Offer, Acceptance, Consideration

Question 1

what is a contract?

Answer 1

promise or set of promises enforced by law (legally enforceable agreement)

Question 2

elements of an enforceable contract

Answer 2

offer + acceptance and consideration

K = MA (O + A) + C - Defenses (e.g., mistake, or lack of capacity (makes K void or voidable), or illegality (usually renders K void), or statute of frauds)

MA = mutual assent (one party must ACCEPT the other’s offer!)

***MUST CHECK always if there’s an enforceable K

Question 3

two types of contracts

Answer 3

• bilateral contracts: exchange of mutual promises (promise for a promise)
• unilateral K: one in which offeror requests/asks for performance instead of a promise - once act is completed, K is formed

Question 4

implied contract

Answer 4

parties’ CONDUCT indicates they assented to be bound

Question 5

unilateral K’s occur in 2 situations

Answer 5

• requires FULL performance (once the act is completed, a K is formed!)
• two situations: (1) when offeror CLEARLY indicates completion of performance is only manner of acceptance (“my offer can be accepted ONLY BY…”); (2) offer to public (reward offer to the public)

example: A promises to pay B IF B paints A’s fence; B is not obligated to paint fence but if he does, a K is formed and A must pay

Question 6

void, voidable, unenforceable

Answer 6

• void K: one that is totally without any legal effect (no party can enforce)
• voidable K: one that either party can elect to avoid (e.g., infancy)
• unenforceable K: K that is otherwise valid (elements are present), BUT can’t be enforced due to a defense (like statute of frauds)

Question 7

common law v. UCC (Art. 2)

Answer 7

• contracts involving sale of goods: UCC applies
• common law: K for services (land sale Ks, employment Ks, real estate Ks, etc.)

Question 8

K’s involving goods and nongoods

Answer 8

if sale involves both goods and services – determine which aspect is dominant and apply law governing that aspect to entire K

BUT if K divides payment b/w goods and services –> Art 2 applies to goods portion and common law applies to services portion

Question 9

good faith and fair dealing

Answer 9

both UCC and common law impose this duty in performance and enforcement

Question 10

OFFER

Answer 10

• creates “power of acceptance” in offeree

Question 11

OFFER (3 main questions)

Answer 11

1) expression of a commitment to enter into a K on basis of offered terms
*CANNOT be a invitation to start negotiations; must be intent to enter into K
*surrounding circumstances to see if offer exists
*relationship of parties

2) offer must be definite and certain in its terms (need enough of essential terms)
*identity of offeree needs to be identified
*subject matter must be certain

3) communication to the offeree? offeree needs to have knowledge of offer

Question 12

advertisements

Answer 12

considered invitations for offers
your response to ad = offer

Question 13

definite and certainty of terms for certain types of contracts

Answer 13

• real estate transactions: land and price terms (PRICE TERM must be there)
• sale of goods: quantity term (UCC gap fillers can supply missing price term)

*requirements K: buyer promises to buy from certain seller ALL OF GOODS buyer requires and seller agrees
output K: seller promises to sell to certain buyer ALL goods seller needs and buyer agrees

can’t be a tender/demand for a quantity unreasonably disproportionate to any stated estimate or any comparable prior output or requirements

• employment/other services: in K for employment, if duration is not specified, the offer (if accepted) is interpreted as creating a K terminable at will of either party

Question 14

vague terms in offer

Answer 14

if material term is vague or ambiguous, not offer at CL or under UCC!

Question 15

terms to be agreed on later

Answer 15

• an offer may state that some term is to be agreed to on a future date
• if term is material, offer is too uncertain!

Question 16

termination of offer
(by offeree)

Answer 16

• lapse of reasonable time (offeree’s failure to accept within time laid out by offer)
• rejection
  express rejection
  counteroffer (same subj matter but differs in its terms) – considered rejection and a new offer
  conditional acceptance by offeree: when acceptance by offeree is conditional on acceptance of new terms (this is a rejection and new offer)

*rejection effective when received by offeror

Question 17

revocation (termination by the offeror)

Answer 17

• offeror can revoke offer at ANY TIME BEFORE acceptance (even if offeror promised not to)
• revocation is effective when offeree receives it

NOTE: offeror can directly tell the offeree OR offer can also be revoked indirectly if offeree gets info from a reliable source re: acts of offeror
***the offeree need not read it for revocation to be effective

Question 18

limitations on revocation
irrevocable offers (4 of them)

Answer 18

these are irrevocable offers:

• option contracts-offeree has given consideration (usually cash) for promise by offeror not to revoke an outstanding offer (no time limit) –> offer cannot end before the time that was agreed to
• merchant’s firm offer (UCC)–if merchant-offeror offers to BUY or SELL goods in a SIGNED writing, and writing says offer will be held open, offer is IRREVOCABLE during time stated, or if no time stated, for a reasonable time (can’t exceed 3 months)
• detrimental reliance by offeree on the offer
  rule: when offeror could reasonably expect that offeree would rely to their detriment on the offer, and offeree DOES rely, offer is irrevocable as an option contract for a reasonable length of time
• once performance begins for a unilateral K–note that substantial preparations to perform DO NOT make offer irrevocable (offeror must give offeree reasonable time to complete performance)

a bilateral K may be formed upon start of performance by offeree–once offeree starts performance, K is complete and reovcation becomes impossible

Question 19

termination by operation of law

Answer 19

an offer will end if:
1) death or insanity of either party [unless offer is a kind offeror couldn’t terminate, like an option supported by consideration]
2) destruction of proposed K’s subject matter, OR
3) supervening illegality

