K Flashcards
When has an enforceable K been formed?
Neumonic
All Contracts Dont Stink
You need to know that All Contracts Don’t Stink
Agreement (offer and acceptance)
Consideration (bargained for exchange)
Defenses to formation
Statute of Frauds (enforceability)
For a communication to be an offer, what must the communication show?
It must show that the offeror intends to be bound
Watch out for humor or anger (may not be serious intent)
How specific must your offer be?
Common law
It must have the essential terms
i.e., parties, quantity, price, subject matter
How specific must your offer be?
UCC
The only essential term is quantity
UCC fills the gaps for all other terms INCLUDING PRICE!
So price is not needed b/c you can go by the market/reasonable price
What are requirement K?
s <— B, but S — 1, 2
Buyer (B) promises to buy 100% of what B needs from Seller (S)
But S is free to sell to any buyer
What are output K?
S—->B, but B—1, 2
Seller promises to sell 100% of goods to a buyer
B is free to buy from any seller
What are the different ways to terminate an offer?
Squash the catterpillar (6 ways)
- Direct revocation (offeror communicates to offeree)
- Constructive revocation (offeree finds out of action inconsistent w/ability to accept)
- Rejection (by offeree)
- Counteroffer (legally a rejection + new offer)
- Offeror dies
- Reasonable time passes (offer expires on its own)
What are the types of irrevocable offers?
Name
- Option K
- Firm offers
- Unilateral K
What is required for a firm offer?
That a merchant makes a firm offer (a written, signed by offeror, explicit promise not to revoke offer) to buy or sell goods
Only a merchant can do this
Then who can the merchant make a firm offer to/with?
Transaction does NOT have to be exclusively b/w merchants. Merchant can make a firm offer to:
- buy from non-merchant.
- sell to a non-merchant.
- to another merchant
What happens when firm offers expire?
Upon expiration (if specified), the merchant must revoke the offer for it to stop existing.
Offeree CAN accept offer if it’s w/in reasonable time
Reasonable time = is not to exceed 3 months. UCC
Unilateral offer
Offeree’s actions
B/c unilateral offers require an action/performance by offeree to accept it…
offeree is NOT required to complete the performance
And would not be in breach
What will determine how you must accept an offer?
Wtv offeror says b/c the offeror is the master of the offer.
What happens if there is an ambiguity about whether the offer is unilateral or bilateral?
Acceptance can be made by either:
1. Performance
2. Return promise
What is the UCC trick for unilateral/bilateral ambiguity?
Shipping wrong goods
If seller tries to accept by performing, BUT ships wrong goods, under UCC this is an acceptance ++ breach!
Counteroffers
Common Law
CL uses the mirror image rule
What is the mirror image rule?
CL’s rule that an acceptance must be an identical MATCH (mirror image) of the offer!
IF NOT MIRROR IMAGE = NOT an acceptance.
What about conditional acceptances?
In CL
Another form of counteroffer, so NOT an acceptance
Language “if,” “only if,” “on the condition that,” “but,” etc.
UCC §2-207
What does it do?
UCC allows acceptances that do NOT exactly match the offer
When will there be an acceptance under UCC § 2-207(1)?
When there is a DEFINITE EXPRESSION of acceptance even if such has different/addional terms = OKAY
§2-207(1) looks at whether there was an acceptance.
When will there be NO acceptance under §2-207(1)?
IF 2d form makes acceptance conditional on different/additional terms.
If there is an acceptance, when will the new terms control K?
§ 2-207(2) requirements
New terms on the acceptance will govern IF:
- both parties are merchants
- New terms do not materially alter the deal
- Initial offer did not expressly limit acceptance to its term (1st form cannot expressly say acceptance must be made as is, you cannot add more/different terms)
- Offeror does not reject/object to new terms w/in reasonable time.
§2-207(1) looks at which terms control K.
When does UCC §2-207(3) come into play?
When there is no acceptance under §2-207(1) BUT parties act as if there was an agreement (goods were delivered) §2-207(3) will allow the terms that are the same in both writings to become K
All other terms will be supplied by UCC default rules.
What is the knock-out rule?
Majority jurisdiction
The terms that are different in both forms are “knocked-out.”
ONLY same terms apply and rest is UCC gap fillers
How do the minority jurisdictions treat different terms?
Compared to knock-out rule
If the “additional/different” terms in 2d paper do not control – THEN, initial offer controls ALL terms
Write it down!
