Ch 1: Formation of Contracts Flashcards
(180 cards)
1
Q
What does common law apply to in contract law?
A
Contracts for services or real estate
2
Q
When does Article 2 of the UCC apply?
A
Whenever the transaction is a sale of goods
3
Q
What test applies for transactions involving both goods and services?
A
The predominant-purpose test
4
Q
What is a contract?
A
A legally enforceable agreement
5
Q
What are the key components for forming a legally enforceable contract?
A
Mutual assent and consideration
6
Q
What is mutual assent?
A
Manifestation of mutual assent to the exchange
7
Q
What is the objective theory of contracts?
A
Intent is determined by outward objective facts
8
Q
What is an offer?
A
An objective manifestation of the offeror’s willingness to enter into an agreement
9
Q
What must an offer express?
A
The present intent to be legally bound to a contract
10
Q
What is required for the offeree to have power to accept an offer?
A
Knowledge of the offer
11
Q
What are the essential terms required under common law for a contract?
A
- Parties
- Subject matter
- Price
- Quantity
12
Q
Under the UCC, when is a contract formed?
A
If both parties intend to contract and there is a reasonably certain basis for giving a remedy
13
Q
What happens if a duration term is not specified in an ongoing contract?
A
Courts will imply that the contract will last for a reasonable period
14
Q
What is the presumption regarding employment contracts that do not state duration?
A
There is a rebuttable presumption that the employment is at will
15
Q
What is an example of a missing term that courts may supply?
A
Time of delivery
16
Q
What happens if terms of a contract are vague?
A
The presumption of intent cannot be made
17
Q
What distinguishes an offer from an invitation to deal?
A
An offer expresses a willingness to enter into a contract, while an invitation to deal does not
18
Q
What are the ways an offer can be terminated?
A
- Lapse of time
- Death or mental incapacity
- Destruction or illegality
- Revocation
19
Q
What is revocation in contract law?
A
The act of withdrawing an offer during contract negotiations
20
Q
When is a revocation effective?
A
When communicated to the offeree
21
Q
What is an option in contract law?
A
An independent promise to keep an offer open for a specified period
22
Q
What is the UCC firm-offer rule?
A
An offer to buy or sell goods is irrevocable if the offeror is a merchant and there is assurance in a signed writing
23
Q
What defines a merchant under the UCC?
A
- Regularly deals in the type of goods
- Holds knowledge or skill in the transaction
- Any businessperson in a commercial transaction
24
Q
What is promissory estoppel?
A
A doctrine making an offer irrevocable if the offeree reasonably and detrimentally relies on the offeror’s promise
25
What happens once the offeree has begun performance in a unilateral contract?
The offeror cannot revoke the offer unless reserved the right to do so
26
What is the effect of partial performance in a unilateral contract?
The offeror cannot revoke the offer once the offeree has begun performance unless the offeror has reserved the right to revoke.
27
What constitutes acceptance in a bilateral contract?
Commencement of performance operates as a promise to render complete performance and constitutes an acceptance.
28
What must the offeree know to validly accept an offer?
The offeree must have had knowledge of the offer when she began performance.
29
How can a general offer be revoked?
A general offer can be revoked only by notice that is given at least the same level of publicity as the offer.
30
What happens when an offer is rejected by the offeree?
An offer is terminated by rejection and is effective upon receipt.
31
What is a counteroffer?
A counteroffer acts as a rejection of the original offer and creates a new offer.
32
Can a terminated offer be revived?
Yes, a terminated offer may be revived by the offeror and then accepted by the offeree.
33
What is the definition of acceptance?
An acceptance is an objective manifestation by the offeree to be bound by the terms of the offer.
34
What distinguishes a bilateral contract from a unilateral contract?
A bilateral contract involves promises exchanged, while a unilateral contract involves one party promising in return for an act.
35
What is the mailbox rule?
An acceptance mailed within the allotted response time is effective when sent, unless the offer provides otherwise.
36
When is a rejection effective if sent after an acceptance?
The first one the offeror receives will prevail.
37
What is required for acceptance in a unilateral contract after performance is complete?
The offeree is not required to give notice unless the offer requires it.
38
What is the common law mirror-image rule?
The acceptance must mirror the terms of the offer with no different or additional terms.
39
How are additional terms treated under the UCC?
Additional terms in an acceptance do not automatically constitute a rejection of the original offer.
40
What occurs in a no-reserve auction?
The goods cannot be withdrawn unless no bid is received within a reasonable time.
41
What happens when the seller bids in an auction?
The winning bidder may avoid the sale or take the goods at the last good-faith bid price.
