K Formation Flashcards
K Defined
K = legally enforceable agreement
Express = based on parties’ words (oral or written)
Implied-in-fact = created by parties’ conduct
Restitution (quasi-contract) = protects against unjust enrichment (*LAST RESORT remedy)
Bilateral v. Unilateral
Bilateral = where an offer can be accepted in ANY reasonable way
Unilateral = where an offer can be accepted ONLY by performance
- offer will say so
- reward, contest or prize always unilateral
Was there an offer?
Offer = manifestation of an intention to be bound
- Ads are NOT offers unless there’s a quantity
- Terms must be definite enough to be enforced
- Open price term = court will read in a “reasonable” price EXCEPT for a K involving sale of real property
- Requirements K (Art. 2) is OK… but buyer CANNOT take seller by surprise; increase can’t be way out of line from previous requirements
Was the offer terminated? Revocation
Lapse = offer lapses after a stated term or after a reasonable time
Revocation
- General rule = offer can be revoked any time before acceptance
- Effective on RECEIPT
- Direct = offeror communicates directly to offeree
- Indirect = offeror engages in conduct that indicates he’s changed his mind AND offeree is aware of the conduct
Offer becomes IRREVOCABLE in 4 situations:
(1) Option = promise to keep offer open that is PAID for
(2) Firm offer (Art. 2) = merchant promises in a signed writing to keep offer open
(3) Foreseeable reliance before acceptance = rare!
(4) Starting to perform a unilateral K
Was the offer terminated? Rejection
Rejection = offer terminates when offeree rejects
Counter-offer = operates as a rejection, but mere BARGAINING (like asking a question) does not
Conditional Acceptance (not acceptance at all!) = operates as a rejection and counter-offer
Acceptance varying offer
- CL = Mirror Image Rule (or else it operates as rejection and counter-offer)
- Art. 2 = no mirror image rule; offeree’s additional/changed term is included ONLY if (i) BOTH parties are MERCHANTS; (ii) no MATERIAL change (i.e., disclaimer… but term customary in the industry is NOT material!) ; and (iii) no objection within a reasonable time (merchant can object and keep out even minor change)
Death of either party before acceptance = termination of REVOCABLE offer
Has the offer been accepted?
- Terms of K govern acceptance
Timing - Acceptance is effective when mailed (MAILBOX RULE)
- Exceptions: (1) when offer states otherwise (“your acceptance must be received by Jan. 1”); (2) irrevocable offer = acceptance is effective only when received; (3) rejection sent first = whichever gets there 1st is effective!
Starting Performance
- Bilateral K = starting performance is accepted (carries implied promise to finish)
- Unilateral K = COMPLETING performance is acceptance; merely starting is not
Improper Performance = simultaneous acceptance and breach
- If seller tells buyer it’s sending the wrong goods “as an ACCOMMODATION,” there is NO acceptance and NO breach
Defenses Against Formation: Lack of Capacity
- Minors (under 18 at time agreement was made); intoxicated; mentally incompetent
- General rule = incapacitated D has right to disaffirm the K if he wants to avoid the K
- Implied affirmation = incapacitated person retains the benefit after gaining capacity
- Exception = incapacitated party is liable for necessaries (food, shelter, medical care) but ONLY for reasonable value, not the K price
Defenses Against Formation: Ambiguity/Misunderstanding
There is NO K unless 1 party knew or had reason to know of the other party’s meaning = the innocent party’s meaning will prevail
Defenses Against Formation: Mistake
Mutual Mistake about a MATERIAL Fact
- Mistake as to VALUE is generally NOT considered material (so parties are still bound)
Unilateral Mistake
- 1 party’s mistake is not fatal unless other party knew or had reason to know
Defenses Against Formation: No Consideration
Consideration = barged-for legal detriment/benefit (i.e., promise, performance, or forbearance)
“Past consideration” is NOT consideration at all!
- You can’t bargain for something that’s already been done
Adequacy of consideration is IRRELEVANT
Does act/forbearance of promisee constitute valuable consideration? Test = whether the act or forbearance by the promisee would be of ANY BENEFIT to the PROMISOR
- It is not enough that the promisee incurs detriment; the detriment must be the price of the exchange, and not merely fulfillment of certain conditions for making a gift
- If the motive was no more than to state a condition of a promise to make a gift, there is no consideration
- The benefit to the promisor need not have economic value… Peace of mind or the gratification of influencing the mind of another may be sufficient to establish bargained-for consideration.
Promissory Estoppel (P/E) as SUBSTITUTE (when there is NO consideration) = foreseeable reliance may make a promise enforceable even without consideration
K Modification and Consideration
K Modification
- CL = new consideration IS required to modify a K (preexisting duty rule)
- Modification that is fair in light of unanticipated change in circumstances will be enforceable even without consideration
- Art. 2 = consideration is NOT required to modify a K for the sale of goods, but MUST have good faith reason for modification
No Consideration: Due and Undisputed Debt
Partial Payment of Debt That’s Due and Undisputed = You owe Visa $2,500 (due, undisputed). You and Visa orally agree if you pay $2k Visa will forgive $500 balance. If you pay $2k, Visa can still come after you for $500 because there was no consideration.
Time-Barred Debt = written promise to pay a debt, collection of which is barred by SOL, is enforceable even WITHOUT consideration
Parties to a K
Promisor = the party who promised to perform and, thus, owes the duty to perform
Promisee = the party to whom that promise was made
A agrees to purchase widgets from B for $300.
A = promisor (promised to pay)
B = promisee
