CONTRACTS Flashcards
OFFER
An objective manifestation of a present intent to contract
>Demonstrated by a promise, undertaking, or commitment; definite and certain terms; and communication to an offeree
>Creates power of acceptance in the offeree
Objective manifestation of intent - The offer must give the offeree a reasonable expectation that the offeror is willing to enter into a contract
> Would a reasonable person believe the communication is an offer inviting acceptance?
Definite and certain terms required - enough essential terms must be included to allow a court to enforce the contract
> Vague terms or terms of negotiation not allowed
> Real estate - requires price and identification of land
Communication to an identified offeree - The offeree must know of the offer and have the power to accept it
> Advertisement - generally not offers, unless highly specific as to quantity and clearly indicate who may accept
UCC offers:
> Quantity must be certain or capable of being made certain
—> Requirement/output contracts - no unreasonably disproportionate increase in quantity allowed
> Missing terms OK if it appears parties intend to make a contract and there is a reasonably certain basis for giving a remedy
TERMINATION OF OFFER
An offer may be terminated by an act of a party or by operation of law
Acts of parties:
(1) Revocation by offeror
(2) Rejection by offeree
(3) Lapse of time
OPeration of law:
(1) Death or insanity of either party
(2) Destruction of proposed contract’s subject matter
(3) Supervening illegality
REVOCATION OF OFFERS, IRREVOCABLE OFFERS, & OPTIONS
An offeror may revoke her offer, which effectively terminates the offer and the offeree’s power of acceptance
Methods of revocation
(1) Unambiguous statement by the offeror to the offeree
(2) The offeree becomes aware of the offeror’s unambiguous conduct or statement indicating an unwillingness or inability to contract
Limitations on revocation
> Revocation is only effective upon receipt by the offeree
> Offer cannot be revoked once it has been accepted
> Irrevocable offers - offer is irrevocable if:
(a) Option contract - promise to keep an offer open
> Requires consideration in exchange for the option
(b) UCC firm offers - if a merchant offers to sell goods in a signed writing and gives assurances that the offer will be held open, it is irrevocable for a designated period or up to three months; no consideration is required.
(c) Detrimental reliance by offeree - reliance must be reasonable
Unilateral contracts - the start of performance makes the offer irrevocable for a reasonable time to complete performance
—> The start of the performance must go beyond mere preparation
REJECTION OF OFFER
Rejection by offeree terminates the offer and the offerees power of acceptance
Methods of rejection:
(1) Express rejection
(2) Counteroffer - terminates the original offer and becomes a new offer; bargaining is not a counteroffer
—> If response to an offer is a statement - counteroffer
—> If response to an offer is a question - bargaining
(3) Conditional acceptance - temrinates the original offer and becomes a new offer
—> Indicated by terms such as “if,” “only if,” “but,” “provided,” “so long as,” “on condition that,” etc.
(4) Accetance with additional terms (common law only)
—> Common law - acceptance must mirror the offer
—> UCC - if both parties are merchants, additional terms are a “seasonable expression of acceptance” if they do not materially alter the offer and the offeror does not object
ACCEPTANCE
A clear expression of assent to the terms of the offer
Common law (“Mirror Image Rule”) - acceptance must mirror the offer’s terms; it cannot omit or add new terms
UCC Acceptance issues
> Acceptance with additional terms - acceptance that proposes additional or different terms is valid unless the acceptance expressly requires assent to the different or additional terms
—> Both parties are merchants - additional terms become part of the contract unless they materially change the offer or the offeror objects within a reasonable time
> Acceptance by prompt shipment - a merchant may accept an offer to buy goods by either:
(a) Providing a promise to ship goods (usually by written confirmation), or
(b) Promptly shipping conforming goods
> Shipment of nonconforming goods may give rise to breach
MAILBOX RULES
Offers and acceptances transmitted via mail or other similar methods become effective upon either dispatch or receipt
Offers - effective upon receipt
Acceptance - Effective upon dispatch
Limitations:
> If the offer stipulates acceptance is not effective until received, the offer controls
—> i.e., the offeror can opt out of mailbox rules
> Option contracts - acceptance is effective upon receipt
> If the offeree sends both a rejection and acceptance the first to arrive is controlling
Revocation - mailbox rule does not apply
> Revocation is effective upon receipt
ACCEPTANCE BY PERFORMANCE
An offeree may accept by partial performance (for bilateral contracts) or complete performance (for unilateral contracts) unless the acceptance is limited by the term of the offer
Unilateral contracts - complete performance is required
> The offeree is not obligated to complete the performance
> Offereee’s failure to perform does not constitute a breach (because no contract is formed absent complete performance
> Offer may become irrevocable upon the start of performance until completion
> * Notice - The offeree is not required to give notice upon the start of the performance but must notify the offeror within a reasonable time upon completion
Bilateral contracts - partial performance gives rise to acceptance
> Offeree must make offeror aware of acceptance
Offers requiring acceptance by promise
> An offer requiring acceptance by promise may still be accepted by performance if:
(1) The offeree begins to perform
(2) The offeror learns that the offeree has started the performance and acquiesces
*** Note - an offer may always limit methods of acceptance
CONSIDERATION & SUBSTITUTES FOR CONSIDERATION
A bargained-for legal detriment incurred by each party to a contract by promise, forbearance, or performance
“Bargained-for legal detriment” - the promise must induce the detriment and the detriment must induce the promise
> Legal detriment - obligation to do or refrain from doing something one would not otherwise be obligated to do or refrain from doing.
