Formation of Contracts Flashcards
(12 cards)
Mutual Assent
Offer and Acceptance
A contract is a legally enforceable agreement in which the parties bind themselves to do, or not to do, a particular thing. A contract is a sufficiently definite offer such that its unequivocal acceptance will give rise to an enforceable contract. A valid contract is formed where there is an offer, namely a manifestation to enter into a valid contract by one party, and an acceptance by the other party, which indicates a commitment to be bound by a meeting of the minds on the material terms. To have a meeting of the minds, both parties must understand what each is agreeing to do or not to do.
Mutual Assent
Firm Offer Rule
Under the UCC, an offer to buy or sell goods is irrevocable if the offeror is a merchant, there is an assurance that the offer is to remain open, and the assurance is contained in a signed writing from the offeror. A firm offer is prepared by the offeree, however, must be separately authenticated by the offeror to protect against inadvertent signing.
Mutual Assent
Acceptance
The power of acceptance may be terminated by a rejection or counteroffer by the offeree, the lapse of time, revocation by the offeror, or death or incapacity of either party.
Mutual Assent
Revocation
In most cases, revocation of an offer occurs when the offeree receives from the offeror a manifestation of intention not to enter into the proposed contract. An offer can be revoked by the offeror at any time before acceptance. Notice of the offeror’s revocation must be communicated to the offeree to effectively terminate the offeree’s power to accept the offer. An offer may be further revoked by directly indicating to the offeree that they have changed their mind, or by engaging in conduct that indicates the offeror has changed their mind, so long as the offeree is aware of the conduct.
Mutual Assent
Unilateral and Bilateral Contracts
A contract can be either unilateral or bilateral. A unilateral contract is a contract in which only one party makes a promise or undertakes a performance. A bilateral contract is a contract in which each party promises a performance, so that each party is an obligor on that party’s own performance and an obligee on the other’s promise.
Mutual Assent
Implied In-Fact Contracts
An implied-in-fact contract is a legally binding agreement formed through the actions and conduct of the parties, rather than through explicit verbal or written words. It arises when the actions and surrounding circumstances demonstrate a mutual agreement and intent to contract.
Indefiniteness and Absence of Terms
Indefiniteness and Absence of Terms
Even though the parties may intend to form a contract, if the terms of their purported agreement are not reasonably certain, no contract will result (an acceptance of the offer cannot form a contract). Modern contract law relaxed the indefiniteness rule in two ways: courts now have broader interpretive powers to decide what ambiguous terms should mean, and the UCC has supplied gap filler terms that should be used if the contract, as written, is so indefinite that it would be unenforceable.
Consideration (Bargained-For Exchange)
Consideration
To form a contract, consideration, or something of value, must be exchanged. Consideration is that which is bargained for and given in exchange for a return promise requiring benefit or detriment. Consideration is an act, forbearance, or return promise bargained for and given in exchange for a promise. If either party has not given consideration, the agreement is not enforceable upon formation.
Obligations Enforceable Without a Bargained-For Exchange
Reliance
If there is a promise and foreseeable and justifiable reliance, enforcement will be granted as necessary to avoid injustice.
Obligations Enforceable Without a Bargained-For Exchange
Restitution
Modification of Contracts
Modification of Contracts
Under the common law, contract modifications must be supported by consideration. A pre-existing duty may become sufficient consideration. Under the UCC, there is no consdieration requirement to modify a contract; a contract modification is valid if it is made in good faith and in observance of reasonable commercial standards and fair dealing. Thus, separate consideration is required to support the modification of an existing contract, except under the UCC (where no additional consdieration is required).
Promissory Estoppel
Promissory Estoppel applies when a promise is made that would reasonably be expected to induce reliance, the promisee takes detrimental action in reliance, and injustice can only be avoided by enforcement of the promise.
