Contracts Law Flashcards
Common Law or UCC?
1) The Common Law governs if a contract deals with Services or Real estate.
2) The UCC governs if a contract deals with Goods.
Mixed Contracts
Contracts that have elements of both services and goods must fall into one class or the other (unless divisible aka can divide goods and services portions into seperate mini-K’s).
Predominate Purpose Test (Mixed Contracts)
What is the predominate purpose of the contract? If the predominate purpose is the sale of goods, the UCC applies. If the predmoninate purpose is for services or real estate, the common law applies.
Requirements to form a Valid Contract
1) Mututal Assent (Offer + Valid Acceptance)
2) Consideration; AND
3) No Defenses to Formation
The Offer
To form a valid offer the Offeror must:
1) Manifest an Objective Willingness to enter into an agreement; AND
(a) Objective Test. Offer is governed by the outward appearances of words and actions not subjective hidden intentions.
2) Create a power of acceptance in the offeree (the offeree can say “I accept” and know the deal is done).
Specific Offeree (contests, rewards, and advertisements)
Generally, an offer must be directed to a specific offeree. Limited exception for contest offers and reward offers that promise something to anyone who accomplishes a certain task.
Also, Advertisements are usually considered a invitation to deal rather than an offer, however, a very specific and non-negotiable advertisement may constitute an offer.
Terms required in a Common Law Contract
All essential terms must be specified in a common law offer for the offer to be valid. This includes:
1) Parties;
2) Subject
3) Quantity; AND
4) Price
Terms required in a UCC contract
UCC is more willing to plug the gaps. NO PRICE IS REQUIRED, generally only three terms must be there for UCC contract to be valid.
1) Parties
2) Subject
3) Quantity
(a) Requirements and Output contracts are valid under the UCC even if they do not specifiy an exact quantity.
Terminating the Offer
If a valid offer is terminated at any time before acceptance, the offer is invalidated. An offer is terminated if any of the following occur before acceptance:
1) Offeror revokes the offer by express communication.
2) The offeree learns the offeror has taken an action that is absolutely inconsistent with a continuing ability to contract (constructive revocation.)
3) The offeree rejects the offer by express communication
4) The offeree expressly communicates a counteroffer
5) The offeror dies or becomes incapacitated (only terminates the offer not a previously valid contract.)
6) A reasonable amount of time passes; OR
7) The subject matter of the offer becomes illegal or is destroyed
Irrevocable Types of Offer
1) Option Contracts:where consideration is given in exchange for a promise to keep an offer open.
2) Firm Offers: A merchant can make a firm offer that will last a reasonable time period not to exceed 90 days. Firm offer must:
(a) Be in writing;
(b) Contain an explicit promise not to revoke; AND
(c) Be signed by the merchant
3) Where the offeree has started performance in a unilateral contract
4) Detrimental Reliance offer cannot be revoked where the offeree has** reasonably** and **detrimentally relied on **the offer in a foreseeable manner.
Acceptance of the Offer
An acceptance is a manifestation of a willingness to enter into the agreement by the offeree. Usually must be communicated, silence does not manifest willingess unless past history of silence serving as acceptance.
Acceptance in Bilateral (Promise - Promise) and Unilateral (Promise-Performance) Contracts
The offeror is the master of the offer meaning the offeree MUST accept the offer according to the rules of the offer.
(1) Bilateral contracts, the start of performance manifests acceptance.
(2) For unilateral contracts the start of performance only makes the offer irrevocable, the offer is only accepted when performance is complete.
Mailbox Rule
An ACCEPTANCE that is sent by mail, email, fax, is valid at the moment of dispatch UNLESS:
1) sender uses wrong address/postage
2) Offeror stipulated acceptance is valid upon reciept
3) Option contract is involved
4) Sender sent a termination letter BEFORE the acceptance letter (first to arrive will control unless it was acceptance first).
5) Offeror detrimentally relies on a termination BEFORE recieving acceptance letter
Mirror Image Rule (COMMON LAW)
Under the CL mirror image rule, the terms in the acceptance MUST match the terms of the offer exactly** otherwise it is not an acceptance**, it is a counteroffer.
Acceptance under UCC S 2-207(1)
“Battle of the Forms”
Under the UCC the acceptance does not need to mirror offer. An acceptance with new terms will govern if:
(1) Definite and seasonable expression of acceptance or written confirmation;
(2) Sent within a reasonable amount of time
(3) Operates as an ACCEPTANCE even though it states terms additional to or different from those offered or agreed upon
(4) UNLESS acceptance is made expressly conditional upon assent to the new terms.
