Contracts Flashcards
UCC
Governs all contracts involving the sale of goods. Good are moveable, tangible objects at the time of K.
Certain UCC rules only apply to merchants. A merchant is one who regularly deals in goods of the kind sold or has specialized knowledge of the goods sold.
Common Law
governs all other k, including service contracts and contracts for real estate.
Mixed deals
If a K involves both goods and services, whichever predominates determines the law that governs.
*Exception: If a K expressly divides payment, then UCC applies to the sale of goods and the common law is applied to the rest of the K.
K Formation
A validly formed K requires: (1) an offer, (2) acceptance of the offer, (3) consideration, and (4) no defenses.
Offer
An offer is valid if: (1) there is an intent to be bound, (2) there are definite and certain terms, and (3) there is a communication made to the offeree. An offer is valid upon receipt by the offeree.
Intent to be bound
An intent to be bound is based on an objective standard where a reasonable person in the offeree’s shoes would conclude his acceptance would create a K
Certain and definite terms
Under the common law, offer must include certain and definite terms, which include the price, parties, subject matter, quantity and time for performance.
Under the UCC, the offer must include certain and definite terms which requires only the quantity. A court will supply other reasonable terms if necessary.
Communication to the offeree
Requires a communication to a certain and ascertainable offeree.
Types of offers
(1) Bilateral offer: promise for a promise
(2) Unilateral offer: promise for performance. Once performance begins, offer is irrevocable.
An offer based on output or requirements exists when the seller agrees to sell all goods it produces and the buyer agrees to buy all the seller produces
Under the UCC, such an offer is valid so long as made in good faith and quantity is not disproportionate to any estimate or any normal prior output.
Preliminary negotiations re not offers, but invitations to offer.
An advertisement is an invitation for an offer, unless: (1) it is a reward that includes the nature of the bounty, or (2) it states a specific quantity and who can accept.
A real estate offer must identify the land and price.
An employment offer must state a duration.
Termination of an offer
An offer may be terminated if there is: (1) lapse of time, (2) death or insanity of either party, (3) revocation by the offeror, or (3) rejection by the offeree.
Termination - Lapse of time
An offer terminates if the offeree fails to accepts within the time stated in the offer or after a reasonable length of time.
Termination of offer - death or insanity
Death or insanity by either party after the offer, before acceptance, terminates the offer. However, if the offer is irrevocable and supported by consideration, it will not terminate.
Termination of an offer - Revocation by the offeror
Direct or indirect words or conduct after the offer, before acceptance indicating the offer is no longer available, terminates the offer. Revocation is effective upon receipt. However, some are irrevocable.
Termination of offer - rejection by offeree
Direct or indirect words or conduct after the offer, before acceptance, indicating the offeree has no intention to accept the offer, terminates the offer. Rejection is effective upon receipt.
*If the offeree proposes new material terms, he has rejected the offer and made a new offer in the form of a counteroffer.
*If the offeree accepts but acceptance is conditional, this is a counteroffer.
*An offer may also terminate is subject matter is destroyed.
*An offer may also terminate if there is a supervening ilegality.
Irrevocable offers
Option contract, UCC Merchant’s Firm Offer Rule, Unilateral offer where performance has begun, Detrimental reliance on an offer.
UCC Merchant Firm Offer
Under the UCC Merchant’s Firm offer rule, if (1) is a merchant, (2) offer to sell goods, (3) in a signed writing, (4) which promises to keep the offer open for a certain length of time, and (5) even if there is no consideration, it will be irrevocable for that period of time.
*After three months, the offer becomes revocable but it is not automatically terminated.
Option contract
irrevocable if the offeror promised to keep the offer open for a certain length of time, and promise is supported by consideration. The offeree can reject and then accept any time until the option expires, unless the offeror detrimentally relies on the rejection.
Unilateral offer where performance has begun
The start of performance by the offeree makes the offer irrevocable for a reasonable period of time to complete performance. The offeree is not bound to complete performance since there is no acceptance until performance is complete. Mere preparation does not qualify.
Detrimental reliance on an offer
(1) if the offeror could reasonably expect, (2) that the offeree would rely on the offer to her detriment, (3) nd she in fact relies on it, (4) the offer will be held open as an irrevocable option K for a reasonable length of time.
Acceptance
An objective manifestation of assent to be bound by the terms of the offer in a manner prescribed by the offer.
Acceptance - Common Law
Mirror image rule applies, acceptance must mirror the terms of the offer.
Acceptance - UCC
acceptance need only be a definite and seasonable expression of acceptance and can be by any reasonable method, unless otherwise stated.
*Silence is not acceptance
Acceptance - Mailbox rule
Acceptance is effective upon dispatch, unless the offer states otherwise. If acceptance is improperly transmitted, it becomes effective upon receipt.
