Contracts - Formation
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. What would you like to do?
Valid contract requires?
- 1) mutual asset, and
- 2) consideration
What is mutual asset?
Offer and acceptance
What is an offer?
- manifestation of a present intent to contract that would lead a RP to believe his assent would create a K
- words OR conduct
- actual intent doesn't matter, it's the manifestation of intent that counts
What must an offer contain to form an offer contract upon acceptance?
- 1) does not need to contain all material terms
- 2) real estate K: price and description of land required
- 3) sale of goods K (UCC): no price requirement, price will be "reasonable price @ delivery"
- 4) sufficiently definite terms; no ambiguous terms such as appropriate, fair, reasonable
Requirements K, terms are acceptable?
- Buyer agrees to buy all its requirements, or seller agrees to sell all of its output.
- Key words: all, only, exclusively, solely
- NOTE: buyer cant make unreasonable, disproportionate increase, but can make increase in requirements.
Advertisements or price quotations, offers?
- generally NOT offers. usually invitations to deal
- 1) in nature of reward, or
- 2) advertisement is specific as to quantity and expressly indicates who can accept
- 3) Price quote can be an offer if sent in response to an inquiry.
What offers are irrevocable?
- 1) Option
- 2) UCC Firm Offer Rule
- 3) Detrimental Reliance that is reasonably foreseeable
- 4) start of performance in a unilateral K
- Preparation is NOT performance! But preparation could be detrimental reliance...
What is an Option? What happens after the option period is over?
- 1) Promise to keep offer open (not to revoke), AND
- 2) paid for with consideration
- Note: After option duration is over, the offer changed from being irrevocable to revocable. But if no revocation, offeree can still accept the offer!!
UCC Firm Offer Rule, when does it apply?
- Applies to:
- 1) Offer to buy or sell goods;
- 2) Signed, written promise to keep the offer open (express promise); and
- 3) Party is a merchant (person in business)
How long does UCC Firm Offer stay open for?
- 1) For period stated, but no more than 3 months
- 2) if no period stated, then reasonable time period, no more than 3 months
When is an offer terminated?
- 1) lapse of time
- 2) death or incapacity of either party after the offer, but before acceptance [exception, irrevocable offers]
- 3) revocation (words or conduct)
- 4) rejection
After what time does an offer lapse?
- 1) after time stated
- 2) after lapse of reasonable time
Express revocation of an offer?
- 1) Unambiguous stmt or conduct by offeror to offeree that demonstrates an unwillingness or inability to contract
- 2) offeree MUST be aware
- Note: mere multiple offers are not revocation
- Timing: revocation is effective when received, not when mailed
Indirect Revocation of an offer?
- Offeree learns that offeror does not wish to make the offer
- An offer may be effectively terminated if the offeree indirectly receives:
- 1) correct information
- 2) from a reliable source
- 3) of acts of the offeror that reasonably indicate that the offeror no longer wishes to make the offer
Rejection of an offer -- what effect?
- 1) rejection of an offer: TERMINATES the offer and becomes a new counter-offer
- 2) BUT bargaining doesnt kill the offer (bargaining -> usually questions like "will you take $9?")
Rejection of an option -- what effect?
1) counter-offers and rejections do NOT terminate the option!
Conditional acceptance of an offer -- what effect?
- 1) CL: counteroffer, terminates original offer, makes new offer
- if, only if, provided, so long as, but, or on condition that.
- Note: conditional acceptance becomes a counter-offer that the original offeror can accept by conduct!
- 2) UCC: rejects if language of express insistence on the new terms
- Note: conditional acceptance does NOT become a counter-offer. thus, the contract is solely based on the parties' conduct, not based on the terms of the counter-offer!
Acceptance of an offer, but with additional terms?
- 1. CL: Mirror Image Rule, additional terms = No K [treated as a counter-offer]
- 2. UCC: Battle of the forms.
UCC purported acceptance with additional terms, is that acceptance?
- 1) if the offerree insists on new terms ("dealbreakers"): counteroffer, no K
- 2) if both parties are MERCHANTS, additional terms = acceptance, part of the K, unless
- ------a) terms materially alter the K
- ------b) offeror objects to change
- 3) If neither/1 party is a merchant, additional terms are merely a proposal to be accepted/rejected separately
- All disputes shall be resolved by arbitration" -> Not insistance
Who may accept an offer?
