Formation of Contracts

Question 1

Formation of Contracts - Legally enforceable contract

Answer 1

A contract is a legally enforceable agreement.

A legally enforceable contract is typically created through the process of mutual assent (offer and acceptance) and consideration, provided no valid defense to contract exists.

Question 2

Formation of Contracts - MANIFESTATION OF MUTUAL ASSENT

Answer 2

For a contract to be formed, there must be a manifestation of mutual assent to the exchange, which occurs upon acceptance of a valid offer to contract.

Question 3

Formation of Contracts - Mutual Assent - OBJECTIVE THEORY OF CONTRACTS

Answer 3

Intent is determined by the “objective theory” of contracts.

Interpreted by a reasonable person.
Intent of a party is what a reasonable person in the position of the other party would believe as a result of that party’s objective manifestation of intent. Thus, when the other party knew or should have known that the party lacked the intent to enter into a contract, a contract is not formed, whereas the party’s mere subjective lack of intent is not sufficient to prevent the formation of a contract.

Sufficient to show agreement - conduct by both parties which recognizes the existence of such a contract.

Words express the intent of the parties, the contract is an express contract.

Conduct indicates assent or agreement, the agreement is considered implied in fact.

Question 4

Formation of Contracts - Mutual Assent - Offer and Acceptance - WHAT IS AN OFFER

Answer 4

An offer is a communication that gives power to the recipient to conclude a contract by acceptance.

Question 5

Formation of Contracts - Mutual Assent - Offer and Acceptance - Offer - AN OFFER MUST EXPRESS

Answer 5

Offer must express the present intent of a person to be legally bound to a contract.

Objective Test.

Question 6

Formation of Contracts - Mutual Assent - Offer and Acceptance - Offer - KNOWLEDGE BY THE OFEREE

Answer 6

To have power to accept an offer, the offeree must have knowledge of it.

Question 7

Formation of Contracts - Mutual Assent - Offer and Acceptance - Offer - TERMS

Answer 7

The terms of the contract must be certain and definite, or the contract fails for indefiniteness.

Question 8

Formation of Contracts - Mutual Assent - Offer and Acceptance - Offer - ESSENTIAL TERMS - COMMON LAW AND UCC

Answer 8

Common law - all essential terms ( parties, subject matter, price, and quantity) must be covered in the agreement.

The UCC allows for a more liberal contract formation. UCC - a contract is formed if both parties intend to contract and there is a reasonably certain basis for giving a remedy.

Only essential term is quantity.

“fills the gap” if other terms are missing.

Requirements or output contracts satisfy UCC contract formation requirements even without naming specific quantities because the UCC implies good faith as a contract term.

Question 9

Formation of Contracts - Mutual Assent - Offer and Acceptance - Offer - DURATION TERM NOT SPECIFIED

Answer 9

If a duration term is not specified in the agreement, courts imply that the contract will last for a reasonable period of time.

Question 10

Formation of Contracts - Mutual Assent - Offer and Acceptance - Offer - Duration term - EMPLOYMENT CONTRACTS

Answer 10

If an employment contract does not state duration, there is a rebuttable presumption that the employment is “at will.”

Employment-at-will relationship, either party can terminate the relationship at any time, without the termination being considered a breach of the contract (unless the termination is against public policy).

Employment contract provides for “permanent employment,” majority hold, in the absence of a proven contrary intention, the employment is “at will,” because the duration term in the contract is considered too vague.

If the offer promises “lifetime employment,” some courts hold that the agreement is for at-will employment, while others take the term literally.

Question 11

Formation of Contracts - Mutual Assent - Offer and Acceptance - Offer - Duration term - VAGUE TERMS

Answer 11

Presumption cannot be made, because the parties have manifested an intent that cannot be determined because of the vagueness of the terms.

Question 12

Formation of Contracts - Mutual Assent - Offer and Acceptance - Offer - OFFER LANGUAGE

Answer 12

The offer must contain words of promise, undertaking, or commitment.

The offer must also be targeted to a number of people who could actually accept.

If a return promise is requested, then the contract is a bilateral contract.
If an act is requested, then the contract is a unilateral contract.

Question 13

Formation of Contracts - Mutual Assent - Offer and Acceptance - Offer - Invitation to deal

Answer 13

Offers must be distinguished from invitations to deal.