*If acceptance and then a rejection are sent, acceptance is effective upon dispatch, unless rejection arrives first and offeror detrimentally relies on the rejection.
*If rejection is sent and then acceptance, whichever arrives first is effective.
*Acceptance of an option K is effective upon receipt.
Consideration
Requires a bargained for exchange of legal detriments between the parties.
BFE
Past or moral consideration is not bargained for, and thus, not valid consideration.
*Exception: A past obligation is valid consideration when (1) a new promise is made in writing, or (2) is partially performed. A past act that either: (1) benefitted the promisor and was performed at promisor’s express request, (2) is in response to an emergency, or (3) is a subsequent promise to pay for a past act is valid consideration if the promisee expected payment.
Substitute for consideration
A written promise to satisfy an old debt is barred by a valid defense is valid without consideration. The original debt is not revived but subsequent debt is enforceable.
Legal Detriment
Under common law, a pre-existing legal duty is not valid consideration, unless: (1) it is owed to a third person, (2) new or different consideration is promised, or (3) there are unforeseen difficulties so severe the pre-existing legal duty is valid as consideration.
*A forbearance to sue is valid consideration if promisor honestly believed the claim to be valid.
- Part payment for release is valid consideration if debt is due and undisputed
*A promise is valid consideration if its mutual and not illusory
*A promise to use best efforts is valid consideration if promisor is exclusive distributor.
Substitute for consideration - promissory estoppel
(1) if promisor makes a promise, (2) that induces reliance, (3) that is reasonably foreseeable, and (4) promisee actually relies to his detriment, the promise will be enforced to avoid injustice, even without consideration
Writing requirement of SOF
Under the common law, a writing requires identification of the subject matter of the K, price term, quantity term, and time for performance.
Under UCC, writing requires quantity term only. A merchant’s confirmatory memorandum will suffice so long as the receiving party does not object in 10 days.
Defenses to Formation - SOF
Under statute of frauds, certain agreements must be (1) in writing, (2) contain all essential terms, and (3) must be signed by party to be charged. This includes marriage, executor’s contracts, contracts for the sale of goods over $500, and suretyships (ie promises to pay the debts of another)
Writing not required under SOF when:
goods are specially made and seller has made a substantial beginning, (2)there is a written merchant confirmation memo, (3) a party admits the existence of the K in testimony or pleadings, or performance, or (4) performance.
*Under the common law, full performance is required to remove a K from SOF.
*Under UCC, partial performance satisfies SOF but only to extent of partial performance.
Land sale K under SOF
Land sale K where 2 of three of following have been met do not require a writing: (1) payment, (2) improvements, or (3) possession (PIP).
Contracts for sale of goods over $500, do not require a writing if there has been part payment or acceptance.
Defenses - Fraud/misrepresentation
A K is not performed if it is based on fraud or material misrepresentation of fact. Puffing is okay.
Defenses - duress
A K is not formed if a party entered into it under duress.
Defenses - unconscionability
A K is not formed if it is unconscionable such that it shocks the conscience at the time of the K. Ks of adhesion are unconscionable.
Procedural unconscionability: process is so unconscionable as to shock the conscience.
Substantive unconscionability: the terms of the K are so unconscionable as to shock the K
Defenses - statute of limitations
under the UCC, SOL is a breach of K is 4 years.
Defenses - illegality
a K is not formed if subject matter of the K is illegal..
Defenses - Ambiguity
Latent Ambiguity: A K is not formed if there are latent ambiguities (ie not obvious on the face of the K), unless the parties intended the same meaning. If one party is aware of the ambiguity, the K is based on the ignorant party’s meaning.
Patent Ambiguities: A K is not formed if there are patent ambiguities (ie obvious on the face of the K). However, parol evidence may be used to explain the ambiguity.
Defenses - Mistake
Mutual Mistake - A K is not formed if it is based on a MM and concerns a basic assumption on which the K was made.
Unilateral Mistake - A K is not formed is based on a unilateral mistake. However, if a party had reason to know of the mistake, a K will be formed based on the mistaken party’s beliefs.
Defenses - Incapacity
A minor who enters a K for non-necessity can disaffirm the K during his minority, or a reasonable time after reaching the age of minority. However, if he ratifies the K at the age of majority, he is liable to the extent of ratification.
A minor’s parents are liable for necessities.
Defenses - lack of consideration
A K is not formed if it lacks consideration
Interpretation of K - Parole Evidence
If K expressly says it is held out to be a final writing then all other agreements made prior to or contemporaneous with the writing are inadmissible to vary that writing.
*Subsequent agreements are not subject to PER and are admissible.
