Formation

Question 1

What are the two sources of contract law?

Answer 1

1. Common law

2. UCC Article 2.

Question 2

When does UCC Article 2 apply?

Answer 2

Article 2 applies to “sales of goods.”

Sales are any transactions in which the seller transfers title of goods to the buyer.

Goods are broadly defined to mean any “movable item.” This includes growing crops, uncut timber, and unborn animals.

Question 3

Does UCC Article apply to hybrid contracts?

Answer 3

Majority - the appropriate source of law is determined by the predominant purpose of the transaction.

The predominant purpose is determined by 1. the language of the contract, 2. the nature of the suppliers business; and 3. the relative values of the goods versus the services.

Minority - Apply the UCC to the goods portion of the transaction and the common law to the service portion.

Question 4

Does the UCC apply to computer software and other electronic software?

Answer 4

Yes.

Question 5

How does the UCC and common law interact?

Answer 5

In a sale of goods, the common law applies except where the UCC offers contrary provisions.

Question 6

What are the three general catagories of contractual obligations?

Answer 6

1. Express contractual obligations are found where the parties make oral or written expressions of their commitments.
2. Implied-in-Fact contractual obligations are consensual agreements that fail to express the agreement of the parties in its entirety (conduct).
3. Implied-in-Law contractual obligations arises where there is an equitable imposition of a contract. It arises where one party bestows a benefit on th other. Commonly referred to as quasi-contract. It is to prevent unjust enrichment.

Question 7

What is quantum meruit?

Answer 7

It is the cause of action for an implied-in-fact and implied-in-law contracts in order to recover the reasonable value of benefits provided.

Question 8

What are the rules governing the signed writing requirements?

Answer 8

Both the Statute of Frauds and the UCC provide requirements for signed writings.

Electronic signatures are legally effective in the majority of jurisdictions.

Email and the like are sufficient to satisfy the writing requirement.

Question 9

What are the requirements for an offer?

Answer 9

A party’s communications must show:

1. An outward manifestation; and
2. A signal that acceptance will conclude the deal.

Question 10

What is an outward manifestation?

Answer 10

It can be oral, written, or made via conduct.

Inward thoughts and subjective intentions are irrelevant unless they are reasonably apparent to the other party.

Question 11

What is a signal that will conclude the deal?

Answer 11

It is a signal that the offeree’s acceptance will conclude the deal. The inquiry is whether the offeror expressed a willingness to commit without further assent on his part.

Communications withholding the privilege of further assent fall short of constituting an offer.

Question 12

What sorts of communications withhold the privilege of further assent?

Answer 12

1. Preliminary negotiations applies to the give-and-take that occurs during bargaining.
2. Invitation for an offer is an advanced stage of negotiations where the communicating party is closing in on a deal but wants the other party to commit first.

Question 13

When do multiple offerees issues arise?

Answer 13

When a party’s communication proposing a deal to two or more persons at the same time can give rise to a multiple offeree issues. There are three situations that exist:

1. Commercial adverisements - Generally, ads, catalogs, and price lists are not offers but instead are treated as invitations for offers. EXCEPTION: Language that identifies who gets the limited supply of goods even if there is an excess of demand.
2. Reward offers - Generally, reward offers are offers. A self-limiting reward is an offer that indicate the task is to be rewarded only once. An open field reward is an offer that indicates that the task to be performed can potentially be performed by multiple parties. EXCEPTION: Language n the offer that specifies a limitation on how many can accept the offer.
3. Auctions - An auctioneer is inviting offers, and the responsive bids are the offers. EXCEPTION: If the auction is held “without reserve”, then the auctioneer is making an offer to sell to the highest bidder.

Question 14

What is the legal effect of an offer?

Answer 14

It creates the power of acceptance in the offeree. The exercise of the power of acceptance creates a binding contract as to the offeror and offeree.

Question 15

What are the four ways to terminate the power of acceptance?

Answer 15

1. Lapse of time
2. death/incapacity
3. revocation by offeror
4. rejection by offeree.

Question 16

When is there a lapse of time?

Answer 16

An offer lapses after either 1. the time stated in the offer, or 2. a reasonable time.

A reasonable time is determined by 1. the subject matter and market conditions, and 2. degree of urgency and means of transmission.

The Face-to-Face Conversation Rule says that an offer made in a face-to-face conversation generally lapses at the end of the conversation.

Question 17

When does death/incapacity terminate the power of acceptance?

Answer 17

Death of either party after the offer is made terminates the power of acceptance.

If either party becomes mentally incompetent, the power of acceptance is terminated.

Question 18

When does an offeror’s revocation terminate the power of acceptance?