Advertisements generally are considered invitations to receive offers from the public, unless associated with a stated reward.

An advertisement that is sufficiently specific and limiting as to who may accept may also qualify as an offer.

Question 14

Formation of Contracts - Mutual Assent - Offer and Acceptance - TERMINATION OF OFFERS

Answer 14

An offer can be accepted only when it is still outstanding (before the offer is terminated).

Question 15

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - LAPSE OF TIME IN OFFER

Answer 15

Offer specifies a date on which the offer terminates, then the time fixed by the offer controls.

Specified number of days, the time generally starts to run from the time the offer is received, not sent, unless the offer indicates otherwise. If the offeree is aware (or should have been aware) that there is a delay in the transmittal of the offer, the offer expires when it would have expired had there been no delay.

If the offer does not set a time limit for acceptance, the power of acceptance terminates at the end of a reasonable period of time. Reasonable depends on a variety of factors, including the nature of the contract, the purpose and course of dealing between the parties, and trade usage.

For an offer received by mail, an acceptance that is sent by midnight of the day of receipt generally has been made within a reasonable period of time.

Unless otherwise agreed upon, if the parties bargain in person or via telephone, the time for acceptance does not ordinarily extend beyond the end of the conversation.

Question 16

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - DEATH OF MENTAL INCAPACITY

Answer 16

Offer terminates upon the death or mental incapacity of the offeror, even if the offeree does not learn of it until after the offeree has dispatched an acceptance.

Exception for an offer that is an option.

Question 17

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - DESTRUCTION OR ILLEGALITY

Answer 17

Offer involving subject matter that is destroyed is terminated.

Offer that becomes illegal is terminated.

Question 18

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - Revocation

Answer 18

General - offer can be revoked by the offeror at any time prior to acceptance.

An offer is revoked when the offeror makes a manifestation of an intention not to enter into the proposed contract.

A revocation may be made in any reasonable manner and by any reasonable means, and it is not effective until communicated. A revocation sent by mail is not effective until received.

Question 19

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - Revocation - Option (promise not to revoke)

Answer 19

An option is an independent promise to keep an offer open for a specified period of time.

Limits the offeror’s power to revoke the offer until after the period has expired, while also preserving the offeree’s power to accept.

If the option is a promise not to revoke an offer to enter a new contract, the offeree must generally give separate consideration for the option to be enforceable. If the option is within an existing contract, no separate consideration is required.

Question 20

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - Revocation - UCC FIRM OFFER RULE / IRREVOCABLE

Answer 20

Under the UCC, an offer to buy or sell goods is irrevocable if:

i) The offeror is a merchant;
ii) There is an assurance that the offer is to remain open; and
iii) The assurance is contained in a signed writing from the offeror.

Question 21

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - Revocation - UCC FIRM OFFER RULE - MERCHANT

Answer 21

Merchant includes not only a person who regularly deals in the type of goods involved in the transaction or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction, but also any businessperson when the transaction is of a commercial nature.

Question 22

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - Revocation - UCC firm offer rule - Time Period

Answer 22

If the time period during which the option is to be held open is not stated, a reasonable term is implied.
However, irrevocability cannot exceed three months, regardless of whether a time period is stated or implied, unless the offeree gives consideration to validate it beyond the three-month period.

Question 23

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - Revocation - UCC FIRM OFFER RULE - SIGNED WRITING

Answer 23

A full handwritten signature is not always required, such as when merely initialing the relevant clause is appropriate under the circumstances, or when the offeror handwrites on her letterhead that she “confirms” that a firm offer was already made.

Question 24

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - Revocation - Promissory estoppel (detrimental reliance)

Answer 24

Offeree reasonably and detrimentally relies on the offeror’s promise prior to acceptance, the doctrine of promissory estoppel may make the offer irrevocable.

Must have been reasonably foreseeable that such detrimental reliance would occur in order to imply the existence of an option contract.

The offeror is liable to the extent necessary to avoid injustice, which may result in holding the offeror to the offer, reimbursement of the costs incurred by the offeree, or restitution of the benefits conferred.

Question 25

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - Revocation - Partial performance

Answer 25

If the offer is for a unilateral contract, the offeror cannot revoke the offer once the offeree has begun performance. Once performance has begun, the offeree will have a reasonable amount of time to complete performance but cannot be required to complete the performance.