> Pre-existing legal duty - a promise to perform a pre-existing legal duty is not valid consideration unless there is a new written promise to fulfill a debt obligation
Substitutes for consideration
> Reliance/estoppel - courts may enforce a promise if:
(1) The promisor reasonably expects reliance by promisee
(2) Promisee acts or refrains from acting such that his reliance is detrimental, and
(3) Injustice will occur without enforcement of the promise
> UCC modifications to contracts - consideration is. not necessary for good-faith written modifications to a contract governed by the UCC
> PAst debts - If a debt is barred by the statute of limitations, a new written promise to fulfill the debt is enforceable without consideration, but only according to the new terms.
PERFECT TNDET & REJECTION OF GOODS
The seller’s performance must be perfect with respect to the goods delivered and the manner of delivery
Imperfect tender - buyer can retain or reject nonconforming goods
> If the seller’s performance is not perfect, the buyer can either:
(a) Retain goods delivered and sue for damages, or
(b) Reject some or all goods and sue for damages
Rejection from imperfect tender - buyer must:
(1) Notify seller of rejection in a reasonable time (usually 30 days)
(2) Hold the rejected goods using reasonable care
(30 Give the seller reasonable time to arrange for the removal of goods
—> If the seller gives no information regarding removal, the buyer can return goods to the seller, store the goods for the seller, or resell the goods on behalf of the seller (i.e., for the seller’s profit)
PERFECT TENDER & ACCEPTANCE OF GOODS
Acceptance of goods if either:
(a) Buyer, after a reasonable opportunity to inspect goods, indicates to seller that goods conform or that he will keep them despite nonconformance
—> Payments without an opportunity in inspect is not acceptance
—>If buyer accepts goods, he cannot later reject them
(b) Buyer fails to reject or notify seller of rejection within a reasonable time (no more than one month)
Revocation of acceptance
> Buyer generally cannot reject goods once he has accepted
> Exceptions - buyer can revoke acceptance within a reasonable time after discovering a defect if the defect substantially impairs the goods’ value and either:
(a) Buyer accepted goods on the reasonable belief that defect would be cured and it has not been, or
(b) Buyer was excusably ignorant defect or reasonably relied on seller’s assurance that goods conformed.
PERFECT TENDER & SELLER’S ABILITY TO CURE
If the buyer has notified the seller of imperfect tender (i.e., delivery of nonconforming goods), the seller may have an opportunity to cure
The seller can cure if:
(1) Seller gives buyer notice of intent to cure and time for performance has not yet expired
—> Seller must give the buyer reasonable notice and deliver conforming goods
(2) Seller had reasonable grounds to believe nonconforming goods sent would be acceptable
—> Reasonableness is usually based on the seller’s prior dealings with the buyer
—> Seller will have an additional reasonable time period to tender conforming goods
** Note - buyer cannot compel seller to cure
PERFECT TENDER & INSTALLMENT CONTRACTS
Under an installment contract, a buyer’s ability to reject goods due to imperfect tender is limited
Installment contract - authorizes or requires delivery of goods in separate lots
Rejection - The buyer can only reject a delivery/installment if:
(1) Nonconformity substantially impairs the installment
(2) Nonconformity cannot be cured
> Rejection is limited to nonconforming installment, not the entire contract
—> Buyer can only cancel the entire contract based on a nonconforming installment if that installment substantially impairs the value of the entire contract.
SUBSTANTIAL PERFORMANCE
If one party has substantially performed, the other party is obligated to perform and complete the performance
> i.e., less than-perfect performance by one party does not excuse the other party from his obligation
> “Substantial” is usually considered at least halfway complete
> Thus, substantial performance by A obligates B to perform; but B may seek money damages for the difference between the performance rendered and the performance expected
** Note - look for substantial performance issues in construction contracts or other similar service contracts.
MATERIAL BREACH
Rules concerning common law material breach:
> Material breaches by the other party excuses performance
> Substantially breach does not equal material breach
> Materiality of the breach is a question of fact (and thus less likely to be tested on the MBE)
> Damages are recoverable for any breach
Timelines of performance
> Failure to perform by the time stated in the contract is not a material breach if performance is rendered within reasonable time after the time stated
> Exception - “time is of the essence” clause
—> If timely performance is essential, failure to perform by that time is a material breach
—> Arises if one party indicates as a term of the contract that performance by a given date is essential
- Note - material breach rules do not apply to sales of goods contract