- 1) person who knows about the offer
- 2) person to whom offer was made
Are offers or options assignable?
- 1) Offers cant be assigned or transferred; freedom of contract to choose w/who to deal
- 2) Options are assignable, unless they otherwise provide.
Methods of acceptance?
- 1) Offeror gets to control the method of acceptance
- 2) Full performance is always acceptance, unless 1) offer requires notice, or 2) offeree knows offeror will not learn of acceptance and offeree fails to notify
- 3) start of performance - implied promise to perform, acceptance for bilateral K, but not for unilateral K
- 4) Express Promise to perform - acceptance for bilateral K, but not for unilateral K
- 5) Acceptance via Mailbox Rule
- 5) Seller of Goods sends wrong goods - acceptance and breach
- 6) silence is generally not acceptance, but you can accept by conduct ("if you don't hear from me by friday, i accept")
Start of performance of a K, is it acceptance?
- Starting to perform is treated as an implied promise to perform and so there is a bilateral contract.
- Exception: unilateral contracts, which require completion of performance to accept.
- 1) If D starts painting house under a unilateral K, and then walks away to paint someone elses house, no breach bc no contract! He has no obligation to finish; starting to perform is not acceptance.
- 2) Is the offeror obligated once offeree begins performance? Yes, because offer became irrevocable after start of performance.
- 3) Is offeree obligated? No, he can walk away!
Seller of Goods sends the wrong goods, is that acceptance?
- 1) General rule: acceptance, and breach of K
- 2) Exception: accommodation. Seller sends different goods with explanation (this is all I have, will it do?). This is a counteroffer (rejection of original offer, no breach)
- General Rule: all communications (other than acceptances) are effective only when received
- Mailbox Rule:
- 1) Acceptances are effective when sent (they get beyond the control of the offeree, e.g., mailed)
- 2) However, if rejection sent first, then acceptance, first to arrive wins
- 3) Cant use mailbox rule to meet options deadline (must be received by option deadline)
What is Consideration?
- A bargained-for exchange of legal detriment
- Bargained for: asked for by the promisor in exchange for her promises
- Legal Detriment: something youre not legally obligated to do, including forebearance (not doing something you have a right to do)
- A promise can be consideration for another promise, unless promise is illusory
Adequacy of consideration?
Adequacy of consideration is generally irrelevant.
Is past-consideration sufficient?
- Past consideration is NOT valid: not bargained for, no consideration, not enforceable
- Exception: If performance expressly requested and performer has expectation to be paid.
- Ex: Homer sees Lisa in danger and asks Apu to save her, knowing that Apu would expect to be paid. After Apu saves Lisa, Homer promises to pay Apu $3,000. This promise is legally enforceable.
What is an illusory promise?
When a party is not actually obligated to perform the promise
Pre-Existing Duty Rule
- (CL only): New consideration needed to modify a K. Doing what you are already legally obligated to do is not new consideration for a new promise to pay you more to do merely that.
- 1) Any addition/change in performance is additional consideration
- 2) Unforeseen difficulty so severe as to excuse performance of original K, performing is additional consideration for a new promise.
- 3) 3rd party promise to pay for existing duty to perform is legally enforceable [one duty can be consideration for multiple promisers]
UCC Pre-existing duties?
UCC (for goods): no new consideration needed, so long as change made in good faith
Can Partial payment of a debt serve as consideration for release of that debt (forgiving balance of debt)?
- If debt due and undisputed: partial pmt NOT consideration for release (debt-holder can sue for remainder)
- If debt NOT due or is in dispute, this is consideration
- A promise is legally enforceable even though there is no consideration if there is a consideration substitute
- 1) A written promise to pay a debt barred by SoL or other defense
- the original debt is not collectible, but the written promise is now collectible.
- 2) Promissory Estoppel (doing something nobody asked you to do)
What is promissory estoppel?
- 1) promise
- 2) reasonable reliance that is detrimental and foreseeable
- 3) enforcement necessary to avoid injustice
What would you like to do?
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