I. Formation of Contracts

Question 1

Formation of K

Answer 1

Binging K requires mutual assent, consideration, & lack of valid defenses.

Intent: Statement is an offer only if person to whom it’s communicated could reasonably interpret it as an offer and expresses a present intent of a person to be legally bound by a K.

Knowledge: offeree must know of offer in order to have power to accept

Terms: must be certain and definite or the K fails for indefiniteness.

Language: offer must contain words of promise, undertaking, or commitment and be targeted to a number of people who could actually accept.

If return promise is request bilateral K, if an act is requested unilateral K.

Invitation to deal: advertisements are only an invitation to receive offers (but may qualify as an offer if sufficiently specific to limit who can accept or if associate w/ a stated reward.

Question 2

Essential terms CL and UCC

Answer 2

CL: parties, subject matter, price, quantity. If the parties intended to create a K the court may supply the missing terms.

UCC: quantity, unless requirements or output K (then GF). UCC fills in the gaps if other terms are missing. K formed if both parties intend K and reasonably certain basis for giving remedy.

Question 3

Termination of offers

Answer 3

Lapse of time
Death/mental incapacity of offeror
Destruction/illegality
Revocation: offer can be revoked any time prior to acceptance, not effective until communicated, revocation sent by mail not effective until received.

Question 4

Limitations of revocation

Answer 4

Option K: offeree must generally give consideration for option to be enforceable

Revocation of general offers (large amount of people): only by notice given at least same level of publicity as offer (effective even if potential offeree acts in reliance on offer)

Question 5

UCC firm offer rule

Answer 5

UCC firm offer rule: offer irrevocable for a reasonable time, no more than 90 days, if offeror is a merchant or any business person and assurances in authenticated writing that it will remain open. No consideration is needed.

Question 6

Promissory estoppel

Answer 6

If offeree reasonably and detrimentally relies on offer it may become irrevocable

Question 7

Partial performance

Answer 7

Offeree must have knowledge of offer when performance begins.

For a unilateral K, offeror can’t revoke once oferee has begun performance.

For a bilateral K: commencement of performance operates as promise to render complete peformance.

Question 8

Rejection by offeree

Answer 8

Offeree clearly conveys to offeror that he no longer intends to accept the offer, effective upon receipt.

Counteroffer: acts as a rejection of original offer and creates a valid new offer.

Question 9

Acceptance

Answer 9

Objective manifestation by the offeree to be bound by the terms of the offer.

Question 10

Bilateral acceptance

Answer 10

Exchange of promises that render both enforceable

Commencement of performance operates as promise to render complete performance

Question 11

Unilateral acceptance

Answer 11

Promise to do something by one party in return for act of the other party

Starting performance is not enough, but will make offer irrevocable for a reasonable period of time to complete performance

Offeree must be aware of offer before acting

Question 12

Means of acceptance: silence, shipment of goods, mailbox rule, notice of acceptance.

Answer 12

Unless offeror specifies, offeree can accept in any reasonable manner.

Silence: is not acceptance unless offeree has reason to believe offer could be accepted by silence or previous dealings make it reasonable to believe that offeree must notify offeror if he does not intend to accept.

Shipment of goods: Buyers request that goods be shipped is inviting acceptance either by seller’s promise to ship or by prompt shipment of goods.

Nonconforming goods: both an acceptance and a breach unless seller seasonably notifies buyer that goods are an accommodation (counteroffer); buyer may then accept or reject the nonconforming goods.

Mailbox rule: acceptance is effective when sent

Rejection following acceptance: acceptance will control even if offeror receives rejection first (but if offeror detrimentally relied on rejection then offeree estopped from enforcing K)

Acceptance following rejection: mailbox rule doesn’t apply; first one received will prevail

Revocation: effective upon receipt

Irrevocable offer: mailbox rule doesn’t apply; acceptance must be received by offeror before offer expires.

Notice: for a unilateral K offeree not required to give notice after completing performance, unless: offeror wouldnt learn of performance w/ reasonable certainty and promptness or offer requires notice.

Notice required, but not provided: offeror’s duty is discharged, unless: offeree exercises reasonable diligence to give notice, offeror learns of performance w/in reasonable time, or offer indicates notice of acceptance is not required.

Bilateral K: offeree must give notice of acceptance. Mailbox rule. Under the UCC if acceptance is made by beginning performance, notice is required within a reasonable time; failure to give notice results in offer’s lapse.

Question 13

Mirror image rule

Answer 13

CL: acceptance must mirror the terms of the offer, so any change or addition to the terms acts as a rejection and new counteroffer

Question 14

UCC - battle of the forms

Answer 14

Acceptance containing additional or different terms generally treated as acceptance.

