MBE Contracts Flashcards
Formation > Objective Theory of Contracts
Whether a party intends to enter into a contract is judged by outward OBJECTIVE facts as interpreted by a reasonable person.
So a party’s mere subjective lack of intent is not sufficient to prevent the formation of a contract, UNLESS the other party KNEW or should have known that the party LACKED the INTENT to enter into a contract, then the contract is NOT FORMED
Formation > Offer
Definition: An offer is a maniffestation of intent to be bound to the offered terms that creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror.
1) INTENT
- Offer only if the person to whom it is communicated to could reasonably interpret it as an offer. Must express a present intent of a person to be legally bound to a contract
2) KNOWLEDGE by the offeree
- To have power to accept an offer, the offeree must have knowledge of it.
3) TERMS
- Terms of the contract must be certain and definite
Essential terms:
- Common law - Parties, subject, price, and quantity
- UCC - Quantity *
UCC EXCEPTIONS - No Specific Quantity Term
Requirements and Output Contracts
- Requirements K - when a buyer agrees to buy all of a good it will need from one seller
- Output K - a seller promises to sell to a certain buyer all of the goods the seller produces
Reasonable Range of Choices
- An offer allowing a person to specify an item within a reasonable range of choices may be sufficiently definite to result in a contract if accepted.
Advertisements are invitations to deal - Not offers, UNLESS they are reward advertisements or are so specific that they leave nothing open to negotiation (including how to accept)
Formation > Offer > Termination >
1) Lapse
2) Death or Incapacity
3) Destruction or Illegality
4) Revocation
Effect of Termination
- Offeree’s power of acceptance is lost
1) Lapse
- An offer will terminate by lapse if it is not accepted by the time stated in the offer or, if no time is stated, within a reasonable time.
2) Death or mental incapacity
- even if the offeree does not learn of the offeror’s death or mental incapacity until after the offeree has dispatched what he believes is an acceptance.
- Exception – Option K’s
3) Destruction or Illegality
- If subject matter of offer is destroyed.
- an offer that becomes illegal is terminated.
4) Revocation
- Direct Revocation – Telling or notifying other party directly that the offer is revoked
- Indirect Revocation – If the Offeree learns that the offeror made a deal with somebody else.
Formation > Offer > Revocability (+Irrevocable Offers)
Offers are generally REVOCABLE, unless:
1) Option K (Non-Merchants)
2) Firm Offers (Merchants ONLY)
3) Unilateral K + partial performance
4) Detrimental Reliance (promissory estoppel)
Formation > Offer > Irrevocable Offers > Option K
Option K – NON-MERCHANTS ONLY. ADDITIONAL CONSIDERATION NEEDED! *
A promise to keep a new offer open for a certain period of time. Irrevocable for the time stated, or if no time stated, for a reasonable amount of time, and then reverts back to a revocable offer.
if no additional consideration, offer remains revocable. Then becomes a question of who goes first
Formation > Offer > Irrevocable Offers > Firm Offer
Firm Offer – Merchants Only. MUST BE IN A SIGNED WRITING!
Elements:
* the offeror is a merchant
* there is an assurance that the offer is to remain open and
* the assurance is contained in a signed writing from the offeror
Rule: Irrevocable for the time stated, or if no time stated, for a reasonable time.
* IN NO EVENT may such period exceed three months unless the offeree gives consideration to validate it beyond the three-month period.
* After, goes back to being a revocable offer.
Reasonableness depends on:
- nature of K
- purpose + course of dealing
- trade usage
If not in writing, just a regular revocable offer. Then becomes a question of who goes first
Formation > Offer > Irrevocable Offers > Unilateral K
Unilateral K – Offer for PERFORMANCE
Once someone BEGINS PERFORMANCE, the offer becomes irrevocable.
Example: John offers 10k to Mike to paint John’s House. The moment Mike begins performing, John cannot revoke the offer. 10k not owed until Mike is finished performing.
Formation > Acceptance > How to accept?
