MEE Rules Flashcards
Common Law vs. UCC (41.4%)
a) The gateway issue in all contracts and sales essay questions will be to determine whether the common law or Article 2 of the UCC governs:
(1) The common law governs if a contract deals with services or real estate (e.g., hiring someone to mow your lawn).
(2) The UCC governs if a contract deals with goods (e.g., agreement to buy 100 reams of paper from a paper supply company).
b) For mixed contracts (contracts that have elements of both services and goods), two rules operate to determine whether the common law or UCC applies:
(1) The common law and UCC CANNOT both govern one indivisible contract at the same time. Thus, mixed contracts must fall into one class or the other. However, there is a limited exception for divisible contracts (contracts that can divide the goods and services portions into separate mini-contracts).
(2) The predominant purpose of the contract determines whether the common law or UCC governs (i.e., whether a good or service/real estate plays a bigger role in the contract).
Requirements to form a valid contract (27.6%)
A traditional, enforceable contract is formed when there is:
(1) Mutual assent (a valid offer + valid acceptance of that offer);
(2) Consideration; AND
(3) No defenses to formation that would invalidate the otherwise valid contract.
Mutual assent (10.3%)
To form a valid offer, the offeror must:
(1) Manifest an OBJECTIVE willingness to enter into an agreement; AND
(a) Objective Test. The offer is governed by an objective test, which means that outward appearances of words and actions are determinative – not subjective hidden intentions.
(2) Create a power of acceptance in the offeree (i.e., the offeree can simply say, “I accept” and know that he has concluded the deal).
(a) Specific Offeree. Generally, an offer must be directed to a specific offeree. However, there is a limited exception for contest offers and reward offers that promise something to anyone who accomplishes a certain task (e.g., a posted sign that offers a cash reward for finding lost puppy is a valid offer).
(b) Advertisements. An advertisement is usually considered to be an invitation to deal rather than an offer, because advertisements usually fail to confer a power of acceptance to the other side. However, advertisements that are very specific and leave nothing open to negotiation may constitute offers.
Terms required in the offer (10.3%)
Certain terms MUST be specified in the offer in order for the offer to be valid.
a) Under the common law, all essential terms must be specified in the offer. Generally, this includes the following four terms:
(1) Parties;
(2) Subject;
(3) Quantity; AND
(4) Price
b) Under the UCC, the law is more willing to plug the gaps. Unlike the common law, PRICE IS NOT REQUIRED in the offer. Generally, only three terms are required under the UCC:
(1) Parties;
(2) Subject; AND
(3) Quantity
(a) Requirements and output contracts are valid under the UCC even though they do not specify an exact quantity. In a requirement contract, the seller agrees to sell as much as the buyer would require. In an output contract, the seller agrees to sell his entire production to the buyer.
Terminating the offer (13.8%)
RC^2, DI^2, L
If a valid offer is terminated at any time before acceptance, the offer is invalidated. It CANNOT be accepted or revived unless a new offer is made. An offer is terminated if any of the following occur at any time BEFORE acceptance:
(1) Revocation. The offeror revokes the offer by express communication to the offeree (unless the offer is irrevocable – see below).
Constructive Revocation. The offeree learns that the offeror has taken an action that is absolutely inconsistent with a continuing ability to contract (“constructive revocation”);
(2) Rejection. The offeree rejects the offer by express communication to the offeror;
Counteroffer. The offeree expressly communicates a counteroffer to the offeror;
(3) The offeror dies or otherwise becomes incapacitated (only terminates the offer, not a previous valid contract);
(4) The subject matter of the offer becomes illegal or is destroyed; OR
(5) A reasonable amount of time passes (usually requires weeks, not days).
MNEMONIC: R(C)^2, DI^2, L
regular/constructive revocation
rejection/counteroffer
death or insanity
destruction or illegality
lapse
Irrevocable offers (6.9%)
The offeror is normally free to revoke at any time prior to acceptance; however, there are four types of offers that are irrevocable:
(1) Option contracts. An agreement where consideration is given in exchange for a promise to keep an offer open (e.g., “I promise not to revoke this offer for one week if you pay me an additional $100 to keep the offer open.”).
(2) Firm offers. Under the UCC, a merchant (someone who regularly deals in the type of good at issue – i.e., a businessperson) can make a firm offer to buy or sell goods. A firm offer will either last as long as stated in the offer or for a reasonable time period not to exceed 90 days. A firm offer MUST:
(a) Be in writing;
(b) Contain an explicit promise not to revoke; AND
(c) Be signed by the merchant.
(3) Offeree has started performance on unilateral contract. A unilateral offer to contract cannot be revoked by the offeror if the offeree has started performance. A unilateral offer arises from a promise that requests acceptance by an action of the promisee (versus a return promise, which is called a bilateral contract).