A unilateral contract is not formed until performance is complete.

Commencement of performance of a bilateral contract operates as a promise to render complete performance.

Whether the contract is unilateral or bilateral, the offeree must have had knowledge of the offer when she began performance.

Question 26

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - REVOCATION OF GENERAL OFFERS

Answer 26

A “general offer” is an offer made to a large number of people, generally through an advertisement.

A general offer can be revoked only by notice that is given at least the same level of publicity as the offer.

So long as the appropriate level of publicity is met, the revocation will be effective even if a potential offeree does not learn of the revocation and acts in reliance on the offer.

Note that if a person has actual knowledge of the intent to revoke but did not see the notice, then the revocation will be effective as to such person.

Question 27

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - Rejection by offeree

Answer 27

An offer is terminated by rejection. A rejection is usually effective upon receipt. An offeree cannot accept an offer once it has been terminated.

A counteroffer acts as a rejection of the original offer and creates a new offer. Exception - option holder, who has the right to make counteroffers during the option period without terminating the original offer.

Question 28

Formation of Contracts - Mutual Assent - Offer and Acceptance - Termination of offers - REVIVAL OF OFFER

Answer 28

A terminated offer may be revived by the offeror.

Question 29

Formation of Contracts - Mutual Assent - Offer and Acceptance - ACCEPTANCE

Answer 29

An acceptance is an objective manifestation by the offeree to be bound by the terms of the offer.

Only a party to whom an offer is extended may accept or, if the offer is extended to a class, a party who is a member of the class may accept.

Offeree must communicate the acceptance to the offeror.

Question 30

Formation of Contracts - Mutual Assent - Offer and Acceptance - Acceptance - BILATERAL CONTRACT

Answer 30

The offeror can detail the manner of proper acceptance.

A bilateral contract is one in which a promise by one party is exchanged for a promise by the other. The exchange of promises is enough to render them both enforceable.

An offer requiring a promise to accept can be accepted either with a return promise or by starting performance.

Commencement of performance of a bilateral contract operates as a promise to render complete performance.

Question 31

Formation of Contracts - Mutual Assent - Offer and Acceptance - Acceptance - Unilateral Contract

Answer 31

A unilateral contract is one in which one party promises to do something in return for an act of the other party.

In a unilateral contract, the offeree’s promise to perform is insufficient to constitute acceptance.

Acceptance of an offer for a unilateral contract requires complete performance.

Once performance has begun, the offer is irrevocable for a reasonable period of time. The offeree is not bound to complete performance.

The offeror may terminate the offer before the offeree begins to perform, expenses incurred by the offeree in preparing to perform may be recoverable as reliance damages.

Question 32

Formation of Contracts - Mutual Assent - Offer and Acceptance - Acceptance - Means of acceptance

Answer 32

The offeror is master of the offer and can dictate the manner and means by which an offer may be accepted.

Unless offeror was specific the offeree can accept in any reasonable manner and by any reasonable means.

A means of acceptance is reasonable if it was used by the offeror, used customarily in the industry, or used between the parties in prior transactions.

Even if the acceptance is by unauthorized means, it may be effective if the offeror receives the acceptance while the offer is still open.

Question 33

Formation of Contracts - Mutual Assent - Offer and Acceptance - Acceptance - Means of acceptance - Silence

Answer 33

Generally, silence does not operate as an acceptance of an offer, even if the offer states that silence qualifies as acceptance (or, more likely, implied acceptance), unless:

i) The offeree has reason to believe that the offer could be accepted by silence, and he was silent with the intent to accept the offer by silence; or
ii) Because of previous dealings or patterns of behavior, it is reasonable to believe that the offeree must notify the offeror if the offeree intends not to accept.

Question 34

Formation of Contracts - Mutual Assent - Offer and Acceptance - Acceptance - Means of acceptance - Shipment of goods

Answer 34

If the buyer requests that the goods be shipped, then the buyer’s request will be construed as inviting acceptance by the seller either by a promise to ship or by prompt shipment of conforming or nonconforming goods.

If the seller ships nonconforming goods, then the shipment is both an acceptance of the offer and a breach of the contract. The seller is then liable for any damage caused to the buyer as a result of the breach.