How to Accept: Any reasonable manner that COMMUNICATES TO THE OFFEROR a manifestation of intent to be bound to the terms of an offer
EXCEPTION: If the manner of acceptance has already been specified, then acceptance can only be made by that specified way.
Formation > Acceptance > Mailbox Rule
Mailbox Rule: does NOT apply to irrevocable offers (firm offer, option)
RULE: ACCEPTANCE by mail is generally effective upon DISPATCH
- unless offeror detrimentally relies on an earlier recieved rejection
- rejection by mail is effective only upon receipt.
REJECTION, then ACCEPTANCE
* whichever is recieved first prevails
Formation > Acceptance>
Implied-In-Fact Contracts v. Quasi Contracts (Implied-In-Law)
Implied-in-fact CONTRACT are Contracts formed by CONDUCT, not words or writing.
- e.g., If a person sits in a barbers chair and the Barber cuts his hair, a contract has been formed by the parties conduct
Quasi-Contracts are not contracts at all. They are constructed by courts to avoid unjust enrichment by permitting the plaintiff to bring in action in restitution to recover the amount of benefit conferred on the defendant.
- One party conferred a measurable benefit on another party,
- reasonably expecting to get paid, and
- it would be fair to pay for that benefit.
There must be an opportunity to decline OR a good reason why there was no opportunity to decline (like a medical emergency – doctor rendering services)
- if there is no opportunity to decline, would not be fair!
- I learn about this cool thing called quasi-contract and rush over to paint your house while you are taking the bar exam. When you come home, I stick out my hand and demand a reasonable payment for the paint job. Will I recover? No.
Formation > Consideration
2 elements:
- there must be a bargained-for exchange between the parties; and
- that which is bargained for must be considered a benefit to the promisor or a legal detriment to the promisee.
Florida Distinction: Consideration
- Florida provides that consideration can be satisfied by either a benefit, legal detriment, or both.
Promises Binding Without Consideration
A new promise to pay a debt after the statute of limitations has run is enforceable without any new consideration.
- the courts will enforce a new promise if it is in writing or has been partially performed. (SOF)
- Court will enforce the contract ONLY to the extent of the new promise.
Promise to Pay Arising Out of Past Material Benefit—Material Benefit Rule
- Under a modern trend, some courts will enforce a promise if it is based
on a material benefit that was previously conferred by the promisee on the promisor and if the promisee did not intend to confer the benefit as a gift. This includes situations in which the promisee performed an act at the promisor’s request or performed an unrequested act during an emergency - the promise is unenforceable to the extent it is disproportionate to the benefit conferred
Formation > Consideration > Promises to Gift
A PROMISE to give a gift is NOT enforceable consideration.
- The actual GIVING of a gift, however, is ENFORCEABLE, cannot get back.
Formation > Consideration > Past/Moral Consideration
RULE: Past/Moral consideration is UNENFORCEABLE
* Someone did a good act on their own.
* After the act, someone else offers to give them consideration.
* this consideration is Unenforceable
Ask yourself: Did the deal happen after the act or before the act?
Example 1: A stranger saves a drowning boy that gets caught in a riptide. After, the boy’s Mom tells the stranger to come to her house the next day so that she can give him $10,000. The next day, the stranger shows up to the mom’s house and she gives him $50 Dunkin gift card. Can the Mom do that? Yes. Her $10,000 offer is NOT enforceable.
vs.
Example 2: Mom offers $10,000 to whoever saves her drowning child. A stranger then saves the drowning boy that got caught in the riptide. Now, her $10,000 offer is ENFORCEABLE
Pre-Existing Duty
the promise to perform, or the performance of, an existing legal duty is not consideration.
Exceptions
1) New or Different Consideration Promised
- It is important to note that it is usually immaterial how slight the change is, because courts are anxious to avoid the preexisting duty rule.
2) Existing Debts (barred by SOL)
- When the debt is both UNDISPUTED and DUE, payment of a smaller sum than due will not be sufficient consideration for a promise by the creditor to discharge the debt.
- However, if the consideration is in any way new or different (e.g., payment before maturity or to one other than the creditor; payment in a different medium, e.g., stock instead of cash; or payment of a debt that is subject to an honest dispute), then sufficient consideration may be found.