42
What is required for a valid acceptance in a bilateral contract?
The offeree must give notice of acceptance.
43
True or False: Silence can operate as an acceptance of an offer.
False.
44
What happens if a seller ships nonconforming goods?
It constitutes both an acceptance of the offer and a breach of the contract.
45
What is the effect of different terms in an acceptance when both parties are merchants?
Different terms may nullify each other under the knock-out rule.
46
What is the UCC rule regarding acceptance based on conduct?
If parties begin to perform as if there were a contract, a contract exists based on agreed terms and UCC gap-filling provisions.
47
What must the offeree do if they accept by beginning performance under the UCC?
The offeree must give notice within a reasonable time.
48
What happens when an auctioneer knowingly accepts a bid by the seller?
The winning bidder may avoid the sale or take the goods at the price of the last good-faith bid prior to the end of the auction.
## Footnote
This rule aims to prevent manipulation of auction prices.
49
What are the two exceptions to the rule about seller bids in an auction?
* A seller may bid at a forced sale
* A seller may bid after specifically giving notice of reserving the right to bid
50
Who is treated as 'sellers' under the forced-sale exception?
Debtors and foreclosing creditors
51
What is the definition of consideration?
Consideration is a benefit bargained for and received by the promisor from a promisee.
52
What does valuable consideration require according to the majority rule?
Consideration exists if there is a detriment to the promisee, irrespective of the benefit to the promisor.
53
What is the minority rule regarding consideration?
Consideration exists if there is either a detriment or a benefit; both are not required.
54
What must a legal detriment be in order to constitute sufficient consideration?
It must be bargained for in exchange for the promise.
55
List the forms that consideration can take.
* A return promise to do something
* A return promise to refrain from doing something legally permitted
* The actual performance of some act
* Refraining from doing some act
56
What distinguishes a gift from valid consideration?
A promise to make a gift does not involve bargained-for consideration and is therefore unenforceable.
57
What is the test to distinguish a gift from valid consideration?
Whether the offeree could have reasonably believed that the offeror’s intent was to induce the action.
58
What is the doctrine of promissory estoppel?
A party’s promise to make a gift is enforceable if the promisor knows that the promise will induce substantial reliance by the promisee.
59
What does the basic concept of legal detriment state?
Something of substance must be given in exchange for the promise that is to be enforced.
60
Can a party challenge a contract on the grounds of inadequate consideration?
No, a party generally cannot challenge a contract on the grounds that the consideration is inadequate.
61
What is the preexisting-duty rule?
A promise to perform a preexisting legal duty does not qualify as consideration.
62
What is an executory contract?
An executory contract is a contract whose terms are to be performed by both parties at a later date or in an ongoing manner.
63
What is required for common law contract modifications?
Modifications must be supported by consideration.
64
What is required under UCC for contract modifications?
No consideration is necessary, but good faith is required.
65
Define accord and satisfaction.
Accord and satisfaction are the tender and acceptance of an alternative performance that discharges a contractual obligation.
66
What constitutes an accord?
An accord is when a party agrees to accept a performance that differs from the performance promised in the existing contract.
67
What is satisfaction in terms of accord?
Satisfaction is the performance of the accord agreement that discharges both the original contract and the accord contract.
68
What must happen for a claim to be discharged using a negotiable instrument?
The claim must be unliquidated, and the instrument must be accompanied by a conspicuous statement indicating it was tendered as full satisfaction.
69
What is an illusory promise?
An illusory promise is one that essentially pledges nothing because it is vague or lacks commitment.
70
What happens if a claimant returns the payment within 90 days?
The claim is not effective.
71
What is an illusory promise?
A promise that essentially pledges nothing because it is vague or the promisor can choose whether to honor it.
72
Provide an example of an illusory promise.
Party B promises, 'I will give you $100, at my option.'
73
True or False: A promise based on a condition under the promisor’s control is always illusory.
False.
74
What is a voidable promise?
A promise that can be enforced or voided by one party under certain conditions.
75
Can a promise that is voidable constitute consideration?
Yes, it can still constitute consideration.
76
Define a requirements contract.
A contract under which a buyer agrees to buy all that the buyer will require of a product from the other party.
77
Define an output contract.
A contract under which a seller agrees to sell all that the seller manufactures of a product to the buyer.
78
What is the implication of a covenant of good faith and fair dealing in contracts?
Any quantities under such a contract may not be unreasonably disproportionate to stated estimates or prior requirements/output.
79
True or False: A promise not to assert a claim that proves to be invalid constitutes consideration.
False.
80
What is the effect of a promise not to assert a claim if the claim is doubtful?
It may constitute consideration.