Answer 18

An offeror may revoke an offer at any time for any reason so long as two strict requirements are met:

1. It must be revoked before the offer is accepted, and
2. the revocation must be communicated to the offeree.

Question 19

When is an offeror’s revocation communicated?

Answer 19

1. Direct revocation is communicated when the offeror directly communicates to the offeree an intent to withdraw the offer.
2. Indirect revocation occurs when a. the offeror takes some action that is inconsistent with the intention to go through with the offer, and b. the offeree learns about such action from a reliable source.

Question 20

How can an offeror revoke an offer made to multiple offerees?

Answer 20

According to the functional equivalents rule, an offeror revokes by communicating the revocation in a functionally equivalent manner as the offer was made. EXCEPTION: If there is a better means to communicate the revocation that is reasonably available, then such means must be used to revoke.

The legal effect is that the revocation terminates the power of acceptance even if the offeree is unaware of the revocation.

Question 21

What are the ways for an offeree to prevent revocation?

Answer 21

1. Option contracts (common law)

2. Firm offer (UCC)

Question 22

How is a common law option contract created?

Answer 22

There must be:

1. An offer;
2. a subsidiary promise to keep the offer open (sell-by date is not necessarily a promise to keep the offer open), and
3. some valid mechanism for securing enforcement of the subsidiary promise (consideration is the most common form, or promise of performance).

Question 23

For an option contract, what is the effect of a false recital and promissory estoppel?

Answer 23

The majority rule is that the recital is rebuttable.

The minority rule is that the option contract is enforced even if the recital is false.

Courts will sometimes enforce a subsidiary promise if there was detrimental reliance.

Question 24

In the construction context, are bids treated as option contracts?

Answer 24

Yes. The majority rule is that where a general contractor uses a particular subcontractor’s id to formulate his own, promissory estoppel applies to protect the general contractor from revocations by the subcontractor.

Question 25

How does UCC section 2-205, “firm offer rule” change the common law option contract? What is section 2-205?

Answer 25

Under UCC section 2-205, consideration is not required hold an offer open (make it irrevocable) for a certain period of time.

Section 2-205: “An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.”

In short, a merchant can make a firm offer to either buy or sell goods without consideration so long as:

1. the offer is made by a merchant
2. the offer is made in a writing signed by the merchant
3. the offer expressly state by its terms that it will be held open.

Question 26

How long does a firm offer stay open?

Answer 26

It becomes irrevocable for either 1. the period stated in the firm offer, or 2. for a reasonable time.

A firm offer cannot be no more than three months. If the firm offer states that it will remain open for longer than three months, then it is only irrevocable for three months.

Consideration is required to be binding after three months.

Question 27

How can an offeree reject an offer?

Answer 27

1. Outright rejection
2. rejection via counteroffer
3. rejection via non-conforming acceptance

Question 28

What is a rejection via counteroffer?

Answer 28

A counteroffer constitutes a rejection while also creating a new offer.

EXCEPTION: The mere inquiry rule states that an offeree may test the waters by making a mere inquiry about the offeror’s willingness to negotiate without creating a counteroffer and terminating the power of acceptance.

Question 29

What is a rejection via non-conforming acceptance?

Answer 29

Under the mirror image rule, at common law, the acceptance must mirror the terms of the offer, and any variation results in a counteroffer and rejection of the initial offer.

The UCC rejects this mirror image rule. SEE shipment of non-conforming goods and the battle of the forms.

Question 30

Can there be a revival of an offer?

Answer 30

Through language or conduct, an offeror can revive a terminated offer by restating the offer or giving more time to consider it.

Question 31

What is a unilateral contract?

Answer 31

If an offer seeks performance, not another promise, then it is a unilateral contract. There is only a binding contract upon completion of the performance.

Question 32

How is a unilateral contract revoked?

Answer 32

At common law, the offeror was free to revoke the unilateral offer up until the moment that the offeree actually completed performance.

Under modern law, once the offeree begins performance, an option contract is created and the offeror may not revoke. Mere preparations do not create an option contract, only beginning performance will.

Question 33

Under common law, when is there acceptance?

Answer 33

1. The acceptance must mirror the terms of the offer.

2. The acceptance must be communicated to the offeror.

Question 34

What are the proper means of communicating an acceptance?

Answer 34

If the offer stipulates a particular means, then that becomes the required means of acceptance.

If the offer is silent as to the means, then the offeree is free to use any reasonable means used by the offeror. It is reasonable if it is 1. the means used by the offeror; 2. the means customarily used in similar transactions; or 3. a means of communication that is equivalent in speed and reliability to the means used by the offeror.

Question 35

What are the exceptions to the requirement that an acceptance must be communicated?