UCC 2-207 confirming memo
early oral agreement AND then a written confirmation that ADDs terms.
Work through this as if it was a 2-207(2) analysis (but know new terms will rarely come in)
What do you need for there to be consideration?
Promisor must get a benefit
OR
Promisee must “suffer” a detriment
And benefit/detriment MUST be bargained-for (discussion-regateo)
Adequacy of consideration
There must be ENOUGH value to be adequate
$1 will be nominal = inadequate
Illusory promises
Defined
Promisor has not CLEARLY commited to the deal, so NO deal.
“I promise to buy your house if I feel like it”
Satisfaction K
Defined
Real K w/real consideration
“I promise $500 if you paint a family portait meets my satisfaction”
How do you meet the satisfaction conditions on satisfaction K?
Depends on the nature of the performance.
Generally, an objective standard of satisfaction applies (most reasonable people would be satisfied) UNLESS it deals w/K involving aesthetic taste then subjective standard
Can you ever breach a subjective satisfaction K`?
Yes, even though is subjective, if the dissatisfaction claim is in bad faith (you liked it but you lied that you didn’t), you CAN still breach
K modification
CL (common law)
You need new consideration for modification to be valid
B/c of the preexisting duty
Preexisting duty
K modification CL
Promise to do something that you are already legally obligated to do is NOT consideration.
Preexisting duty exceptions
There is:
1. a change in performance
2. 3rd party promising to pay
3. unforseen difficulties that excuse performance.
What happens to partial payments for debt obligation release?
When debt is currently due and undisputed
Nothing, the full debt is owed when the debt is currently due and undisputed. Any partial payment-modification of the debt - is NOT binding
What happens to partial payments for debt obligation release?
If debt is NOT currently due
Modification of partial payment to be released from debt is binding
UCC modification
Does NOT require new consideration, only good faith.
Preexisting duty does not apply to UCC (goods)
Is nondisclosure of a fact equivalent to a misrepresentation?
Adaptibar
YES IF the non-disclosing party KNOWS that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation
Wrongful termination
Adaptibar
A wrongfully discharged employee is expected to mitigate damages by making reasonable efforts to seek comparable employment BUT if no comparable employment is reasonably available, the employee is entitled to recover the K promised salary or the $$ for the remaining time of their K.
A company’s unjustified termination of employment constitutes K breach.
Buyer repudiation
Under UCC
Adaptibar question
If buyer repudiates K, seller may recover:
1. difference b/w K price and resale price (if resale is done in accordance with UCC)
2. difference b/w K price and market price at time for tender
Buyer repudiation
UCC alternative (where market formula is inadequate)
Adaptibar question
Seller may recover its lost profit on the sale plus incidental damages IF seller can show it could have profitably made the extra sale had the K gone forward
i.e., IF seller has “more units than it can sell” this would apply!
When does promissory estoppel apply?
When one party makes a promise reasonably expected to induce reliance, the other party detrimentally relies, and injustice can only be avoided by enforcement of the promise.
What is a quasi-K (K perspective)?
- a K that arises when you would have made a K but you could not
What is a quasi-K (from benefits perspective)?
When (1) P conferred a measurable benefit on D, (2) P expected to get paid, and (3) it would be unfair to pay for that benefit.
What are the damages one can recover for quasi-K?
Limited, as justice requires, to the fair value of the benefit conferred
What are the different defenses to K formation?
- Misunderstanding
- Incapacity
- Mistake
- Fraud/Misrepresentation/NONDISCLOSURE
- Duress
- Illegality (this is an K enforcement defense)
- Unconscionability
When does the misunderstanding defense apply?
When: (1) the parties use a material term open to multiple reasonable interpretations , (2) each party attaches a different meaning to such, and (3) neither party knows, or should know, of the confusion
What’s a trick to remember the misunderstanding defense?
Think of sitcoms lines(always vague, open to multiple interpretation, and no one knows what the other is thinking)
How many types of incapacity defense are there?
- Minor incapacity, mentally-ill, intoxication
When does the minor incapacity applies?
Every time someone is under the age of 18. This is a broad blanket protection — so whenever you see a fact pattern w/someone younger than 18 buying something, they can always withdraw b/c K is voidable.
When does the mentally-ill incapacity apply?
Two scenarios: (1) person cannot understand the nature and consequence of their actions OR
(2) person cannot act in a reasonable manner in relation to the transaction (and the other person knows or has reason to know that)
Is a minor’s incapacity protection the same as a mentally-ill’s incapacity?