Both parties not merchants: definite and seasonable expression of acceptance or written confirmation that is sent within a reasonable time is acceptance, except when acceptance is expressly conditioned on assent to new/different terms (then treated as proposed additions to K that must be separately accepted)

Both parties are merchants: additional terms: automatically included in K unless: term material alters K, offer expressly limits it to its terms, offeror objects to new terms w/in reasonable time. If one of these is met, original terms of offer control.

Different terms: “knock out rule” different terms in offer/acceptance nullify each other, and court uses A2 gap-filling provisions to patch the holes.

Acceptance based on conduct: if offer and purported acceptance differ too much to create a K but the parties begin to perform anyway, UCC allows for a K to be recognzied with any terms actually agreed upon in writings and any supplementary terms filled in by UCC.

Question 15

Consideration

Answer 15

There must be a bargained for legal detriment to the promisee for consideration. Consideration can be return promise to do or refrain from doing something

Question 16

Distinguish gift from consideration

Answer 16

Whether offeree could reasonably believe intent of offeror was to induce them to action. If yes, consideration and promise is enforceable.

If promisor knows that promise to make a gift will induce substantial reliance by promisee and failure to enforce it would cause substantial injustice, promise is enforceable.

Question 17

Adequacy of consideration

Answer 17

Subjective value: benefit to promisor need not have economic value; if promisor wants it, giving of it will constitute adequate consideration

Legal claim settlement: promise not to bring legal action or assert claim/defense serves as consideration bc promisor is foregoing a legal right.

Question 18

Preexisting duty rule

Answer 18

CL: does not qualify as consideration unless promisor gives something in addition to what is owed, or varies preexisting duty in some way.

Third party promise contingent upon performance of another party’s contractual obligation is sufficient consideration.

Question 19

Past consideration

Answer 19

modern trend supports enforcing past promises when necessary to prevent injustice, unless promisee intended act to be a gift.

Question 20

Modification

Answer 20

CL: must be supported by consideration, and agreements to modify a K are enforceable if: rescission of existing K and entering into a new K; unforeseen difficulties arise and one party agrees to compensate the other party for them, or new obligations arise on both sides.

UCC only requires good faith; no consideration necessary

Question 21

Accord and satisfaction

Answer 21

Generally, no consideration is required for accord to be valid.

Satisfaction is performance of accord agreement, and will discharge both the original and accord K

Original K not discharged until satisfaction is complete

Question 22

Illusory promise

Answer 22

not legally binding bc it is vague or promisor can choose whether or not to honor it

Question 23

Voidable/unenforceable promises as consideration

Answer 23

Can still constitute considerations

Question 24

Requirements and output Ks

Answer 24

Buyer agrees to buy all that he requires and output seller agrees to sell all that he manufactures.

Quantities can’t be unreasonably disproportionate

Question 25

Promises binding w/out consideration

Answer 25

1. Pay a debt barred by SOL: new promise to pay debt after SOL has run is enforceable w/out consideration
2. Perform a voidable duty: new promise to perform voidable duty is enforceable if it doesn’t suffer from an infirmity rendering it voidable
3. Material benefit rule: when a party performs an unrequested service for another party, the modern tred permis the performing party to enforce the promise for payment for material benefits to extent necessary to prevent injustice (unless just donative intent)
4. Promissory estoppel: consideration substitute. A promise is binding if: promisor should reasonably expect it to induce action on the part of the promisee or a third person, promise does induce such action, and injustice can only be avoided by enforcement of promise.

Question 26

Enforceability

Answer 26

A defense to formation or a defense to enforcement may render a K void, voidable or unenforceable.

Void Ks: entire tx is null, as if no K existed
Voidable: operates as valid K until party avoids it
Unenforceable K: valid K that can’t be enforced if one party refuses to carry out its terms

Question 27

Defenses to formation (6)

Answer 27

No “meeting of the minds” due to one of these defenses

Mistake
Misunderstanding
Misrepresentation 
Undue influence 
Duress 
Capacity to K

Question 28

Mistake

Answer 28

Unilateral: 1 party mistaken to essential element of K, but either party can enforce K on its terms.

Mistaken party can void K if he didn’t bear risk of mistake and mistake would not make enforcement of K unconscionable or

non-mistaken party caused the mistake, had duty to disclose or failed to disclose mistake, and knew or should known that other party was mistaken.

Must be absence of serious prejudice to other party to rescind.

Mutual mistake: both parties are mistaken as to essential element

K generally voidable by party adversely affected if: mistake existed when k formed; mistake relates to basic assumption of K, mistake has material impact on tx, and adversely affected party did not assume the risk of mistake

Neither party can avoid K if reformation available to cure mistake

Reformation: (mutual mistake): court can reform writing except to extent that rights of third parties who releid on K would be unfairly affected.

Question 29

Misrepresentation

Answer 29

An untrue assertion of fact that can make K void or voidable.

