REGS - Contracts

Question Answer Note/Hint

Essential Elements of a K
1. Offer
2. Acceptance
3. Consideration
4. Legal Capacity
5. Legality (legal purpose)
6. Reality of consent (technically not a true element, but important to consider b/c
may be necessary for enforceability of K)
7. Statute of frauds (not a true element, but each factual situation should be
examined to determine whether it applies)
Express K terms are actually stated orally or in writing
Implied K
terms of K not specifically given but some or all of terms are inferred from conduct of
parties and circumstances
Executed K one that has been fully performed
Executory K one that has NOT been fully performed by both parties
Quasi K not a real K but public policy creates legal obligation in certain circumstances
Unilateral K one party gives promise for completion of requested act
Bilateral K each party exchanges promises
Voidable K one that is enforceable unless party that has right pulls out of K
Requirements for a valid offer
- Objective (not subjective) intent to make an offer
- statement definite and certain as to what will be agreed upon in K (some courts
allow some reaosnable terms to be left open if customary to do so; under UCC,
output or requirements Ks are considered reasonably definite b/c output is based
upon actual output that does occur in good faith and requirements are actual good
faith requirements)
- communicated to offeree by offeror or his/her agent (exception: public offer - can
learn of it in any way)
Types of statements that do NOT equal an offer
-promises made in apparent jest
- opinions
- statements of intent
- invitations to negotiate (i.e. - price tags, auctions, inquiries, general ads)
Unilateral Offer one that expects acceptancy by action rather than promise
Bilateral Offer one that expects acceptance w/a promise
Who does the risk of mistakes in contracts fall on?
The offeror (b/c s/he chose method of communication; therefore, offer is effective as
transmitted)
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REGS - Contracts
How can offers be terminated?
- rejection by offeree (must be communicated to offeror and effective when received
by offeror)
- revocation by offeror (may revoke offer at any time prior to acceptance by offeree -
revocation effective when receive by offeree)
- counteroffer (does not include mere inquiry or request for additional or different
terms)
- lapse of time (if no specified time by offeror -> reasonable time period)
- death or insanity of offeror
- illegality (offer terminates if it becomes illegal after making of offer but before
acceptance)
- bankruptcy or insolvency of either offeror or offeree
- impossibility (offer terminates if after making offer and before it is accepted,
performance becomes impossible)
- destruction of subject matter
revocation of offer and sale of subject matter
If offeree learns by reliable means that offeror has already sold subject of offer -> it
is revoked.
revocation of public offers
public offers must be revoked by the same amount of publicity used in making the
offer
Option
Defined: an offer that is supported by consideration and cannot be revoked before
stated time -> rejection does not terminate the option.
Contracts and role of individuals
Normally offers, acceptance, rejections, and counteroffers are effective if an
individual is involved; thus, counteroffers are not effective against mere electronic
agents.
Acceptance Requirements
- offer must be accepted by person to whom it was directed
- offeree must have knowledge of offer in order to accept
- offeree must intend to accept
- acceptance must generally be in the form specified by offer
- acceptance must be unequivocal and unconditional (a condition that does not
change or add to terms of K is not a counteroffer - i.e. - a condition that is already
part of the K b/c of law) (*Note difference under UCC)
- made within an appropriate time
Ways silence can constitute acceptance
1.) offer indicated silence would constitute acceptance AND offeree intended his/her
silence as acceptance (-> offeree has NO duty to reply)
2.) offeree has taken benefit of services or goods and exercised control over them
when s/he had opportunity to reject them (however, statutes usually overrid cl rule
by providing that unsolicited merchandise may be trated as a gift)
- through prior dealings, by agreement between parties, or when dictated by custom,
silence can be acceptance
When is an offer deemed accepted?
- If acceptance is made by method specified in offer or by same method used by
offeror to communicate the offer, acceptance is efefctive when sent. EXCEPTION: If
offeree sends rejection and then acceptance, first received is effective even though
offeree sent acceptance by same method used by offeror.
- other methods of acceptance are considered effective when actually received by
offeror
(offeror can change the above rules by stating other rules in offer)
(compare this to offers, revocations, and counteroffers which are valid when
received)
Effect of late acceptance
NOT valid BUT is instead deemed a counteroffer and is valid only IF original offeror
then accepts.
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REGS - Contracts
Firm Offer Rule
Applicable under UCC only. Applies to a written and signed offer for sale of goods by
a merchant giving assurance that it will be held open for speficied time.

If such is made -> offer is irrevocable for that period.
- No consideration is needed.
- Period of irrevocability may not exceed three months. (-> even if offeror specifies 4
months in offer, period of irrevocability is limited to 3 months).
- If no time period is specified -> reasonable time is inferred.
- If assurance is given on form supplied by offeree -> it must be seperately signed by
offerror.
Acceptance of offer to buy goods under UCC
An offer to buy goods may be accpeted either by seller's promise to ship the goods
OR by the actual shipment. (-> blurs common law distinction between unilateral and
bilateral Ks)

Beginning of performance by offeree (i.e. - part performance) will bind offeror if
followed within a reasonable time by notice of acceptance.
Form of acceptance under UCC
Rule: Unequivocable acceptance of offer for sale of goods is not necessary under
UCC (Battle of Form)
-> between merchants, if accpetance contains additional terms, there is valid
acceptance and the additional terms become part of the K and K is formed.

EXCEPTIONS:
- original offer precludes such additions
- new terms materially alter original offer
- the original offeror gives notice of his/her objection within a reasonable time.

