Formation

Question 1

What are the types of law that govern contracts?

Answer 1

1. Common Law: governs any contracts not governed by UCC (employment contracts, personal service contracts)
2. UCC Article II: governs sale of goods (anything moveable); tangible personal property (special rules govern transactions between merchants)
3. Mixed: When the sale involves both services and good, predominant purpose of the contract reigns

Question 2

What is a merchant under the UCC?

Answer 2

Person that regularly deals in transactions involving certain types of goods or holds himself out as having special knowledge or skill about those goods

Note: anyone in business qualifies as having “knowledge” of transaction

Analyze whether P and D are merchants

Some rules under Article 2 apply only to merchants. A merchant is one who deals in goods of the kind sold or who by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction. Anyone in business would likely qualify as having knowledge of the practices involved in this transaction

Question 3

Elements needed to form a valid contract

Answer 3

1. Mutual assent (offer and acceptance)
2. Consideration
3. No defenses to formation

To form a valid contract there must be mutual assent (e.g., offer and acceptance) and consideration.

Question 4

Offer

Answer 4

1. an expression of a promise, undertaking, or commitment to enter into a contract,
2. with certain and definite terms,
3. communicated to an offeree

The fact that an offer gives the offeree a choice of terms does NOT make it too uncertain. When the offeree accepts, the terms of the contract will be certain.

Question 5

Under common law, what terms must be included in the offer?

Answer 5

1. Parties
2. Subject matter
3. Price
4. Quantity

Question 6

What is the only essential term the UCC requires in a contract?

Answer 6

In contract for sale of goods, quantity must be certain; UCC will supply gap fillers for missing terms as long as parties intended to make K.

Use for UCC requirements contracts

Question 7

What is a requirements contract?

Answer 7

Buyer agrees to buy from seller all the particular goods buyer requires and seller agrees to sell them to buyer.

Don’t need to mention specific quantity; it’s considered definite because it refers to the buyer’s actual requirements

Question 8

Are advertisements offers?

Answer 8

Ads are not offers unless they contain specific and detailed information as to the price, quantity, and who can accept

An offer creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror. To be an offer, a communication must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms. Usually, an advertisement is not an offer.

Question 9

Termination of Offer by Operation of Law

Answer 9

• Incapacity: Death/insanity of either party
• Destruction of subject matter
• Illegality: Supervening illegality of subject matter (contract becomes illegal)

Other termination methods
* Lapse of time
* Revocation by offeror
* Rejection by offeree

Question 10

Define

unilateral contract

Answer 10

Offer of unilateral contract can only be accepted by full performance

Offer is binding once performing party begins performance

Question 11

Define

continuing offer

Answer 11

offer for series of contracts that are revocable at will (unless made irrevocable through consideration)

Question 12

Define

options contract

Answer 12

Offer promising to keep the offer open for a specific period of time
* Revocable unless consideration is given (makes it irrevocable)

Question 13

UCC Merchant’s Firm Offer

Answer 13

Offer is irrevocable IF:
1. Merchant offers to buy/sell goods
2. In signed writing and
3. Gives assurances that offer will be held open

Maximum period: 3 months

Under Article 2, if a merchant offers to buy/sell goods in a signed writing and the writing gives assurances that it will be held open, the offer is not revocable for lack of consideration during that period. Article 2 limits this period to three months.

Question 14

Define

Acceptance

Answer 14

Manifestation of assent to the terms of the offer
* Must be communicated to offeror
* Must be unequivocal

Question 15

Common law vs. UCC Acceptance

Answer 15

Common Law’s Mirror Image Rule: offeree must accept every term of offer; otherwise, it’s rejection and counteroffer

UCC’s Battle of the Forms: acceptance with additional/different terms valid but:
* additional terms not part of contract if (a) it’d materially change contract, (b) offer limited to its terms, (c) offeror objected within reasonable time, (c) one party isn’t a merchant
* different terms: knockout rule; use gap-filler terms

• The common law requires the absolute and unequivocal acceptance of each and every term of the offer (the mirror image rule). Any different or additional terms in the acceptance make the response a rejection and counteroffer.

