Contracts Flashcards
Applicable Law
Contracts for the sale of goods are governed by Article 2 of the Uniform Commercial Code. All other contracts are governed by general common-law contract principles.
Merchants
In addition, Under the UCC, there are some special rules governing agreements between merchants. A merchant includes not only a person who regularly deals in the type of goods involved in the transaction, but also any business person when the transaction is of a commercial nature.
Contract Formation
A binding contract is created through the process of mutual assent and consideration, when no valid defenses to contract exist. Mutual assent occurs upon acceptance of a valid offer to contract.
Offer
An offer is an objective manifestation of a willingness to enter into an agreement by the offeror that creates a power of acceptance in the offeree. In other words, it is a communication that gives power to the recipient to conclude a contract by a acceptance.
Revocation
In general, an offer can be revoked by the offeror at any time prior to acceptance. A revocation may be made in any reasonable manner and by any reasonable means, and it is not effective until communicated.
UCC Firm Offer Rule
Under the UCC, an offer to buy or sell goods is irrevocable if: (i) the offeror is a merchant; (ii) there are assurances that the offer is to remain open; and (iii) the assurance is contained in an authenticated writing from the offeror. No consideration by the offeree is needed to keep the offer open under the UCC firm offer rule. If the time period during which the option is to be held is not stated, a reasonable time is implied. However, irrevocability cannot exceed 90 days, regardless of whether a time period is stated or implied, unless the offeree gives consideration to validate it beyond the 90-day period.
Acceptance
An acceptance is an objective manifestation by the offeree to be bound by the terms of the offer. An offeree must know of the offer upon acceptance for it to be valid. In addition, the offeree must communicate the acceptance to the offeror.
Mailbox Rule
An acceptance that is mailed within the allotted response time is effective upon posting (not upon receipt), unless the offer provides otherwise. A revocation, on the other hand, is effective only upon receipt. The Mailbox Rule does not apply to option contracts.
Acceptance by Silence
An acceptance is an objective manifestation by the offeree to be bound by the terms of the offer. Generally, silence does not operate as an acceptance of an offer, unless: (i) the offeree has reason to believe that the offer could be accepted by silence, was silent, and intended to accept the offer by silence; or (ii) because of previous dealings or patterns of behavior, it is reasonable to believe that the offeree must notify the offeror if the offeree intends not to accept.
Consideration
In addition to offer and acceptance, most courts require valuable consideration for an agreement to be enforceable. If either party has not given consideration, the agreement is not enforceable upon formation. Valuable consideration is evidenced by a bargained-for exchange in the legal position between the parties.
Substitute for Consideration: Quasi-Contract
When a plaintiff confers a benefit on a defendant and the plaintiff has a reasonable expectation of compensation, allowing the defendant to retain the benefit without compensating the plaintiff would be unjust. When this happens, the court can permit the plaintiff to recover the value of the benefit in order to prevent the unjust enrichment.
A court may allow restitutionary recovery if:
i) the plaintiff has conferred a measurable benefit on the defendant;
ii) the plaintiff acted without gratuitous intent; and
iii) it would be unfair to let the defendant retain the benefit because either (a) the defendant had an opportunity to decline the benefit but knowingly accepted it, or (b) the plaintiff had a reasonable excuse for not giving the defendant such opportunity.
Substitute for Consideration: Promissory Estoppel
When the offeree detrimentally relies on the offeror’s promise prior to acceptance, the doctrine of promissory estoppel may make the offer irrevocable. It must have been reasonably foreseeable that such detrimental reliance would occur in order to imply the existence of an option contract.
Breach (UCC)
Under the UCC, the seller generally must strictly perform all obligations under the contract or be in breach. The doctrine of material breach applies only in the context of installment contracts or when the parties so provide in their contract.
Breach (CL)
Under Common law, the material breach of contract allows the non-breaching party to withhold any promised performance and pursue remedies for the breach, including damages. If the breach is minor (the breaching party has substantially performed), then the non-breaching party is entitled to remedies that would apply to the nonmaterial breach, but the non-breaching party’s performance is not excused. If a minor breach is accompanied by an anticipatory repudiation, then the non-breaching party may treat the breach as a material breach.
Anticipatory Repudiation (UCC)
According to the UCC, anticipatory repudiation occurs when there has been an unequivocal refusal of the buyer or seller to perform, or when a party creating reasonable grounds for insecurity fails to provide adequate assurances within 30 days of demand for assurances. Repudiation allows the nonrepudiating party to resort to any remedy given by the contract or code.