-> if at least one party is a nonmerchant, the additional terms are considered
proposals to offeror for additions to K, and unless offeror agrees to the additions, K
is formed on offeror's terms.
Terms left open under the UCC
If there was intent to K and a reasonable basis for establishing a remedy is avilable -
> K will not fail for indefiniteness.
Open price term under UCC
will be construed as reasonable price at time of delivery OR parties may agree to
decide price at future date or can agree to allow third party to set price
Open place of delivery term under UCC
will be construed as seller's place of delivery, if any, otherwise seller's residence or if
identified goods are elsewhere and their location is known to both parties at time of
K, then at that location
Open time of shipment or delivery under UCC will be construed as a reasonable time period
Open time of paymnt under UCC
will be construed to be due at time and place of dlivery of goods or at time and place
of delivery of documents of title, if any. If on credit -> credit period begins running at
time of shipment.
What constitutes reasonable price of reasonable time? Who construes? The jury.
UCC handling of writing that do not establish a K, but conduct by parties does.
- terms will be those on which writings agree and those provided for in UCC where
not agreed on (e.g. - reasonable price, place of delivery)

(Often occurs when merchants send preprinted forms to each other w/conflicting
terms and forms are not read for more than quantity and price.)
What constitutes the offer at an auction? the bid.
What is the rule on retraction of an offer at an auction? Offeror can retract until auctioneer announces the sale is complete.
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REGS - Contracts
Differentiate "with reserve" and "without reserve" in context of an auction.
"With reserve" = auctioneer may withdraw goods before she/he announces
completion of sale.

"Without reserve" = goods may not be withdrawn unless no bid made within
reasonable amount of time.
Consideration requirements
-A party binds him/herself to do (or actually does) something s/he is not legally
obligated to do, or when s/he surrenders legal right.
- Must be bargained for
Types of consideration that is not legally sufficient (-> nonenforceable)
- Preexisiting legal duty which includes: 1.) agreement to accept from debtor a lesser
sum than owed is unenforceable if the debt is a liquidated (undisputed) debt BUT if
debtor incurs a detriment in addition to paying, creditor's promise to accept lesser
sum will be binding; 2.) promise to pay someone for refraining from doing something
s/he has no right to do is unenforceable; 3.) promise to pay someone to do
something s/he is already obligated to do (i.e. - agreement to finish a job UNLESS
unforeseen difficulties arose)
- Past consideration
- Moral obligation (except in minority of states)
(-in maj. of states, seals placed on Ks cannot subsitute for consideration)
Modification of existing Ks and consideration
Modification of K needs new consideration on both sides to be legally binding (BUT if
the modification is not binding b/c of lack of consideration, original K still is)

EXCEPTION: Under UCC, a K for sale of goods may be modified orally or in writing
w/o consideration if in good faith.
Requirements Ks and consideration
If one party agrees to supply what other party requires, agreement is supported by
consideration. (b/c supplying party gives up right to sell to another; purchasing party
gives up right to buy from another)

- cannot be required to sell amounts unreasonably disproporionate to normal
requirements
Output Ks and consideration
If one party agrees to sell all his/her output to another, agreement is supported by
consideration b/c s/he gives up right to sell that output to another. (BUT illusory Ks
are not supported by consideration)
What can step in and bar a claim for lack of consideration (if there truly is no
consideration)? What are the elements of such a claim?
Promissory estoppel

Elements:
1.) detrimental reliance on promise
2.) reliance is reasonable and foreseeable
3.) damage results (injustice) if promise is not enforced
Are promises to donate to charity enforceable and why? Yes - for public policy reasons
Legal capacity - what Ks are void and what are voidable for lack of legal
capcity?
- Minors = voidable (by minor)
- Incompetent persons = void if K by person adjudicated insane; = voidable (by
incompetent person) if K made before person adjudicated insane
- Intoxicated person = voidable (by intoxicated person) IF extent of intoxication at
time of K was so great that intoxicated party did not understand terms or nature of K
Illegal Ks and relief available from court
When both parties are guilty, neither will be aided by court (BUT if one party
repudiates prior to performance, s/he may recover his/her consideration).

When one party is innocent (or a member of a class of people designed to bbe
protected by statute), s/he will usually be given relief.
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REGS - Contracts
Types of illegal Ks
- agreement to commit crime or tort
- agreement not to press criminal charges for consideration
- services rendered without a license when statute requires a license (regulatory
licensing statute NOT revenue-seeking statute)
- usury (contract for greater than legal interest rate)
- contracts against public policy
Intentional wrongful interference w/a valid K relationship and legality of Ks
Calling for the intentional wrongful interference w/a valid K renders a K
unenforceable UNLESS that interference results from a sale of a business/
termination of an employee and a covenant not to compete
Requirements in order for a covenant not to compete to be valid
1.) protects legit interests of buyer or employer w/o creating too large a burden on
seller or employee (based on ability to find other work)

2.) is reasonable as to length of time under the circumstances to protect those
interests

3.) is reasonable as to area to protect interests of same area

4.) same whether employer or employee initiated termination
Two types of Ks that are void as against public policy
1.) Unduly restrictive covenants not to compete
2.) exculpatory clauses found in Ks in which one party tries to avoid liability for own
negligence (UNLESS both parties have relatively equal bargaining power)
Things that can hinder reality of consent
- fraud
- innocent misrepresentation
- mistake
- duress
- undue influence
- unconscionable K/adhesion K
- changes in conditions
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