Answer 35

1. Acceptance by Silence. An offeree’s silence in response to an offer does not constitute an acceptance.
2. Unilateral contract. An acceptance is effected only by completing performance. There is no requirement to communicate unless the offer states otherwise.
3. Acceptance by Mail. Under the common law mailbox rule, acceptance by mail is effective upon dispatch so long as the acceptance is properly posted.

Question 36

What rules govern acceptance by silence?

Answer 36

Generally, An offeree’s silence in response to an offer does not constitute an acceptance.

EXCEPTIONS:
1. Where the offeree takes the benefit of the offeror’s services with a reasonable opportunity to reject them and with reason to know compensation was expected.

2. Where the offeror has given the offeree reason to understand that acceptance may be communicated by silence, the offerees silence will operate as acceptance if she intends as such.
3. Where become of previous dealings or other circumstances, it is reasonable that the offeree should notify the offeror if he does not intend to accept.

Question 37

What rules govern acceptance by mail or other correspondence?

Answer 37

Under the common law mailbox rule, acceptance by mail is effective upon dispatch so long as the acceptance is properly posted.

The mailbox rule only applies to acceptances.

The offeror may not revoke an offer once acceptance has been dispatched.

Once the offeree dispatches his acceptance, the parties have a binding contract and the offeree may not withdraw acceptance.

The offeror is bound, even if the acceptance is lost, if there is proof of dispatch.

The mailbox rule applies to any transmission that has a foreseeable delay.

The offer can opt out of the mailbox rule.

The mailbox rule does not apply to acceptances pursuant to an option contract.

Question 38

What happens if an two people simultaneously dispatch identical offers?

Answer 38

Offers are only effective to create power of acceptance upon receipt. The dispatch of these offers is not legally relevant.

Question 39

What happens if an offeree dispatches a rejection and acceptance?

Answer 39

If the rejection is mailed first, the mailbox rule does not apply.

If the offeror receives the acceptance first, then there is a contract.

If the offeror receives the rejection first, there is no contract.

Question 40

What happens if an offeree dispatches a rejection and acceptance?

Answer 40

If the rejection is mailed first, the mailbox rule does not apply.

If the offeror receives the acceptance first, then there is a contract.

If the offeror receives the rejection first, there is no contract.

Question 41

How does UCC section 2-206 change the common law rules for acceptance? What is section 2-206?

Answer 41

Under UCC section 2-206, the seller has several more ways to accept an offer by a buyer.

Section 2-206: “(1) Unless otherwise unambiguously indicated by the language or circumstances

(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;
(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. (2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance."

In short, a seller may:

1. A promise to ship goods in conformity with the terms of the offer.
2. A prompt or current shipping of goods in conformity with the terms of the offer.
3. The seller can accept by shipping non-conforming goods. EXCEPTION: if the seller sends non-conforming goods as “an accommodation,” it constitutes a counteroffer.

Question 42

What happens if a seller sends non-conforming goods, absent accommodation language?

Answer 42

1. the Seller accepts the offer, creating a binding contract, and
2. Seller breaches the contract.

Question 43

How does UCC section 2-207 change the common law rules for additional and different terms? What is section 2-207?

Answer 43

Under UCC section 2-207, additional terms are automatically added to the contract unless one of the exception applies. And, different terms are not added unless expressly agreed upon.

Section 2-207: “(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale. Although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

In short, a “battle of the forms” occurs when the terms of the contract used by the seller do not match the terms of the contract used by the buyer.

Unless acceptance is expressly made conditional on assent to the additional or different terms, the non-conforming acceptance will operate as an effective acceptance of the offer, thus forming a contract.

There are dickered terms (transaction specific terms) and boilerplate terms (standard terms).

Question 44

Does non-conforming acceptance affect the terms of the contract when the transaction involves a consumer?

Answer 44

Additional or different terms are mere proposals for addition, and they are no part of the contract unless offeror expressly agrees to them.

Question 45

Does non-conforming acceptance affect the terms of the contract when the transaction only involves merchants?

Answer 45

Under UCC section 2-207(2), for additional terms, they are automatically a part of the contract. EXCEPTIONS:

1. The offer expressly limits acceptance to its own terms.
2. If the offeror objects to the additional terms within a reasonable time.
3. If the additional terms would materially alter the contract.

“Materially alter” is where the result would be surprise or hardship if incorporated without express awareness of the other party.

For different terms, the UCC follows the “knockout rule,” that is, the different terms of each communication dealing with the same topic are knocked out and omitted from the contract. Minority - They are treated as mere proposals.

Question 46

What happens if there is an oral contract and a written confirmation with additional or different terms?

