Contracts Flashcards
UCC
UCC governs “sales of goods.” If UCC applies, it trumps any contrary common law rule.
- Sales = any transaction in which the seller transfers title of goods to a buyer. (not temporary)
- Goods = any movable item. Does not include intangibles (goodwill, IP), money, legal claims, services, or real property.
Contracts: Hybrid cases (involves both sale of goods + service contracts)
→ Predominant purpose test = determined by the predominant purpose of the transaction (majority rule).
→ e.g., if you go to Best Buy a buy a car stereo (goods), and JimBob installs it (service), the predominant purpose is to buy the stereo
→ Factors to determine predominant purpose:
- Contract language→ Was K described as a goods K?
- Nature of supplier’s business→ i.e., Best Buy sells goods
- Value of goods v. services→ i.e., $30 in goods but $2 services = goods K
Express contract
= oral and written expressions of the agreement. (i.e., formed a contract on purpose)
Implied-in-fact K
= formed by conduct rather than words.
→ e.g., Homeowner hires a plumber to fix a leak, but because of the urgency of the service, the parties do not discuss the price of the work performed. Upon completion of the work, Homeowner has an implied-in-fact obligation to pay the plumber the reasonable value of the services rendered.
Implied-in-law K
= arises where one party bestows benefit on another and it would be unjust not to pay the reasonable value of the benefit. (aka unjust enrichment, quasi-contract)
→ e.g., A surgeon who performs emergency surgery on an unconscious patient creates an implied-in-law obligation to the patient.
Offer
= To be an offer, a party’s communication must meet two elements:
1) Outward manifestation (oral, written, or via conduct); and
→ i.e., don’t care what goes on in your head
→ e.g., A seemingly serious offer to sell real property made in secret jest is nonetheless an offer. (don’t care if you cross your fingers, for example)
→ e.g., A proposal to sell at a price that a reasonable person would regard as “much too good to be true” (e.g., “new HDTVs for $8.99”) DOES NOT constitute an offer.
2) Signal that acceptance will conclude the deal (power of acceptance)
→ e.g., “I will sell you my car if you’ll pay me $5,000 cash.” This is an offer because it expresses a willingness to conclude the deal if the other party pays the required $5,000.
→ e.g., “Yes, I’d be willing to sell you my car, but what are you willing to pay for it?” This is NOT AN OFFER because the communicating party is obviously reserving the right to decide whether she likes the price suggested by the other party.
→ as opposed to preliminary proposal: I’m thinking of selling my car; what would you give me for this
Are ads offers?
Ads, catalogs, price lists are ~invitations~ for offers, since responses may exceed available supply of goods or services. (i.e., ads are generally not offers)
*Exception: Language that identifies who gets a limited supply of goods even if there is an excess demand (i.e. first come, first served, or first 10 customers) → turns them into offers
Are rewards offers?
Yes. Rewards are offers because they are communications that promise $ in exchange for performance of specific tasks.
→ e.g., $500 for finding and returning my lost dog.
An offer creates the power of acceptance in the offeree; what are the 4 ways to terminate this power?
1) Lapse of time
→ Offer terminates after the amount of time stated in the offer or after a reasonable time.
Reasonable time determined by:
- (1) subject matter/market conditions, and
- (2) degree of urgency and means of transmission. (e.g, if you’re selling a stock whose price fluctuates a lot, the offer might only last a minute; means of transmission: are we communicating by telegraph, or email, etc.)
→ Face-to-Face Conversation Rule: An offer made in a face-to-face conversation generally lapses at the end of the conversation (but you can always say otherwise in the conversation)
2) Death or incapacity of either party after the offer is made terminates the power of acceptance.
3) + 4) Revocation by offeror:
→ Offeror may revoke an offer at any time, for any reason:
- Must be revoked before acceptance AND
- Revocation must be communicated to the offeree
3) Direct revocation = offeror directly communicates to offeree an intent to withdraw the offer.
