Contract Law (Formation)

Created by marionette912 

Upgrade to
remove ads

Terms related to Formation

Offer

(1) manifestation of present contractual intent and (2) is comprised of a promise, to carry out the terms of a proposed transaction (3) which bargains for an act, a forbearance to act, or a return promise to be given in exchange.

Acceptance

an unequivocal assent

Consideration

(1) That which is bargained for and given in exchange for a promise. (2) It may be an act, a forbearance to act, or a return promise on the part of the promisee.

Bilateral Contract

An offered promise that is accepted by giving of return promise.

Unilateral Contract

An offered (1) promise that must be accepted by giving the performance specified. (2) A mere promise to perform does not constitute acceptance in such a case.

Option

An agreement (1) supported by consideration (2) that involves a promise to hold an offer open for a specified length of time.

Firm Offer

An offer which is irrevocable either because an option has been paid for by one of the parties or because it was made by a merchant pursuant to UCC Section 2-205, the merchant having signed the offer in writing giving assurance that the offer will remain open for a certain or reasonable length of time.

Revocation

the canceling, annulling, or otherwise voiding of an offer.

Revocation effective upon receipt by offeree

(1) a revocation is deemed to be effective upon its receipt by the offeree. (2) A minority view holds that the revocation becomes effective when sent by the offeror.

Unilateral contract revocation of offer rule

(1) the offeror in a unilateral contract (2) may not revoke the offer (3) for the time stated in the offer or in the offer or (4) if no time is stated in the offer, then for a reasonable length of time if the offeree begins performance.

Rejection

(1) a manifestation by the offeree (2) that he or she does not intend to accept the offer or give it further consideration.

Rejection effective when received

(1) a rejection becomes effective (2) upon receipt by the offeror.

Counteroffer

(1) An offer by the original offeree (2) regarding the same transaction but (3) containing terms that differ from those proposed in the original offer made by the offeror.

Counteroffer as an implied rejection

(1) A counteroffer is an implied rejection of the original offer. (2) It is, in effect, a new offer.

Illusory promise

(1) An expression which resembles promissory terms, (2) but in actuality imposes no obligation upon the party making it.

Promissory estoppel

(1) Provides a substitute for the element of consideration (2) under certain circumstances involving foreseeable detrimental reliance upon a gratuitous promise, where a remedy against the non-performing promisor may be (3) necessary in order to avoid injustice in the particular case.

Moral obligation rule

Applies where the promisor has received something from the promisee of value in the form of money or other material benefits under such circumstances as to create a (1) moral obligation to pay for what they have received, and a (2) later promise to do so,resulting in a finding of consideration for such a promise. The doctrine most often applies in situations involving promises to pay for previously entered gratuitous services, promises to pay debts barred by the statute of limitations and promises to pay debts discharged by bankruptcy. The promise can be implied by a (3) mere acknowledgment of a debt or (4) by a part payment of the debt. Use of the doctrine supplies the element of consideration in situations where it would otherwise be missing from the bargain.

Legal detriment

(1) a promise to do something that one is not legally obligated to do or (2) to refrain from doing something that one is legally privileged to do.

Failure of consideration

Occurs when (1) one of the parties to a contract fails perform as required by the terms of the contract (2) or the subject matter of the consideration ceases to exist or becomes worthless even though(3) valid consideration was present when the parties first contracted.

Want of consideration

Refers to the parties' (1) failure to make a contract because there was (2) no consideration present from the beginning of the transaction.

Executed contract

a contract that has been (1) fully performed (2) by all the parties to the contract.

Executory Contract

a contract that (1) remains to be completed in the future (2) by at least one of the contracting parties.

Sufficiency of consideration

Generally, (1) courts do not require that the consideration benefit the offeree, or that it be of any substantial value, as long as it serves as an inducement for the promise of the other party. However, (2) some courts have held that nominal consideration may not constitute a valid contract if the promisor's promises are valued considerably higher than those of the promisee.

Meeting of the minds

Most jurisdictions hold that a (1) contract is not formed until there has been a "meeting of the minds" (2) according to the intentions of the parties.

