a binding contract
*although implied, they are enforceable
What is an implied-in-law contract?
When the court recognizes the existence of a K to avoid situations of unjust enrichment
What is unjust enrichment?
occurs when one party confers a benefit onto other party, who does not perform or pay
*unjust enrichment may become the basis of an implied-in-law contract
What is the legal effect of an offer?
An offer creates the power of acceptance in the person who receives the offer
What is an invitation to deal?
An expression that is clear from the language or circumstances of a person’s intent to begin negotiating
*invitation to deal is NOT an offer
What is the effect of “holding open” an offer?
When the offeror “holds open” an offer for a certain period of time AND the offeree provides consideration, the offer is irrevocable until the offeree accepts or the period lapses
When an offeree makes a request or inquiry about an offer, does it terminate their power of acceptance?
NO.
Request and inquires about an offer will NOT terminate the offeree’s power of acceptance
*distinguish between inquiries and true counteroffers
When will an offeree’s expression be considered a “true counteroffer” as opposed to an “inquiry”?
If a reasonable person in the offeror’s shoes would think the expression was itself an offer that could be accepted, the offeree made a counteroffer
If an acceptance contains additional terms, will it still form a contract between merchants under the UCC?
YES.
If there is an offer for the sale of goods, an acceptance with additional terms will create a contract between merchants
*If the contract does not fall under Article 2 of UCC it will be governed by CL
A valid acceptance at common law must adhere to which rule?
THE MIRROR IMAGE RULE applies to a valid acceptance of CL
*contrast w/ UCC does NOT follow mirror image
What is the “last shot rule”?
Under the “last shot rule” at CL, where the seller’s form and the buyer’s form differ, the last form sent is deemed a conditional acceptance and therefore a counteroffer
*distinguish from acceptance rules under UCC 2-207
When will an acceptance containing additional terms NOT form a contract under UCC?
additional terms will NOT apply if acceptance is “expressly made conditional on the offeror’s assent to the additional or different terms in the acceptance”
May parties’ conduct alone form a contract under UCC?
YES.
Conduct by both parties that recognizes the existence of a K is sufficient to establish a UCC contract even if the parties’ wirings do not otherwise establish a contract
What are the two types of “additional terms” that may be part of an acceptance under the UCC?
Additional terms may be either “additional” or “different” under the UCC and neither prevent contract formation between merchants
*if the parties are NOT merchants, however, such terms are “construed as proposals for addition to the contract”
What is an “additional term” under a UCC contract?
is a contractual term that adds to the offer but DOES NOT CONTRADICT IT
What is a “differing term” under a UCC contract?
a term that somehow contradicts the terms of the offer
When the parties are NOT merchants, what is the effect of an acceptance that contains an “additional term” to a UCC K?
the additional terms will be construed as proposals for additions to contract
*if both parties ARE merchants, additional terms to the contract are binding unless the offer expressly limits acceptance, the additional terms would MATERIALLY change the K, OR an objection is given w/in a reasonable time
What are the 3 exceptions to the UCC rules that additional terms becomes part of a contract between merchants?
Under the UCC, additional terms will becomes part of the contract UNLESS:
- the offer expressly limits acceptance to the terms of the offer
- the additional terms would materially alter K
- offeror either notifies the offeree w/in a reasonable time that they object to additional terms OR has already notified the offeree of their objection
What is the UCC “knockout rule”?
Conflicting terms cancel each other out and NEITHER entered the K
The contract consists of the otherwise agreed upon terms, and the court will supply “gap fillers” as needed
What are “requirements” and “output” contracts?
REQUIREMENTS CONTRACT: when the buyer promises to buy from the seller all of the goods the buyer requires, and in return the seller agrees to sell that amount to the buyer
OUTPUT K: when the seller promises to sell the buyer all of the goods the seller produces, and in return the buyer agrees to buy that amount from the seller
*these K’s are still recognized as valid under UCC despite having NO specific quantity term because quantity is capable of being made certain
What is a “form contract”?
A “form contract” is a contract that contains boilerplate terms and conditions, often used by merchants
When does an additional term “materials alter” an offer under UCC?
the general rule is that any change that would surprise or impose hardship on the other party by shifting risk in a significant way would be considered material
**price and warranty terms are the most common terms that will materially alter an offer
When does a “Battle of the Forms” occur?
Occurs when a buyer and seller of goods exchange pre-printed order forms with their own different terms on the back and then proceed w/ the transaction w/out ever signing any financial contract or reaching an agreement on the terms of the deal
HYPO:
If one merchant makes an offer to second merchant for the sale of goods, and the second merchant accepts but adds terms, will those additional terms become part of the final agreement?
YES. The additional terms will become part of final agreement UNLESS:
- the offer limits acceptance to only its own terms
- the first merchant objects to the additional or different terms w/in a reasonable time
- the additional or diff terms materially alter the terms of the offer
Do modern courts require an actual “meeting of the minds” to find mutual assent?
NO.
