Contracts - Formation

Front 1

Elements of a Contract

Back 1

1. offer
2. acceptance
3. consideration

Front 2

Offeror & Offeree's Powers

Back 2

Offeror:
1. the power to revoke
-Exception:
firm offer
option contract

Offeree:
1. accept
2. reject
3. counteroffer
4. inquiry

Front 3

Acceptance

Back 3

Objective manifestation by the offeree to be bound by the agreement terms.

Front 4

Requirements of Offer

Back 4

1. outward manifestation
2. a signal that an acceptance will conclude the deal

creates power of acceptance in the offeree

Front 5

Offer - outward manifestation

Back 5

can be oral, written, or via conduct

Front 6

Non-offers (withhold privilege of further assent)

Back 6

1. preliminary negotiations
2. invitation to make an offer
-closing in on a deal but wants the other party to commit first

Front 7

Multiple Offerees: 2 situations

Back 7

1. Advertisements
2. Reward Offers
2. Auctions

Front 8

The American Advertising Rule

Back 8

Ads, catalogs, and price lists are not offers but are instead invitations for offers

Exception:
language that identifies who gets the limited supply of goods even if there is an excess in demand.

Front 9

Types of Reward Offers

Back 9

1. Self-limiting rewards:
--Offers that indicate the task to be awarded can be performed only once.

2. Open-field rewards
--Reward offers that indicate the task to be performed can be potentially be performed by multiple parties
--> Exception: language in the offer that specifies a limitation on how many can accept the offer.

Front 10

Auctions

Back 10

The general rule is the auctioneer is inviting offers and the responsive bids are the offers.

Exception: If the auction is held “without reserve”, then the auctioneer is making an offer to sell to the highest bidder.

Front 11

4 ways to terminate power of acceptance

Back 11

1. Lapse of time
2. death or incapacity of either party
3. offeror can revoke
4. offeree can reject

Front 12

Face-to-Face Conversion Rule

Back 12

An offer made in a face-to-face conversation generally lapses at the end of the conversation, unless the offeror specifies otherwise.

Front 13

American rule of free revocability

Back 13

an offeror may revoke an offer at any time for any reason so long as two strict requirements are met:
1. Requirement # 1:
-Must be revoked before the offer is accepted.

2. Requirement # 2:
-The revocation must be communicated to the offeree.

Front 14

2 types of communication for revocation

Back 14

Direct revocation
1) Offeror directly communicated to offeree an intent to withdraw the offer.

Indirect revocation
1) Requirement # 1:
--The offeror takes some action that is inconsistent with the intention to go through with the offer.
2) Requirement # 2
--The offeree learns about such action from a reliable source.

Front 15

Functional Equivalents Rule

Back 15

The offeror revokes the offer by communicating the revocation in a functionally equivalent manner as the offer was made.

Exception: if a more reasonable means is available then must use.

Is legally effective even if offeree is unaware

Front 16

2 ways to prevent revocation

Back 16

1. option contract
2. firm offer

Front 17

Option Contract

Back 17

1. offer
2. subsidiary promise to keep the offer open
3. Vvalid mechanism for enforcing the subsidiary promise (e.g., consideration)

Front 18

Signed Writing with False Recital
(Option Contracts)

Back 18

A written recital that there is consideration.

Majority rule is that the recital is rebuttable.

Minority rule is option contracts will be enforced even if the recital of consideration is false.

Front 19

Promissory estoppel
(Option Contracts)

Back 19

Courts will sometimes enforce a subsidiary promise to keep an offer open if there has been detrimental reliance.

Front 20

Construction Contracts
(Revocation)

Back 20

The majority rule is where a general contractor uses a particular subcontractor’s bid to formulate his own, promissory estoppel applies to protect the general

Front 21

Firm Offer

Back 21

A merchant can make a firm offer (an irrevocable offer) to either buy or sell goods without consideration so long as three conditions are met:

a. The offer to buy or sell is made by a merchant.
b. The offer is made in a writing signed by the merchant.
c. The offer expressly states by its terms that it will be held open.

Under the UCC, the shelf life of a firm offer can be no more than three months

Front 22

3 ways offeree can reject

Back 22

1. outright rejection
2. counteroffer
3. nonconforming acceptance

Front 23

Mirror Image Rule

Back 23

Corollary to the notion that “the maker is the master of the offer.”

The common law “mirror image” rule requires that acceptance must mirror the terms of the offer and any variation results in a counteroffer and thus rejection of the initial offer.

Front 24

Unilateral Contract

Back 24

I make a promise and seek from you only your performance in exchange.

The offeror is bound only when offeree’s performance is completed.
Can accept with by promising or performing

**The offeree is never bound.

Front 25

Bilateral Contract

Back 25

I make a promise and seek from you a promise in exchange.

Once promises are exchanged, both parties are bound.

Front 26

Revocation of a Unilateral Contract

Back 26

Under common law, the offeror was free to revoke a unilateral offer up until the moment the offeree actually completed performance.

Under the modern rule, once the offeree begins performance, an option contract is created and the offeror may not revoke.

**Note: The modern rule is NOT the majority rule; courts are split.

Front 27

Acceptance

Back 27

1. must mirror terms of offer
2. communication of acceptance to offeror

Front 28

Communication of Acceptance

Back 28

1) If the offer stipulates a particular means of communicating acceptance, then that becomes the required means of acceptance.

2) If the offer is silent as to the means of communication, the offeree is free to use any reasonable means of transmission.

Reasonable:
1. It is the means used by the offeror.
2. It is the means customarily used in similar transactions.
3. It is a means of communication that is equivalent in speed and reliability to the means by the offeror.

