Formation Flashcards
0
Q
What sales are not under the UCC
A
Leases
Bailments
Other transactions short of outright sales
1
Q
What “Sales” are under UCC - Definition
A
Sales are transactions in which a seller transfers title for goods to a buyer for value
2
Q
Goods under the UCC and some non-intuitive examples
A
Any moveable item including growing crops, uncut timber, and unborn animals.
3
Q
What are not “goods” under the UCC
A
Intangibles Money Assignment of a legal claim Services Real Property
4
Q
Majority Rule where sales involve the both goods and services
A
The rule applied will be determined by the predominant purpose of the transaction. Whether the transaction was more about the goods or the services
5
Q
Factors determining the predominant purpose of the transaction
A
- The language of the contract
- Nature of the suppliers business
- Relative value of the goods to the service
6
Q
Minority rule applied to cases involving the sale of goods and services
A
The UCC will apply to the goods portion of the contract and common law will apply to the service portion
7
Q
Relationship of the common law and the UCC
A
Even in the sale of goods, the common law will apply unless the UCC provides a contrary provision. This will also include defenses such as fraud, duress, and incapacity. The UCC will displace the common law in the area of FIRM OFFERS, and the BATTLE OF THE FORMS
8
Q
Three general categories of contractual obligations
A
- Express Contractual obligations
- Implied-in-fact contractual obligations
- Implied-in-law contractual obligations
9
Q
Express Contract - Defined
A
Where parties make oral or written expressions of their commitments
10
Q
Implied-in-fact Contractual obligations - Defined
A
Agreements formed by conduct rather than words.
homeowner hires a plumber to fix a leak but because of the urgency of the need does not discuss price. On completion there is an implied in fact contract to pay the plumber the reasonable value of services rendered.
11
Q
Implied in Law Contractual Obligations - Defined
A
One party bestows a benefit on another and it would be unjust fo rthe party to retain the benefit without payment.
Emergency medical services performed by a surgeon
12
Q
Quantum Meruit
A
Cause of Action for an implied in fact contract brought to recover the reasonable value of the benefits provided. Recent usage has allowed quantum meruit claims to be brought for implied in law claims as well.
13
Q
Signed Writing Requirement and electronic communication
A
Some contracts require a signed writing to create an enforceable legal obligation including rules pertaining to firm offers and Statute of Frauds requirements.
Contemporary electronic contracting is valid as well as electronic signatures are valid in the majority of jurisdictions.
Email is also sufficient to satisfy the writing requirement.
14
Q
The Volley
A
The point in negotiations where proposals and counter proposals are exchanged in advance of reaching an agreement.
15
Q
an Offer - Defined
A
- An outward manifestation of intent to enter into an agreement. AND
- A signal that acceptance will conclude the deal.
Manifestation can be oral, written, or via conduct.
Offers are not about the inward thoughts or subjective intention unless reasonably apparent to the other party
16
Q
Communications that withhold the privilege of further assent
A
Preliminary Negotiations - give and take during bargaining
Invitation for an offer - Advanced stage of preliminary negotiations where the party is closing in on a deal but wants the other party to commit first.
17
Q
Situations of Multiple Offers - List 3
A
- Commercial Advertisements
- Reward Offers
- Auctions
18
Q
Commercial Advertisements - American Advertising Rule
A
Ads, catalogues, and price lists are NOT offers but invitations for offers as responses may exceed the available supply.
EXCEPTION:
Where there is language that identifies who gets the goods even if there is an excess of demand
19
Q
Generally Reward Offers are treated as:
A
Offers - they communicate a promise of a bounty in exchange for the performance of a specified task.
20
Q
Types of Reward Offers
A
- Self-Limiting Reward - offer indicating that the task can be performed only once - lost dog reward.
- Open-field rewards - indicated that the task can be performed by multiple parties - carbonic smoke ball case
21
Q
Limitation on Open-Field Reward Offers
A
Where there is language indicating a limitation on how many people can accept.
Offers good while supplies last
22
Q
Auction - Offer Relationship
A
Auctioneer is inviting offers and responsive bids are the offers. If he does not like the offers he is free to reject them all.