- if barred by SOL, no longer undisputed and due - (A new promise to pay a debt after the statute of limitations has run is enforceable without any new consideration. When the new promise is an express promise, most states require that the new promise be in writing and signed by the debtor.)
3) Voidable Obligation
- A promise to perform a voidable obligation (i.e., ratification) is enforceable despite the absence of new consideration. Thus, an infant’s (i.e., minor’s) ratification of a contract upon reaching the age of majority is enforceable without new consider- ation, as is a defrauded person’s promise to go through with the tainted contract after learning of the fraud.
4) Preexisting Duty Owed to Third Party
5) Honest Dispute as to Duty
6) Unforeseen Circumstances
7) Modification of Contract for the Sale of Goods
Florida Distinction (Exception):
There is an exception to the preexisting-duty rule when a third party’s promise is exchanged for the pre-existing promise to perform an act that the promisor is already contractually obligated to perform.
- Under the exception, the party’s promise to the third party is sufficient consideration.
Third Party Beneficiary >
Intended vs. Incidental Beneficiary/When do rights vest?
Original parties make a contract and someone else (third party) is claiming benefits.
1) Intended Beneficiary – Original parties had INTENT TO BENEFIT the third party.
An Intended Beneficiary may have rights (can sue) once their rights vest.
- Before their rights vest, original parties can still change their mind about benefiting them. Once the rights vest; Thats it.
When do their rights vest?
- One of the Original Parties notifies the beneficiary of their intent to benefit them, OR
- Intended Beneficiary learns of original parties’ intent to benefit them and relies on it.
2) Incidental Beneficiary – Original parties never intended to benefit third party. this type NEVER HAS RIGHTS (never can sue)
Assignment (rights) vs. Delegation (duty) >
1. General Rule and Exceptions
2. What if person delegated/assigned to breaches?
3. What if person delegated/assigned to wantes to unilateraly change terms of OG parties contract?
General Rule – One can freely assign their rights and delegate their duties to whomever, whenever they choose. Other party can’t stop that and must accept performance.
Exceptions:
1) When the nature of the agreement is UNIQUE/SPECIAL
- Unique skill or expertise, etc. is why you contracted.
- RULE: Can’t assign/delegate, even to someone with the same level of expertise.
2) If ORIGINAL CONTRACT. . .
Prohibits assignments
- CAN STILL ASSIGN, but would owe damages for breaching promise.
Prohibits delegation - STRICTLY CONSTRUED!
- Cannot delegate duty.
VOIDS / INVALIDATES assignment OR delegation - STRICTLY CONSTRUED!
- Cannot assign or delegate.
What if the person delegated/assigned to breaches?
- Non-breaching party can sue EITHER or BOTH parties,
- UNLESS NOVATION between original parties, then non breaching party can only sue the assigned/delegated party. (new guy)
- Novation: total release of all obligations and liabilities
What if the person delegated/assigned to wants to unilaterally change terms of the original parties contract?
- They can’t. They only gets the rights and duties from the OG contract.
unique/special exception: Contracted someone because they have special unique skill or expertise. That’s why I hired them.
Assignment > Revocability
Assignments for Value = Irrevocable
An assignment is for VALUE if it is:
- (i) done for consideration, or
- (ii) taken as security for or payment of a preexisting debt.
Assignor warrants that they:
- have right to assign
- are not subject to limitations/defenses unknown to assignee
- will not defeat/impair assigned rights
Gratuitous Assignments = REVOCABLE
UNLESS:
- obligor already performed
- document symbolizing assigned right delivered (eg, stock certificate)
- written & signed assignment delivered
- promissory estoppel applies
Methods of Revocation
- Death of the assignor;
- Bankruptcy of the assignor;
- Notice of revocation communicated by the assignor to either the assignee or the obligor;
- The assignor takes performance directly from the obligor; or
- Subsequent assignment of the same right by the assignor to another.
