Contracts I

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What is the first topic to consider when asking "Do you have an offer?"?

commitment to form a contract

What is the second topic to consider when asking "Do you have an offer?"?

communication to identified offeree(s)

What is the third topic to consider when asking "Do you have an offer?"?

certain and definite terms

What is the fourth topic to consider when asking "Do you have an offer?"?

type of offer - unilateral or bilateral

What is the first topic to consider when asking "Did the offeror terminate the offer prior to acceptance?"?

Is the offer freely terminable?

What is the second topic to consider when asking "Did the offeror terminate the offer prior to acceptance?"?

Did the offer terminate? (revocation, rejection, operation of law)

What is the third topic to consider when asking "Did the offeror terminate the offer prior to acceptance?"?

Counteroffer (mirror-image rule, UCC rules)

What is the first topic to consider when asking "Did the offeree accept?"?

express acceptance (commitment to terms of offer - objective test; proper method of communication - improper method is a counteroffer; mailbox rule)

What is the second topic to consider when asking "Did the offeree accept?"?

conduct

What is the third topic to consider when asking "Did the offeree accept?"?

silence

What is the fourth topic to consider when asking "Did the offeree accept?"?

starting performance - UCC

What is the fifth topic to consider when asking "Did the offeree accept?"?

unilateral offer (complete performance; notice to offeror - if necessary; what performance is necessary? - language of offer and surrounding circumstances)

What is the first topic to consider when asking "Does consideration support the offer and acceptance?"?

a bargained-for exchange (not gifts; not past consideration)

What is the second topic to consider when asking "Does consideration support the offer and acceptance?"?

legal detriment (pre-existing duty rule)

What is the third topic to consider when asking "Does consideration support the offer and acceptance?"?

promise must not be illusory (requirements/output contracts; conditions of satisfaction)

What is the fourth topic to consider when asking "Does consideration support the offer and acceptance?"?

substitutes for consideration (UCC rules - merchant's firm offer, modifications, promissory estoppel; promissory estoppel)

What is the hierarchy of sources of law?

US Constitution, federal statutes and treaties, state constitution, state law, municipal ordinances, common law

When a new issue arises, what will courts look to in order to decide the rule?

other jurisdictions, treatises, and restatements

What is covered in UCC Article 1?

basic concepts

What is covered in UCC Article 2?

sales of goods

What is covered in UCC Article 2A?

leases of goods

What is a person doing when he consents?

agreeing to a particular detail, such as time, place, or action

What fact does mutual assent refer to?

a party voluntarily assumed the obligations, rights and responsibilities under a contract and all that it entails

What is a simple definition of mutual assent?

understanding of the parties about what the contract contemplates

What is the first question to ask when determining if there was intent to contract?

Was there an offer?

What is the second question to ask when determining if there was intent to contract?

Was there acceptance of that offer?

What is the test to determine mutual assent?

Would a reasonable person in the position of the offeree believe that the offeror had a present intent to K?

Should the courts look to outward expressions or to secret and unexpressed intentions?

look to words and acts, giving reasonable meaning. Undisclosed intention is immaterial - except when an unreasonable meaning is known by the other party

When mutual assent is not present at the time that a contract is negotiated, can this deficiency be remedied by later negotiations?

no

What is the rule of law for determining if a contract was formed?

Mental assent is not necessary for a contract. Look to words and acts, giving reasonable meaning.

What are the three requirements of an offer?

1. commitment (objective test) 2. communication of commitment 3. certain and definite terms

What is the RSC rule for determining if an offer exists?

RSC 24

What are the three different types of contract?

1. unilateral 2. bilateral 3. third-party

What is a unilateral contract?

a promise for an act; acceptance is by performance

What is a bilateral contract?

a promise for a promise; acceptance by return promise

What is an indifferent (bilateral) contract?

offer is silent or calls for either performance or promise

What are six sources (RSC and UCC) of contract meaning and interpretation?

RSC 202, 203, 222, 223; UCC 1-205, 2-208

What does usage of trade refer to?

member of a particular trade at issue, or else must have actual or inferred knowledge of the usage

What is the general rule regarding advertisements?

Advertisements are generally not offers. However, when language communicates present commitment and not just a general offer to a large group, an offer may exist.

Who is the master of the offer?

the offeror

How must acceptance occur if no terms of acceptance are given?

by a reasonable method

Until what point does the offeror have the ability to alter or revoke the offer?

acceptance

Is notification of the offeror of acceptance of a unilateral offer necessary?

not unless the offer requires notification or the offeror will not find out about acceptance within a reasonable time

How are bilateral offers accepted?

Acceptance must demonstrate the offeree's commitment to the terms of the offer and the offeree must communicate acceptance in a manner consistent with the offer.

What kind of contracts is presumed in the law?

bilateral

Is acceptance of a bilateral contract the promise of performance or actual performance?

promise of performance

What is the general rule for terminating an offer?

An offeror is free to revoke an offer and terminate the offeree's power to accept, provided only that the offeror acts before the offeree has recorded his acceptance. WIth specific exceptions, offers are freely terminable before acceptance.