EXCEPTION
Auctions held without reserve. Auctioneer is making an offer to sell to the highest bidder.
23
Q
Legal Effect of the Offer
A
Creates the power of acceptance in the offeree. Should the offeree accept, there is a binding contract.
24
Four ways to terminate the power of acceptance
1. Lapse
2. Death or incapacity
3. Revocation
4. Rejection
25
Termination of the offer by lapse
An offer can lapse after the time specified in the agreement and if no time is stated, after a reasonable period of time.
26
Factors determining when a reasonable period of time has passed for an offer to lapse
1. Subject matter and market conditions - volatile or stable market conditions.
2. Degree of urgency in the means of transmission - fed ex or regular mail.
27
Face to Face Conversation Rule
Offers made during face to face conversations lapse at the end of the conversation unless the offer states otherwise
28
Termination of an offer by death or incapacity
Dead Men Cannot Form Contracts
If either party becomes mentally incompetent, it will terminate the power of acceptance.
29
Termination by Offeror's Revocation
American Rule of Free Revocability of Offers
An offeror can revoke an offer at any time and for any reason so long as 2 requirements are met.
1. Revoked prior to acceptance
2. Revocation must be communicated to the offeree
30
Direct Revocation
Offeror directly communicates an intent to withdraw the offer to the offeree
31
Indirect Revocation
2 Requirements
1. Offeror takes some actions inconsistent with the intention to go through with the offer AND
2. Offeree learns of such actions from a reliable source
32
Revocation of an Offer made to Multiple Offerees
| Functional Equivalents Rule
The offeror revokes the offer by communicating in a functionally equivalent manner that the offer was made.
EXCEPTION
If there is a better means to communicate the revocation that is reasonably available, then those means must be used to revoke.
This will terminate the power of acceptance EVEN IF THE OFFEREE is UNAWARE of the Revocation.
33
legal effect of a functionally equivalent revocation
Functionally equivalent revocation will terminate the power of acceptance even if the offeree is unaware of the revocation
34
Dickinson V Dodds
At CL the offeror could revoke the offer at any time prior to acceptance even if the offer expressly stated that it would be held open.
Today there are 2 ways to prevent the revocation:
1. Common Law Option Contract
2. A Firm Offer under the UCC
35
Elements of a Common Law Option Contract
1. An Offer
2. Subsidiary Promise to keep the offer open
- "Sell By" dates may not be such a promise but merely a lapse date
3. Valid Mechanism for enforcing the subsidiary promise
- Consideration being the most common way.
36
Signed Writing with a False Recital in an Option Contract
Majority Rule: Recital is rebuttable
Minority Rule: Option contracts with a false recital for consideration will be enforced.
Courts occasionally will enforce a subsidiary promise to hold open an option if there has been detrimental reliance with promissory estoppel
37
Special Rule for Construction Contracts
Where a GC has relied on subcontractors bids to formulate his own, promissory estoppel applies to protect the GC from revocation of a subcontractor.
38
UCC 2-205 Firm Offer to buy or sell goods without consideration
Elements
1. Offer to buy or sell is MADE BY A MERCHANT
2. Offer is made IN WRITING and SIGNED by the MERCHANT
3. Offer EXPRESSLY STATES BY ITS TERMS that it will be held open.
Firm offers meeting this criteria will be held open for the period stated in the agreement or for a reasonable period of time if not stated, to a maximum of 3 months.
39
Shelf Life for Firm Offers under the UCC
3 month max
Without consideration, Firm offers with periods longer than 3 months are irrevocable only for the first 3 months. Firm offers can be held open longer than 3 months if there has been consideration.
40
Termination by Offeree's Rejection - 3 ways
1. Outright Rejection
2. Rejection via counter offer
3. Non-Conforming Acceptance
41
Rejection by Counter Offer and Mere Inquiry
A counter offer constitutes a rejection of the offer and a termination of the power or acceptance. However, a Mere Inquiry to test the waters about the offeror's willingness to negotiate will not create a counter offer and terminate the power of acceptance.