4) Indirect revocation → 2 requirements:
1. Offeror takes action that is inconsistent with the intent to go through with the offer; and
2.Offeree learns of such action from a reliable source.
→ e.g., While deciding whether to accept an offer to sell you a car, you learn from a friend that the car was sold to someone else.
→ HYPOTHETICAL: A offers to sell real property to B. While B is considering the offer, A sells the property to C. Oblivious to the third-party sale, B sees A on the street and yells, “I accept your offer!” Is A now contractually bound to sell the property to B?
Yes, because it wasn’t indirectly revoked. A should have directly revoked.
Preventing Revocation
American Rule: The offeror can revoke even if he gave a specific time to accept.
→ e.g., I can revoke on day 15 even if I said ‘you have 30 days to think about it’; but the offer still lapses after 30 days.
Option Contract (common law)
→ Elements = Offer + Separate promise to keep it open + Valid mechanism for enforcing the subsidiary promise (consideration is most common way)
e.g., “I hereby offer to sell you Blackacre for $10,000, and in consideration for the $100 received, I hereby grant you a 30-day option on the deal.”
Reliance/Construction: Courts will hold offers open when the offeree has detrimentally relied on them → such as when general contractors rely on subcontractor’s bids in forming their own bids on a project.
Firm Offer (UCC) = Irrevocable offer by a merchant to buy or sell goods without consideration
→ 3 elements:
1) Offer made by a merchant (in the business of buying or selling goods) +
2) In a writing signed by the merchant +
3) Expressly stating it will be held open.
→ Irrevocable for time stated or reasonable time
→ BUT no longer than 3 months, even if stated otherwise.
(can still extend into a normal option contract, by paying to keep the offer open)
Firm Offer (UCC)
= Irrevocable offer by a merchant to buy or sell goods without consideration
→ 3 elements:
1) Offer made by a merchant (in the business of buying or selling goods) +
2) In a writing signed by the merchant +
3) Expressly stating it will be held open.
→ Irrevocable for time stated or reasonable time
→ BUT no longer than 3 months, even if stated otherwise.
(can still extend into a normal option contract, by paying to keep the offer open)
Rejection by Offeree
3 ways:
1) Outright rejection
2) Rejection via counteroffer: counteroffer = rejection + new offer (e.g., I am not willing to pay $10K for the car, but I would happily buy your car for $9K → can’t then go back and take the original $10K offer)
→ Exception: Offeree can test the waters by making a mere inquiry
e.g., $10k isn’t out of the question but it’s a little high given the age, would you consider a lower offer?)
→ “only if you paint the fence” is a counteroffer; “would you also paint the fence” is a mere inquiry
3) Rejection via non-conforming acceptance
→ Mirror image rule (common law): Acceptance must mirror the terms, and any variation is a counteroffer (and thus a rejection of the initial offer)
→ e.g., X offers to buy goods from Y, Y says OK and also says he expects payment in 30 days. This is a violation of the mirror image rule so is a counteroffer.
Bilateral vs. Unilateral Contracts
Bilateral Contract = Offer seeking acceptance by a promise. A promise is being exchanged for a promise. Once promises are exchanged, both parties are bound
Unilateral Contract = Offer seeking performance in return (e.g., reward offers).
→ Offeror not bound until offeree completes performance
→ Offeree is NEVER bound
Unilateral Contract Revocation of Offer
= once offeree begins performance, an option K is created → offeror may not revoke.
Mere preparations do not create an option K, only beginning performance.
→ e.g., X offers Y $100 to “ride my horse Bronco for a minute,” and while Y is putting on his boots X revokes (this is mere preparation)
Acceptance (Common Law)
= Acceptance must mirror terms of offer AND be communicated to the offeror.
→ 2 Exceptions to the requirement that acceptance be communicated:
1) Unilateral K: Acceptance is effective only by completing performance; no communication required unless offer provides otherwise.
2) Acceptance by mail
Common law Mailbox Rule = acceptance by mail is effective upon dispatch if properly posted.