If, however, the seller “seasonably” notifies the buyer that the nonconforming goods are tendered as an accommodation, then no acceptance has occurred, and no contract is formed. The accommodation is deemed a counteroffer, and the buyer may then either accept (thereby forming a contract) or reject (no contract formed).

Question 35

Formation of Contracts - Mutual Assent - Offer and Acceptance - Acceptance - Mailbox rule

Answer 35

An acceptance that is mailed within the allotted response time is effective when sent (not upon receipt), unless the offer provides otherwise. The mailing must be properly addressed and include correct postage.

Question 36

Formation of Contracts - Mutual Assent - Offer and Acceptance - Acceptance - MAILBOX RULE - REJECTION FOLLOWING ACCEPTANCE

Answer 36

If the offeree sends an acceptance and later sends a communication rejecting the offer, then the acceptance will generally control even if the offeror receives the rejection first.

If, however, the offeror receives the rejection first and detrimentally relies on the rejection, then the offeree will be estopped from enforcing the contract.

Question 37

Formation of Contracts - Mutual Assent - Offer and Acceptance - Acceptance - Mailbox rule - Acceptance following rejection

Answer 37

If a communication is sent rejecting the offer, and a later communication is sent accepting the contract, then the mailbox rule will not apply, and the first one to be received by the offeror will prevail.

An acceptance or rejection is received when the writing comes into the possession of the offeror or her agent, or when it is deposited in her mailbox.

The offeror need not actually read the communication that is received first for it to prevail.

Question 38

Formation of Contracts - Mutual Assent - Offer and Acceptance - Acceptance - MAILBOX RULE - REVOCATION EFFECTIVE UPON RECEIPT

Answer 38

Offers revoked by the offeror are effective upon receipt.

Question 39

Formation of Contracts - Mutual Assent - Offer and Acceptance - Acceptance - Mailbox rule - Options and other irrevocable offers

Answer 39

The mailbox rule does not apply to an option contract or to offers that specify that acceptance must be received by a certain date.

Question 40

Formation of Contracts - Mutual Assent - Offer and Acceptance - Acceptance - Notice - Unilateral Contract

Answer 40

In a unilateral contract, an offeree is not required to give notice after performance is complete, unless he has reason to know that the offeror would not learn of performance within a reasonable time, or the offer requires notice.

If notice is required but not provided, the offeror’s duty is discharged, unless:

i) The offeree exercises reasonable diligence to notify the offeror;
ii) The offeror learns of performance within a reasonable time; or
iii) The offer indicates that notification of acceptance is not required.

Question 41

Formation of Contracts - Mutual Assent - Offer and Acceptance - Acceptance - Notice - Bilateral Contract

Answer 41

An offeree of a bilateral contract must give notice of acceptance.

Question 42

Formation of Contracts - Mutual Assent - Offer and Acceptance - Effect of additional or different different terms - Common-law mirror-image rule

Answer 42

The acceptance must mirror the terms of the offer.

Any change to the terms of the offer, or the addition of another term not found in the offer, acts as a rejection of the original offer and as a new counteroffer. Mere suggestions or inquiries, including requests for clarification or statements of intent, made in a response by the offeree do not constitute a counteroffer.

A conditional acceptance terminates the offer and acts as a new offer from the original offeree.

Question 43

Formation of Contracts - Mutual Assent - Offer and Acceptance - Effect of additional or different different terms - UCC rule - acceptance contains additional or different terms

Answer 43

The UCC does not follow the mirror-image rule.

Generally, for a sale of goods, an acceptance that contains additional or different terms with respect to the terms in the offer is nevertheless treated as an acceptance.

An exception exists when the acceptance is expressly conditioned on assent to the additional or different terms, in which case the acceptance is a counteroffer.

Whether the additional or different terms are treated as part of the contract depends on whether the parties are merchants.

Question 44

Formation of Contracts - Mutual Assent - Offer and Acceptance - Effect of additional or different different terms - UCC rule - acceptance contains additional or different terms - One or both parties are not merchants

Answer 44

When the contract is for the sale of goods between nonmerchants or between a merchant and a nonmerchant, a definite and seasonable expression of acceptance or written confirmation that is sent within a reasonable time operates as an acceptance of the original offer. This is true even if it states terms that are additional to or different from the offer, unless the acceptance is made expressly conditional on the offeror’s consent to the additional or different terms. The additional terms are treated as a proposal for addition to the contract that must be separately accepted by the offeror to become a part of the contract.