Fraudulent misprep: misrepresentation is knowing or reckless false assertion of fact w/ intent to mislead; the misrep induced assent to K, and justifiable reliance on adversely affected party

Nondisclosure: conduct to conceal a fact or nondisclosure of know fact tantamount to an assertion that fact does not exist

Effect: fraud in the factum (execution): fraud misrep prevents party from knowing character/essential term of tx, so no K is formed and apparant K is void unless reasonable diligence would have revealed K’s true terms

Fraud in the inducement: fraudulent misrep is ued to induce another to enter into K; K voidable by adversely affected party if she justifiably relied on misrep

Nonfraudulent misrep: innocent/negligent: renders K voidable by adversely affected party who justifiably relied on material misrep and was induced to assent bc of it.

Cure misrep: K not voidable if facts cured before deceived party has avoid K

Avoidance/reformation for misrep: when content/legal effect of K is misrep, deceived party can avoid K or reform it to express what was represented

Question 30

Misunderstanding

Answer 30

Both parties believe they are agreeing to the same material terms, but they in fact agree to different terms.

Neither party knows: no K if material term

One party knows: K formed based on meaning of material term as u/s by unknowing party

Both parties know terms ambiguous at time of K formation: no K unless both parties intended the same thing

Waiver: one party can choose to enforce K according to other party’s u/s

Question 31

Undue influence

Answer 31

Unfair persuasion of a party to assent to K

Unfair persuasion: relationship between dominant party and dependent party due to lack of expertise or experience, or diminished mental capacity.

Persuasion of one party seriously impairs the free and competent judgment of other party

Confidential relationship: dominant party has burden of proving K was fair

Third party influence: victim may void K unless nonvictim party to K gave value of materially relied on K in GF and w/out knowledge of undue influence

Damages: restitution available

Question 32

Duress

Answer 32

Improper threat that deprives party of meaningful choice

Improper threat: threats of criminal or civil action made in BF or threats to breach K in violation of GF and fair dealing.

Deprivation of meaningful choice: person has no reasonable alternative such that threat induced his assent.

K is void when duress through physical compulsion otherwise voidable.

Question 33

Capacity to K

Answer 33

Infancy under 18: voidable by infant (not reasonable value of necessaries) but not adult

Mental illness: K is void for one who is adjudicated mentally incompetent, but only voidable if there has been no adjudication.

Guardianship: void except reasonable value of necessaries

Intoxication: K is voidable by intoxicated party if she was unable to u/s nature/consequence of K and other party knew of intoxication.

Question 34

Defenses to enforcement

Answer 34

Illegality
Unconscionability
Against public policy

Question 35

Illegality

Answer 35

K is unenforceable if consideration/peformance is illegal
K is void if it contemplates illegal conduct
Duty to perform is discharged if K becomes illegal after formation
If only 1 party is justifiably ignorant of the facts making K illegal or lacks illegal purpose he can recover

Exceptions:

Ignorance of illegality: a party may recover if the party is justifiably ignorant of the facts making K illegal and the other party had knowledge of the illegality

Lack of illegal purpose: a party who has substantially performed may recover if: K does not involve illegal consideration/performance-the party is unaware of the other party’s illegal purpose

The party knows of the other party’s illegal use, unless th party furthered the illegal use or the use involves grave social harm

Divisible K: if K can easily be divided into legal and illegal parts, a party may recover on the legal parts.

Restitution: Not in pari delicto-when parties are not equally at fault, the less guilty party may recover under restitution

Withdrawal: a party who w/draws from an illegal K before the improper purpose has been achieved may recover under restitution when the party has not engaged in serious misconduct.

Question 36

Unconscionability

Answer 36

K is unconscionable when it is so unfair to one party that no reasonable person in that position would agree to be in it.

Question 37

Against public policy

Answer 37

K may be unenforceable if it violates significant public policy.

Question 38

Implied in fact K

Answer 38

Conduct, not words, indicates assent or agreement

Question 39

Quasi K

Answer 39

A P confers a benefti on D and P has reasonable expectation of benefit on D, P acted w/out gratuitous intent, and unfair to let D retain benefit.

Question 40

Warranties in sale of goods

Answer 40

Express warranty
Implied warranty of merchantability
Implied warranty of fitness for a particular puropse

Question 41

Express warranty

Answer 41

Any promise, affirmation, description, or sample that is part of the basis for the bargain, unless it is merely the seller’s opinion.

Disclaimers that unreasonably negate or limit expreess warranties are inoperative.

Question 42

Implied warranty of merchantability

Answer 42

Implied whenever a seller is a merchant
Goods must be fit for their ordinary purpose
Warranty can be disclaimed by use of “as is”, “with all faults” or similar language
Disclaimer may be oral, but must use the term “merchantability” and be conspicuous if in writing

Question 43

Implied warranty of fitness for a particular purpose

Answer 43

Implied whenever seller has reason (from any source) to know buyer has particular use for goods and buyer is relying on seller’s skill to select goods

Can be disclaimed by conspicuous writing