Question 20

ACCEPTANCE

Answer 20

• offeree (who must know of offer) agrees to term of offer

Question 21

acceptance of offer for a bilateral contract

Answer 21

• offer to enter into a bilateral K can be accepted by a promise to perform OR by beginning performance/partial performance
• acceptance must be communicated to offeror (but court may find silence works as acceptance due to prior dealings or trade practices)

Question 22

acceptance of offer for unilateral contract (i.e., an offer providing that it may be accepted ONLY BY PERFORMANCE)

Answer 22

an offer for a unilateral contract

• unilateral K is not accepted until performance is COMPLETED (OFFEREE MUST KNOW of offer at time of performance to accept it!)
• notice: offeree is NOT required to give offeror notice that he has begun performance but is required to notify offeror within reasonable time after performance is done

Question 23

acceptance in sale of goods K’s (UCC)

Answer 23

• offer to buy goods can be accepted by either: (1) a PROMISE TO SHIP or by (2) SHIPMENT of conforming/nonconforming goods

LOOK AT FLOW CHART RE: SHIPMENT OF NONCONFORMING GOODS

Question 24

conduct by parties in the UCC (sale of goods)

Answer 24

appropriate conduct b/w the parties can be sufficient to show agreement to a K for sale of goods (even if an exchange of correspondence b/w parties makes exact moment of contract formation uncertain)

Question 25

mirror image rule

Answer 25

• common law rule – any different or additional terms in acceptance makes the response a rejection and then a counteroffer (common law insisted on absolute and unequivocal acceptance of each and every term of the offer)

Question 26

battle of forms provision

Answer 26

• inclusion of additional or different terms by offeree (usually by seller) is effective as an ACCEPTANCE (unless offeree says acceptance is conditional on acceptance of new terms)

Question 27

battle of the forms –> what terms are included in the K? is the additional term in the K or kicked out?

Answer 27

- contracts involving NONMERCHANT: if any party to the K is not a merchant, additional or different terms are considered mere proposals to modify the K that do not become part of K unless offeror expressly agrees

- contracts between MERCHANTS:
if both parties to K are merchants, additional terms in acceptance will be in the K unless:
1) they materially alter original terms of the offer (e.g., changing party’s risk)
2) the offer expressly limits acceptance to terms, OR
3) offeror has already objected to the particular terms or objects within a reasonable time after notice of them is received

knockout rule: conflicting terms in offer and acceptance are knocked out of K (gaps left by knocked out terms are filled by UCC)

NOTE: there still must be a meeting of the minds or there’s no K (watch for differences in quantity, price, etc.)

Question 28

merchant’s confirmatory memo

Answer 28

merchant’s memo confirming oral agreement that contains different/additional terms is also subject to battle of forms rules

Question 29

mailbox rule
(deals with method of acceptance by offeree and when acceptance is effective)

Answer 29

offeree’s acceptance by mail that is properly addressed and stamped/similar means is effective at moment of dispatch UNLESS one of these applies:

1. offer itself says acceptance is not effective until received by offeror (offeror can opt out of mailbox rules)
2. option K is involved (acceptance under option K is effective only upon receipt)
   option K is a K in which offeree gives consideration for a promise by the offeror not to revoke an offer
3. offeree sends rejection and then sends acceptance (whichever arrives first is effective)
4. offeree sends acceptance and then rejection – acceptance is effective, i.e., mailbox rule applies (unless the rejection arrives first and offeror detrimentally relies on rejection)

remember that: offers, revocations by offeror, rejections by offeree = effective upon receipt

Question 30

CONSIDERATION
*courts will enforce promise as a K only if supported by consideration or substitute for consideration

Answer 30

1) bargained for exchange b/w parties
- promise to do/not do something, actually doing that something –> enough if it if it benefits the promisor
- no bargain when one party gives a GIFT to another
- PAST CONSIDERATION: promise given in exchange for past acts does not satisfy requirement (e.g., “In consideration of your having done X, I promise you $10.”)

2) the bargained for exchange needs to have legal value
- performing or promising to perform a PRE-EXISTING legal duty is insufficient consideration

Question 31

if performance done BEFORE promise is made

Answer 31

it won’t satisfy the bargain requirement (e.g., dog owner offered to pay $200 in gratitude for act ALREADY PERFORMED)

Question 32

illusory promises

Answer 32

• watch for situation where promisor reserves right to cancel an order – this is illusory (if only one party is bound to perform, promise is illusory and will not be enforced)

PROMISE THAT WOULD OTHERWISE BE ILLUSORY CAN BE SUPPORTED BY CONSIDERATION IF COURT READS INTO PROMISE OBLIGATION TO EXERCISE DISCRETION IN GOOD FAITH (so long as promisor has limited his freedom of action in some way – court will find consideration sufficient to enforce return promise)

Question 33

modification of existing K’s & consideration
(CL v. UCC)

Answer 33

• under common law, an existing K can’t be modified unless modification is supported by new consideration (where modification would operate to benefit only one of the parties, it is unenforceable unless some consideration is given to the other party)

EXCEPTION: if modification of existing contract is fair and equitable in light of circumstances not anticipated when K was made

• under UCC: consideration is not necessary to modify
  K modifications sought in good faith are binding without consideration

Question 34

promissory estoppel

Answer 34

even in absence of bargained-for-exchange (no consideration), a promise can still be enforceable (i.e., promisor needs to perform / stops the promisor from saying there was no consideration)

promise is enforceable if:

1) promisor REASONABLY EXPECTS reliance by promisee;
2) promisee acts or refrains from acting in DETRIMENTAL reliance

valid K is better than agreement that can be enforced only by promissory estoppel b/c some states limit recovery under promissory estoppel

Question 35

if all elements for promissory estoppel are present

Answer 35

some jdx will award expectation damages (what was promised under the K)!!!!