Front 29

Silence as Acceptance (3 situations)

Back 29

Default rule: An offeree’s silent response to an offer does not constitute acceptance.

Situation # 1:
1) Where the offeree takes the benefit of the offeror’s services with the reasonable opportunity to reject them and with reason to know compensation was expected.

Situation # 2:
1) Where the offeror has given the offeree reason to understand that the acceptance may be communicated by silence, the offeree’s silence will operate as acceptance if she intends as such.

Situation # 3:
1) Where, because of previous dealings or other circumstances, it is reasonable that the offeree notify the offeror if he does not intend to accept.

Front 30

3 Exceptions to Communication of Acceptance

Back 30

1. silence
2. unilateral contract
3. by mail or other ccorrespondence

Front 31

Mailbox Rule

Back 31

Acceptance by mail is effective upon dispatch so long as the acceptance is properly posted.

The mailbox rule applies only to acceptances and not to any other communication.
1) Offers, revocation, etc. must be received

Offeror is bound even if the acceptance is lost in transit.

Exceptions:
1. Option contracts: acceptance is only effective upon receipt.

2. If dispatches two responses to an offer, the first purporting to reject the offer and the second purporting to accept it:
a. The mailbox rule does not govern if the rejection is mailed first.
b. The parties’ obligations will depend on which of the offerees’ communications reaches the offeror first.
1) If the acceptance reaches the offeror first:
1. There is a contract by virtue of a communicated acceptance.
2) If the rejection reaches the offeror first:
1. No contract and power of acceptance has been terminated.

Front 32

UCC Acceptance -- Seller's Acceptance
(3 ways)

Back 32

1. A promise to ship goods in conforming with the terms of the offer.

2. Prompt of current shipment in conformity with the terms of the offer.

3. By shipping nonconforming goods
--Exception: if the seller sends nonconforming shipment as an accommodation, it constitutes a counteroffer.
a. Paradoxically, absent accommodation, the seller’s shipment of nonconforming goods does two things at once:
1) Accepts the offer, forming a binding contract.
2) Breaches the contract

Front 33

"Dickered" Terms
(UCC)

Back 33

Transaction-specific terms that identify the particular goods to be sold, the quantities, and the price—these terms are usually mirrored.

Front 34

"Boilerplate" Terms
(UCC)

Back 34

Standard terms that appear in a party’s respective terms and are much less likely to match.

Front 35

UCC - Battle of the Forms

Back 35

Unless acceptance is expressly made conditional on assent to the additional or different terms , the nonconforming acceptance will operate as an effective acceptance to the offer, thus forming a contract.

Front 36

Transactions Involving Consumers
(Battle of the Forms - UCC Acceptance)

Back 36

The additional or different terms are mere proposals for addition and they are no part of the contract unless the offeror expressly agrees to them.

Front 37

Transactions where both parties are merchants
(Battle of the Forms - UCC Acceptance)

Back 37

“Additional” terms:
a. Those that address a new topic not addressed by the offer.

“Different” terms:
a. Terms that purport to change an existing term of the offer

Front 38

Effect of Additional Terms
(Battle of the Forms - UCC Acceptance - Merchants)

Back 38

Automatically become a part of the contracts except in 3 circumstances:

1. The offer expressly limits acceptance to its own terms.
2. If the offeror objects to the additional terms within a reasonable time.
3. If the additional terms would materially alter the contract.
--> terms that would result in surprise or hardship if incorporated without the express awareness of the other party.
Examples of clauses that would materially alter the contract include:
1) Warranty disclaimers
2) Clauses that materially shorten the deadline for raising complaints, and
3) Clauses that change usages of trade or past courses of dealing.

Front 39

Effect of Different Terms
(Battle of the Forms - UCC Acceptance - Merchants)

Back 39

1. Majority rule/”knockout rule”
The different terms of each communication dealing with the same topic are knocked out and omitted from the contract.

2. Minority rule:
The different terms of the accepted will be treated as mere proposals for addition.

Front 40

The Knockout Rule
(UCC)

Back 40

The different terms of each communication dealing with the same topic are knocked out and omitted from the contract.

Front 41

Written Confirmations (of oral contracts)
(UCC Acceptance)

Back 41

Contract orally and then send follow-up written confirmations, which may contain terms that are additional or different than the original oral deal.

1. Merchant & Consumer: the terms in the written confirmation that are additional or different are mere proposals for addition

2. In transactions between merchants:
a. Additional terms are automatically part of the contract unless:
1) Materially alter the contract
2) The receiving party objects to them in a reasonable time.
b. Different terms are mere proposals the other party is free to accept or reject.
c. If both parties send written confirmations containing conflicting terms then the knock out rule applies and neither term is in the contract.

Front 42

Conditional Acceptance
(UCC)

Back 42

Under the UCC, a definite and seasonable expression of acceptance will operate as an acceptance even though it states additional or different terms unless acceptance is expressly made conditional on assent to the additional or different terms

Front 43

Conduct as Acceptance
(UCC)

Back 43

Conduct can be effective acceptance, even if writings do not constitute a contract.

Contract established if:
1. The terms on which the writings of the parties agree (i.e. the terms in common)
2. Together with default terms provided by the UCC.

*Note: The express terms in the parties’ communications which do not match or agree are omitted.

Front 44

Shrink-wrap Contracts

Back 44

Most courts apply 2-207 and say that in consumer transactions, these terms are mere proposals that consumers can either accept or reject.

Other courts do not apply 2-207 and hold that if the consumer retains and uses the goods, they have accepted the offer on the merchant’s terms.