- Applies only to acceptances and not to any other communication (i.e., not to revocations or rejections—everything else must be received).
- This is the default rule → it applies unless the offer provides otherwise (e.g., “I must hear back from you by EOB Friday.” If the offeror doesn’t hear back by then, even if the acceptance is posted by Friday, it does not count—must have been received by EOB Friday to count.)
*also mailbox exceptions (another card)
Mailbox Rule
Common law Mailbox Rule
= acceptance by mail is effective upon dispatch if properly posted.
- Applies only to acceptances and not to any other communication (i.e., not to revocations or rejections—everything else must be received).
- This is the default rule → it applies unless the offer provides otherwise
*Mailbox Rule Exceptions
Option Ks: Restatement/majority rule: The mailbox rule is not applicable to option Ks → acceptance is only effective upon receipt. (e.g., if you had a 30-day option, the acceptance would have to be received by day 30 to count; not just sent on day 30)
Hard Case: What happens when an offeree dispatches two responses to an offer, the first rejecting the offer and the second accepting it?
→ Mailbox rule does not govern if rejection is mailed before acceptance, and whichever arrives first will be effective. (rejecting first turns off the mailbox rule)
UCC Acceptance
UCC - Acceptance by Seller’s Shipment
= Seller can accept Buyer’s offer to purchase goods for prompt or current shipment in 3 ways:
1) Promise to ship goods;
2) Ship conforming goods; or
3) Ship non-conforming goods (i.e., things that aren’t exactly what the buyer asked for)
→ unless the seller sends the shipment as an accommodation (that = counteroffer)
- So I offer to buy X, they ship Y that’s a contract unless it’s an accommodation
→ e.g., Buyer orders 1,000 widgets from Seller for immediate delivery. Seller responds by shipping 800 widgets with an accompanying notice to the buyer explaining that the seller did not have adequate inventory to ship 1,000 widgets and was thus shipping 800 widgets as an accommodation to the buyer in light of the buyer’s urgent need → this is a counteroffer
UCC Battle of the Forms
→ An offeree’s nonconforming acceptance or confirmation (with additional terms) = an effective acceptance of the offer, thus forming a contract (not a counteroffer).
→ e.g., Buyer sends Seller a purchase order for 1,000 widgets at the advertised price of $10 each. Seller sends Buyer an Acknowledgment of Order form that promises delivery of the widgets at the stated price, but also contains boilerplate language that negates warranties and limits remedies in the event of breach. Seller’s form will operate as acceptance of Buyer’s offer and create a binding K despite the presence of terms that vary from Buyer’s purchase order.
*3 exceptions (new card: 1) offer expressly limits acceptance to its own terms; 2) offeror rejects the new terms within a reasonable time; 3) new terms would “materially” alter the contract)
Effect of Different/Additional Terms (UCC)
Between merchants, the “additional” terms in offeree’s acceptance or confirmation become part of the contract EXCEPT in 3 circumstances:
*note: must be between merchants/can’t be with a regular person, like a customer; in that situation, regular person would have to accept the new terms
1) The offer expressly limits acceptance to its own terms
→ e.g., “This order expressly limits acceptance to the terms stated herein.”
2) If offeror objects to the additional terms within a reasonable time
→ e.g., through language to the effect of: “We do not accept the binding arbitration provision set forth in your Acknowledgment of Order.”
3) If the additional terms would materially alter the K
→ “Material alteration” = terms that would result in “surprise or hardship if incorporated w/o the express awareness of the other party.”
→ Examples of clauses that would materially alter the contract include:
- warranty disclaimers;
- clauses that materially shorten the deadline for raising complaints;
- clauses that change usages of trade or past courses of dealing;
- arbitration clause (this has been tested a lot recently)
→ if the fact pattern says it’s common in the industry or in prior course of dealings between the parties then it’s not a material alteration
When “Different” terms in the two writings deal with the same topic → they knock each other out (the “knockout” rule).
