Ch1-7

Question 1

Common law applies

Answer 1

Contracts for goods or services
Always apply common law unless UCC rule differs

Question 2

Article 2 applies

Answer 2

Contracts for sale of tangible goods

Question 3

Predominate purpose test

Answer 3

When contract deals with sale of property or service and goods
Apply whichever is the predominate purpose of the contract

Question 4

Formation of a contract

Answer 4

Contract is a legally enforceable agreement created through the process of mutual assent and consideration provided that no valid defenses to the contract exist

Question 5

Mutual assent

Answer 5

Essential in formation of a contract
Occurs when acceptance of a valid offer

Question 6

How to decide whether the offer is valid

Answer 6

Objective theory
Judged by outward objective facts interpreted by a reasonable person

Question 7

UCC 2-204

Answer 7

A contract may be formed in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract

Question 8

Express contract

Answer 8

Words expressing intent of parties

Question 9

Implied in fact contract

Answer 9

When conduct indicates assent or agreement

Question 10

Offer

Answer 10

Objective manifestation of a willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree
Communication that gives power to the recipient to conclude a contract by acceptance
Must have intent

Question 11

Intent

Answer 11

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

Question 12

Knowledge of offer

Answer 12

To have the power to accept an offer the offeree must have knowledge of it
Ex. lost poster of dog; man finds dog and returns without seeing poster reward, comes back next day requesting reward = no knowledge no acceptance, no contract, no money

Question 13

Terms in offer

Answer 13

For a contract to exist, the terms of the contract must be certain and definite

Question 14

Common law terms

Answer 14

All essential terms must be in the agreement

Question 15

UCC terms

Answer 15

Only quantity is needed
Contract formed if intent of parties is to do so
Gap fillers will be used for undetermined terms

Question 16

Duration terms

Answer 16

In ongoing contracts, wil be determined to last for a reasonable period of time
Employment contracts
If time not specified, then rebuttable presumption that working at will
Any party can terminate at any time without considering it a breach
Permanent employment considered at will

Question 17

UCC 2-305

Answer 17

Missing terms provision to fill with gap fillers
such as the time (reasonable) or place for delivery (the seller’s place of business), the time of payment (when the buyer is to receive the goods), the assortment of goods (reasonable choice of the buyer), and even the price for the goods.
If the contract omits a price or if the parties agree to set the price in the future and then fail to agree, the UCC supplies a reasonable price at the time of delivery.

Question 18

Vague terms

Answer 18

No presumption of contract because parties lack intent

Question 19

Invitation to deal

Answer 19

NOT an offer
Question typically in the form of an inquiry and the statement in response is the offer

Question 20

ways to terminate offer

Answer 20

1. lapse of time
2. death of mental incapacity
3. destruction or illegality
4. revocation
5. rejection
6. counteroffer

Question 21

lapse of time

Answer 21

offer can be terminated if not accepted by a party within a specifically state time period once offer is received NOT SENT

if no time specified then offer ends when reasonable period of time is dependent on the facts, nature of the contract, and trade.

Question 22

Restatement second 41

Answer 22

unless agreed otherwise and parties are talking on the phone, acceptance does no extend beyond the end of the conversation

Question 23

death or mental incapacity

Answer 23

terminates offer if offeror or offeree dies or becomes mentally incapacitated

if OFFER HAS BEEN ACCEPTED BEFORE then the contract is still valid, does not automatically terminate

Question 24

Restatement s. 36(c)

Answer 24

destruction or illegality terminates offer

offer involving subject matter that is destroyed is terminated
offer that becomes illegal is terminated

Question 25

revocation

Answer 25

offer can be revoked at any time before acceptance occurs

Question 26

constructive revocation

Answer 26

If offeree receives reliable information that the offeror has taken definite action inconsistent with offer it is automatically revoked through constructive revocation

Question 27

how to revoke offer

Answer 27

May be made in reasonable manner and by reasonable means but not effective till communicated

Question 28

revocation sent by mail under common law and UCC

Answer 28

not effective until received CL: a written revocation is received when comes into possession of the person addressed or person authorized to receive on behalf UCC 1-202: 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.

