Contracts Flashcards
Applicable law rule statement
Article 2 of the UCC governs contracts involving the sale of goods, and the common law governs all other contracts, including those involving services and real property.
UCC goods def
movable, tangible property
UCC merchant def
A merchant includes not only a person who regularly deals in the type of goods involved in the transaction, but also any businessperson when the transaction is of a commercial nature. Special rules apply to merchants under the UCC.
Predominate purpose test
When a contract includes both goods and services, whichever one predominates will determine the governing law. *look at purpose of K (is purpose to provide services or provide goods?)
Starting rule for K formation issue
A valid contract requires offer, acceptance, and consideration.
*Then discuss all three and discuss each potential offer until you find actual one
Offer common law rule
An offer is a manifestation of willingness to enter into a bargain. An offer requires a
(1) promise (of intent to enter into a K, can be shown by language and context),
(2) definite and certain terms (parties, subject matter, price and quantity) and
(3) communication to the offeree.
Advertisements rule
typically invitations to deal and not offers to sell.
*Exception: ads that are specific, contain words of commitment and limit who may accept the offer/offeree can be identified with specificity can be a valid offer.
Solicitation of bids
likely preliminary negotiations
Catalogs with specified goods and prices
typically an invitation to deal, not offer
Rewards and auctions
Can be offers if it is clear who can accept/win
Offer UCC rule
Making an offer in any manner and by any reasonable means is permissible (UCC finds offers more easily than CL).
**UCC will use gap fillers for missing terms EXCEPT for subject matter and quantity.
Termination of offer, can happen in 5 ways
- Rejection
- Counteroffer (contains different terms, rejection AND new offer)
- Revocation
- Lapse of time
- Death or incapacity of either party
Revocation general rule
An offeror can revoke an offer at any time before acceptance. A revocation can be:
- Direct or indirect,
- Unambiguous words or conduct that’s inconsistent with intent to contract,
- Offeree is made aware
Revocation exceptions: Irrevocable offers
- UCC firm offers
- Option K
- Detrimental reliance and partial performance
Irrevocable offers: UCC firm offer
UCC “firm offers” are irrevocable even without consideration. Firm offers require:
(1) Made by a merchant,
(2) Signed writing,
(3) Gives assurance it will be held open for a specified time (during which it’s irrevocable but cannot exceed 90 days, unless there is consideration then it can remain open for longer than 90 days).
**NOTE: even if offer says it remains open for longer than 90 days, that doesn’t affect firm offer, will be irrevocable for 90 days then revocable after that
Irrevocable offers: Option K
Where offeror grants offeree an option to enter into a K for a specified period of time and promises the offer will be held open during that time. Consideration is required and the offer will be irrevocable for the stated option contract.
Irrevocable offers: Detrimental reliance and partial performance
An offer will be temporarily irrevocable if the offeree has made preparations to perform in reasonable detrimental reliance on the offer or has performed in part.
(1) Unilateral contract: once performance has begun, the offer is temporarily irrevocable.
(2) Bilateral contract: making preparations to perform may make the offer irrevocable if justice requires (e.g., subcontractor bids)
Acceptance general rule
An acceptance is the manifestation of assent to the terms of the offer. This can be by words (oral or written) creating an express contract, or by conduct creating an implied-in-fact contract.
2 methods of acceptance
- Bilateral contract: parties exchange promises. Can be accepted by a promise OR by the beginning of performance.
- Unilateral contract: the offeror makes a promise, and the offeree must perform. Can only be accepted by complete performance.
Power of acceptance limitations
- Timing: acceptance made within reasonable time
- Only be offeree
- Only in response to offer
- Manner of acceptance: an offer must be accepted in the manner required by the offer. But, if no method is specified, acceptance can be by “any reasonable means.”
Mailbox rule (when acceptance is effective)
the mailbox rule provides an acceptance is effective when placed in the mail.
Mailbox rule exceptions
- Where offer itself provides otherwise, terms of offer control.
- Option contract is effective upon receipt, not when sent.
- If both an acceptance and rejection is sent…
(1) Rejection sent first = acceptance effective only if it is received first.
(2) Acceptance sent first = effective when sent.
Acceptance varying from offer: CL mirror image rule
An acceptance must be a precise mirror image of the offer. If the response conflicts at all with the offer, it is a rejection and a counteroffer.
Acceptance varying from offer UCC part 1: additional/new terms
If terms in acceptance are additional/new –> “battle of the forms determines outcome:
- If any party NOT a merchant, acceptance is valid but will not include additional terms unless offeror agrees.
- If BOTH parties merchants, acceptance is valid and additional term becomes part of K unless:
(1) Offer expressly limits acceptance to its terms,
(2) Material alteration with added term (disclaimer of warranties),
(3) Objection: If offeror objects to additional term within reasonable time.