42
Non-Conforming Acceptance and the Mirror Image Rule
At common law, acceptance must mirror the offer. Any deviation constitutes a counter-offer and a rejection of the initial offer.
*UCC Significantly Changes this*
43
Revival of the Offer after Rejection or Lapse
An offeror can revive a terminated offer by language or conduct restating the offer or giving additional time. This will give the offeree power of acceptance again.
44
Essence of a BI-LATERAL Contract
I make a promise to you and seek a promise in return.
Once promises are exchanged, both are bound
45
Essence of a UNILATERAL contract
I make a promise to you and seek only performance in exchange.
The offeror is bound only performance is completed. The offeree is never bound.
46
Acceptance of a Unilateral Contract
Acceptance can be either by promise or performance unless the terms state otherwise.
When looking for a unilateral contract you need to carefully consider both the language and the circumstances
47
Revocation of the Offer in a Unilateral Contract - CL and Modern Rules
Offeror is free to revoke up and until completion of performance at common law.
Modern rule (Not majority) once performance has begun, an option contract has been created and the offeror may not revoke.
Under the Modern Rule, the offeree is free to abandon performance at any time and is not obliged to undertake performance at all. And acceptance is effective only on completion in accordance with the terms of the offer.
48
Performance v Mere Preparations
Mere preparations will not create an option contract under the modern rule of a unilateral contract
49
Acceptance at Common Law - Elements
1. Acceptance must mirror the terms of the offer exactly.
2. Acceptance must be communicated to the offeror.
If the offer stipulates a means of communicating acceptance, that is required means of acceptance. If silent, any reasonable means of communicating acceptance is fine.
50
Factors determining whether means of communicating acceptance is reasonable:
A means of communicating acceptance is reasonable if any of the following are present:
1. Means used by the offeror
2. Means customarily used in similar transactions
3. Means used is the equivalent means used by the offeror in terms of speed and reliability.
51
3 Exceptions to the Requirement that Acceptance be Communicated
List
1. Acceptance by Silence
2. Acceptance of a Unilateral Contract
3. Acceptance by Mail
52
3 Situations where Acceptance by Silence will occur
1. Where the offeror takes a benefit of the offeree's services with a reasonable opportunity to reject them, and with reason to know compensation would be expected.
2. Where offeror has given offeree reason to understand that acceptance may be communicated by silence. Offeree's silence will then operate as acceptance if she intended it to be acceptance
3. Where because of prior dealings or other circumstances, the offeree should know that he should notify the offeror if he does not intend to accept.
53
Common Law Mail Box Rule
Applies ONLY to acceptance and not any other communication.
Acceptance by mail is effective upon DISPATCH so long as acceptance is PROPERLY POSTED. A contract will be formed upon dispatch.
54
3 consequences of the mail box rule
1. Offeror may not revoke once acceptance has been dispatched.
2. Offeree cannot withdraw acceptance
3. Offeror is bound even if acceptance is lost in transit.
A contract is formed and both parties will be bound.
55
Types of transmission covered by the Mailbox Rule
Any means of transmission that involves a foreseeable delay between dispatch and receipt
56
Mailbox Rule as Default Rule
Mailbox rule will apply unless the offer states otherwise
57
Parties Simultaneously Dispatch Identical Offers
dispatch of offers is not legally relevant.
Offers are only effective to provide the power of acceptance upon receipt.
Mail Box Rule Applies ONLY to Acceptance. Acceptance of an offer is effective on dispatch.
58
Offeree mails conflicting responses to an offer. One acceptance, one rejection? What happens?
Mailbox rule will not govern if the rejection is mailed first. Offeree's obligations will depend on which is received first by the offeror.
If acceptance reaches the offeror first - there is a contract.
If rejection reaches first - power of acceptance is terminated
59
Acceptance of an Offer under the UCC - 3 ways
1. Promise to ship goods in conformity with the terms of the order.
2. Prompt or current shipment of the goods in conformity with the terms of the order
*3* Seller can accept by shipping NON-CONFORMING goods. Unless such goods are shipped as an ACCOMODATION (counter offer and not acceptance) this will be both an acceptance of the contract, and a breach.
