Formation Issues

Question 1

Manifestation of Commitment

Answer 1

Offer=manifestation of intention to K—words/conduct showing commitment. Basic test is whether a reasonable person in position of offeree would believe his assent creates K [Objective]

Question 2

When can advertisement be an offer?

Answer 2

Ad can be offer if: (1) nature = reward (must be aware of reward); (2) Ad specifies quantity and expressly indicates who can accept. (“1 fur coat $10—first come/served); (3) sent in response to request

Question 3

Ways to terminate an offer?

Answer 3

1. Lapse of time
2. Death (or incapacity) of either party prior to acceptance= termination.
3. Revocation: Conduct of Offeror** (2 ways to revoke) [irrevocable, revocable, revoked]
4. Rejection: Conduct of Offeree

Question 4

Revocation: Conduct of Offeror

Answer 4

1. Unambiguous statements by offeror to offeree of unwillingness or inability to K, or
2. Unambiguous conduct by offeror indicating an unwillingness or inability to K that offeree is aware of.
   a. Note: “Mere fact of a multiple offers is not an indication of unwillingness to sell.”

Question 5

Irrevocable Offers

Answer 5

a. Option K
b. UCC Firm Offer Rule
c. Reliance
d. Performance for Unilateral

Question 6

Option K

Answer 6

(paid for promise not to revoke): Offer cannot be revoked if offeror has not (1) promised to not revoke (“open”) AND (2) promise is supported by payment or consideration (“option”).

Question 7

UCC Firm Offer Rule

Answer 7

(signed, written promise for sale of goods by merchant to keep open): An offer cannot be revoked for stated time if (1) offer to buy or sell goods, (2) signed, written promise to keep the offer open, and (3) party is a merchant.

i. If no time limit, it becomes irrevocable for reasonable time, for up to 3 months
ii. If no express offer to keep open, it is NOT a firm offer

Question 8

Reliance

Answer 8

Irrevocable if: (1) reliance that is (2) reasonably foreseeable and (3) detrimental.

Question 9

Performance for Unilateral

Answer 9

Start of performance pursuant to an offer to enter into a unilateral K makes that offer irrevocable for a reasonable time to complete performance.

i. Unilateral/performance: O offers P $1K to paint house. Offer states acceptance “only by” performance. P starts painting. Offer becomes irrevocable.
ii. Unilateral/mere preparation: Same as above, but P only buys the paint (moves paint to job/opens it, etc). This is only preparation and offer can still be revoke (tested most frequently). But, look to see if it has become detrimental reliance (special paint that cant be returned?)

Question 10

Rejection: Conduct of Offeree

Answer 10

1. Counteroffer (kills all offers and becomes new offer; not express K til counteroffer accepted).
   a. Distinguish from “bargaining”, which does not terminate offer. Also, does NOT apply to Option K
2. Conditional Acceptance: (kills all offers) Look for responses to an offer with the word “accept” followed by [if, only if, provided, so long as, but, on condition that].
   a. New “offer/term” can be accepted through words or conduct and be legally enforceable.
3. Additional Terms: (only kills CL, not UCC) Under CL, a response to an offer that adds new terms is treated like a counteroffer rather than acceptance. Mirror Image Rule.

Question 11

UCC Art. 2 2-207

Answer 11

(i) offer for goods, and (ii) response w/ additional terms raises 2 separate issues:
i. Is there a K? Yes. Under UCC, a response to offer that adds new terms (but does not make them conditional of acceptance) is generally treated as acceptance (merchant is irrelevant here).
ii. Additional Term Part of K? Maybe. Only if (i) both parties are merchants, AND (ii) additional term is not material {fact question} AND (iii) additional term is not objected to by offeror. Otherwise, K stays and term falls away (limit on liability is material)

Question 12

Promissory Estoppel (Elements)

Answer 12

a. Promise;
b. Reliance that is reasonable, detrimental and foreseeable; and
c. Enforcement is necessary to avoid injustice.

Question 13

When does a defendant lack capacity?

Answer 13

Under 18; Mentally Incompetent (no ability to understand K); Intoxicated person (if other party has reason to know).

Question 14

Consequences of Incapacity

Answer 14

a. Right to disaffirm by person w/o capacity (can’t be revoked by person who does have capacity)
b. Implied affirmation by retaining benefits after gaining capacity (ratification)
c. Quasi-K liability for necessaries (a person w/o capacity is legally obligated to pay for things that are necessary (food, clothing, medical care, or shelter). Liability based on quasi-K law, not K law.

Question 15

Statute of Frauds Defense

Answer 15

SOF is a statute designed to prevent fraudulent claims of existence of K (makes it harder by requiring the claimant have proof that K exists before getting day in court.) Proof required to satisfy SOF is (1) performance, or (2) writing signed by the person who is asserting no K. If you are w/in SOF, you must satisfy “special burden” above in order to bring a claim.

Question 16

When does SOF defense apply?

Answer 16

a. Marriage
b. Year* (Service K not “capable” of being performed w/in a year from time of K). SOF does not apply to “rest of P’s life.”
c. Land (Transfers of interest in real estate w/ exception for leases or one year or less)
i. Applies to selling a house, but not building one (no transfer of interest).
d. Executor
e. Goods (sale of goods for $500 or more)
f. Surety (promise to answer for debts of another). Look for guarantee to pay if someone else doesn’t.
i. Main Purpose Exception: If “main purpose of the obligation already guaranteed was to benefit guarantor, then not even the guarantee is w/win the SOF.” (not considered a surety)

Question 17

How is SOF Satisfied?

