K Formation Flashcards
Implied-in-Fact Contract
Created by parties’ CONDUCT
Restitution
- Quasi contract
- Protects against unjust enrichment whenever K law would yield an unfair result
- Receives reasonable value of the benefit conferred, NOT the K price
Bilateral K
Offer can be accepted any reasonable way
Unilateral K
Offer can be accepted ONLY by performing
- Reward/contest/prize
- Offer stipulates acceptance is only by performance
Requirements K
Permissible under Article 2 despite uncertain quantity
-Look for sudden increases/assignments/etc. that are way out of line with prior requests
Open Price Term
Does not preclude enforeability
-Court will read in a “reasonable” price EXCEPT in K’s for real property
Types of Irrevocable Offers
(1) Options
(2) Firm Offers (Article 2)
(3) Foreseeable Reliance Before Acceptance
(4) Starting Performance in a Unilateral K
General Rule of Revocation
Offer can be terminated by the offeror at any time before acceptance
Option
A promise to keep an offer open that is paid for
-IN NY: Signed written promise not to revoke is enforceable even without payment
Firm Offer
- Article 2
- In SOG, if a MERCHANT promises in a SIGNED WRITING to keep an offer open, that offer is irrevocable
- 3 month time limit
Foreseeable Reliance Before Acceptance
- Rarely succeeds
- i.e. where subcontractor submitting bids to a contractor knows the bid will be relied upon for the contractor to compute his own bid
Starting Performance in a Unilateral K
Must be more than mere preparation (i.e. buying paint to paint a house)
-IN NY: offer for a unilateral K can be revoked up until performance has been COMPLETED
ARTICLE 2 - ACCEPTANCE VARYING OFFER
- Acceptance does NOT have to mirror offer
- Offeree’s adding or changing a term DOES NOT prevent acceptance, but the offeree’s term is included ONLY IF:
- (1) Both parties are MERCHANTS and
- (2) There is no MATERIAL CHANGE (e.g. would cause hardship or surprise to the offeror), and
- (3) No objection is made within a reasonable time
STARTING PERFORMANCE IN A BILATERAL K
- Starting performance IS acceptance
- Carries with it an implied promise to finish the job
STARTING PERFORMANCE IN A UNILATERAL K
- Starting performance is NOT acceptance
- COMPLETING performance is acceptance
- Offeree can walk away once performance has commenced in a unilateral K, but offeror CANNOT revoke
NY –> offeror can revoke until performance is completed
IMPROPER PERFORMANCE UNDER THE COMMON LAW
Simultaneous acceptance AND breach
IMPROPER PERFORMANCE UNDER ARTICLE 2 UCC
Simultaneous acceptance and breach UNLESS seller is sending non-conforming goods as an accommodation to the buyer and SAYS so specifically
ARTICLE 2 - ACCEPTANCE VARYING OFFER
- Acceptance does NOT have to mirror offer
- Offeree’s adding or changing a term DOES NOT prevent acceptance, but the offeree’s term is included ONLY IF:
- (1) Both parties are MERCHANTS and
- (2) There is no MATERIAL CHANGE (e.g. would cause hardship or surprise to the offeror), and
- (3) No objection is made within a reasonable time
STARTING PERFORMANCE IN A BILATERAL K
- Starting performance IS acceptance
- Carries with it an implied promise to finish the job
LACK OF CAPACITY
= a defense against formation
-Incapacitated D’s may disaffirm the K (voidable)
-UNLESS the incapacitated D retains the benefit after regaining capacity
-EXCEPTION
Incapacitated D’s are still liable for NECESSARIES, for a reasonable value (not the K price)
IMPROPER PERFORMANCE UNDER THE COMMON LAW
Simultaneous acceptance AND breach
IMPROPER PERFORMANCE UNDER ARTICLE 2 UCC
Simultaneous acceptance and breach UNLESS seller is sending non-conforming goods as an accommodation to the buyer and SAYS so specifically
WHEN IS ACCEPTANCE OF AN IRREVOCABLE OFFER EFFECTIVE?
Only effective when RECEIVED
-Exception to the mailbox rule
3 EXCEPTIONS TO THE MAILBOX RULE
(1) Offer states otherwise
(2) Irrevocable offers
(3) Rejection sent first
LACK OF CAPACITY
= a defense against formation
-Incapacitated D’s may disaffirm the K (voidable)
-
ECONOMIC DURESS
3 Requirements
(1) Threat to make an existing K
(2) Buyer only agreed to a 2nd deal to get the 1st deal done AND
(3) There is no reasonable alternative
COERCION
Arises where a party’s free will is overcome by an unlawful use of force or threats of imminent use of force
MISREPRESENTATION/NON-DISCLOSURE OF A MATERIAL FACT
Honest misrepresentations and non-disclosures are FATAL FLAWS in the agreement process, as long as they concern a material fact
AMBIGUITY/MISUNDERSTANDING
If the parties are on different wavelengths, there is no K because of the ambiguity
Ex/ Peerless ship case
EXCEPTION:
-If one party knows or has reason to know that there is ambiguity, then the innocent party’s meaning will prevail and there will be a K on those terms
MUTUAL MISTAKE
If both parties are mistaken about a material (i.e. essential to the K) fact, the parties are excused from performance
-Does not include mistakes as to value - not deemed amterial
UNILATERAL MISTAKE
One party’s mistake does NOT excuse performance unless the other party knew or had reason to know about it
PAST CONSIDERATION
MBE: Past consideration is not consideration at all
NY: Past consideration IS consideration if it is expressly stated in a signed writing, and can be proven
MODIFICATION - COMMON LAW
- New consideration is required to modify a K
- Performing an existing duty is insufficient (Pre-Existing Duty Rule)
- Pre-existing duty rule is not available to third parties as a defense
- **NY Distinction
- Don’t need new consideration for a modification as long as it is in a signed writing
MODIFICATION - UCC ARTICLE 2
New consideration is NOT required to modify a K, but must show good faith
TIME BARRED DEBT
A written promise to pay a debt, collection of which is barred by the SOL, is enforceable EVEN WITHOUT CONSIDERATION
-Signed writing serves as substitute for consideration (both MBE & NYS)
PROMISSORY ESTOPPEL
Foreseeable reliance may make a promise enforceable even without consideration
-Fallback position
PUBLIC POLICY ISSUES
(1) Covenants not to compete
(2) Exculpatory clauses
COVENANT NOT TO COMPETE
Courts will invalidate or narrow covenants not to compete that operate as a restraint of trade
- Scope of covenant (duration and geography) - Need for covenant (uniqueness of service)
EXCULPATORY CLAUSE
Exculpatory clauses can be used to eliminate liability for ORDINARY negligence, but NOT for gross negligence or intentional torts
UNCONSCIONABILITY
SUBSTANTIVE: terms of the agreement are unfair (i.e. indentured servitude)
PROCEDURAL: the agreement process was unfair (i.e. small print, gross imbalance in bargaining power)
8 DEFENSES AGAINST FORMATION
(1) Incapacity
(2) Economic Duress
(3) Misrepresentation/Non-disclosure
(4) Ambiguity
(5) Mutual Mistake
(6) Lack of Consideration
(7) Public Policy
(8) Unconscionability
PARTIAL PAYMENT OF A DEBT AS CONSIDERATION
If the debt is due and undisputed, no consideration for creditor’s promise to forgive the debt - the money owed is not disputed and it is owed right now
IN NY: Don’t need consideration if promise to forgive is in a SIGNED WRITING