Statute of Frauds > Certain types of contracts need to be in writing…
Whenever you see an ORAL contract, should immediately think SOF. Problem is trying to prove the existence ok a K
Certain types of contracts need to be evidenced by:
- (i) writing (ii) signed by the parties, and (iii) contain all essential terms, or
- Partial performance (only some)
MY LEGS
1) Marriage
2) Year = Contracts that can’t possibly be performed in less than 1 year from when the agreement was made.
3) Land = Any conveyance of any interest of land. (& not leases less than a year)
Exception: Partial Performance (need at least 2)
- Partial payment (down payment, deposit)
- take possession of property or
- make improvements to the property
Florida distinction: part performance needs all 3 Elements Required and only applicable in
- in an equitable action as a relief from fraud (e.g., a quiet title action, ejectment action), but not in an action at law (e.g., an action seeking money damages).
4) Executor = Agreements making someone executor of an estate.
5) Goods $500 or more = sale of goods $500 or more.
Exception = Partial Performance
- Partial payment or delivery of Goods.
6) Surety/Guarantor = Guaranteeing the debt of another to be paid, unless the main purpose in agreeing to pay the debt of another is for the surety’s own economic advantage
SoF is commonly used as a defense
Florida distinction:
In addition to the aforementioned contracts, Florida requires the following contracts to be in writing:
i) Executor contract (a type of suretyship contract)—A promise by an administrator of a will to pay any debt or damages from her own estate;
ii) Newspaper subscriptions—Subscriptions to newspapers, periodicals, other publications;
iii) Health care—A guarantee, warranty, or assurance as to the results of any medical, surgical, or diagnostic procedure performed by a licensed physician, osteopathic physician, chiropractor, podiatrist, or dentist; and
iv) Debt—A contract satisfying a debt or obligation for less than the full amount.
- Florida also prevents a debtor from enforcing a credit agreement (e.g., a loan) against a creditor unless the agreement is in writing and signed by both the debtor and the creditor.
Divisible Contracts
Florida Distiction (Point of Law): Construction Contracts and Indemnification
In Florida, a construction contract involving any construction, repair, or demolition of (real property or its attached structures) between a real property owner and an architect, engineer, general contractor, subcontractor, sub-subcontractor, materialman, or any combination thereof, that contains an indemnity provision must contain a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract. The monetary limitation must not be less than $1 million per occurrence, unless otherwise agreed by the parties.
Indemnification from Negligence Only
Indemnification claims do not include claims of, or damages from gross negligence, or willful, wanton or intentional misconduct of the indemnitee its officers, directors, agents, or employees, or for statutory violation or punitive damages except and to the extent the statutory violation or punitive damages are caused by or result from the acts or omissions of the indemnitor or any of the indemnitor’s contractors, subcontractors, sub-subcontractor’s materialmen, or agents or their respective employees.
Parol Evidence (Common Law)
Parol Evidence: After a contract is formed, one party tries to admit evidence to explain or supplement the terms of a written contract.
APPROACH: Is the contract completely INTEGRATED?
1) Intent of the Parties - DETERMINES whether there is total, partial, or no integration.
Common Law
- Traditional approach: “Four Corners” or Merger Clause;
- Modern Approach: If an extrinsic term of an agreement would “naturally be left out” from a writing, then that term can be introduced, so long as it does not contradict the writing
UCC
- UCC rule is much more lenient. The UCC essentially presumes that a written contract is only a partial integration and allows any additional consistent terms
a) Final Integration: Contract has language stating that it is the final/complete agreement or it has a merger clause.
- RULE: NOT ADMISSABLE UNLESS used to clear up an ambiguity in the contract
b) Partial Integration: Contract has NO language stating that it is the final/complete agreement.
- RULE: ADMISSABLE UNLESS it contradicts material terms of the contract.
ALWAYS ADMISSIBLE:
- to show K formation defenses (misrepresentation/duress/mistake)
- to show condition precedent
- to show how parties have always done business (custom) and to show the business/industry practice overall (trade usage)
Florida Distinction (Rule):
1) a phrase is considered ambiguous when it may be fairly understood more than one way.