Question 29

exceptions to revocation

Answer 29

1. option contracts 2. UCC firm offer 3. detrimental reliance 4. partial performance

Question 30

option contracts

Answer 30

Promise to keep an offer open for a specified period of time; cannot revoke during the period of time Must give separate consideration if new contract, if existing contract then no consideration is needed CL: r. 37

Question 31

UCC Firm Offer

Answer 31

2-205 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. No consideration by the offeree is needed to keep the offer open under the UCC firm offer rule.

Question 32

merchant

Answer 32

person who regularly deals in types of goods involved in transaction

Question 33

time for merchant firm offer

Answer 33

cannot exceed 3 months regardless of time period stated can be less or extended WITH CONSIDERATION

Question 34

signed writing in firm offer

Answer 34

anything written writing including electric record or email

Question 35

detrimental reliance

Answer 35

doctrine of promissory estoppel When the 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.

Question 36

partial performance

Answer 36

Unilateral contract, cannot revoke once performance has begun

Question 37

rejection by offeree

Answer 37

Offer terminated by rejection Usually effective upon receipt

Question 38

counteroffer

Answer 38

Acts as a rejection and creates a new offer Exception for option contracts NOT the same as rejection and mere inquiry or indecision ** (ex. “Is that a 2005 model? Or i’ll keep offer under advisement”)

Question 39

revival of the offer

Answer 39

the offer may be revived by offeror only and then accepted by the offeree Example: A offers to paint B’s house for $500. B rejects the offer. A states that the offer remains open. B can change her mind and accept the revived offer

Question 40

Acceptance of offer

Answer 40

objective manifestation to be bound to terms only party to whom an offer is extended may accept must know about offer in order to accept

Question 41

bilateral contract

Answer 41

promise by one party is exchanged for a promise by the other

Question 42

unilateral contract

Answer 42

party promises to do something in return for an act of the other party must be aware of offer before action is taken

Question 43

means of acceptance to an offer

Answer 43

always determined by offeror UCC 2-206: if not specified, can be accepted in any reasonable means

Question 44

silence as acceptance

Answer 44

generally not an acceptance UNLESS 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 45

shipment of goods as acceptance

Answer 45

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.

Question 46

shipment of nonconforming goods

Answer 46

If the seller ships nonconforming goods, then the shipment is both an acceptance of the offer and a breach of the contract. Unless 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 47

mailbox rule

Answer 47

An acceptance that is mailed within the allotted response time is effective when sent (not upon receipt), unless the offer provides otherwise. Must be properly addressed DOES NOT APPLY TO AN OPTION CONTRACT

Question 48

rejection under mailbox rule

Answer 48

MAILBOX RULE DOES NOT APPLY 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 the offeror receives the rejection first and detrimentally relies on the rejection, then the offeree will be estopped from enforcing the contract.

Question 49

acceptance following rejection

Answer 49

mailbox rule does NOT APPLY 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. Received when writing comes into possession of the offeror or deposited in mailbox

Question 50

revocations and mailbox rule

Answer 50

effective upon receipt

Question 51

Notice in unilateral contract

Answer 51

No notice required unless reason to know that offeror would not learn of performance If notice required: 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 52

notice in bilateral contract

Answer 52

Must give notice of acceptance \ Mailbox rule applies; acceptance valid when dropped in mailbox UCC 2-206(2) Notice required within reasonable time if acceptance is made by beginning performance and failure to do so will result in lapse of offer

Question 53

terms of acceptance in common law

Answer 53

MIRROR IMAGE RULE

Question 54

mirror image rule

Answer 54

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. Watch for inquiries or suggestions

Question 55

terms of acceptance in UCC

Answer 55

gap fillers, no mirror image Additional or different terms included do not automatically constitute a rejection Whether new terms are part dependent on if parties are merchants

Question 56

terms when one party is not a merchant

Answer 56

Acceptance occurs unless acceptance made expressly condition upon terms stated in offer Additional terms are treated as proposals for addition to the contract that must be separately accepted

Question 57

terms if both parties are merchants

Answer 57

Battle of the forms UCC 2-207 guides

Question 58

UCC 2-207

Answer 58

a contract exists under the terms of the acceptance, unless (i) the terms materially alter the agreement, (ii) the offer expressly limits the terms, or (iii) the offeror objects to the new terms within a reasonable time after notice of the new terms is received.