What are the three termination methods (RSC 36)?

revocation (offeror indicates intent to discontinue offer), rejection (express or by conduct - lapse of time), operation of law (illegality, death or incapacity of offeror or offeree, or death or destruction of offer's subject matter - no notice required)

When is express revocation effective?

upon receipt by offeree

When is revocation by conduct effective?

when offeree receives notice of conduct from reliable source

When is express rejection effective?

upon receipt

Which offers are not freely revocable?

merchant's firm offer under Article 2

What is a merchant?

someone in business of buying/selling the goods at issue

What is a firm offer?

made by merchant, is in writing, signed, and states that it will be held open for a period of time or indefinitely

For how long is a merchant's firm offer open?

a merchant's firm offer is irrevocable for time stated or a reasonable time if no time is stated; if no consideration given, irrevocable for no longer than 90 days

What is an enforceable option contract?

offeror promises to keep offer open and offeree gives consideration for that promise; not freely revocable

If an offeree foreseeably relies on an offer prior to acceptance, is the offer freely revocable?

no; foreseeable from offeror's point of view (subcontractor's bid to contractor)

An offer to form a unilateral contract is not freely revocable if one of which three criteria is met?

1. performance has begun (irrevocable for a reasonable time) or 2. offeree's reliance was reasonably foreseeable to offeror or 3. contract is divisible and some divisible part was performed

Who retains the risk of loss in a sale of goods, according to the UCC?

The seller retains the risk of loss until delivery of the goods.

What rule guides the risk of loss in a sale of goods?

UCC 2-509

If the seller is a merchant, when does risk of loss pass to the buyer?

when buyer physically receives goods

If the seller is not a merchant, when does risk of loss pass to the buyer?

once seller makes the goods available for a reasonable time after notifying buyer that they are available

What is the effect of a late acceptance?

A late acceptance or one that doesn't conform to the terms of the offer is a counteroffer unless her silence satisfies the requirements of RSC 69.

What are the three methods of termination? (RSC 36)

1 revocation 2 rejection 3 operation of law

What can operation of law refer to?

1. illegality 2 death or destruction of offer's subject matter 3 death or incapacity of either offeror or offeree

What is the rule regarding termination by death or incapacity?

An offeree's power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract.

When does termination by express rejection become effective?

upon receipt

What is the general rule regarding options and termination by rejection?

An offer remains open for the prescribed time even though the holder of the option says during the time period that he does not intend to exercise it.

What is the mailbox rule?

Acceptance is effective upon mailing (properly stamped and addressed), not receipt.

What is the RSC number for the mailbox rule?

RSC 63 provides that an acceptance is effective as soon as it is put out of the offeree's possession.

What is the first exception to the mailbox rule?

Acceptance is effective upon receipt when the offer states that the mailbox rule will not apply.

What is the second exception to the mailbox rule?

Acceptance is effective upon receipt when the offer suggests a method and a different reasonable method is used.

What is the third exception to the mailbox rule?

Acceptance is effective upon receipt when the offeror sends an acceptance, then a rejection: acceptance still effective upon dispatch, unless rejection received first and relied upon by the offeror.

What is the fourth exception to the mailbox rule?

Acceptance is effective upon receipt when the offeree sends rejection then acceptance: acceptance is effective upon receipt if received first; if not, acceptance is a counteroffer.

What is the fifth exception to the mailbox rule?

Acceptance is effective upon receipt when the offer is pursuant to an option contract.

What is the option contract exception to the mailbox rule?

When the offeree has paid money to create an option period for acceptance, the usual mailbox rule establishing a contract on dispatch of the acceptance does not apply. The acceptance must be received within the option period to be effective.

What is the RSC number for the option contract exception to the mailbox rule?

RSC 63

What is the mirror image rule?

At common law, the acceptance must be the mirror image of the offer; that is, the offeree must accept the offeror's precise offer.

What is a counteroffer?

RSC 39: 1. an express rejection of the offer 2. a new offer 3. an operation turning the original offeree into the new offeror and the original offeror into the new offeree

What is not a counteroffer?

1. inquiring about a better offer 2. suggesting a term implicit in the offer

What is the rule regarding additional terms in acceptance or confirmation?

UCC 2-207 - Replies to offers are effective acceptances even if they change or add to the offer's terms. (Three exceptions.)

What are the three exceptions to the additional terms in acceptance or confirmation rule?

1. offeree ships nonconforming goods and indicates that it is doing so as an accommodation to the buyer 2. the reply does not express acceptance 3. offeree expressly conditions its acceptance on offeror's agreement to the new or different terms

If you have an acceptance, what are the terms?

All terms common to offer and acceptance. If the offeror and offeree are not both merchants (neither is or only one is), new or different terms come in only if offeror agrees.

If you have an acceptance and both parties are merchants, how are new terms handled?

New terms are in automatically unless the offer contains a contrary statement, the new terms materially alter the offer, or the offeror objects within a reasonable time.

If you have an acceptance and both parties are merchants, how are different terms handled?

Some states treat as new terms, others use the "knockout rule" (removes conflicting terms from both offer and acceptance, substitute UCC gap-fillers).

What are the UCC gap-fillers?