Question 45

Formation of Contracts - Mutual Assent - Offer and Acceptance - Effect of additional or different different terms - UCC rule - acceptance contains additional or different terms - Both parties are merchants—battle of the forms

Answer 45

When both parties are merchants, the parties often use sales forms that might not be designed for the particular sale in question. As a consequence, the acceptance often contains different and additional terms. In this “battle of the forms” over whose terms will form the basis of the contract, the rules may vary depending on whether the terms are additional terms or different terms.

Question 46

Formation of Contracts - Mutual Assent - Offer and Acceptance - Effect of additional or different different terms - UCC rule - acceptance contains additional or different terms - Both parties are merchants—battle of the forms - Acceptance includes additional terms

Answer 46

i) The term materially alters the original contract;
ii) The offer expressly limits acceptance to the terms of the offer; or
iii) The offeror has already objected to the additional terms, or objects within a reasonable time after notice of them was received.

If any one of these three exceptions is met, the term will not become part of the contract, and the offeror’s original terms control.

Question 47

Formation of Contracts - Mutual Assent - Offer and Acceptance - Effect of additional or different different terms - UCC rule - acceptance contains additional or different terms - Both parties are merchants—battle of the forms - Acceptance includes different terms

Answer 47

A few jurisdictions treat different terms the same as additional terms. Most, however, apply the “knock-out” rule, under which different terms in the offer and acceptance nullify each other and are “knocked out” of the contract. When gaps are created after applying the knock-out rule, the court uses Article 2’s gap-filling provisions to patch the holes.

Question 48

Formation of Contracts - Mutual Assent - Offer and Acceptance - Effect of additional or different different terms - UCC rule - acceptance contains additional or different terms - UCC rule—acceptance based on conduct

Answer 48

If the offer and purported acceptance differ to such a degree that there is no contract, but the parties have begun to perform anyway (i.e., demonstrated conduct that recognizes the existence of a contract), then Article 2 provides that there will be a contract, and its terms will consist of those terms on which the writings of the parties agree, together with any supplementary terms filled in by the provisions of the UCC. UCC § 2-207(3).

Question 49

Formation of Contracts - Mutual Assent - Offer and Acceptance - Auction contracts - Goods auctioned in lots

Answer 49

If goods in an auction sale are offered in lots, each lot represents a separate sale.

Question 50

Formation of Contracts - Mutual Assent - Offer and Acceptance - Auction contracts - Completion of a sale

Answer 50

An auction sale is complete when the auctioneer announces its end, such as by the fall of the auctioneer’s hammer or in any other customary way.

When a bid is made contemporaneously with the falling of the hammer, the auctioneer may, at her discretion, treat the bid as continuing the bidding process or declare the sale completed at the fall of the hammer.

Question 51

Formation of Contracts - Mutual Assent - Offer and Acceptance - Auction contracts -Reserve and no-reserve auctions

Answer 51

In a reserve auction, the auctioneer may withdraw the goods any time before she announces completion of the sale. An auction is with reserve unless specifically announced as a no-reserve auction.

In a no-reserve auction, after the auctioneer calls for bids on the goods, the goods cannot be withdrawn unless no bid is received within a reasonable time.

In either type of auction, a bidder may retract her bid until the auctioneer announces the completion of the sale. A retraction, however, does not revive any earlier bids.

Question 52

Formation of Contracts - Mutual Assent - Offer and Acceptance - Auction contracts - When the seller bids

Answer 52

When an auctioneer knowingly accepts a bid by the seller or on her behalf, or procures such a bid to drive up the price of the goods, the winning bidder may avoid the sale or, at her option, take the goods at the price of the last good-faith bid prior to the end of the auction.

Two exceptions to this rule, which are that (i) a seller may bid at a forced sale and (ii) a seller may bid if she specifically gives notice that she reserves the right to bid.

Question 53

Formation of contracts - Consideration

Answer 53

If there is a valid offer and acceptance that creates an agreement, the agreement can be legally enforceable if there is consideration.

Question 54

Formation of contracts - Consideration - Bargain and exchange

Answer 54

Valuable consideration is evidenced by a bargained-for change in the legal position between the parties.