60
Seller's shipment of non-conforming goods as an Accomodation
Shipment of non-conforming goods as an accommodation will constitute and counter-offer and not an acceptance.
61
2 Common law Rules Implicated by UCC's treatment of the Battle of the Forms
Mirror Image Rule - UCC does not require that acceptance match terms of the offer exactly. Acceptance by shipment of non-conforming goods constitutes a contract under UCC, unless goods are shipped as an "Accommodation."
Last Shot Doctrine - under CL the 'last shot fired' controlled the terms of the contract
62
UCC Solution to the Battle of the Forms
Unless acceptance is EXPRESSLY made conditional on assent to the additional terms, the non-conforming acceptance will operate as an effective acceptance of the offer, thus forming a contract.
63
Dickered Terms - Defined
Transaction specific terms that identify particular goods to be sold, quantities, and price.
64
Boilerplate Terms - Defined
Standard terms appealing in the parties respective forms which are less likely to match
65
Critical Factual consideration when deciding how non-conforming acceptance will affect the terms of the contract
The Identity of the Parties - Consumers v Merchants.
Where the transaction involves a consumer, the additional terms are mere proposals for addition and not part of the contract UNLESS the offeror expressly agrees to them.
66
Transaction where both parties are Merchants
Distinguish "Additional" and "Different" terms
Additional Terms address a new topic not addressed by the offer. These automatically become part of the contract unless one of 3 exceptions apply.
Different Terms - purport to change the existing term of the offer. Different Terms under the majority applying to the same topic are knocked out and omitted from the contract. Under the minority view, they are treated as mere proposals for addition.
67
3 Exceptions When Additional Terms are added to a contract that would PRECLUDE their automatic inclusion in the contract.
1. Offer expressly limiting acceptance to its own terms. "This offer expressly limits acceptance to the terms stated herein."
2. Offeror objects to the additional terms in a reasonable period of time.
3. If the additional terms would materially alter the contract.
68
Definition of Material Alteration
Terms that would result in SURPRISE or HARDSHIP if incorporated without the EXPRESS AWARENESS of the other party.
69
Examples of Additional Terms that result in Material Alteration
Warranty Disclaimers
Clause that materially shortens the deadline for raising complaints
Clauses that change uses of trade or past courses of dealing.
70
Follow-Up Written Confirmations of a prior oral contract containing different terms. How are Additional or Different Terms Treated
Where transactions are not between merchants - mere proposals for addition.
Transactions among merchants
1. Additional terms - automatic inclusion unless:
a. ) material alteration
b. ) recipient objects in a reasonable period of time
2. Different Terms - Mere proposals which the party is free to accept or reject
71
Where both parties submit written confirmations containing conflicting terms. What is the outcome?
Knockout rule applies. Neither parties terms will apply.
72
Conditional Acceptance under UCC
A definite and Seasonable expression of acceptance will operate as acceptance even thought it states additional or different terms UNLESS
Acceptance is EXPRESSLY MADE CONDITIONAL on assent to the additional terms.
Non-confirming acceptance will not be effective in forming a contract under such conditions. The offeror must then expressly assent to the additional or different terms for a contract to be formed.
73
What Constitutes a Conditional Acceptance under UCC
Clear and Conspicuous language tracking the language of 2-207 will create a counter-offer and not a contract under the majority rule.
"our acceptance of your order is expressly conditional on your assent to the additional or different terms that appear in this acknowledgement"
Minority rule requires the response to state the offeror is UNWILLING to continue unless the additional terms are accepted by the offeree. This will establish the counter-offer.
74
Contracts formed by Conduct under UCC
Conduct in recognizing the existence of a contract is sufficient to establish a contract, even thought the writings do not otherwise establish a contract.
Contracts thus established will be limited to the terms on which the parties agree (the dickered terms) together with the default terms provided by the UCC.
Express terms in the parties communications that do not match or agree are omitted.
75
Transactions without pre-printed forms
UCC 2-207 applies to transactions without pre-printed forms
76
Shrink Wrap Contracts
Most courts apply 2-207 - in consumer transactions, terms are mere proposals the consumer can accept or reject.
