Contract Fundamentals

Question 1

What does the UCC govern?

Answer 1

The sale of goods

More Info: The UCC

Question 2

What are examples of types of goods the UCC covers the sale/exchange of?

Answer 2

Any movable item, including:

1) Growing crops, both while the crops are growing & after harvest
2) Uncut timber
3) Unborn animals
4) Computer software and other electronic information

Question 3

In hybrid cases, which involve both a sale of goods and a services contract, what law applies to the transaction?

Answer 3

The applicable law is determined by the predominate purpose of the transaction. Ask if the transaction is more about the goods sold or more about the services provided.

Question 4

What factors are weighed in determining the predominant purpose of a contract?

Answer 4

1) The language of the contract
2) The nature of the supplier’s business
3) The relative values of goods versus of services

Question 5

In the sale of goods, the common law will apply unless?

Answer 5

The UCC provides contrary provisions

Question 6

How are implied-in-fact contractual obligations formed?

Answer 6

Conduct rather than words

Question 7

When does an implied-in-law contractual obligation arise?

Answer 7

One party bestows a benefit on another and it is unjust to retain the benefits without paying (e.g. emergency services).

More Info: Implied-In-Law Contract

Question 8

What is Quantum Meruit?

Answer 8

The cause of action to recover the reasonable value of the services provided in an implied-in-fact contract.

More Info: Quantum Meruit

Question 9

In order to constitute an offer, a party’s communication must meet what two requirements?

Answer 9

1) An outward manifestation (oral, written, or conduct)
2) A signal that acceptance will conclude the deal (nothing left to do but say “yes” to conclude the deal)

Question 10

What is the American advertising offer rule?

What is the exception?

Answer 10

Ads, catalogues, and price lists are not offers, rather they are all invitations for offers.

Exception:

When language exists that identifies who gets a limited supply of goods in an excess of demand situation (i.e. first come, first serve”)

Question 11

What are two types of reward offers?

Answer 11

1) Self-limiting rewards
2) Open-field rewards

Question 12

Define self-limiting rewards.

Answer 12

Rewards that indicate the task to be rewarded can be performed only once.

Question 13

Are offers for rewards acctually offers?

Answer 13

Generally, reward offers are treated as offers because they offer money in exchange for the performance of a specified task.

Question 14

Who is the offeror in an auction?

Answer 14

The auctioneer is inviting offers, and the responsive bidders are the offerors.

Question 15

What is the legal effect of an offer?

Answer 15

An offer creates the power of acceptance in the offeree.

Question 16

List the four ways to terminate power of acceptance.

Answer 16

1) Lapse
2) Death or incapacity
3) Revocation by offeror
4) Rejection by offeree

Question 17

When is the power of acceptance terminated due to lapse?

Answer 17

1) After the time stated in the offer
2) After a reasonable time

Or

3) The Face-to-Face Conversation Rule applies.

Question 18

What is the Face-to-Face Conversation Rule?

Answer 18

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

Question 19

When is the power of acceptance terminated due to death or incapacity?

Answer 19

The death of either party terminates the power of acceptance.

If either party becomes mentally incompetent or otherwise incapacitated, the power of acceptance is terminated.

Question 20

When is a power of acceptance terminated due to offeror’s revocation?

Answer 20

The offer is revoked before the offer is accepted, and the revocation is communicated to the offeree.

Question 21

When does direct revocation occur?

Answer 21

When the offeror directly communicates to the offeree an intent to withdraw the offer

Question 22

When does indirect revocation occur?

Answer 22

1) Offeror takes an action that is inconsistent with the intention to go through with the offer

And

2) The offeree learns about such action from a reliable source

Question 23

What is the Functional Equivalents Rule?

Answer 23

The offeror revokes by communicating the revocation in a functionally equivalent manner to how the offer was made. The communication terminates the power of acceptance even if the offeree is unaware of the revocation.

Question 24

What are the ways to prevent offeror revocation?

Answer 24

1. Option contracts

Or

2. Firm offers under the UCC

Question 25

List the elementsof acommon law option contract.

Answer 25

1) An offer
2) A second promise to keep the offer open for a set time period
3) Consideration for the second promise
* More Into:* Options contract

Question 26

The majority rule is where a general contractor uses a particular subcontractor’s bid to formulate his own, what type of contract has been formed?

Answer 26

Promissory estoppel applies in these situations to protect the general contractor from revocations by the subcontractors.

Question 27

What are the elements for a firm offer?

Answer 27

1) The offer is made by a merchant
2) The offer is made in a signed writing by the merchant
3) The offer expressly states by its terms that it will be held open

A firm offer that meets all of these requirements becomes irrevocable for the period of time stated or, if not stated, for a reasonable time.

More Info: Firm Offer

Question 28

How long can a “firm offer” remain open?