Answer 17

1. Performance
2. Writing
3. Judicial Admission

Question 18

How is SOF satisfied by performance?

Answer 18

i. Real Estate: part performance satisfies SOF if any 2 of the following (1) improvements to land, (2) payment, or (3) possession.
ii. Service K (year):* full performance by either party satisfies SOF (part perf not sufficient)
iii. Sale of Goods: Seller’s part performance (part delivery of ordinary goods) satisfies SOF, but only to extent of part performance. Does not apply to undelivered goods.
• Specially mfg goods: SOF is satisfied as soon as S makes a “substantial beginning”.

Question 19

How is SOF satisfied by Writing?

Answer 19

(remember, not every writing satisfied, and SOF can also be satisfied by performance)
i. CL: look at contents of writing OR WRITINGS—“all material terms test” (who/what); Also, look at who signed (must be signed by person who is asserting SOF defense and saying no K).
ii. Art 2 UCC:** Again look at contents and who signed. Writing must indicate a K for sale of goods, and contain quantity (does not have to include price).
• Generally, must be signed by person asserting SOF defense (∆), but UCC 2-201 provides an exception based on that person’s failure to respond to a signed writing. Both parties must be merchants and person who receives a signed writing w/ a quantity term that claims there is a K fails to respond w/in 10 days.

Question 20

How is SOF satisfied by Judicial Admission?

Answer 20

SOF is satisfied if ∆ admits a K in a judicial proceeding.

Question 21

“Equal dignity rule”

Answer 21

law requires a written authorization to execute K for someone else only if the K to be signed is w/in SOF

Question 22

Modification of K and SOF

Answer 22

Where there is an alleged K modification you should: 1) look at deal w/ alleged change, and 2) determine whether deal w/ alleged change would be w/in SOF. (Reducing lease from 3 years to 1 years is not subject to SOF).* [If still subject to SOF, modification must be written]
i. If agreement requires that all modification be in writing?
• CL: not effective, ignore that language.
• UCC: provisions requiring written modification are effective unless waived. Even if SOF would not otherwise apply (raising car price from $300 to $400).

Question 23

Defense of Illegality

Answer 23

If subject matter is illegal, the agreement is not enforceable (pay someone to hurt another). If the subject matter is legal but the purpose is illegal, the agreement is only enforceable by the person who did not know of the illegal purpose (P buys ticket from D, who plans to fly and hurt someone. P doesn’t know).

Question 24

Public Policy Defense

Answer 24

Ie: “exculpatory agreements” (exempts intentional/reckless conduct from liability, or covenant not to compete w/o reasonable need or limit on time or place.) Not enforceable!

Question 25

Misrepresentation Defense

Answer 25

Look for (1) statement of “fact” before the K; (2) by one of the K parties/agent; (3) induces the K, and (4) false. No wrongdoing required for material misrepresentation. Honest belief doesn’t matter.

Question 26

Non Disclosure Defense

Answer 26

Person making K has no duty to disclose what she knows. (B makes K to buy land for new Walmart). Unless, fiduciary-like relationship/concealment. Wrongdoing required. Look for covering defects.

Question 27

Duress Defense

Answer 27

Physical or Economic. Economic: (a) “bad guy” (improper threat which is usually threat to breach existing K) AND (b) “vulnerable guy” (no reasonable alternative).

Question 28

Unconscoinable Defense

Answer 28

(now part of K law generally): empowers cts to refuse to enforce all or part of K. 2 tests:
1. Unfair surprise (procedural) and oppressive terms (substantive): tested at the time K was made, by the ct.

Question 29

Ambiguity in Words of Agreement Defense

Answer 29

There will be no K if (1) parties use a material term that is open to at least 2 reasonable interpretations, (2) each party attaches different meaning to term, AND (3) neither party knows or has reason to know the term is open to at least 2 reasonable interpretations. (Ship called Peerless runs twice a year).
1. K will be resolved in favor of the party that did not know of the ambiguity.

Question 30

Mistake of Fact Defense

Answer 30

(existing at time of K). Distinguish from mistake in judgment, uncertainty, or risk allocated to party asserting mistake. Also, don’t confuse “mistake” (incorrect belief as to facts not based on either what a party has said or what K says) with “misunderstanding” (words in K) or “misrepresentation” (focus on words before K).

1. Mutual mistake of a material fact and not risk assumed. (Turns out, cow isn’t barren)
2. Unilateral: generally, cts have been reluctant to allow a party to avoid K for mistake made only by one party. Look for situations where other party had reason to know of mistake (bid that is far out of line).

Question 31

Contract Formation Defenses

Answer 31

1. Lack of Consideration
2. Lack of Capacity
3. SOF
4. Illegality
5. Public Policy
6. Misrepresentation
7. Non-Disclosure
8. Duress
9. Unconscionability
10. Ambiguity
11. Mistake of Fact
    12.

Question 32

Describe the specifically manufactured goods exception to the UCC’s SOF.

Answer 32

Where (1) goods are to be specially manufactured for the buyer, (2) they are not suitable for sale to others in the ordinary course of the seller’s business, and (3) the circumstances reasonably indicate that the goods are for the buyer, and oral contract is enforceable, not withstanding the lack of compliance with the UCC SOF.

Question 33

What is the UCC rule on additional terms in acceptance or confirmation?

Answer 33

Additional terms contained in an expression of acceptance or written confirmation become part of the contract between merchants, unless:

1. an expression of acceptance was made conditional on assent to the additional terms,
2. the offer explicitly limited acceptance to its terms,
3. the additional terms materially alter the contract,
4. notification of objection to the additional terms is given within a reasonable time after notice is received.