Majority - consideration exists if there is a detriment to the promisee, irrespective of the benefit to the promisor.

Minority - look to either a detriment or a benefit, not requiring both.

Second Restatement asks only whether there was a bargained-for exchange.

Question 55

Formation of contracts - Consideration - Bargain and exchange - Legal detriment and bargained-for exchange

Answer 55

For the legal detriment to constitute sufficient consideration, it must be bargained for in exchange for the promise. The promise must induce the detriment, and the detriment must induce the promise (“mutuality of consideration”).

Consideration can take the form of:

i) A return promise to do something;
ii) A return promise to refrain from doing something legally permitted;
iii) The actual performance of some act; or
iv) Refraining from doing some act.

Question 56

Formation of contracts - Consideration - Bargain and exchange - Gift distinguished

Answer 56

A promise to make a gift does not involve bargained-for consideration and is therefore unenforceable.

Question 57

Consideration - Adequacy of Consideration LEGAL DETRIMENT

Answer 57

The basic concept of legal detriment is that there must be something of substance, either an act or a promise, which is given in exchange for the promise that is to be enforced.

A difference in economic value between the items exchanged is not grounds for finding that a contract did not exist due to inadequate consideration.

Question 58

Consideration - Adequacy of Consideration - Subjective value

Answer 58

The benefit to the promisor does not need to have an economic value. Regardless of the objective value of an item, if the promisor wants it, the giving of it will constitute adequate consideration.

Question 59

Consideration - Adequacy of Consideration - Preexisting-duty rule - common law

Answer 59

At common law, a promise to perform a preexisting legal duty does not qualify as consideration because the promisor is already bound to perform (i.e., there is no legal detriment).

Note that if the promisor gives something in addition to what is already owed (however small) or varies the preexisting duty in some way (however slight), most courts find that consideration exists.

Question 60

Consideration - Adequacy of Consideration - Preexisting-duty rule - Exception for a third party

Answer 60

Exception to the preexisting-duty rule when a third party’s promise is exchanged for the promise to perform an act that the promisor is already contractually obligated to perform.

The party’s promise to the third party is sufficient consideration.

Question 61

Consideration - Adequacy of Consideration - Past consideration

Answer 61

Common law - something given in the past is typically not adequate consideration because it could not have been bargained for, nor could it have been done in reliance upon a promise.

Modern trend, adopted by the Second Restatement, however, toward enforcing some such promises under material benefit rule

Question 62

Consideration - Adequacy of Consideration - Modification - Common law

Answer 62

At common law, modification of an existing contract must be supported by consideration. Agreements to modify a contract may still be enforced if:

i) There is a rescission of the existing contract by tearing it up or by some other outward sign, and then the entering into of a new contract, whereby one of the parties must perform more than she was to perform under the original contract;
ii) There are unanticipated difficulties, and one of the parties agrees to compensate the other when the difficulties arise if the modification is fair and equitable in light of those difficulties; or
iii) There are new obligations on both sides.

The modification must rest in circumstances not anticipated as part of the context in which the contract was made but need not have been completely unforeseeable.

Question 63

Consideration - Adequacy of Consideration - Modification - UCC - Installment contracts

Answer 63

Article 2, no consideration is necessary to modify a contract; however, good faith is required.

Generally, a party benefited by a condition under a contract may orally waive that condition without new consideration. However, in installment contracts, the waiver may be retracted by providing the other party with reasonable notice that strict performance is required. The retraction is allowed unless it would be unjust because of a material change of position by the other party in reliance on the waiver.

Question 64

Consideration - Adequacy of Consideration - Accord - Dispute of monetary claim

Answer 64

Accord agreement - a party to a contract agrees to accept a performance from the other party that differs from the performance that was promised in the existing contract, in satisfaction of the other party’s existing duty.

Dispute of a monetary claim - When a party agrees to accept a lesser amount in full satisfaction of its monetary claim, there must be consideration or a consideration substitute for the party’s promise to accept the lesser amount.

Question 65

Consideration - Adequacy of Consideration - Accord - Satisfaction

Answer 65

A “satisfaction” is the performance of the accord agreement; it will discharge both the original contract and the accord contract. However, there is no satisfaction until performance, and the original contract is not discharged until satisfaction is complete. Therefore, if an accord is breached by the party who has promised a different performance, the other party can sue either on the original contract or under the accord agreement.