Outward manifestation theory

Other jurisdictions apply the "outward manifestations" theory stating that contracts are formed according to (1) outward manifestations (2) in accordance with the understanding of the supposed "reasonable man."

Express contact

One which is (1) manifested by words (2) either written or oral.

Implied in fact contract

one that is (1) inferred by the law because the acts or conduct of the parties and the surrounding (2) circumstances make it reasonable to assume that the contract exists between them (3) even though the contract is never manifested by words.

Implied in law contract (quasi contract)

an implied in law contract is one that is (1) imposed by operation of law to do justice even though it is clear that (2) no promise was ever manifested by words or ever intended. The creation of such a contract will occur where (3) one party accepts or retains benefits that have been conferred upon him by another party (4) who expected to be paid and who was not a volunteer.

Quantum Meruit

Quantum meruit refers to the (1) reasonable value (2) deserved for one's labor.

Requirement contract

a (1) contract to supply (2) all of a certain type of goods or merchandise (3) that a particular party may have a need for over a certain period of time.

Output contracts

a (1) contract to supply (2) all of a certain type of goods or merchandise (3) that a particular party may produce.

Option contract

a contract wherein the (1) promisor (2) for consideration (3) agrees to make a certain offer irrevocable.

Void contract

a contract which cannot be enforced by either of the parties.

Voidable contract

a (1) contract that can be disaffirmed (2) by one or more of the parties (3) for reasons related to legal immaturaty or mental incapacity.

Power of disaffirmance

a (1) legally immature or mentally incapacitated person has to power to disaffirm a contract but for all other purposes the (2) contract is valid unless and until it is disaffirmed. The (3) disaffirmance occurs when the legally immature or mentally incapacitated person manifests to the other party an unwillingness to continue to be bound by the contract.

Exculpatory clause

a (1) provision in a contract that is intended to (2) remove liability from one or more of the contracting parties that may result from certain acts or events.

Contract of adhesion

a (1) contract of adhesion is (2) one wherein the provisions have been drafted giving one party an unequal bargaining power.

Unconscionable contract

a (1) contract with a provision that (2) no fair and honest person would make and (3) no person in his or her right mind would accept. Such contracts are (4) usually agreed to through "oppression" in that the promisee knows that he or she is giving up his or her rights but is forced to if he or she wishes to purchase the subject product. or, he or she is not aware of the right s that are being given up but through (5) "unfair surprises" (such as small print or vagueness in terms) signs the contract anyway.

What law governs?

Common law governs all transactions where the subject matter is services or an interest in real property.

Does the UCC apply?

The UCC applies to all transactions where the subject matter is goods. Goods are movable, tangible property.

Merchants?

A merchant is one who deals in goods of this kind, or by their occupation has some special knowledge or skill concerning these goods.

Advertisements

Advertisements are not offers, but invitations to receive offers.
Exception: When a person solicits the item, or the item contains all the material elements of an offer, and identifies the offeree.

Present contractual intent

Offer shows commitment to be bound to an agreement.

Definite and Certain terms

UCC only requires subject matter and quanity. Real Estate: requires description of the property to identify the land, and price.

Revocable offer

All offer are freely revocable, unless one of the 4 exceptions apply:
1. Option contract
2. Merchants firm offer
3. Detrimental reliance
4. Unilateral contract - once performance has begun.

Indirect revocation

When the oferee hears correct information from a reliable source that the offeror no longer wants to be bound to the offer, the offer is terminated

Termination of the offer by lapse of time

Offers made face to face, or over the telephone, terminate when the parties break off the communication, unless there are words to the contrary.
Offers will lapse after a reasonable time.

Termination of the offer by operations of law

Death of either party automatically terminates an offer.

Conditional acceptance

Under UCC and common law a conditional acceptance is a rejection and counter offer.
A condition acceptance must contain express conditional language.

Mirror image rule

Under common law, an acceptance must be the "mirror image" of the offer. Any additional, different, or missing term results in a rejection and counter offer.

Last shot rule

Under common law last expression before performance controls.
1. The parties exchange rejections/counter offers.
2. One party does not return a rejection/counteroffer, but performs.
3. Courts will find an implied acceptance by performance.