Question 16

Mailbox Rule

Answer 16

Acceptance by mail is effective at the time mail is sent (time of dispatch), not when it’s received
* doesn’t apply to option contract
* Offeree sends rejection then acceptance - first received is effective
* Offeree sends acceptance then rejection - acceptance effective unless rejection received first and offeror detrimentally relies.

Question 17

Consideration

Answer 17

(a) Bargained-for exchange for value OR
(b) act or forbearance by promisee that has benefit to promisor or detriment to promisee

Agreement must have consideration on both sides

Question 18

Past Consideration

Answer 18

Majority’s Pre-existing Duty Rule: If party promises to perform an existing legal duty in exchange for a new promise, it’s NOT sufficient consideration, because it fails the “bargain” requirement

Exceptions:
* new or different consideration promised
* compromise of honest dispute
* modification fair and equitable because parties didn’t anticipate unforeseen circumstances
* pre-existing duty is owed to a third party
* good faith modification allowed under UCC Article 2
* promise ratifying voidable obligation
* written promise to pay time-barred debt

Question 19

Promissory Estoppel (substitute for consideration)

Answer 19

A gift promise is enforceable if necessary to prevent injustice: if promisor reasonably knew that promise would induce reliance on gift and promisee did detrimentally rely on it, then gift promise is enforceable.
* Awarded reliance damages

Question 20

List of Defenses to Formation

Answer 20

• SOF
• Mistake/Ambiguity
• Fraudulent Misrepresentation
• Unconscionability
• Duress
• Illegality (terminates offer)
• Incapacity (terminates offer)

Question 21

Defenses to Formation

Mutual Mistake

Answer 21

Contract voidable by adversely affected party if:
* (i) both parties were mistaken on a basic assumption underlying contract
* (ii) mistake concerns essential element of agreement and thus has a material effect; and
* (iiI) party seeking to void contract didn’t assume risk of mistake

Question 22

Unilateral Mistake

Answer 22

Contract voidable by mistaken party if only one party was mistaken but:
* (i) nonmistaken party knew or had reason to know of mistake;
* (ii) mistake had a material effect; and
* (iii) mistaken party didn’t assume risk of mistake
* Note: relief usually granted for computational errors

Question 23

Defenses to Formation

Fraudulent Misrepresentation

Answer 23

Contract is voidable if a party used fraudulent misrepresentation to induce the other party to enter contract, and the other party justifiably relied on the misrepresentation

• Doesn’t matter that exercise of reasonable care would’ve revealed misrepresentation

Question 24

Defenses to Formation

Illusory Promise

Answer 24

Illusory promise is an apparent commitment that doesn’t actually bind the party. Both parties must be bound for bilateral contract to be enforceable. Lack of mutuality of obligation voids contract.

For example, a valid requirements or output contract term will say, “all the widgets I require” or “all that you produce,” but a term such as “all the widgets I want” or “all you want to sell me” is illusory.

Question 25

Defenses to Formation

Unconscionability

Answer 25

If contract/contract clause was unconscionable when made, court might not enforce it to prevent unfair terms, usually in the bargaining process
* Unfair price alone doesn’t constitute unconscionaiblity

Question 26

UCC Breach of Duty of Good Faith

Answer 26

Article 2 requires all parties in sale of goods contract to act in good faith; act honestly and observe reasonable commercial standards of fair dealing

Question 27

Statute of Frauds

Answer 27

Defense to Contract Formation - MYLEGS (don’t forget)

Question 28

Acceptance for bilateral contract

Answer 28

Common law: promise or beginning performance

UCC:
* promise to ship
* shipment of goods (shipment of nonconforming goods is considered acceptance and breach, unless seller said it’s accommodation)

Question 29

Ambiguity

Answer 29

One party knows of ambiguity = contract
Both parties unaware of ambiguity = no contract