Question 66

Consideration - Adequacy of Consideration - Accord - Use of a negotiable instrument

Answer 66

If a claim is unliquidated or otherwise subject to dispute, it can be discharged if (i) the person against whom the claim is asserted in good faith tenders a negotiable instrument (e.g., a check) that is accompanied by a conspicuous statement indicating that the instrument was tendered as full satisfaction of the claim (e.g., “Payment in full”), and (ii) the claimant obtains payment of the instrument. The addition of a restriction by the claimant to his indorsement of the check, such as “under protest,” does not operate to preserve his right to seek additional compensation. UCC § 3-311(a), (b).

When the claimant is an organization, the discharge is not effective if the instrument is not tendered to a person, place, or office designated by the organization. If no such designation is made, or if the claimant is not an organization, the discharge is not effective if the claimant returns the payment within 90 days. However, regardless of the type of claimant, these exceptions do not apply and the claim is discharged when the claimant, or the claimant’s agent who has direct responsibility with respect to the disputed obligation, knew, within a reasonable time before collection was initiated, that the instrument was tendered in full satisfaction of the claim. The burden to establish such knowledge is on party seeking discharge. UCC § 3-311(c).

Question 67

Consideration - Adequacy of Consideration - Illusory promises

Answer 67

An illusory promise is one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it. Such a promise is not legally binding.

A promise that is based on the occurrence of a condition within the control of the promisor may be illusory, but courts often find that the promisor has also promised to use her best efforts to bring about the condition. Restatement (Second) of Contracts § 76 cmt. d. Similarly, a promise to purchase goods upon the promisor’s satisfaction with the goods is not illusory because the promisor is required to act in good faith. UCC § 1-304.

Question 68

Consideration - Adequacy of Consideration - Voidable and unenforceable promises

Answer 68

A promise that is voidable or unenforceable by a rule of law (e.g., infancy) can nevertheless constitute consideration.

Question 69

Consideration - Adequacy of Consideration - Requirements and output contracts

Answer 69

A requirements contract is a contract under which a buyer agrees to buy all that he will require of a product from the other party. An output contract is a contract under which a seller agrees to sell all that she manufactures of a product to the buyer. There is consideration in these agreements because the promisor suffers a legal detriment. The fact that the party may go out of business does not render the promise illusory.

Because a covenant of good faith and fair dealing is implied in all contracts (common law and UCC), any quantities under such a contract may not be unreasonably disproportionate to any stated estimates, or if no estimate is stated, to any normal or otherwise comparable prior requirements or output.

Question 70

Consideration - Adequacy of Consideration - Settlement of a legal claim

Answer 70

A promise not to assert or a release of a claim or defense that proves to be invalid does not constitute consideration, unless the claim or defense is in fact doubtful due to uncertainty of facts or law, or the party promising not to assert or releasing the claim or defense believes in good faith that it may be fairly determined to be valid.

Question 71

At common law, a written revocation (as well as a written rejection or acceptance)

Under the UCC, a person receives notice when: (i) it comes to that person’s attention or (ii) it is duly delivered in a reasonable form at the place of business or where held out as the place for receipt of such communications. Receipt by an organization occurs at the time it is brought to the attention of the individual conducting the transaction or at the time it would have been brought to that individual’s attention were due diligence exercised by the organization. UCC§1-202.

If the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer is automatically revoked (i.e., a constructive revocation occurs).The offeror’s power to revoke an offer is limited by the following items.

Answer 71

a written revocation (as well as a written rejection or acceptance) is received when it comes into the possession of the person addressed or the person authorized to receive it on his behalf, or when it is deposited in some place he has authorized for deposit for this or similar communications.

Question 72

Revocation UCC, a person receives notice when

Answer 72

A person receives notice when: (i) it comes to that person’s attention or (ii) it is duly delivered in a reasonable form at the place of business or where held out as the place for receipt of such communications. Receipt by an organization occurs at the time it is brought to the attention of the individual conducting the transaction or at the time it would have been brought to that individual’s attention were due diligence exercised by the organization.

Question 73

Revocation - If the offeree acquires reliable information

Answer 73

that the offeror has taken definite action inconsistent with the offer, the offer is automatically revoked (i.e., a constructive revocation occurs).The offeror’s power to revoke an offer is limited by the following items.