81
What is the material-benefit rule?
Allows enforcement of a promise of payment made after an unrequested service has been performed, to the extent necessary to prevent injustice.
82
What are the requirements for promissory estoppel?
* The promisor should reasonably expect it to induce action or forbearance.
* The promise does induce such action or forbearance.
* Injustice can only be avoided by enforcing the promise.
83
Fill in the blank: A contract is ______ if it is regarded as a nullity as if no contract existed.
void.
84
What is a voidable contract?
A contract that is valid unless and until one party takes affirmative steps to avoid it.
85
What can a party show to defend against a breach-of-contract action?
That there was no meeting of the minds due to mistake, misunderstanding, misrepresentation, and other factors.
86
Define mutual mistake.
When both parties are mistaken as to an essential element of the contract.
87
What is required for a mutual mistake to void a contract?
* A mistake of fact existed when the contract was formed.
* The mistake relates to a basic assumption of the contract.
* The mistake has a material impact.
* The adversely affected party did not assume the risk.
88
What is a unilateral mistake?
When only one party is mistaken as to an essential element of the contract.
89
What is required for reformation of a writing due to mistake?
* There was a prior agreement.
* The parties agreed to put that prior agreement into writing.
* The writing differs from the prior agreement due to mistake.
90
What is the legal effect of conscious ignorance in contract formation?
A party may bear the risk of a mistake if they are aware of having limited knowledge of the facts.
91
True or False: A party's negligence regarding a mistake prevents them from avoiding the contract.
False.
92
What is required for reformation of a writing for mistake?
i) Prior agreement between the parties
ii) Agreement to put prior agreement into writing
iii) Mistake causes differences between prior agreement and writing
## Footnote
If a party's negligence in failing to read the writing does not preclude reformation as long as they acted in good faith.
93
What constitutes a misunderstanding in contract law?
When both parties believe they are agreeing to the same material terms but actually agree to different terms
## Footnote
Misunderstandings can affect the enforceability of contracts.
94
What happens if neither party knows of a misunderstanding?
No contract is formed
## Footnote
This applies if the misunderstanding involves a material term.
95
What is a misrepresentation?
An untrue assertion of fact about a present event or past circumstance
## Footnote
Assertions of opinion or belief are not considered misrepresentations.
96
What are the types of misrepresentation?
* Innocent
* Negligent
* Fraudulent
## Footnote
Each type has different implications for the validity of the contract.
97
What is required to prove fraudulent misrepresentation?
i) Misrepresentation is fraudulent
ii) Induced assent to the contract
iii) Adversely affected party justifiably relied on the misrepresentation
## Footnote
Fraudulent misrepresentation involves intent to mislead.
98
What is 'nondisclosure' in contract law?
Affirmative conduct to conceal a fact, equivalent to asserting that the fact does not exist
## Footnote
Nondisclosure can lead to liability if it meets certain conditions.
99
What is 'fraud in the factum'?
Occurs when fraudulent misrepresentation prevents a party from knowing the character or essential terms of the transaction
## Footnote
Such a contract is void and unenforceable.
100
What is 'fraud in the inducement'?
Fraudulent misrepresentation used to induce another to enter into a contract, making the contract voidable
## Footnote
The adversely affected party may void the contract if they justifiably relied on the misrepresentation.
101
What is undue influence?
The unfair persuasion of a party to assent to a contract
## Footnote
It often involves a dominant party and a dependent party.
102
What is the effect of a confidential relationship on contract fairness?
The dominant party may need to prove the contract's fairness
## Footnote
Higher standards of disclosure may apply.
103
What constitutes duress in contract law?
An improper threat that deprives a party of meaningful choice
## Footnote
The threat must be significant enough to compel the party's agreement.
104
What types of threats are considered improper?
* Threats of a crime
* Threats of a tort
* Threats of criminal prosecution
* Threats of breach of contract
## Footnote
Threats must violate good faith to be considered improper.
105
What is the definition of capacity to contract?
A party's legal capacity to be held to contractual duties
## Footnote
Incompetency can arise due to various factors such as age or mental state.
106
What is the rule concerning contracts with minors?
Contracts with minors are voidable by the minor but not by the competent party
## Footnote
Minors can disaffirm contracts unless they relate to necessities.
107
What is the effect of mental illness on contracts?
Contracts made by adjudicated mentally incompetent individuals are void; others may be voidable
## Footnote
The ability to understand the transaction is crucial.
108
What is the impact of intoxication on contract validity?
Contracts entered into during intoxication are voidable if the intoxicated party could not understand the transaction
## Footnote
The intoxicated party must act promptly to disaffirm the contract.