→ e.g., Buyer’s purchase order contains a choice of law provision stating that California law will govern disputes arising from the transaction, and Seller’s order acknowledgment states that New York law will govern. Under the majority rule, neither provision is part of the parties’ contract (they knock each other out). If the parties desire a choice of law provision, they will have to negotiate one from scratch.
UCC Conditional Acceptance
→ If the offeree’s “acceptance” is specifically conditioned on the offeror first agreeing to the additional terms in the acceptance before the offeree will proceed, this nonconforming, conditional acceptance will NOT be effective to form a K (i.e., it’s a counteroffer)
- No K is formed by the writings until the offeror expressly assents to the additional terms.
- BUT, if you shipped the product anyway after putting out your conditions, it’s a contract
UCC Contracts formed by conduct
→ The UCC provides that the parties’ conduct in recognizing the existence of a contract is sufficient to establish a contract, even though their writings do not otherwise establish a contract
→ The terms of the contract will be:
- terms on which the writings of the parties agree; and
- default terms provided by the UCC.
Note: Express terms in the parties’ communications that don’t match/agree are omitted.
Consideration general rule
General Rule = A promise is unenforceable unless it is supported by consideration.
Consideration (bargain theory)
= Promise is supported by consideration if based on a bargained-for exchange
→ there was something (goods or services) that was promised, and the promise must have been made in order to obtain something else of value
(quid pro quo for making the promise → usually a return promise or performance)
Consideration: benefit/detriment test (aka legal value analysis)
= there is consideration where there is a benefit to the promisor and/or a detriment to the promisee.
Legal Detriment Test = Whether promisee is:
- doing something he had a legal right NOT to do; or
- forgoing some activity he HAD a legal right to do.
→ e.g., Promoter promised musician $5,000 to play a concert at Carnegie Hall. Promoter then tried to back out of the promise, claiming that “you would have done it for free.” (consideration bc there wasn’t a legal duty to play the concert→ a legal detriment)
→ e.g., Uncle promised nephew $5,000 if nephew would give up smoking and drinking. The uncle’s estate, hoping to avoid this obligation, argued that the nephew didn’t incur a detriment because giving up smoking and drinking was good for his health. (he had a legal right to smoke and drink, then gave that up, so it was consideration; but if he was 16 years old, say, he would not have had the legal right, so no consideration)
- if you have a pre-existing duty→ NO consideration
(e.g., the 16-y-o had a pre-existing duty to not drink and smoke, so no consideration)
Inadequacy of Consideration
Courts don’t police the equivalence or fairness of the exchange.
If I sell you my car for $100 even though it’s worth $20,000, I don’t get to invalidate the K (the buyer gets the capitalism award of the week)
Illusory Promise
= Promise of performance that leaves performance to the unlimited discretion of the promising party → does NOT constitute consideration.
→ e.g., You agree to paint my portrait, and I agree to pay you $1,000 if I decide I want it.
Gratuitous Promise
= Promise to make a gift → generally unenforceable due to insufficient consideration.
- One-sided: I can change my mind → I promise to give my nephew a car for his birthday, then I decide not to; that’s fine, he cannot sue me.
*Exception: Gratuitous transfers are legally binding.
→ e.g., If I promise you a new car for your birthday, that would constitute a gratuitous promise and would be unenforceable if I decline to follow through. However, if I give you a new car for your birthday, then the transfer is legally binding, and I cannot later change my mind and take back the car.
Alternatives in the Absence of Consideration: Past or Moral Consideration
= General Rule: A promise in exchange for something already given or performed is NOT supported by consideration. (same as a pre-existing duty: a promise to perform a pre-existing duty is not supported by consideration)
→ e.g., In Mills v. Wyman, the court refused to enforce the father’s after-the-fact promise to compensate a Good Samaritan for nursing his dying son past consideration is not actually consideration: no present exchange the good Samaritan did not provide the care to get paid
*Exception (this is enforceable):
- A written promise to pay a debt barred by a statute of limitations.
