MBE - Contracts Flashcards
How is a legally enforceable contract created?
In general, a legally enforceable contract is created through mutual assent (i.e. offer and acceptance) and consideration, provided that no valid defense to contract exists.
How is a party’s intent determined in contract law?
The intent of a party is what a reasonable person in the position of the other party would believe as a result of that party’s manifestation of intent. Thus, when the other party knew or should have known that the party lacked the objective intent to enter into a contract, a contract is not formed.
What are the elements of a valid offer?
(1) Intent - The person the offer is communicated to must reasonably interpret as an offer.
(2) Knowledge by the offeree - The offeree must have knowledge of the offer.
(3) Certain and definite terms - Offer must generally contain essential and duration terms. Note the difference between common law and UCC. Courts and the UCC will also fill in missing terms.
(4) Proper language - An offer must contain words of promise, undertaking, or commitment,
(5) Offer is distinguished from an invitation to deal - Mere inquiries do not constitute an offer. The more definite a statement, the more likely it is to be an offer.
What are the valid ways to terminate an offer? (La-D-De-R)
(1) Lapse in time - If the offer specifies a termination date, then the time fixed by the offer controls. If the offer does not set a time limit, then the power of acceptance terminates at the end of a reasonable time period.
(2) Death or mental incapacity - An offer terminates at the death or mental incapacity of the offeror, even if the offeree does not learn of the death or incapacity until after the acceptance is dispatched. Note the exception that exists for options.
(3) Destruction or illegality - An offer involving subject matter that is destroyed or illegal is terminated.
(4) Revocation - An offer can generally be revoked by the offeror at any time prior to acceptance through the manifestation of the offeror’s intent not to enter into the proposed contract. Note the various ways that a offeror’s power to revoke is limited.
What rule of acceptance does a common law jurisdiction follow?
Common law follows the mirror-image rule, which requires that acceptance must mirror the terms of the offer. Any changes to the terms of the offer, or the addition of another term not found in the offer, acts as rejection of the offer and as a new counteroffer.
What are the requirements of promissory estoppel?
(1) The promisor reasonably expects a promise to induce action or forbearance on the part of the promisee or third person;
(2) The promise does induce such action or forbearance; AND
(3) Injustice can be avoided only by enforcement of the promise.
How do common law jurisdictions and the UCC differ in their rules for contract modification?
At common law, modifications require consideration, whereas the UCC only requires good faith.
What are the elements of mutual mistake? (MBMA)
(1) Mistake of fact existed when the contract was formed.
(2) Basic assumption - The mistake relates to a basis assumption of the contract.
(3) Material impact - The mistake has a material impact on the transaction.
(4) Assumption - The adversely affected party did not assume the risk.
What are the requirements for reformation of a mistake? (PAD)
(1) Prior agreement (either oral or written) between the parties.
(2) Agreement by parties to put the prior agreement in writing
(3) Difference between the prior agreement and writing as a result of mistake.
What are the defenses to the formation of a contract? (MMMFUNDI)
(1) Mistake
(2) Misunderstanding
(3) Misrepresentation
(4) Fraud
(5) Undue Influence
(6) Nondisclosure
(7) Duress
(8) Incapacity
What are the defenses to the enforcement of a contract? (IUPS)
(1) Illegality
(2) Unconscionability
(3) Public policy
(4) Statute of Frauds
What are the three types of disclaimers in UCC contracts?
(1) Express warranty - Any promise, affirmation, description or sample that is part of the basis of bargain, unless it is merely the seller’s opinion or commendation of the value of goods.
(2) Implied warranty of merchantability - Warrants that the goods are fit for their ordinary purpose. Implied only if the seller is considered a merchant.
(3) Implied warranty of fitness for a particular purpose - Implied when the seller has reason to know that the buyer has a particular use for the goods, and the buyer is relying on the seller’s skill to select the goods.
NOTE: All three warranties can be disclaimed.
In what situations can a party use the defense of impracticability? (PIDD)
(1) Performance becomes impracticable.
(2) Illegality - Performance becomes illegal after the contract is made.
(3) Destruction - The specific subject matter of the contract is destroyed.
(4) Death or incapacity - The performing party to the contract dies or becomes incapacitated.
What is the general rule regarding a promisor’s defenses for contracts involving third-party beneficiary contracts?
The promisor can raise any defense (and counterclaim) against the third-party beneficiary that the promisor had against the original promisee. However, the promisor generally may not assert any defense that the promisee has against the intended beneficiary, unless the promisor’s promise is one that assumes the promisee’s obligation.
What are the categories of contracts that most states require to be evidenced by a writing? (Mr. SOUR)
(1) Marriage - A contract made upon consideration of marriage.
(2) Suretyship - A contract to answer for the debt or duty of a third party.
(3) One year rule - A contract that cannot be performed within one year from its making.
(4) UCC - A contract for the sale of goods for a price of $500 or more.
(5) Real property - A contract for the sale of an interest in real property.