2) For extrinsic evidence to be admissible, the ambiguity must exist:
- on the face of the contract and
- must be latent
Parol Evidence (UCC)
The UCC universe is more forgiving and presumes that a writing is, at most, only a PARTIAL INTEGRATION
- The UCC permits express terms to be explained or supplemented by evidence of the following:
Heirarchy:
1) Express Terms
express terms of a written contract for the sale of goods CANNOT be contradicted by evidence of prior or contemporaneous agreements. However, the UCC permits express terms to be explained or supplemented by evidence of the following:
2) Course of performance (current transaction)
evidence of a sequence of conduct relevant to understanding the CURRENT transaction between the parties if:
- (1) the agreement involves repeated occasions for performance by a party and
- (2) the other party accepts performance without objection
3) Course of dealing (previous transactions)
- evidence of sequence of conduct concerning PREVIOUS transactions between the parties that establishes a common basis of understanding for interpreting their conduct
4) Trade usage – any practice or method of dealing in the parties’ business or industry that is practiced with enough regularity to justify an expectation that it will be practiced in the instant case
Implied Warranties
IMPLIED WARRANTIES
Implied Warranty of Merchantability MERCHANTS ONLY - sale of goods
- Implied in EVERY contract for sale of goods by a MERCHANT who deals in goods of the kind sold, there is a warranty that the goods are merchantable.
- Seller’s knowledge of defect not relevant, absolute liability
METHODS OF DISCLAIMER (waiver of warranty)
- oral or conspicuous written statement SPECIFICALLY disclaiming “merchantability”
- expressions like “as is” or “with all faults”
- buyers inspection of goods or refusal to do so, but only for defects that inspection would reveal
- course of dealing, course of performance, trade usage
Implied Warranty of Fitness for a Particular Purpose
ANY SELLER (merchant or not), has reason to know:
* the particular purpose for which the goods are to be used and
* that the buyer is relying on the seller’s skill and judgment to select suitable goods
METHODS OF DISCLAIMER (waiver of warranty)
- conspicuous written statement
- expressions like “as is” or “with all faults”
- buyers inspection of goods or refusal to do so, but only for defects that inspection would reveal
- course of dealing, course of performance, trade usage
Conditions > Types and Timing of Conditions (+Waiver of Conditions)
Conditions: An event, of which the occurence or nonocurrance will make someone perform or discharge from peroforming.
Types of Conditions
Express Conditions: expressed in the contract. Words in the contract such as “on the condition that” or “provided that”
- Express conditions must be complied with fully unless excused; substantial performance will not suffice.
- “Satisfaction” Conditions In contracts based upon aesthetic taste, the party’s dissatisfaction must be in GOOD FAITH, and not just to get out of their obligations
Implied Conditions are deemed to be part of the contract because the nature of the agreement suggests that the parties truly intended the condition but failed to expressly include it, are “implied in fact” conditions.
- Substantial performance is all that is required
Timing of Conditions
Precedent: condition that must occur before a duty of performance arises in the other party.
Subsequent: A condition that occurs after performance, the occurrence of which cuts off the duty of performance.
Concurrent: Conditions that are capable of occurring together, and that the parties are bound to perform at the same time.
When Non-Occurance of a Condition is EXCUSED
Waiver of Conditions
- Only the party benefiting from condition, by words or conduct.
Wrongful Interferance
- Party wrongfully prevents or interferes with condition’s occurrence
Estoppel
- Party indicates condition will not be enforced AND
- Other party reasonably & detrimentally relies on belief that condition has been waived
Disproportionate Fourfeiture
- Party substantially performed & will be significantly harmed if condition is enforced
Anticipatory Repudiation
(+ Retraction, Assurances)
1) Anticipatory Repudiation PRIOR TO K performance date, one party UNEQUIVICALLY refuses to perform. (needs to be ASOLUTE)
- The non-repudiating party Can sue the repudiating party for Total breach IMMEDIATELY, or can wait until K performance date.
Exception (Partial Breach) - Contracts Calling for Installment Payments
- If a contract calls for payments in installments and a payment is not made, there is only a partial breach. The aggrieved party is limited to recovering only the missed payment(s), NOT the entire contract price.