Acceptance - UCC 2-207(1)

Under the UCC an acceptance with additional or different terms is still a valid acceptance.

Merchants - additional terms UCC 2-207(2)

Between merchants, the additional terms becomes part of the contract, unless;
a. the offer limits acceptance to the terms of the offer.
b. the offeror objects within a reasonable time, or
c. the terms materially alter the contract

Material term

A term is material if it substantially affects the economic risks or benefits, or in any way limits the usual remedies for breech.

Arbitration clauses

Arbitration clauses are not considered material because they are so common place in commercial contracts that their inclusion would not result in surprise or hardship.

Additional terms -- non-merchant

If at least one party is a non-merchant the additional term is ignored and does not become part of the contract. Then the term results in a proposal for the additional term that requires express assent.

Acceptance with different terms

Because UCC 20207(2) only refers to additonal terms the majority of courts hold that 2-207(2) does not apply to different terms. The majority rule is that the different terms get "knocked out" and one applies gap-fillers, custom and usage, and course of dealing or performance.

UCC 2-207(3)

Conduct by both parties that recognizes a contract is sufficient to establish a contract, although the writings of the parties do not otherwise establish a contract. In such cases, the terms of the contract are those on which the writings of the parties agree.

Mode of acceptance

Bilateral contract - return promise to perform
Unilateral contract - full performance, plus notice
If contract is unclear as to whether bilateral or unilateral, the courts will consider the contract bilateral.

UCC 2-206

1. Promise to ship goods, or
2. Shipment of conforming goods, or
3a. Shipment of non-conforming goods
3b. If seller notifies buyer that the shipment of non-conforming goods id being offered as an accommodation, then shipment is not an acceptance, but a counter offer. If no letter of accommodation is sent, then the shipment of non-conforming goods is an acceptance and a breach.

UCC accepting non-conforming goods

If a seller sends non-conforming goods as an accommodation to the buyer, the buyer has the option to accept all the goods, reject all the goods, or accept in part, and reject in part.

Manner of acceptance

The offeror as master of the offer can require that the offer be accepted in a particular manner.

Timely acceptance

Acceptance must be within a reasonable time, or the time required by the offer.

Mailbox rule

Acceptance is effective on dispatch.

Exceptions to the mailbox rule

Not sent in the required manner, no acceptance.
Sent in an unauthorized manner; acceptance effective upon receipt.
When parties are in the presence of each other, acceptance is effective on receipt.
The offeror as master of the offer can contract out of the mailbox rule and make acceptance effective upon receipt.

Acceptance by silence

Acceptance cannot be accomlished by silence.

Crossing offers

Crossing offers that contain identical information do not result in mutual assent, no contract is formed.
The offeree must be aware of the offer in order to accept the offer and form a contract.

Post acceptance rejection

An acceptance is sent first, then a rejection is sent.
The mailbox rule applies, there is a valid contract.
Exception: of the offeror changes his position based on the rejection, then the offeree cannot enforce the contract.

Post rejection acceptance

A rejection is sent first, then an acceptance is sent.
The mailbox rule does not apply. Whichever is received first, (rejection or acceptance) is effective.

Consideration

A legally sufficient bargained for exchange, which induces current performance, detriment to the promisee, and a binding obligation on both parties.

Bargained for exchange

Each party must give something to induce an exchange.

Induces current performance

Past consideration is not valid.
Moral consideration is not valid.
Exceptions: Debts that are barred by a technicality, such as;
SOF, incapacity, bankruptcy, will be enforceable if re-affirmed in writing, but only to the amount re-affirmed.

Pre-existing duty rule

Common law only - A promise or performance of an existing legal obligation is not sufficient consideration.
It does not induce current performance, and there is no detriment.
Exception: When the pre-existing duty is owed to a third party.

Detriment to the promisee

Promisee must do something he is not legally obligated to do,or refrain from doing something he has the legal right to do.
Forbearance to sue:
Is a detriment if the promisee has a good faith belief there was a valid claim at the time of forbearance.

Illusory contract

Contract must be a binding obligation on both parties. If one is not bound, the contract is illusory, and not valid.