Modern courts reference “meeting of the minds” for the formation of a K but will not require an actual subjective meeting of the minds to establish mutual assent
Instead courts use an OBJECTIVE standard in which each party is bound to the apparent intention their conduct indicated to the other
What are the 2 requirements of a valid offer?
An expression is an offer if it shows:
- the intent to enter into a bargain AND
- definiteness of the terms of the bargain
*distinguish an offer from an invitation to deal, which will NOT create the power of acceptance
What is an advertisement in k law?
An expression that will normally be interpreted to be an invitation to deal, rather than an offer from a retailer
**HOWEVER, if an advert is definite in its terms, the circumstances clearly indicate an intention to make a bargain, and the offered can be identified w/ specificity, the advertisement MAY be construed as an offer
What is a “conditional acceptance”?
Is a purported acceptance that adds to or changes the term of the offer
A conditional acceptance will generally constitute a counteroffer NOT an acceptance
*an unconditional acceptance sent with a request, however, is a valid acceptance and WILL form a K
What is the “implication” of contract terms?
The concept of implication means that almost all contracts leave gaps that the court may fill, thus not rendering the agreement fatally indefinite if some terms are left out
**however, “implication” will not allow vague plans w/out specifics to be valid
May a K w/out a time for performance be enforceable?
YES.
When a contract has a gap for time of performance, courts typically find that performance w/in a reasonable time is implied
What are the 5 UCC gap-fillers?
- price
- place of delivery
- time for shipment or delivery
- time for payment
- duration of the contract
When does part performance cure indefiniteness in a contract?
a contract that is unenforceable due to being too indefinite may be enforced if the parties have already begun performance
When is mailed acceptance considered effective?
An acceptance is effective upon DISPATCH aka mailbox rule
What are the 2 requirements of the mailbox rule?
Requires:
- timely dispatch AND
- proper dispatch of acceptance
*if acceptance is transmitted by unauthorized means (ie, different means than what offer specified) it may still be effective if and when it is actually revived by the offeror while the offer is still available
What is the effect of sending an acceptance AFTER the reasonable time period has passed?
If an acceptance is sent after the reasonable time period and arrives too late, it is no longer effective as an acceptance
Ut serves as a new offer, placing the power of acceptance in the OG offeror
*if the OG offeror accepts the original offeree’s new offer, a K will be formed
What is the effect of sending an acceptance in an improper manner?
Sending an acceptance in an improper manner or without reasonable care will NOT prevent a K formation UNLESS the K specifically required a special medium or manner for the offeree to communicate acceptance
What is the effect of a simultaneous acceptance and revocation of an offer?
An acceptance is effective upon DISPATCH and a revocation is effective upon RECIPT
SO if an acceptance is sent BEFORE the revocation is received, a contract will be formed
What is the effect of a lost or delayed acceptance?
A properly dispatched acceptance that is lost or delayed is still effective under the mailbox rule because the risk of loss or delay is on the offeror
When is an offeror’s revocation effective?
EFFECTIVE ONLY UPON RECEIPT BY THE OFFEREE
When is an offeree’s rejection effective?
rejection is effective only upon RECEIPT
hypo:
What is the effect of an offeree sending an acceptance AND THEN a rejection to an offer?
A contract forms upon dispatch of the offeree’s acceptance, regardless of whether the offeror receives the acceptance or the rejection first
**HOWEVER, if the offeror detrimentally relies on the rejection they received before the acceptance –> NO CONTRACT EXISTS
HYPO:
Effect of an offeree sending rejection AND THEN acceptance
In this scenario, the outcome depends on which communication arrives first:
- if the rejection arrives first, no contract exists, and the offeree’s acceptance serves as a counteroffer;
- if the acceptance arrives first, a contract exists
*HOWEVER, the offeror may view the late-arriving rejection as a repudiation of the contract and detrimentally rely upon it
Is “past consideration” adequate consideration?
CANNOT induce performance so it is NOT CONSIDERED valid consideration
What is the “pre-existing duty rule”?
provides that a promise to do something that one was already legally obligated to do will not provide consideration for a new bargain
*pre-existing duty rule often arises in the context of contract modification
What are “gap fillers”?
are terms provided by the UCC that will be used by the court to define missing terms in an existing contract for the sale of goods
Where definite and certain terms are missing from a UCC contract, may the court supply missing terms?
YES.
The court may use UCC gap fillers
Under UCC the quantity term MUST be stated or ascertainable, BUT the time of performance is interpreted by the court as a “reasonable time” and the price term is interpreted as “reasonable price at time of delivery”
What is the effect of provisions prohibiting oral modification at common law and UCC?
Common Law: contract provisions prohibiting oral modifications are NOT enforceable
UCC: contract provisions prohibiting oral modifications ARE enforceable
What is the common law rule for contract modification and how does it differ from the modern trend?
Common Law: a contract cannot be modified w/out providing additional consideration
-where there is a pre-existing duty, the promise of performance is NOT considered sufficient consideration for a modification
MODERN VIEW: modification is permitted w/out consideration if the modification is:
(1) due to circumstances that were unanticipated at the time of K formation; AND
(2) fait and equitable
What are the different possible outcomes of a “battle of the forms”?