Answer 28

3 months

If greater than 3 months, there must be consideration.

Question 29

How can an offeree reject an offer?

Answer 29

1) Outright rejection
2) Counteroffer
3) Non-conforming acceptance

Question 30

What is the Mirror Image Rule,and when does itapply?

Answer 30

In common law contracts, acceptance must mirror the offer, and any variation results in a counteroffer.

Question 31

What are bilateral contracts and who is bound by them?

Answer 31

They are contracts that exchange promises. Once promises are exchanged, both parties are bound.

Question 32

What are unilateral contracts and who is bound by them?

Answer 32

They are formed when a promise is made for performance in a contractual exchange. The offeror is bound only when the offeree’s performance is completed, and the offeree is never bound.

Question 33

When can an offeror revoke a unilateral contract?

Answer 33

Once the offeree begins performance, an option contract is created and the offeror may not revoke.

Acceptance of the offer is still effective only upon the completion of performance.

Question 34

When does acceptance under the common law occur?

Answer 34

1) The acceptance mirrors the terms of the offer

And

2) The acceptance is communicated to the offeror

Question 35

If the offer stipulates a particular means of communicating acceptance, then what is required to accept the offer?

Answer 35

The means stipulated in the offer must be followed

Question 36

If the offer is silent as to the means of communication for acceptance, the offeree can accept by what means?

Answer 36

1) Means used by the offeror to communicate the offer
2) Means customarily used in similar transactions

Or

3) Means of communication that are equivalent in speed and reliability to the means used by the offeror

Question 37

When does acceptance by silence occur in common law contracts?

Answer 37

1) When the offeree takes the benefit of the offeror’s services with both reasonable opportunity to reject them and reason to know that compensation was expected
2) When the offeror gives the offeree reason to understand that acceptance may be communicated by silence the offeree’s silence will be effective if the offeree intends to accept
3) When, because of previous dealings, it is reasonable that the offeree should notify the offeror when he does not intend to accept
* More Info:*Acceptance by Silence

Question 38

In a unilateral contract, how is acceptance effectuated?

Answer 38

Only by completing performance

Question 39

What does the Mailbox Rule not apply to?

Answer 39

1) Offers
2) Rejections
3) Revocations
4) Option contracts

Question 40

What does the Mailbox Rule apply to?

Answer 40

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

It does not matter if the acceptance is lost in the mail.

Question 41

When a rejection, offer, or revocation is put in the mail, when is it communicated?

Answer 41

Upon receipt, not upon being read

Question 42

What carrier services does the Mailbox Ruleapply to?

Answer 42

The Mailbox Rule applies to any means of transmission that involves a foreseeable delay between dispatch and receipt.

Question 43

In a situation where parties simultaneously dispatch identical offers, what is the effect?

Answer 43

Offers are only effective upon receipt. Therefore, dispatch of simultaneous offers is not legally relevant.

Question 44

What happens when an offeree dispatches two responses to an offer, the first purporting to reject the offer and the second purporting to accept it?

Answer 44

1) If the acceptance reaches the offeror first, the there is a contract by virtue of the communicated acceptance.
2) If the rejection reaches the offeror first, then there is no contract.

Question 45

How can seller accept a buyer’s offer under the UCC?

Answer 45

1) A promise to ship goods in conformance with the offer
2) Prompt or current shipment of the goods in conformance with the offer
3) Shipping non-conforming goods, unless sent as an accommodation

Question 46

What is the effect of a UCC seller’s shipment of nonconforming goods?

Answer 46

1) Accepts the offer forming a binding contract

And

2) Puts the seller in breach of the contract.

Question 47

The UCC will allow for a binding contract to be formed with a non-mirror acceptance when what occurs?

Answer 47

1) Both parties are merchants
2) New terms address a new topic not addressed by the offer and not expressly limited to nor objected to, and the new terms do not materially alter the contract or change an existing term in the offer.
* More Info:* UCC - Non-mirroring Contracts

Question 48

Under the UCC, what is a term that materially alters a contract?

Answer 48

Terms that would result in surprise or hardship if incorporated without the express consent of the other party, such as:

1) Warranty disclaimers
2) Clauses that materially shorten the deadline for raising complaints
3) Clauses that change industry standard or past courses of dealing

Question 49

Under the UCC, what must the parties be for non-mirror acceptance to be binding?

Answer 49

Both parties must be merchants. If one is a consumer, then the acceptance is merely a proposal.

Question 50

What are the terms of a UCC contract formed by conduct?

Answer 50

1) Terms upon which the writings of the parties agree

And

2) The default terms provided by the UCC

Question 51

What is the legal effect of the agreements that consumers find once they open the boxes or packaging containing their goods?

Answer 51

In consumer transactions, they are mere proposals that the consumer can accept or reject.