Formation of Contracts

Question 1

What is a contract?

Answer 1

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

Question 2

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

Express Contract

Answer 3

When words express the parties’ intent, the contract is an express contract.

Question 4

Implied in Fact

Answer 4

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

Question 5

Offer

Answer 5

An offer is an objective manifestation of the offeror’s willingness to enter into an agreement that creates the power of acceptance in the offeree.

Question 6

Intent (offer)

Answer 6

A statement is an offer only if the person to whom it is communicated could reasonably interpret it as an offer. It must express the present intent of a person to be legally bound to a contract.

Question 7

Knowledge by the Offeree

Answer 7

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

Question 8

Terms

Answer 8

For a contract to exist, the terms of the contract must be certain and definite, or the contract fails for indefiniteness.

Common law required terms: parties, subject matter, price, quantity.

UCC required terms: quantity.

Question 9

UCC Approach–Terms

Answer 9

Under the UCC, a contract is formed if:

1. Both parties intend to contract; and
2. There is a reasonably certain basis for giving a remedy.

Question 10

Revocation

Answer 10

The act of withdrawing an offer during contract negotiations.

Question 11

Option–promise not to revoke

Answer 11

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

Question 12

General Offer

Answer 12

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

Question 13

Acceptance

Answer 13

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

Question 14

Bilateral Contract

Answer 14

A bilateral contract is one in which a promise by one party is exchanged for a promise by the other.

Question 15

Unilateral Contract

Answer 15

A unilateral contract is one in which one party promises to do something in return for an act of the other party (e.g., a monetary reward for finding a lost dog).

Question 16

Mailbox Rule

Answer 16

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 17

Consideration

Answer 17

If there is a valid offer and acceptance that creates an agreement, the agreement is legally enforceable so long as there is consideration. Consideration is a benefit (e.g., act, money, return promise) bargained for and received by the promisor from a promisee.

Question 18

Executory Contract

Answer 18

An executory contract is a contract whose terms are to be performed by both parties at a later date or in an ongoing manner.

Question 19

Accord and Satisfaction

Answer 19

Accord and satisfaction are the tender and acceptance of an alternative performance that discharges a contractual obligation.

Question 20

Requirements Contract

Answer 20

A requirements contract is a contract under which a buyer agrees to buy all that the buyer will require of a product from the other party.

Question 21

Output Contract

Answer 21

An output contract is a contract under which a seller agrees to sell all that the seller manufactures of a product to the buyer.

Question 22

Defenses

Answer 22

A person can defend a breach-of-contract action by showing that there was no meeting of the minds because of any of the following:
1. Misunderstanding
2. Misrepresentation, nondisclosure, or fraud
3. Undue influence
4. Duress
5. Lack of capacity to contract

Question 23

Mistake

Answer 23

A mistake is a belief that is not in accord with the facts as to a basic assumption on which the contract was made that materially affects performance.

Question 24

Misunderstanding

Answer 24

A misunderstanding occurs when both parties believe that they are agreeing to the same material terms but they in fact agree to different terms.

Question 25

Misrepresentation

Answer 25

A misrepresentation is an untrue assertion of fact. To constitute a fact, the assertion must be about a present event or past circumstance.

Question 26

Fraud in the Factum

Answer 26

Fraud in the Factum (or fraud in the execution) occurs when the fraudulent misrepresentation prevents a party from knowing the character or essential terms of the transaction.

Question 27

Fraud in the Inducement

Answer 27

Fraud in the Inducement occurs when a fraudulent misrepresentation is used to induce another to enter into a contract.

Question 28

Undue Influence

Answer 28

Undue influence is the unfair persuasion of a party to assent to a contract.

Question 29

Duress

Answer 29

Duress is an improper threat that deprives a party of a meaningful choice.

Question 30

Competence

Answer 30

In contracts law, competence refers to a party’s legal capacity to be held to contractual duties. Parties to a contract must be competent. Incompetency arises because of infancy, mental illness or defect, guardianship, intoxication, and corporate incapacity.

Question 31

Defenses to Enforcement

Answer 31

A party to a contract can assert that the nature of the agreement or the manner of its formation should prevent its enforcement. Defenses to enforcement include: 1. Illegality 2. Unconscionability 3. Public policy

Question 32

Unconscionability

Answer 32

A contract (or part of a contract) is unconscionable when it is so unfair to one party that no reasonable person in the position of the parties would have agreed to it.

Question 33

Express Warranty

Answer 33

Any promise, affirmation, description, or sample that is part of the basis of the bargain is an express warranty unless it is merely the seller’s opinion or commendation of the value of the goods.