NO, a mentally ill person’s ability to disaffirm a contract is NOT the same as that of a minor (minor = broad blanket protection). Mentally-ill’s protection will depend.
When does the intoxication incapacity apply?
When the party is very intoxicated and theother side knows or has reason to know that
Will an incapacity always impact the K?
NO IF the incapable party gains capacity and after such gain, ratifies K by keeping the benefits of it.
Will an incapacity impact a necessities K?
NO, party w/o capacity must still pay, but pay only fair value (not necessarily K price)
What are necessities (for K context)?
Food, clothing, shelter, etc.
How many types of mistake defenses are there?
- Mutual and unilateral mistake
When does the mutual mistake defense apply?
When:
(1) there is a mistake of fact (existing at time deal is made),
(2) the mistake relates to a basic assumption of K and has a material impact on the deal,
And (3) impacted party did not bear the risk of mistake.
When does a unilateral mistake defense apply?
When all elements of mutual exist (mistake of fact at time of making deal, mistake is a basic assumption having a materia impact on deal, and impacted party does NOT bear the risk)
PLUS, either:
(I) mistake would make K unconscionable
(Ii) other side knew of, had reason to know, or caused the mistake.
Who can assert the unilateral mistake defense?
Only the adversely affected party
Why are the fraud, misrepresentation, and nondisclosure defenses connected?
B/c they revolve around an intentional/accidental lie about a present fact (not an opinion) at the time of contracting
When does misrepresentation defense apply?
When the lie about the present fact is material (accidental) an is made in a way that it is justifiable that the other party relies in such lie.
When does the fraud defense apply? (Fraud in the inducement)
When the lie about the present fact is fraudulent (intentional) an is made in a way that it is justifiable that the other party relies in such lie.
When does fraud in the execution apply?
When you deceive someone into signing something they dont even know is a K
When does the nondisclosure defense apply?
Generally, you do NOT have to tell the other side all material facts about the deal BUT this defense will apply IF there is:
1. A special (fiduciary) relationship OR
2. Active concealment (facts show party took steps to try to trick the other party)
When does duress apply?
Either there is: (1) an improper threat depriving party from making. Meaningful choice to K or (2) economic duress, when a party makes threats to induce another to K/modify K.
What is undue influence?
Another K defense that applies when a party puts very intense sales pressure on another party, who is susceptible/weak-minded to such pressure.
What is the illegality defense?
Is a defense that does NOT prevent K formation, but prevents K enforcement b/c the K is illegal BUT a K entered in furtherance of an illegal act will still be enforced.
I.e., You cannot enter. K to get someone killed, but if you contracted to buy a gun, that K i enforceable (even if you are going to use the gun to kill someone).
What is the remedy for an illegal (unenforceable) k?
Typically, the law will leave parties where they stand (even if there has been money paid, or performances exchanged)…
When does the unconscionability defense apply?
Two scenarios:
1. Procedural unconscionability
2. Substantive unconscionability
When does the procedural unconscionability apply?
There is a defect in the bargaining process (i.e., a hidden term (surprise); or an absence of meaningful choice)
When does substantive unconscionability apply?
there is a clear rip-off in some term of K.
What is the 2 things you should always ask yourself when there is an issue of formation of K?
Hint: SOF
Does SOF apply/are we in SOF world?
If so, was SOF satisfied?
SOF (statute of frauds) world = MYLEGS
M: marriage
Y: K that have no possible way to be performed w/in 1 year of its making
L: land (but for an interest on the land, not to rent, etc.)
E: executor agreements
G: guarantor (unless the main purpose of paying another’s debt is for guarantor’s own economic advantage)
S: sale of goods $$500+
How is SOF satisfied?
Either by a signed writing OR performance
What are the requirements for SOF in writing?
Must be: (1) signed by party you are trying to enforce K against; (2) writing does NOT have to be a formal K but it must: (i) show a deal has been made, (ii) cover essential elements of the deal and (iii) ID the parties.
How is SOF satisfied by performance? (For RE)
For real estate, SOF will be satisfied w/o a writing IF: there was 2/3 of these elements:
1. Partial payment
2. Possession of land
3. Improvements on the land
Regarding services K, when do they satisfy SOF by performance?
ONLY by full performance of one party (does not need to be both parties perform, and it CANNOT be the there is partial performance, it must be full!)