→ e.g., If I owe Visa $10k and don’t pay, then they don’t sue to collect before the statute of limitations (so they can no longer sue to collect), but then after that I promise Visa to pay them back the $10k, that is enforceable even though Visa didn’t do anything new to get my money
Alternatives in the Absence of Consideration
1) Past or Moral Consideration
2) Material Benefit Test (minority rule)
3) Promissory Estoppel
*each has their own card
Alternatives in the Absence of Consideration: Material Benefit Test
= Promise made in recognition of a past benefit conferred is enforceable if:
- promisee conferred the benefit on the promisor (not a third party); and
- the benefit is material.
→ e.g., A sees that B is in grave danger and heroically intervenes to save the latter, injuring himself in the process. B gratefully promises to compensate A for his efforts. These are the facts of Webb v. McGowin, where the court enforced the promise because A’s efforts bestowed a material benefit (the saving of a life) on B.
→ e.g., Because the Good Samaritan in Mills v. Wyman bestowed the benefit of nursing services on the promisor’s son rather than on the promisor, the promise would not be enforceable.
Promissory Estoppel
(Alternative in the Absence of Consideration)
= Promisee that reasonably relies to his detriment on a gratuitous promise may be able to enforce that promise even without consideration.
4 Requirements:
1) A promise
→ e.g., Statements like “I’d like to give you some money to help you with college” would be considered too vague to be an actual promise. But “I’ll give $25,000 toward your tuition this fall” would be specific enough to qualify as a promise.
2) Foreseeable reliance
→ e.g., The widow’s move to her brother-in-law’s farm on the faith of his promise would have been reasonably foreseeable to the brother-in-law at the time he made her the promise. However, if the widow had purchased a high-end SUV to facilitate the move, this would likely not have been foreseeable.
3) Actual reliance (must be induced by the promise)
→ e.g., If the widow had already decided to make the 60-mile move before her brother made her the promise, then this would not be actual reliance.
4) Injustice without enforcement
→ Factors to analyze “injustice” requirement:
- Strength of proof of the other three requirements;
- Blameworthiness or willfulness of the breach (e.g, I could pay for the car, but just decide not to do it vs. I’ve fallen on hard times and can’t pay for it anymore);
- Relative position or equities of the parties (e.g., I’ve fallen on hard times at the end of my nephew’s 4 years of college, but he’s just landed a big high-paying job, the court may not enforce my promise);
- Extent to which the reliance was detrimental; and
- Availability of alternatives short of enforcing the promise.
→ HYPOTHETICAL: Uncle promises his nephew $8,000 to enable the latter to purchase a neighbor’s car for transportation to school and an after-school job. In reliance on the promise, the nephew secures possession of the vehicle and promises the neighbor the $8,000. If the uncle reneges on his promise to pay, is promissory estoppel available if the neighbor is willing to accept the return of the car and release the nephew from debt?
No, there is an alternative short of enforcing the promise.
Statute of Frauds
→ SOF is a defense
= If the K falls under the SOF → It must be in writing + signed by the party against whom enforcement is sought. (aka the Defendant)
→ SOF = exception to the general rule that oral and written Ks are equally enforceable
6 Categories of Contracts Subject to SOF (MYLEGS)
- Marriage Ks (e.g., prenups)
- Year: Ks that cannot be performed within one Year of their making
- Land: Ks for the sale of Land
- Executor: Ks of an Executor or administrator to answer for a duty of a decedent
- Guarantee: Ks of Guarantee or suretyship (i.e., guarantor)
- Sale: Ks for the Sale of goods at a price of $500 or more (UCC 2-201)
SOF - Year Ks
Ks that cannot be performed within one Year of their making
→ Measured from date K made, not date performance begins.
→ At point of formation, is it at all possible (even if not probable) to complete required performance within 1 year? (if technically possible to do it in under a year, NOT subject to SOF)
- e.g., One of the parties to an oral construction agreement attempts to back out 14 months into the project and raises the Statute of Frauds as a defense. Because the prospect of performance is measured from the point of making the contract (when completion within a year was possible) rather than from the time of the dispute (when completion within the first year is clearly no longer possible), the agreement is not governed by the one-year provision and no signed writing is required.