Conditional promises

Promises entirely within the control of the promisor are illusory, and invalid.
Satisfaction conditions are not illusory because the promisor must act in good faith.
Cancellation clauses are not illusory if there is some restriction on time before cancellation.

Promissory estoppel

If a party detrimentally relies on the offer, and the reliance is reasonable, foreseeable, and substantial, the other party may be estopped from not performing to the amount detrimentally relied upon to prevent an unjust result.
Creates an enforceable agreement.

Defenses to formation

Void contract is one without any legal effect from beginning. Voidable contract is one that a party may elect to void or ratify.

Statute of Frauds SOF

Under the SOF certain contracts must be evidenced by a writing to be enforceable.

Marriage

Promise to give something of value to induce marriage.

Contracts that cannot be performed in one year

Timing runs from the contract formation until the end of performance.
Can be taken out of the SOF if there is any possibility that performance will be completed within one year.
Full performance of one party will take contract out of SOF.
Cancellation clauses produce excusable non-performance.
Cancellation clause will not take a contract out of the SOF.

Interest in land - sale, mortgages, easements, lease more than 1 year

Can be taken out of the SOF by part performance if any 2 of the following has taken place.
1. Made payments
2. Moved onto the land
3. Made improvements to the land

Executor's promise

To pay the debt of the estate

Goods of $500 or more

Can be taken out of the SOF if;
1. Specially manufactured goods. Goods not suitable for sale to others.
2. Part or full; performance, or payment, or acceptance.
3. Admission under oath or pleading.
Enforceable only to the amount admitted to, and/or received and accepted, or payment made and accepted, or with specially manufactured goods, produced or materials procured.

Surety

One who guarantees the payment of the debt of another.

Main purpose doctrine

A surety can be taken out of the SOF if the main purpose of the promise was for financial benefit of the promissor, rather than the debtor.
The SOF can be satisfied by a writing that evidences the existence of a contract.
Does not need signatures of all parties, only requires the signature of the party against whom is sought.
1. See if the contract falls within the SOF.
2. See if contact can be taken out of SOF.
3. See if the SOF can be satisfied.
If contract falls within the SOF, and can't be taken out or satisfied, contract is not void or voidable, it is just unenforceable.

Merchant's confirmatory memorandum - UCC

Between merchants, if a writing in confirmation of the contract, sufficient against the sender is received, and the receiving party has reason to know it's contents, it satisfies the UCC against the receiver, unless written notice of objection is given within 10 days.

(Incapacity) Minors

Contracts with minors are voidable only at the option of the minor, unless the contract is affirmed after minor reaches age of majority.

(Incapacity) Mentally incompetent

Contracts with the mentally incompetent are voidable at the option of the mentally incompetent person.

Misrepresentation/fraud

A false or misleading statement of a material fact that causes reasonable and actual reliance by the other party. Contract is voidable at the option of innocent party.
Non-disclosure: The general rule; no duty to disclose, or liabilty for non-disclosure.
Exceptions: half truths, active concealment; or statement was true, but now its not, or belief statement was true when made, and found out it was false, and did not disclose.
Misrepresentation can be innocent or negligent.
Fraud requires knowledge of falsity, or reckless disregard as to truth or falsity.

Economic duress

When one enters into a contract, or modifies an existing contract, solely based on wrongful threats.
Threats of a future crime or tort.
Threats of criminal prosecution.
Threat of wrongful use of civil process.
Wrongful breach of contract. (common law only)

Unconscionability "U/C"

Majority rule requires both procedural unconscionbility, lack of a meaningful choice, and substantive unconscionability; the contract terms unreasonably favor one party.

Adhesion contracts

Standard form contracts that have a take it or leave it proposition. No real opportunity to scrutinize, and often no real means to understand the contract.
At common law, absent fraud, one who signs a written agreement is bound by it's terms, whether one has read and understands it, or not, or can read it or not. Modernly, courts will refuse to honor a contract that is difficult to read or understand because of the use of fine print, legalize, or unintelligible words.

Public policy

Contracts are against public policy if they are considered injurious to the public, or against the public good.

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions above and try again

Example:

Reload the page to try again!

Reload

Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

Star this term

You can study starred terms together

NEW! Voice Recording

Create Set