Contracts Flashcards
Uniform Commercial Code (UCC)
The UCC applies when sale of goods is involved are both parties merchants (someone who regularly does business with knowledge and experience in particular goods)? If selling/buying high volume, assume merchant. If unknown, assume non-merchant
Common law (CL)
If K does not deal with sale of goods, e.g., real estate (house, land), services (construction)
Hybrid cases
Predominant purpose of transaction
Offer
An offer must create a reasonable expectation in the offeree that the offeror is willing to enter a contract with the offered terms. There must be a promise, definite terms, and communication to the offeree
Promise
There must be a present commitment rather than a mere invitation to begin negotiations
1. Public offers (ads, catalogs, price quotes) are invitations for offers
a.
EXCEPT promises to specific offerees (“first come, first served”; “only one can win”)
2. Puffery (jest or exaggeration) does not create reasonable expectation in offeree (Pepsi Points Case)
3. Reward offers are offers to enter into a unilateral K, EXCEPT limit to how many can accept
4. Auctions: Auctioneer is inviting offers; bids are offers, EXCEPT where “without reserve”
Definite, certain terms
must sufficiently identify offeree & definite subject matter (LSK: land and price / service K: nature of work / UCC: quantity). Ct may supply reasonable missing terms, except price in LSK
Communication:
Offeree must have knowledge of the communication
1. Not preliminary negotiations or mere invitation
Termination of offer
Revocation
Rejection: Outright rejection or another method to reject + create new offer
Lapse of time: Offeree must accept w/in specified/reasonable time starting from when offer is received by offeree or when it would have been received (if delayed + offeree knows or should have known); otherwise, offeree allows offer to terminate
Death or incapacity, destruction of subject matter, unconscionability, invalid party (minor, insane, etc.)
Revocation of Offer
Retraction of an offer by the offeror, effective when received by offeree, or by publication through comparable means (e.g., can’t revoke offer in business magazine by publishing in home magazine)
Irrevocable if 1) UCC firm offer: Offer by merchant in signed writing to keep offer open during time stated (or, if not stated, reas. time up to 3 months). No payment required. 2) Option (promise to keep offer open for a time for consideration). 3) Detrimental reliance. 4) Part performance
Rejection
Outright rejection or another method to reject + create new offer
1.
Counteroffer, not mere inquiry
2.
Nonconforming acceptance (mirror image rule: Acceptance must mirror the terms of the offer)
Lapse of time
Offeree must accept w/in specified/reasonable time starting from when offer is received by offeree or when it would have been received (if delayed + offeree knows or should have known); otherwise, offeree allows offer to terminate
Acceptance of offer
Offeree must objectively manifest assents to terms and communicate it in any reasonable manner. Expressly or by conduct. Offeree must have knowledge of offer
Unilateral K
only complete performance constitutes acceptance of offer. Completed act forms the K
Mailbox Rule
Acceptance is effective when dispatched. EXCEPTION: When exercising option K, effective when received. Other types of communication (such as offers) are effective when received
If the offeree’s response to offer proposes adding/deleting/changing terms in Common Law
Each and every term of offer must be accepted unequivocally (mirror image rule). Any additional/different terms in the acceptance makes the response a rejection and counteroffer
If the offeree’s response to offer proposes adding/deleting/changing terms in UCC
(battle of the forms): A contract can be formed between merchants even though terms of acceptance do not match terms of offer. Additional/different terms are effective as an acceptance, unless acceptance is expressly made conditional on acceptance of proposed terms
UCC Contract Modification Either party not a merchant
§ 2-207 is not applicable. Additional/different terms are mere proposals and not part of K unless offeror agrees to the modified terms
UCC Contract Modification Both Merchants and Additional
Additional terms become part of K, UNLESS…
Acceptance is made conditional on offeror’s assent to additional or different
terms
Original offer expressly limits acceptance to offer terms
New terms materially alter original terms, e.g., arbitration clause, disclaimer, materially shorten deadline, change usage of trade or past method of dealing
Offeror objects to the change within reasonable time
UCC Contract Modification Both merchants + different terms?
Knockout rule (majority): Conflicting terms are omitted from K; gaps left are filled by UCC default terms (see § V-a-v)
Minority rule: Alternatively, analyze as if additional terms (see (b) above)
No acceptance but parties perform anyway? Use knockout rule
Consideration
Promises must be supported by consideration to be enforceable. There must be a bargained-for
exchange between the parties. Each side must give up something they wouldn’t have but for the promise. That
which is bargained for must be of legal value
Value of promises or requests is irrelevant for validity: Zero-value token is not sufficient consideration, but
“a mere peppercorn will suffice”
Peace of mind or personal satisfaction is sufficient to qualify as a benefit
Consider unconscionability defense (see below) for excessively one-sided bargain
Surrendering a claim: If the claim is invalid, surrendering can still constitute consideration if 1) the claim is
in fact doubtful, or 2) The surrendering party (regardless of other party) believes the claim is well founded
Where consideration does not exist
- Illusory promise: Only one party is bound to perform, leaves performance to discretion of other
party—“all the widgets I want” (not “I require”), “all you want to sell me” (not “you produce”) - Gratuitous promise: A promise to make a gift and no return consideration
a. Cf. executed gift (legally binding intent to give a gift + actual/symbolic delivery) - Past/moral consideration: Promise in exchange for something already given or performed
a. EXCEPTIONS: New promise to pay anyway
i. Statute of limitations: Written promise to pay a debt barred by limitations
ii. Bankruptcy: Written promise to pay a debt discharged by bankruptcy
Mutual mistake
as to existing facts: K is voidable by adversely affected pt only if (1) mistake concerns a
basic assumption of K, (2) mistake has a material effect on agreement, and (3) affected pt did not assume
the risk of the mistake (assumption commonly occurs when one pt is in position to better know the risks)
Unilateral mistake
K voidable only if non-mistaken pt knew or had reason to know of mistake by other pt
Absence of consideration
No K exists
Incapacity
Infancy (under 18) or mental incompetence at the time of K. Such incapacitated party may enter into a K
and enforce it, and the K is voidable only by that party
i. Ratification: Once a minor turns 18, may expressly/impliedly ratify and be bound to K
ii. EXCEPTION: Can recover reasonable value for necessaries (food, clothing, shelter)
Misrepresentation
K becomes voidable by innocent pt
i. Fraudulent misrepresentation (fraud in the inducement): Inducing another pt to enter into K by asserting (or
conduct such that other pt infers) untrue information. K voidable if justifiably relied on misrepresentation
ii. Nonfraudulent misrepresentation: K voidable if innocent pt justifiably relied on material misrepresentation
1. Materiality: objectively likely to induce a reasonable person to agree with asserted information or
subjectively the maker of assertion had reason to know it was likely to cause someone to agree
Fraudulent nondisclosure:
Nondisclosure of material facts + duty to disclose (e.g., fiduciary relationship, assertion
later made untrue, obligation of good faith) + reasonable reliance on nondisclosure. K becomes voidable
Undue influence
1) Unfair persuasion, 2) against a vulnerable party (aged, ill). K becomes voidable
Unconscionability
The test is whether in light of the general commercial background and needs of the particular
parties, K is so one sided as to be unconscionable under the circumstances at time of formation. Result: Court may
refuse to enforce K, enforce remainder of K w/o unconscionable parts, limit clauses to avoid unconscionable result