Acceptance varying from offer UCC part 2: different/conflicting terms
If terms in acceptance are different –> different terms are treated different depending on jx:
- Knock out rule (majority): conflicting terms cancel each other out, neither enters K. K consists of agreed on terms, court supplies missing terms if needed
- Treat as additional terms (minority rule): apply above test
- Fall out rule (another minority rule): offeror’s terms control.
Acceptance by shipping goods
Unless offer specifies otherwise, an offer to buy goods may be accepted by shipping the goods (e.g., a purchase order sent to the seller and the seller fills the order). The offer is accepted by promptly shipping conforming or nonconforming goods.
- Shipping conforming goods = acceptance
- Shipping nonconforming goods depends on whether seller acknowledges conformity. If yes, not an acceptance, seller making counteroffer that buyer is free to accept or reject. If not, offer has been accepted AND breached simultaneously.
Consideration rule
bargained for exchange of legal detriment
Illusory promise
NOT supported by consideration and is thus not enforceable.
*E.g., one party includes right to cancel order provision in K; A promises to buy as many X as he wants
Requirement Ks (good faith implied)
Valid because parties agree that the seller will be the exclusive source of all of the buyer’s requirements for a particular item for a specified period of time.
Output Ks (good faith implied)
Valid because buyer agrees to buy all of the seller’s output of a particular item for a specified period of time.
Past consideration
a promise to pay for a benefit received in the past will not provide current consideration on a new bargain subject to two exceptions:
- New promise to pay past debt that is now barred
- New promise to pay for benefits previously received at promisor’s request or in an emergency
Preexisting duty rule
Provides that a promise to do something that one is already legally obligated to do will not provide consideration for a new bargain unless the duty is owed to a third person.
Promissory estoppel rule (ALWAYS assess if there’s no or invalid consideration)
If a promise is made by a party, but there is not consideration provided by both sides, the promise will still be enforceable if:
- promisor should reasonably expect the promise to induce action,
- promise actually induces action, and
- injustice can only be avoided by enforcement of promise.
*Damages limited to reliance damages
Defenses to K formation (can be spotted at time of contracting) SMUFM
- SOF
- Misrepresentation
- Unconscionability
- Fraud
- Mistake (unilateral or mutual)
SOF rule
Certain Ks must be in writing and signed by the party to be charged to be enforceable (MR. DOG)
- Marriage
- Real property
- Suretyship (debt)
- One year (Ks that cant be fully performed within one year of their making)
- Sale of goods $500 or more
SOF exceptions
if the SOF is not met, a court will still enforce the oral K in limited situations:
- Part performance for land sale Ks (Purchase, Improvements, Possession–2 out of 3)
- Full performance has occurred by party seeking to enforce K
- Goods (enforceable for full performance like goods paid for or delivered, and enforceable to the extent money has been paid for part performance)
- Main purpose doctrine: pay debt of another where main purpose of K is promisor’s own interest or indemnity K
SOF writing requirement rule
There must be one or more writings that, combined, include (1) the essential terms of the contract and that (2) is signed by the party to be charged (person against whom enforcement is sought).
- The writing does not have to be a formal contract (it can be in the form of letters or receipts), and
- multiple writings can be put together to meet the requirements, as long as they reference each other. - The writing does not have to exist at the time of the promise. It can be created after the promises are made and still meet the SOF
SOF writing requirement exceptions: Confirmatory memo
- Both parties are merchants,
- one party sends a confirmatory memo to the other party who knowingly receives the memo and does not respond within 10 days;
- the contract is enforceable against the receiving party, even if it did not sign the memo.
SOF writing requirement exceptions: Judicial admission
in pleadings or testimony that there was an agreement will allow the agreement to be enforced without a writing.
SOF writing exceptions: Promissory estoppel
If a party reasonably and detrimentally relies on a promise made by the party to be charged, a court may enforce the contract despite the failure to meet the SOF requirement.
*Almost always an exception
SOF approach
(1) Determine whether the SOF applies to the contract.
(2) If the SOF applies, determine whether the requirements (written, signed by party to be charged) are met.
(3) If requirements are not met, discuss exceptions (part/full performance, estoppel).
Defense to K formation: Misrepresentation
State of mind need not be intentional (if it is, that’s fraud below), it can be done negligently or innocently. Elements for latter:
- False statement of material fact
- Justifiable and actual reliance by injured party
- Damages: P must suffer a pecuniary loss
Defense to K formation: Fraud
Prima facie case:
(1) False statement of material fact,
(2) Knowledge of the statement’s falsity (scienter),
(3) Intent to induce reliance so other party will enter into k
(4) Justifiable and actual reliance, and
(5) Damages: P must suffer a pecuniary loss (if #’s are given, state the actual economic damages), can also sue for punitive damages.
Defenses to K formation: Unconscionability
A court will not enforce a contract that is so unfair, no reasonable person would agree to it. If a court finds unconscionability, it can refuse to enforce the entire contract, or strike the unconscionable portion of the contract, or limit the unconscionable terms.
- Procedural: bargaining process unfair (e.g., party in superior position, like boss)
- Substantive: terms are unfair