Answer 46

If the transaction involves a consumer, then the terms in the written confirmation that are additional or different are mere proposals for addition.

If the transaction is between merchants, then:

1. Additional terms are automatically part of the contract unless a. they materially alter the contract, or b. the receiving party objects to them in a reasonable time.
2. Different terms are mere proposals that the other party is free to accept or reject. Knockout rule applies.

Question 47

What is a conditional acceptance?

Answer 47

Under UCC section 2-207(1), a definite and seasonable expression of acceptance will operate as an acceptance even though it states additional different terms unless acceptance is expressly made conditional assent to the additional or different terms.

It is a counteroffer.

Question 48

What constitutes a conditional acceptance?

Answer 48

Majority - Clear and conspicuous language that tracks the language of 2-207(1) will be treated as a conditional acceptance.

Minority - The response must clearly communicate that the offeree is unwilling to proceed unless and until the offeror agrees to the new terms.

Question 49

Under the UCC, can a contract be formed by conduct?

Answer 49

Yes. Under UCC 2-207(3), “(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale. Although the writings of the parties do not otherwise establish a contract, in such case, the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

Question 50

What happens if there are shrink-wrap contracts?

Answer 50

Majority - UCC 2-207 applies, and in consumer transactions, the terms are mere proposals.

Minority - UCC 2-207 does not apply, and the use of the goods by the consumer is acceptance of the merchant’s terms.

Question 51

What is the bargain theory of consideration?

Answer 51

Generally, a promise is unenforceable unless it is supported by consideration.

The promise or performance must have some value and in exchange for something else of value.

Question 52

What is a gratuitous promise?

Answer 52

It is a promise to make a gift. Such a promise lacks consideration and is generally unenforceable.

Question 53

What is failure of consideration?

Answer 53

It concerns the party’s failure to perform in accordance with his promise. It is a breach.

Question 54

What is failure of consideration?

Answer 54

It concerns the party’s failure to perform in accordance with his promise. It is a breach.

Question 55

When is there consideration?

Answer 55

A promise is supported by consideration if it is based on a bargained for exchange.

Under the legal detriment test, the question is whether the promisee is doing something he had a legal right not to do or is forgoing some activity in which he had a legal right to engage.

Question 56

What is inadequacy of consideration?

Answer 56

It is where someone claims he was not paid enough for the deal.

Generally, courts do not police the equivalence or fairness of the exchange for purposes of applying the consideration doctrine. EXCEPTION: Some jurisdictions, for specific performance remedy, an element showing that the promises were a fair, or adequate, exchange.

Question 57

Is insufficient consideration the same as inadequate consideration?

Answer 57

No.

Question 58

What is an illusory promise?

Answer 58

A promise to perform that leaves performance to the discretion of the promising party is an illusory promise and does not constitute consideration.

Question 59

What are executed gifts?

Answer 59

Gratuitous transfers are legally binding.

A gift is executed if:

1. intent to give a gift; and
2. actual delivery or symbolic delivery.

Question 60

What about recitals of consideration?

Answer 60

The requirement of consideration is not satisfied by a false recital.

A minority of jurisdictions say a false recital is good consideration in a option contract.

Question 61

What if a gratuitous promise has a condition?

Answer 61

A condition is something a promisee must do to avail himself of the promisor’s benevolence or gift. It does not constitute consideration.

Question 62

How do you distinguish a condition from consideration?

Answer 62

1. Language of the parties.
2. Context
3. Benefit to the promisor.

Question 63

What is promissory estoppel?

Answer 63

A promisee that reasonably relies to his detriment on a gratuitous promise may be enforceable even though consideration is lacking.

Must establish:

1. A promise
2. Foreseeable reliance
3. Actual reliance
4. Injustice without enforcement.

For injustice:

1. the strength of proof of the other three requirements;
2. the blameworthiness, or willfulness, of the breach;
3. the relative position or equities of the parties;
4. the extent to which the reliance was detrimental; and
5. the availability of alternatives short of enforcing the promise.

Question 64

Can there be past or moral consideration?

Answer 64

Generally, a promise given in exchange for something already given or already performed will not satisfy the bargain requirement.

A minority of jurisdictions will enforce a promise made in recognition of a past benefit conferred so long as:

1. the promisee conferred the benefit on the promisor and not on a third party; and
2. the benefit is material.

Oklahoma Contracts Distinction - Oklahoma recognizes the existence of consideration, to an extent corresponding with the extent of the obligation, in the following circumstances:

1. when there is an existing legal obligation resting upon the promisor;
2. when there is a moral obligation originating in some benefit conferred upon the promisor; or
3. when there is prejudice suffered by the promisee.