Price 2-305(1), Place of Delivery 2-308, Time for Shipment or Delivery 2-309, Time for Payment 2-310, Duration of the Contract 2-309

What is acceptance?

a voluntary act by offeree that shows assent to terms of original offer

Can a contract exist without an agreement of the parties that is sufficiently certain?

no

What kind of problem exists if an agreement is not sufficiently certain?

mutual assent

Terms of a contract are reasonably certain if they provide a basis for which two things?

1. determining the existence of a breach 2. giving an appropriate remedy

Do open terms automatically mean failure for indefiniteness?

not if the parties have intended to make a contract and there is a reasonable certain basis for giving an appropriate remedy

What are three aids to contract construction?

1-205 (Course of Dealing, Usage of Trade), 2-208 (Course of Performance/Practical Construction), gap-fillers

What is an output contract?

seller agrees to deliver all of his factory/farm's output to buyer

What is a requirements contract?

seller agrees to supply all of buyer's needs and buyer agrees to buy only from seller

What is consideration?

a bargained-for exchange to incur a real legal detriment - the promisor's promise must not be illusory

What does bargained-for mean?

the legal value given is that which the other party requested (i.e., that there has been communication about who gives or does what for whom); the parties are in a contract-making state of mind - not a gift-giving state of mind

A promisor incurs a legal detriment to do what?

something the actor had no prior legal duty to do or not do something that the actor had a prior legal right to refrain from doing

Can consideration be illusory?

No. A promisor cannot have unfettered discretion to perform.

What does the law imply for requirements/output contracts?

a duty to act in good faith

What are examples of promises subject to a condition of satisfaction?

personal/artistic work - duty of good faith using promisor's subjective sense; commercial work - duty of good faith using objective reasonableness standard

What are the three interrelated purposes of consideration doctrine?

evidentiary, cautionary, distinction

Is a promise to bestow a gift sufficient consideration?

Promises to bestow gifts are insufficient consideration unless the promisor has some motivation other than benevolence.

Is a promise to pay for past work or something already given sufficient consideration?

Promises to pay for past work or something already given is insufficient consideration because there is no bargained-for exchange.

Are love and affection sufficient consideration?

no

How is adequacy of consideration determined?

Did the promisor give the promissee enough of the valuable thing?

What is the difference between sufficiency and adequacy?

Sufficiency - does the law recognize this thing as valuable? Adequacy - did the promisor give the promisee enough of the valuable thing?

What is the general rule regarding sufficiency and adequacy?

As a general rule, we care about sufficiency only - a party is free to bargain for as much or as little "valuable thing" as it desires.

Is nominal consideration considered to be consideration?

no

What are five situations in which contracts lack consideration?

illusory promises, preexisting duty, illegal consideration, past consideration, moral obligations

What is the peppercorn theory?

Something as insignificant as a peppercorn can be sufficient consideration when given in exchange for a promise.

What is an illusory promise?

one that does not bind the promisor to do anything

What is past consideration?

A promise to pay for past work or something already given is not consideration because there is no bargained-for exchange.

What is one exception to the past consideration rule?

an act specifically requested and performance rendered with reasonable expectation of payment - subsequent promise to pay will be enforced

How does common law deal with an unexplained partial payment of a time-barred debt?

An unexplained partial payment of a time-barred debt revived the entire obligation.

What is a preexisting duty?

A promise to perform or actual performance of something one was already obligated to do is not consideration.

What is the common law rule for modification of an existing obligation?

An agreement to modify an existing contractual obligation requires some new consideration to be enforceable.

When is a promise modifying a duty under a contract not fully performed on either side binding?

1. if the modification is fair and equitable in view of the circumstances not anticipated by the parties when the contract was made or 2. to the extent provided by statute or 3. to the extent that justice requires enforcement in view of material change of position in reliance on the promise

What is the UCC rule on modification?

UCC 2-209 says that an agreement modifying a contract needs no consideration to be binding. Modifications made must meet the test of good faith.

What are the two exceptions to the general rule on modification?

1. unforeseen circumstances 2. contract rescission and substitution

What are the UCC Article 2 substitutes for consideration?

1. merchant's firm offer 2. modifications of existing contracts 3. promissory estoppel

What are the common law substitutes for consideration?

1. promissory estoppel 2. modifications under seal

What does promissory estoppel modify?

the strict application of consideration

What does promissory estoppel do?

operates to enforce certain promises that have not been supported by valuable consideration

What does promissory estoppel prevent?

people from avoiding the consequences of their promises

What is estoppel?

a doctrine that, based on a person's prior actions, prevents that person from claiming absence of a right created in or a duty owed to another person who relied, in good faith, on those actions

What is a promissory estoppel situation?

When A makes a statement that B relies upon in good faith, A is prevented from either denying the truth of or avoiding the consequences flowing from that statement.

What does promissory estoppel prevent Party A from doing?

When Party B suffers some legal detriment as a result of a contract, Party A cannot claim that there was no consideration for the contract.

What are the four elements of promissory estoppel?

1. a clear and definite promise 2. foreseeable reliance 3. actual reliance 4. injustice without enforcement

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