- However, the contract may include an acceleration clause making the entire amount due on any late payment, in which case the aggrieved party may recover the entire amount.
2) Retraction: The repudiating party may retract their repudiation UNTIL the non repudiating party has:
- sued for breach,
- change their position in material reliance on the repudiation, or
- stated that they are treating the repudiation as final
3) Assurances: If party tells you something that makes performance questionable:
- Can demand assurances from them and they need to respond to your demand in reasonable amount of time.
- If there is no reason to be nervous, cannot demand assurances
Florida Distinction - Point of Law: Anticipatory Repudiation
- a party’s comments or actions demonstrate a probable failure to perform. A refusal to perform that is “distinct, unequivocal, and absolute” is repudiation permitting the other party to seek assurance of performance, to seek damages, or to mitigate damages.
Remedies: Damages for Breach of Contract > 1) Compensatory Damages 2) Restitution
(L.I.C.E)
MONETARY REMEDY – DAMAGES
1) COMPENSATORY DAMAGES - The purpose of contract damages is to give compensation for the breach—i.e., to put the nonbreaching party in the position she would have been in had the promise been performed so far as money can do this.
- The most common measure of this is the value of the breaching party’s performance that was lost (expectation damages), plus incidental and consequential damages, less any loss or cost saved by not having to perform.
- Non-Breaching Party’s Duty to Mitigate – A breached-against party must take reasonable steps to reduce damages from breach.
- (expectation + consequential + incidental - mitigated damages)
a) Expectation — Sufficient damages for them to buy a substitute performance. This is also known as “benefit of the bargain” damages.
- Calculation: the difference between the value of performance without the breach (i.e., what was promised) and with the breach (i.e., what was received)
Sale of Goods: Usually difference between K price and market price cost to cover/resell
REAL ESTATE: difference between K price and market value of property. (reminder: they havent actually paid anything yet)
- late delivery of property: fair market rental value of the property for the time that the buyer was denied possession.
b) Reliance — Award the plaintiff the cost of their performance (out-of-pocket expenses); i.e., they are designed to put the plaintiff in the position she would have been in had the contract never been formed.
(Alternative to Expectation)— Used if expectation damages will be too speculative to measure (e.g., the plaintiff cannot show with sufficient certainty the profits she would have made under the K)
c) Consequential — Losses over and above standard Expectation damages. These damages result from the nonbreaching party’s particular circumstances. Usually, consequential damages are lost profits resulting from the breach. These damages may be recovered only if they were reasonably foreseeable at the time the contract was made
- Foreseeability - Plaintiff must show that the breaching party knew or had reason to know of the special circumstances giving rise to the damages.
- UCC sale of goods: only a buyer may recover consequential damages.
d) Incidental (UCC Sale of Goods)— Expenses REASONABLY incurred by the
- Buyer: Inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller’s breach and
- Seller: Storing, shipping, returning, and reselling the goods as a result of the buyer’s breach.
Bonus:
Certainty Rule — The plaintiff must prove that the losses suffered were certain in their nature and not speculative.
* Traditionally, if the breaching party prevented the nonbreaching party from setting up a new business, courts would not award lost profits from the prospective business as damages, because they were too speculative. However, modern courts may allow lost profits as damages if they can be made more certain by observing similar businesses in the area or other businesses previously owned by the same party.
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2) Punitive Damages — awarded to punish a defendant for wrongful conduct, are generally not awarded in contract cases.
3) Liquidated — Stated in the contract as an explicitly negotiated amount due upon breach. Enforceable if:
- a) Damages for contractual breach must have been difficult to estimate or ascertain at the time the contract was formed.
- b) The amount agreed on must have been a reasonable forecast of compensatory damages in the case of breach. If the liquidated damages amount is unreasonable, the courts will construe this as a penalty and will not enforce the provision.