109
What are defenses to contract enforcement?
* Illegality
* Unconscionability
* Public policy
## Footnote
These defenses can prevent a contract from being enforceable.
110
What happens if a contract involves illegal conduct?
The contract is illegal and unenforceable
## Footnote
If a contract becomes illegal after formation, the duty to perform is discharged.
111
What are the defenses to enforcement of a contract?
* Illegality
* Unconscionability
* Public policy
112
What happens if a contract is illegal?
The contract is unenforceable and restitution is not awarded.
113
Define illegality in contract law.
A contract is illegal if it contravenes a statute or rule of common law.
114
What is the effect of illegality on contracts?
* Illegal transactions are not recognized
* No remedy for partial performance
115
What is an exception to the rule of illegality?
Ignorance of illegality
116
When can a party recover despite ignorance of illegality?
If the promisee is justifiably ignorant and the promisor knew of the illegality.
117
What is a divisible contract?
A contract that can be separated into legal and illegal parts.
118
What is procedural unconscionability?
Occurs when a party enters into a contract without meaningful choice due to deception or unequal bargaining.
119
What is substantive unconscionability?
Occurs when the substance of the contract is unduly unfair.
120
What is public policy in contract law?
A contract may be unenforceable if it violates significant public policy.
121
Give an example of a contract that may violate public policy.
* Contract in restraint of marriage
* Contract for commission of a tort
* Contract that unreasonably restrains trade
122
Define implied-in-fact contracts.
Contracts inferred from a person's conduct rather than explicit agreement.
123
What is a quasi-contract?
An obligation imposed by law to prevent unjust enrichment.
124
List the requirements for a court to allow restitutionary recovery.
* Measurable benefit conferred
* Non-gratuitous intent
* Unfair to let the defendant retain the benefit
125
What is an express warranty?
A promise or affirmation that is part of the basis of the bargain.
126
What is the implied warranty of merchantability?
Implied whenever the seller is a merchant, ensuring goods are fit for ordinary purposes.
127
What is the implied warranty of fitness for a particular purpose?
Implied when the seller knows the buyer's particular use and relies on the seller's skill.
128
How can implied warranties be disclaimed?
* Use of term 'merchantability'
* General language disclaimer in writing
* 'As is' language
* Buyer’s inspection of goods
* Course of dealing/trade usage
129
What is the difference between express contracts and implied-in-fact contracts?
* Express contract: Verbal assent to an offer
* Implied-in-fact contract: Assent inferred from conduct
130
What is the parol evidence rule?
Bars evidence of oral express warranties or disclaimers that contradict a written contract.
131
What does 'not in pari delicto' mean in contract law?
When the parties are not equally at fault, allowing the less guilty party to recover restitution.
132
What is the role of the court in determining unconscionability?
The court decides whether a contract is unconscionable as a question of law.
133
What applies to contracts for services or real estate?
Common law
134
What applies to contracts for the sale of goods?
UCC
135
What is required for contract formation?
Mutual assent and adequate consideration
136
Define an offer in contract law.
An objective manifestation of the offeror’s willingness to enter into a contract
137
What must a statement express to be considered an offer?
Present intent to be bound
138
List the requirements for an offer.
* Intent to contract
* Knowledge of the offer
* Essential terms that are certain and definite
* Words of promise, undertaking, or commitment
139
What terminates an offer upon death or mental incapacity?
It terminates prior to acceptance
140
What happens to an offer if the subject matter is destroyed?
It terminates
141
What is the effect of a rejection on an offer?
Terminates the offer
142
What is the mailbox rule regarding acceptance?
Acceptance is effective when sent, unless stated otherwise
143
True or False: Silence can be considered acceptance.
False, unless specific conditions are met
144
What is a bilateral contract?
A contract where a promise by one party is exchanged for a promise by the other
145
What is a unilateral contract?
A contract where one party promises something in return for the act of another
146
What is required to accept a unilateral contract?
Complete performance
147
When is notice of acceptance required for bilateral contracts?
Notice is required upon acceptance
148
What happens to additional terms in a counteroffer under common law?
The offer is rejected
149
What is consideration in contract law?
A legal detriment to the promisee that is bargained for by the promisor
150
List forms of consideration.
* A return promise to do something
* A return promise to refrain from doing something
* Actual performance of some act
* Refraining from doing some act
151
What is the preexisting duty rule?
A promise to perform a preexisting duty is not consideration
152
What is an accord in contract law?
An agreement to accept different performance to satisfy an existing duty
153
What is promissory estoppel?
A doctrine where a promise is binding if it induces action or reliance
154
What are the three conditions for promissory estoppel?