**Frequently Tested Situations
→ K that can be breached or excused within a year of its formation.
- This is potentially true of any K and so would swallow the one-year rule.
- Irrelevant. What matters is not whether the K can be breached within one year but whether the K can be performed in full by its terms within one year of its formation.
→ A lifetime or permanent contract of employment is not governed by the one-year rule because employee’s death is possible within a year.
SOF - Guaranty/Suretyship Agreements - Main Purpose Exception
= where the main purpose of the guarantor is to protect his own economic interests, the guarantee agreement is not governed by the Statute of Frauds, and can be oral.
→ HYPOTHETICAL: Joe Plumbing Co. secures a loan from Piggy Bank. N. Vestor, who owns a controlling interest in the plumbing firm, makes an oral promise to the Bank to guarantee repayment of the loan. Is the guarantee within the Statute of Frauds?
- No, the oral promise is not subject to SOF. Vestor owns a controlling interest and is looking to protect his own interests in Joe Plumbing. It could be an oral agreement and be enforceable.
Satisfying the Statute of Frauds (Writing, Signature, Performance)
Writing Requirement
→ All that is necessary is that the writing be a memorandum of the agreement which can be prepared before, during, or after formation.
- e.g., “Dear Tony, I regret to inform you that I cannot go through with the sale of my racehorse to you. Although the $100,000 you agreed to pay is very generous, my accountant has advised me of the tax implications, which I had not considered, and so I must regretfully bow out.” (this is a memorandum after the fact that is sufficient to satisfy SOF→ he proves that there was a contract!)
The following terms are required in the memorandum:
* Identity of the parties to the transaction;
* The nature and subject matter of the K; and
* The essential terms of the agreement, such as price and date for performance.
Signature: Any symbol with intention to authenticate the writing (ex: initials, typed, stamped or preprinted signature, or letterhead).
Performance: SOF may be satisfied with respect to some categories of governed contracts via part performance, in an action for specific performance.
→ Land sale Ks: Part performance requires a showing of any combination, or all three of the following:
- Payment of all or part of purchase price;
- Taking possession of land;
- Making substantial improvements to property.
→ One-Year Ks:
- If fully performed—enforceable despite SOF.
- If only partially performed—not enforceable. (i.e., need full performance: so if I’m hired as a sports agent on a 3 year contract and I represent the player for all 3 years, but we just have an oral arrangement, he CANNOT then come back and say there was no contract due to SOF—because I did all 3 years; but if I did less than 3 years, I’m screwed)
What falls under UCC Statute of Frauds?
Ks for sale of goods for $500 or more
5 Ways to Satisfy UCC Statute of Frauds
1 normal way; 4 exceptions:
1) Signed Writing:
- Writing;
- Quantity; and
- Signed by the party against whom enforcement is sought.
*If no price, even if signed writing, only enforceable as to the quantity. With no quantity, no enforceable agreement.
**2) Merchant’s Confirmation:
**
= Two merchants enter oral agreement, one sends the other written confirmation of agreement. SOF satisfied against the recipient merchant if:
- Both sender and recipient are merchants;
- Writing is in confirmation of the K and contains a quantity; and
- Recipient does not send written objection within 10 days.
**3) Judicial Admission:
**
= Party admits K formation in pleading, testimony, or otherwise in court.
**4) Partial Performance:
**
= Despite absence of writing, an otherwise valid K is enforceable for:
- goods for which payment made/accepted; or
- goods which have been received/accepted.
*both parties have to act in both scenarios (A has to pay/send; B has to accept $/goods)
**5) Specially Manufactured Goods:
**
= SOF satisfied against buyer who orders custom goods from a manufacturer if:
- manufacturer detrimentally relied by beginning performance before buyer’s withdrawal; and
- manufacturer can’t resell the goods in the ordinary course of business.