What terms will govern?
UCC Battle of the Forms S2-207(2)
UCC 2-207(2). If the purported acceptance is valid, under 2-207(1), the additional terms will govern if BOTH parties are MERCHANTS, UNLESS:
(1) Initial offer expressly limited acceptance to its terms
(2) The Additional terms materially alter the deal; OR
(3) The offeror objects to the additional terms within a reasonable amount of time
Knockout Rule UCC S2-207(2)
Additional (Good) vs Different Terms (Bad)
To determine whether the new terms control or the UCC gap fillers will implemented, courts use the “Knockout Rule”. A distinction is made between different terms and additional terms.
A different term is a term not included in the original offer and conflicting with the original offer’s terms.
A additional term is a new term not included in the original offer but NOT conflicting with its terms.
Under the knockout rule, different terms in the offer and acceptance knock each other out and UCC gap fillers will take their place. Additional terms are not knocked out.
Consideration
A transfer of legal value in a bargained-for exchange. (1) Promisee incurs a legal determiment or the promisor recieves a legal benefit.
Legal Detriment consists of:
(i) promising to do something the party has no prior legal duty to do; OR
(ii) Performing an action that the party is otherwise obligated to undertake; OR
(iii) Refraining from or promising to refrain from exercising a right the party is otherwise entitled to exercise
(2) The promise induces the detriment and the detriment induces the promise (i.e. bargained-for exchange)
Promises not to sue as consideration
Promising not to sue can constitute a legal detriment, so long as the party promising not to sue has an honest and good faith belief in the validity of the claim.
Invalid Consideration
- Gift promises and conditional gift promises are NOT consideration.
- Pre-Existing Legal Duties are not consideration. I.e., I dont smoke crack for a month and you pay me $500. There is already a preexisting legal obligation not to smoke crack.
- Past Consideration is NOT consideration.
- A pretense of consideration is NOT consideration. I.e., sells 10k truck for $1 (pretense of consideration).
- Illusory promise is NOT consideration. I pay $500 if I feel like it.
Common Law Modification
Under the Common Law, contract Modifications MUST be supported by consideration. Common law follows the Preexisting Duty Rule, meaning a promise to do something a party is already legally obligated to do (by contract or otherwise) is NOT consideration.
UCC Contract Modification
Under the UCC a contract modification is valid if made in good faith.
NOTE: No preexisting duty rule under UCC.
Promissory Estoppel
Promises that lack consideration may still be enforced under promissory estoppel if:
(1) Promisor should reasonably expect the promise to induce action or forebearance from the promisee.
(2) Promise does in fact induce some action or forebearance to the promisee’s detriment; AND
(3) Injustice can be avoided ONLY by enforcement of the promise.
Quasi-Contract
1) Plaintiff confers a measurable benefit on the defendant;
2) Plaintiff reasonably expected to get paid; AND
3) It would be unfair to let the defendant keep the benefit without paying.
Under Quasi-Contract theory, the plaintiff’s recovery is limited to restitution (amount equal to benefit conferred).
Infancy (lack of capacity to contract)
A person has the capacity to incur only voidable contractual duties until the beginning of the day before they turn 18. If a minor enters a contract with an adult, they may either dissafirm and avoid liability (must return anything they received) OR affirm the contract and hold the adult party liable under it.
Mental Illness (lack of capacity to contract)
If a person has a mental illness or defect that renders them either unable to understand in a reasonable manner the nature and consequences of the transaction; OR act in a reasonable manner in relation to the transaction AND the other party has reason to know of this condition the contract is voidable.
HOWEVER, a party to a contract who is mentally ill CANNOT dissafirm a contract if:
It was made on fair terms and the other party was without knowledge of the mental illness or defect at the time of contracting.
Intoxication (lack of capacity to contract)
A person incurs only coidable contractual duties by entering into a transaction if the other party has reason to know that due to intoxication the person is unable to:
understand in a reasonable manner the nature and consequences of the transaction; OR act in a reasonable manner in relation to the transaction.
Nessaries Doctrine (Lack of Capacity Counter)
When a party provides necessaries (food, shelter, clothing, etc.) to a party without capacity, the party lacking capacity is liable for the reasonable value of the goods provded.
