FORMATION OF CONTRACTS Flashcards
UCC Missing terms rule
When a buyer and a seller have entered into a contract for the sale of goods, the Uniform Commercial Code (UCC) provides that a court may supply the missing term, even when that term is the price of the goods. When a buyer has accepted the goods and fails to pay the price when it becomes due, the seller may sue for the price.
If the contract omits a price or if the parties agree to set the price in the future and then fail to agree, the UCC supplies a reasonable price at the time of delivery.
Fraudulent misrepresentation Rule
A misrepresentation is an untrue assertion of fact (not merely of law or opinion) that can make the contract void or voidable.
Fraudulent misrepresentation requires proof of the following: (i) the misrepresentation is made knowingly and with intent to mislead the other party (i.e., it is fraudulent), (ii) the misrepresentation induced assent to the contract, and (iii) the adversely affected party justifiably relied on the misrepresentation.
A fraudulent misrepresentation need not be material, and may make the contract voidable at the adversely affected party’s option.
The contract is no longer voidable, however, if, following a misrepresentation but before the deceived party has avoided the contract, the facts are cured so as to be in accord with the facts that were previously misrepresented.
Unconscionable Rule
A contract is unconscionable when it is so unfair to one party that no reasonable person would agree to it.
Rule for Damages for the non-breaching party
Non-breaching parties may often choose between several different types of damages, including reliance damages (those the plaintiff reasonably incurred in reliance of the contract) and expectation damages (which put the nonbreaching party in the position that she would have been in if not for the breach).
To calculate expectation damages, compare the value of performance without the breach (what was promised) with the value of the performance with the breach (what was received).
Expectation damages must be foreseeable, so the glass tiles for the mosaic would not fall under the umbrella of expectation damages, as there was no way for the homeowner to know she was using them.
Incidental damages may also be recovered for commercially reasonable expenses incurred as a result of the other party’s breach, and the cost of the permit would fall under this category. Note, however, that parties cannot recover both reliance and expectation damages,
Counteroffer Rule
Counteroffer is an offer made by an offeree to the offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.
An offeree’s power of acceptance is terminated by the making of a counteroffer.
A counteroffer acts as a rejection of the original offer and creates a new offer.
However, mere suggestions or inquiries, including requests for clarification or statements of intent, made in a response by the offeree do not constitute a counteroffer.
Promissory Estoppel Rule
Under the doctrine of promissory estoppel, a party’s promise to make a gift is enforceable if the donor should reasonably expect the promise to induce detrimental reliance by the donee, the promise actually induces such reliance, and the failure to enforce the promise will cause injustice. In this case, the man’s promise to give the piece of furniture to his brother will only be enforced if enforcement is necessary to avoid injustice.
Contract made by Minor Rule
When a contract is made by an infant, it is voidable by the infant but not by the other party. This means that the infant may either disaffirm (void) the contract and avoid any liability under it or choose to hold the adult party to the contract.
An exception to the infancy rule exists when the contract is based on necessities.
When necessities are furnished to the infant, the infant must pay for them, but the recovery by the person furnishing the necessities is limited to the reasonable value of the services or goods (not the agreed upon price).
Objective Rule
Contract formation is determined by an objective theory: whether reasonable people in the parties’ position, given the facts and circumstances, would conclude that a contract had been made based on objective manifestations of intent (regardless of actual subjective intent).
Avoiding the Sale Bidder Rule
When an auctioneer knowingly accepts a bid by the seller or on her behalf, or procures such a bid to drive up the price of the goods, the winning bidder may avoid the sale or, at her option, take the goods at the price of the last good-faith bid prior to the end of the auction.
There are two exceptions to this rule, which are that (i) a seller may bid at a forced sale and (ii) a seller may bid if she specifically gives notice that she reserves the right to bid.
Mirror Image Rule
The acceptance must mirror the terms of the offer. Any change to the terms of the offer, or the addition of another term not found in the offer, acts as a rejection of the original offer and as a new counteroffer.
Mere suggestions or inquiries, including requests for clarification or statements of intent, made in a response by the offeree do not constitute a counteroffer.
However, the addition of a term that is essential to the party making it likely indicates that the response was a counteroffer, not a mere inquiry.
UCC Acceptance Rule
Unless an offer specifies otherwise, the offer may be accepted by either a promise or by performance.
If the buyer requests that the goods be shipped, then the buyer’s request will be construed as inviting acceptance by the seller either by a promise to ship or by prompt shipment of conforming or nonconforming goods.
Firm Offer Rule
Under the UCC firm offer rule, an offer to buy or sell goods is irrevocable if the offeror is a merchant, there is an assurance that the offer is to remain open, and the assurance is contained in signed writing from the offeror.
If the time period during which the option is to be held open is not stated, a reasonable term is implied, but irrevocability cannot exceed 90 days.
Warranty of Merchantability
Under UCC Article 2, a warranty of merchantability is implied whenever the seller of goods is a merchant. To be merchantable, goods must be fit for their ordinary purpose and pass without objection in the trade. A breach of this warranty must have been present at the time of the sale. However, if the buyer, before entering into the contract, has examined the goods as fully as the buyer desires, or has refused to examine the goods, there is no implied warranty with respect to defects that an examination would have revealed to the buyer.