Battle of the Forms rules determines whether additional terms will be included as part of the K. This depends on the status of the parties as merchants.
If one or more parties is NOT a merchant, any additional terms are a proposal and will not become part of the K unless the other party assents
If BOTH parties are merchants, any additional terms automatically become part of the K UNLESS:
- the offer expressly limits acceptance to its terms
- the addition is a material alteration OR
- the offeror objects to the additional term w/in a reasonable time
What is the effect of a rejection of an offer?
terminates offer and offeree’s power of acceptance
What is a counteroffer?
An offer made by the offeree to the offeror regarding the same subject matter as the OG K but containing different terms
**a counteroffer is considered a REJECTION and a NEW OFFER
What is the requisite intent of an offeror to enter into a valid K?
An offer must convey a reasonable expectation to the offeree that the offeror is willing to enter into a K
Language, conduct, and context can help demonstrate a present intent to enter into a K
*interpretation of intent is based on an OBJECTIVE reasonable person standard
What is the common law “option contract?
One where the offer includes a period of time in which the offeror promises not to revoke the outstanding offer
For an option K at CL, the offeree must give CONSIDERATION for the offeror to keep the promise open, and the consideration should be MEMORIALIZED IN WRITING
What are the elements of a merchant’s firm offer?
Under UCC a merchant’s firm offer states that an offer may be kept open WITHOUT CONSIDERATION if:
- the party is a merchant
- the offer to buy or sell goods is in WRITING; AND
- the writing gives assurances that it will be held open
**the firm offer is NOT REVOCABLE for lack of consideration for the time period stated in the offer
-if no time period is specified in the offer, offer is irrevocable for a reasonable time, NOT TO EXCEED 3 MONTHS
What does the phrase “definite and certain terms” mean?
An offer must contain “definite and certain terms” such that the context of the bargain can be determined and enforced
How long may a merchant’s firm offer be irrevocable?
IRREVOCABLE for no longer than three months WITHOUT CONSIDERATION
What are the rules regarding acceptance by shipping goods?
Shipping conforming goods is an acceptance
Shipping non-conforming goods is an acceptance creating a contract as well as a breach unless the seller seasonably notifies the buyer that the non-conforming goods are an accommodation
Under a unilateral K, when does the offeror become bound?
offeror bound when offeree COMPLETES PERFORMANCE
When there is a promise to keep an offer open for the sale of goods but does NOT involve a merchant, do the rules for option k’s or firm offers apply?
The UCC merchant’s firm offer rule does NOT apply b/c the offer is not between merchants
Common law option contract rules will apply if the offeree paid consideration
**article 2 of UCC applies to the sale of goods, although common law principles remain applicable when not displaced by UCCC
What are some of the limitations placed on valid acceptance?
- acceptance must be w/in a reasonable time
- only the person whom the offer is directed may accept
- the offeree must know of the offer before accepting
- acceptance must be in the manner required by the offer, or if not specified by any reasonable means
- acceptance by performance is judged by an objective standard
What is an “accommodation” when shipping NON-conforming goods?
When shipping non-conforming goods, if the non-conforming nature is acknowledged by the seller, they are offering an accommodation to the buyer
The accommodation is a COUNTEROFFER that the buyer is free to accept or reject
What is the requirement that an offer must be communicated?
An offer must be communicated to the offeree, such that offeree has knowledge of the offer
What is the offeror’s power of revocation?
Unless irrevocable, an offeror can revoke an offer at ANY TIME before acceptance which terminates the offeree’s power of acceptance as long as the revocation is communicated to the offeree
What is the difference between direct and indirect revocation by the offeror?
Direct Revocation: occurs when there is a direct communication from the offeror to offeree that they no longer manifest the intention to enter into the proposed contract
Indirect Revocation: occurs when the offeree learns from a reliable source that the offeror has taken definite action that is inconsistent w/ an intention to enter into the proposed contract
Define acceptance
an acceptance is the manifestation of assent to the terms of the offer
What are the 3 exceptions to the standard application of the mailbox rule?
- option contracts are effective upon RECEIPT NOT DISPATCH
- if the offer stipulates acceptance is not effective until receipt, then the offer controls
- if both an acceptance and rejection were sent the FIRST TO ARRIVE CONTROLS
Describe the requirements for the formation of a valid contract
In order to have a valid contract, there must be mutual assent (offer and acceptance), consideration, and the lack of any formation defenses
How may acceptance be communicated from the offeree to the offeror?
- oral or written words creating express contract
- by conduct creating an implied-in-fact contract
UCC rejects common law mirror image rule and recognizes a binding contract, despite the presence of non-conforming acceptance, in what 2 situations?
- shipment of non-conforming goods NAD
- battle of the forms
What is the “martial benefit rule”?
In a minority of jurisdictions, under the “material benefit rule” courts will enforce a contract with PAST consideration, IF the promises conferred a material benefit on the promisor and the benefit was NOT intended as a gift
*under the Second Restatement, Cours will ONLY enforce the promise to the extent it is proportional to the benefit conferred