Question 59

UCC 2-207(2)

Answer 59

Acceptance includes additional terms UCC 2-207(2) An additional term in the acceptance is automatically included in the contract when both parties are merchants, unless: 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. “Materially Alter”: A term that results in surprise or hardship if incorporated without the express awareness by the other party materially alters the original contract.

Question 60

knockout rule

Answer 60

under UCC if acceptance includes DIFFERENT TERMS different terms in the offer and acceptance nullify each other and are “knocked out” of the contract.

Question 61

UCC 2-207(3)

Answer 61

Acceptance based on conduct 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.

Question 62

Consideration

Answer 62

essential to contract bargained for exchange in the form of a legal benefit or legal detriment

Question 63

forms of consideration

Answer 63

May take form of 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 64

Gifts

Answer 64

not consideration

Question 65

test to determine gift from valid consideration

Answer 65

whether the offeree could have reasonably believed that the intent of the offeror was to induce the action. If yes, there is consideration, and the promise is enforceable.

Question 66

promissory estoppel

Answer 66

A party’s promise to make a gift is enforceable under the doctrine of promissory estoppel if the promisor/donor knows that the promise will induce substantial reliance by the promisee, and the failure to enforce the promise will cause substantial injustice.

Question 67

pre-existing duty rule

Answer 67

Common law only 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). 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 68

exceptions to pre-existing duty rule

Question 69

past consideration

Answer 69

not acceptable as consideration under common law

Question 70

modification of contracts under common law

Answer 70

Must be supported by consideration Agreements to modify 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.

Question 71

modification under UCC

Answer 71

UCC 1-201(2) no consideration is necessary to modify a contract; however, good faith is required. Good faith requires honesty in fact and fair dealing in accordance with reasonable commercial standards.

Question 72

installment contracts

Answer 72

a party benefited by a condition under a contract may orally waive that condition without new consideration. in installment contracts, the waiver may be retracted by providing the other party with reasonable notice that strict performance is required.

Question 73

accord contracts

Answer 73

Party taking over another party’s contract or creating a new contract within existing contract 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.

Question 74

accord contract w/ dispute of monetary claim

Answer 74

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 75

satisfaction w/in accord contract

Answer 75

Performance of the accord agreement Discharges the original contract and accord contract 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 76

use of negotiable instrument

Answer 76

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

Question 77

illusory promises

Answer 77

not valid consideration promise that cannot be breached

Question 78

certain promises binding without consideration

Answer 78

1. promise to pay debt 2. promise to perform a violable duty 3. promise to pay benefits received 4. promissory estoppel

Question 79

promissory estoppel

Answer 79

Detrimental reliance Requirements A promise is binding if: i) The promisor should reasonably expect it to induce action or forbearance on the part of the promisee or a third person; ii) The promise does induce such action or forbearance; and iii) Injustice can be avoided only by enforcement of the promise in general, the promisee must actually rely on the promise, and such reliance must have been reasonably foreseeable to the promisor. The remedy may be limited or adjusted as justice requires.

Question 80

exception to reliance requirement of promissory estoppel for charitable subscriptions

Answer 80

Courts often apply the doctrine of promissory estoppel to enforce promises to charitable institutions.

Question 81

enforceability of a contract

Answer 81

A contract may be unenforceable based upon a defense to formation or a defense to enforcement. Proof of the defense may render the contract void or voidable. Void Voidable Unenforceable