Other courts reject 2-207 - If the consumer retains and uses the goods, the consumer has accepted the offer on the merchants terms.
77
General American Rule of Contract Law
A promise is unenforceable unless supported by consideration.
The promise has some value and must be exchanged for something else of value such as a counter promise or performance given to the promisor as a quid pro quo for the making of the promise
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Gratuitous Promise
Promise to make a gift. Generally unenforceable because of the lack of consideration.
79
Want of Consideration Synonyms
lack of consideration
Not supported by Consideration
No Consideration
Not Sufficient Consideration
80
Want of Consideration - Defined
Absence of a bargained for exchange.
As distinguished from a failure of consideration which is a parties failure to perform in accordance with his promise. AKA breach.
81
The Exchange of a Promise for Consideration is called...
A bargain or bargained for exchange. Whether there has been consideration a majority of jurisdictions will consider whether there has been a bargained for exchange
82
Benifit/Detriment Analysis
Consideration is evaluated based on whether there is benefit to the promisor or a detriment to the promisee.
83
Legal Detriment Test
Whether the promisee is doing something he has a legal right NOT to do, or is foregoing some activity in which he has a legal right to engage.
84
Inadequacy of Consideration
Where a party claims that they were not paid enough consideration for the deal.
Courts will not police the equivalents or fairness of the exchange for the purpose of applying the consideration doctrine.
Some jurisdictions will, as an element of securing specific performance, require a showing that there was fair and adequate exchange.
85
Distinguish Insufficient Consideration from Inadequate Consideration
Insufficient - No consideration for a particular promise thus no bargain
A promises B a place to raise her family and seeks nothing in return.
Inadequate - assumes there is consideration but is is not sufficient
86
Illusory Promises
Promise to perform that leaves performance to the discretion of the promising party.
Such an illusory promise WILL NOT constitute consideration.
87
Executed Gifts as distinguished from Gratuitous promises
Gratuitous transfers are legally binding and enforceable. Once done, cannot be undone.
Gratuitous promises - the promise to make a gift - are not legally enforceable
88
False Recital
The requirement of consideration is NOT satisfied by a false recital of consideration. They are rebuttable.
A minority of jurisdictions will find an exception to this rule where a written option contract contains a false recital of consideration
89
Condition of a Gratuitous Promise
Conditions the promisee must fulfill in order to avail herself to the promisors gift. Does not count as consideration.
90
Factors distinguishing a "Condition on a Gratuitous Promise" and "Consideration"
1. Language of the parties - words indicating a gift or other benevolent purpose may indicate a gratuitous promise.
2. Context - Gratuitous promises are rare in the commercial context
3. Benefit to the promisor - where the promisee's detriment creates no benefit to the promisor it is more likely to be a gift than consideration.
91
Past or Moral Consideration
Promise in exchange for something already given or performed is NOT supported by consideration.
92
Exceptions to the past consideration rule
1. Written promise to pay debt barred by SoL
| 2. Written promise to pay a debt discharged by bankruptcy.
93
Enforcing unsupported promises using Material Benefit Test
Minority - A promise made in recognition of a past benefit conferred will be enforceable so long as:
1. Promisee conferred the benefit on the promisor and not a 3rd party
2. Benefit is material.
A saves B's life and A promises B compensation. B bestowed a material benefit on A and could be enforced under the minority rule. Unlike the Good Samaritan where father promised to pay rescuer of son.
94
Limitation on the Material Benefit Test
Promises made on a past benefit will not be enforceable if the benefits were previously contracted for by the promisor.
95
Promissory Estoppel and the Gratuitous Promise
A promisee that reasonably relied, to his detriment, on a gratuitous promise may be able to enforce that promise, even though consideration is lacking
96
Requirements to use Promissory Estoppel to enforce a gratuitous promise
1. A promise
2. Foreseeable Reliance
3. Actual Reliance
4. Injustice without enforcement
97
Factors determining the Injustice Requirement for Promissory Estoppel of a gratuitous promise.
1. Strength of proof of other 3 factors.
2. Willfulness of the breach
3. Relative position or equities of the parties
4. Extent to which the reliance was detrimental
5. availability of alternatives short of enforcement