When will SOF be satisfied in UCC? (5 scenarios)
- Signed writing (must have the quantity, and will only be enforced for the quantity specified, but does not need to have the price)
- Part performance (allows K to be enforced if partial delivery or partial payment was made, but it will NOT force the party to take the full quantity)
- Custom-made (or specially manufactured) goods (exempted from SOF IF maker has substantially begun manufacturing the goods)
- Judicial admission (statement in pleading/testimony)
- confirming memo (failure to object to a confirming memo w/in 10 days satisfies SOF, must be b/w merchants)
Note: for part-performance (and no writing) ONLY applies when the buyer has paid, OR when buyer has received the goods
When will an SOF Modification have to satisfy SOF again?
If the modification of OG SOF K also falls under SOF world (modification still w/in MYLEGS), then it MUST meet SOF
BUT, if modification does not meet MYLEGS, no need to meet SOF
I.e., OG SOF K we agreed I would buy 6 cups from you at $100 each, but we modified K to only 2 cups, no longer on SOF world, so does not need to meet SOF.
NOW a K has been formed, and the 2d question is whether the K has been performed
For performance you look at: Pizza With Crawling Escargot
Parol evidence rule (PER)
Warranties
Conditions
Excuse of performance obligations (impracticability, frustration of purpose, etc.)
When will PER apply?
There is a signed writing, along w/an earlier written discussion of the deal then PER will come in to see if that evidence can be introduced (usually at trial)
How does PER work?
It will depend on whether there is a partial K (there is a final writing, but some of the terms are NOT included) or a final K (merged/ expresses all terms are included)
How does PER apply in partial Ks?
PER is always admissible UNLESS the evidence you want to include contradicts a material term
How does PER apply in final Ks?
NOT admissible unless to clarify an ambiguous term.
How does PER apply in UCC universe?
UCC presumes partial K (unless stated otherwise,
Does PER apply if deal was signed and AFTER signing, a party wants to introduce evidence of a later written/verbal agreement?
NO, PER does not apply BUT!!!!
This later writing/oral agreement could be a MODIFICATION so don’t disregard it too quickly.
When does PER always apply?
For:
1. any evidence relevant to K formation defense (duress, mistake, fraud, etc.)
2. Trade usage (industry)
3. To show customs b/w parties.
How do warranties work with K performance?
There are 3 types of Warranties in the UCC universe and these shift the risk to the party making the promise.
When do express warranties apply?
Promise affirms/describes the goods as part of the bargain, so such promise/description must exist.
+ Samples/models create an express warranty (what you buy based on a floor model must be what you get)
When does an implied warranty of merchantability apply?
Seller = Merchant, that regularly deals w/goods at issue, AND warrants that the goods are fit for ordinary commercial use
Can a merchant disclaim an implied warranty of merchantability?
Yes, if its VERY CONSPICUOUS language (in writing or oral)
When does an implied warranty of fitness for a particular purpose apply?
When a buyer relies on a seller’s expertise to buy something for a particular purpose. ANYONE can extend it.
Think of going to a mechanical store and asking the clerk to help you decide b/w 2 motors for your land mower
Can you disclaim an implied warranty of fitness for a particular purpose?
Yes, must be conspicuous and in WRITING (only).
What are conditions?
Third part of checking the performance of a validly formed K (Pizza with Crawling Escargot).
There are express and implied conditions
What are express conditions?
They are strictly construed
How can a party waive a condition?
Either by (1) words, (2) conduct, or (3) wrongfully interfering with or hindering the occurrence of the condition
When does substantial performance apply (and allowes performance)
For implied AND constructive conditions
What are excuses?
The E in Pizza With Crawling Escargot, and the last step of question 2 (has K been performed?) or as here, is it excused from being performed
What are the different performance excuses?
- Impossibility and impracticability
- Death after K’s formed
- Frustration of purpose
Excuses allowed b/c initial K has been
modified/cancelled:
4. Rescission
5. Accord and satisfaction
6. Novation
Define rescission by mutual agreement
both parties agree to walk away w/o performing, as if K never existed = mutual cancellation
Define accord and satisfaction (excuse and remedy)
There was an earlier K but parties agree on a new performance = accord which excuses initial performance = satisfaction
If accord is NOT performed, party can sue for OG obligation OR new promise!
Distinguishing accord and satisfaction from modification
W/Accord and satisfaction you can choose to do the new promise or OG one.
W/modification you MUST do the new thing agreed on