* Promisor expects it to induce action
* Promise induces action
* Enforcing the promise avoids injustice
155
What is a mutual mistake?
Both parties are wrong about an essential element of the contract
156
What is misrepresentation in contract law?
An untrue assertion of fact about a present event or past circumstance
157
What are the two types of misrepresentation?
* Fraudulent
* Nonfraudulent
158
What is required for fraudulent misrepresentation?
* Fraudulent misrepresentation
* Justifiable reliance
* Induced assent
159
What is the effect of a misunderstanding in contract formation?
It may result in no contract if both parties agree to different terms
160
What is the definition of a void contract?
The entire transaction is regarded as a nullity
161
What distinguishes a voidable contract?
A valid contract that exists until one party takes steps to avoid it
162
What is an unenforceable contract?
A valid contract that cannot be enforced against a party
163
What is the mailbox rule regarding offers and revocations?
Offers and revocations are effective upon receipt
164
What is a nonfraudulent misrepresentation?
An innocent or negligent misrepresentation that renders a contract voidable if:
* The misrepresentation was material
* The party justifiably relied on the misrepresentation
* The party was induced to enter the contract because of it
## Footnote
Nonfraudulent misrepresentation does not involve intentional deceit.
165
What are the types of misrepresentation?
Types of misrepresentation include:
* Fraudulent
* Nonfraudulent
* Fraud in the factum
* Fraud in the inducement
## Footnote
Each type has different implications for the validity of the contract.
166
What is required for a misrepresentation to be actionable?
For a misrepresentation to be actionable, it must be:
* Material
* Induced assent
* Justifiable reliance
## Footnote
These elements help determine the validity of the contract.
167
What happens if a misrepresentation is cured?
The contract is not voidable if the misrepresentation is cured before the deceived party has avoided the contract.
## Footnote
Curing a misrepresentation can restore the enforceability of the contract.
168
What is undue influence?
Undue influence is the unfair persuasion of a party to enter into a contract, often occurring in relationships where one party is dominant and the other is dependent.
## Footnote
Victims of undue influence may void the contract and recover damages.
169
What must a dominant party prove in a confidential relationship?
The dominant party must prove that the contract is fair.
## Footnote
This places an additional burden on the dominant party to ensure fairness.
170
What is duress in contract law?
Duress is an improper threat that deprives a party of meaningful choice.
## Footnote
It can render a contract void or voidable depending on the circumstances.
171
What constitutes improper threats in the context of duress?
Improper threats include:
* Threats of criminal prosecution
* Threats of civil action made in bad faith
* Threats to breach a contract in violation of good faith
## Footnote
These threats must deprive the victim of reasonable alternatives.
172
What types of incapacity affect a party's ability to contract?
Types of incapacity include:
* Infancy
* Mental illness
* Guardianship
* Intoxication
## Footnote
Each type has specific legal implications regarding the enforceability of contracts.
173
What is the effect of illegality on contracts?
If a contract's consideration or performance is illegal, the contract is unenforceable and void.
## Footnote
Contracts can also become void if they contemplate illegal conduct at formation.
174
What is an exception to the rule of illegality in contracts?
Exceptions include:
* Ignorance of illegality
* Lack of illegal purpose
* Divisible contracts
* Availability of restitution
## Footnote
These exceptions allow for potential recovery even in cases of illegality.
175
What makes a contract unconscionable?
A contract is unconscionable when it is so unfair that no reasonable person would agree to it.
## Footnote
This often involves hidden terms or contracts of adhesion.
176
What is the definition of an express contract?
An express contract is characterized by a person assenting to an offer orally or in writing.
## Footnote
This contrasts with implied contracts, where assent is inferred from conduct.
177
What is a quasi-contract?
A quasi-contract is implied by law to prevent unjust enrichment when a plaintiff confers a benefit on a defendant with a reasonable expectation of compensation.
## Footnote
This type of contract is often referred to as an implied-in-law contract.
178
What constitutes an express warranty in sale-of-goods contracts?
An express warranty is any affirmation, promise, description, or sample given by a seller regarding goods that forms part of the basis of the bargain.
## Footnote
It excludes mere opinions of the seller.
179
What is the implied warranty of merchantability?
This warranty assures that goods are reasonably fit for ordinary purposes and conform to the contract description.
## Footnote
It is implied if the seller is a merchant.
180
How can an implied warranty of fitness for a particular purpose be created?
This warranty is implied if the seller knows the buyer is relying on the seller’s skill or judgment to select goods for a particular purpose.
## Footnote
The seller's knowledge is key to establishing this warranty.