Unenforceable if K stipulates that the plaintiff may elect either to recover liquidated damages set by a clause or actual damages
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ALTERNATIVE TO K DAMAGES
5) Restitution — based on unjust enrichment when one has conferred a benefit on another without gratuitous intent. Restitution can provide a remedy of the fair market value of services conferred. Restitution can provide a remedy when:
1) A contract exists and has been breached
- When a contract has been breached and the nonbreaching party has not fully performed, he may choose to cancel the contract and sue for restitution to prevent unjust enrichment. Note that if the plaintiff has fully performed, he is limited to his damages under the contract.
2) A contract is unenforceable
- Restitution may be available in a quasi-contract action when a contract was made but is unenforceable and unjust enrichment otherwise would result.
3) if no contractual relationship exists at all
- Restitution may also be available in a quasi-contract action when there is no contrac- tual relationship between the parties if:
(i) The plaintiff has conferred a benefit on the defendant by rendering services or expending properties;
(ii) The plaintiff conferred the benefit with the reasonable expectation of being compensated for its value;
(iii) The defendant knew or had reason to know of the plaintiff’s expectation; and
(iv) The defendant would be unjustly enriched if he were allowed to retain the benefit
without compensating the plaintiff.
UCC - Restitution of Advance Payments or Deposit If Buyer of Goods in Breach
- When the buyer breaches, The buyer is entitled to a refund of any payments made on the contract less damages provable by the seller, and a penalty of “twenty percent of the value of the total performance for which the buyer is obligated under the contract, or $500, whichever is smaller.”
Some Major Differences between Common Law and UCC
1) Offers
2) Acceptance
3) Performance
1) Offers – Essential Terms
- Common law - Parties, subject, price, and quantity
- UCC - Quantity
UCC is more forgiving for offers that are not as specific and will fill the gaps of other missing terms:
Price
- reasonable price at the time for delivery
Place of Delivery
- seller’s place of business, if they have one, otherwise the sellers home.
- if parties know the goods are in some other place, then that is the place of delivery.
Time for Shipment or Delivery
- shipment/delivery is due in a reasonable time.
Time for Payment
- Payment is due at the time and place at which the buyer is to receive the goods.
2) Acceptance
Mirror Image Rule (Common Law): Acceptance must be an absolute and unequivocal acceptance of each and every term of the offer. Any different or additional terms in the acceptance make the response a rejection and counteroffer.
UCC § 2-207 (UCC): a purported acceptance that does not match the terms of the offer exactly can still count as a legal acceptance UNLESS acceptance is expressly made conditional upon assent to the additional or different terms
The new term in the acceptance may control under § 2-207(2), but ONLY IF ALL of the following are true:
- Both parties are merchants;
- The new term does not materially alter the deal;
- The initial offer did not limit acceptance to its terms; AND
- The offeror does not reject within a reasonable time to the new term.
Merchant’s Confirming Memo w/ Additional or Different Terms of Oral Agreement (UCC)
- Subject to UCC § 2-207
UCC Gap-Filler Terms
Recall that the key to forming a contract for the sale of goods is the quantity term. If other terms are missing from the agreement, Article 2 has gap-filler provisions to fill in the missing term(s).
1) Price
- If: (i) nothing has been said as to price; (ii) the price is left open to be agreed upon by the parties and they fail to agree; or (iii) the price is to be fixed in terms of some standard that is set by a third person or agency and it is not set, then the price is a reasonable price at the time for delivery
2) Place of Delivery
- If the place of delivery is not specified, the place is the seller’s place of business, if he has one; otherwise, it is the seller’s home. However, if the goods have been identified as the ones to satisfy the contract and the parties know that they are in some other place, then that is the place of delivery.
3) Time for Shipment or Delivery
- If the time for shipment or delivery is not specified, shipment/delivery is due in a reasonable time.
4) Time for Payment
- If the time for payment is not specified, payment is due at the time and place at which the buyer is to receive the goods.
5) Assortment
- If a contract provides that an assortment of goods is to be delivered (e.g., blouses in various colors and sizes) and does not specify which party is to choose, the assortment is to be at the buyer’s option.
- If the party who has the right to specify the assortment does not do so seasonably, the other party is excused from any resulting delay and may either proceed in any reasonable manner (e.g., choose a reasonable assortment) or treat the failure as a breach.