(4) Detrimental Reliance. An offer cannot be revoked if the offeree reasonably and detrimentally relies on the offer in a foreseeable manner.
Acceptance (inc. start of performance) (10.3%)
An acceptance is an objective manifestation of a willingness to enter into the agreement by the offeree. The offeror is the master of the offer, which means that the offeree MUST accept the offer according to the rules of the offer (e.g., whether the offer is bilateral or unilateral).
Start of Performance.
(1) For bilateral contracts, the start of performance manifests acceptance.
(2) For unilateral contracts, the start of performance only makes the offer irrevocable; the offer is only accepted once performance is complete.
c) Usually the acceptance must be communicated to the other party; silence generally does not manifest willingness unless there is a past history of silence serving as acceptance.
d) The offer must be specifically directed to the person trying to accept it; cannot accept an offer directed elsewhere (for open-to-all contests and reward offers, the person must know about the contest or reward offer in order to accept it.).
Nonmatching acceptance (10.3%)
Common law
Mirror Image Rule. Under the common law, the terms in the acceptance MUST match the terms of the offer exactly – otherwise it is not an acceptance, it is a counteroffer. A counteroffer operates as both a rejection that terminates the original offer AND as a formation of a new offer.
UCC § 2-207 (“Battle of the Forms”)
UCC § 2-207 applies when both parties are merchants.
a) Under UCC § 2-207, when an additional term is included in an acceptance, it is automatically included in the resulting contract, unless:
i) The term materially alters the original contract;
ii) The offer expressly limits acceptance to the terms of the offer; or
iii) The offeror has already objected to the additional terms, or objects within a reasonable time after receiving notice.
b) Under UCC § 2-207, when a different term is included in the acceptance, it may or may not be included in the resulting contract.
i) The majority applies the “knock-out” rule, under which different terms in the offer and acceptance nullify each other and are “knocked out” of the contract. UCC gap fillers are then used to plug this gap (regardless of whether the parties are merchants*).
ii) The minority treats different terms the same as additional terms (includes them unless an exception applies).
*#Q
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UCC § 2-207(1) determines whether the purported acceptance (containing additional or different terms) will operate as an acceptance or as a counteroffer. It states:
(1) A definite and seasonable expression of acceptance or written confirmation;
(2) Which is sent within a reasonable amount of time;
(3) Operates as an ACCEPTANCE even though it states terms additional to or different from those offered or agreed upon;
(4) UNLESS acceptance is expressly made conditional upon assent to the additional or different terms.
UCC § 2-207(2). If the purported acceptance is a valid acceptance under UCC § 2-207(1), the next issue is whether the additional or different terms in the acceptance will govern the contract or whether UCC gap fillers will be implemented. Under UCC § 2-207(2), the ADDITIONAL terms (see distinction between “additional” and “different” terms below) will govern the contract if BOTH parties are merchants UNLESS:
(1) The initial offer expressly limited acceptance to its terms;
(2) The additional terms materially alter the deal; OR
Consideration (6.9%)
To form a traditional, enforceable contract, the agreement must be supported by consideration. Consideration involves a transfer of legal value in a bargained-for exchange. Consideration is present if:
(1) The promisee incurs a legal detriment OR the promisor receives a legal benefit (most courts only focus on whether the promisee incurred a legal detriment irrespective of whether the promisor received a benefit); AND
(a) A legal detriment generally consists of:
(i) Promising to do something the party has no prior legal duty to do;
(ii) Performing an action that the party is not otherwise obligated to undertake; OR
(iii) Refraining from or promising to refrain from exercising a legal right which the party is otherwise entitled to exercise. (Promising not to sue, i.e., settlement of a legal claim, will constitute a legal detriment so long as the party promising not to sue has an honest and good faith belief in the validity of the claim.)
(2) The promise induces the detriment AND the detriment induces the promise (i.e., a “bargained-for exchange”).
Special situations that do NOT constitute consideration:
(a) Gift promises, even conditional gift promises
Exception: A charitable subscription (i.e., a written promise) is enforceable under the doctrine of promissory estoppel without proof that the charity relied on the promise.
(b) A promise to fulfil a preexisting legal duty
(c) Past (i.e. after-the-fact) consideration
Exception: Material Benefit Rule. Under this modern trend, when a party performs an unrequested service for another party that constitutes a material benefit with the expectation of being compensated, the performing party to enforce a promise of payment made by the other party after the service is rendered, to the extent proportionate.
(d) A pretense of consideration (e.g. “selling” a car to a family member for $1)
(e) An illusory promise (e.g. a promise to buy a car “if I feel like it”)
Does contract modification require consideration? (10.3%)
It depends on whether the common law or the UCC governs the contract.
a) Under the common law, contract modifications MUST be supported by consideration. The common law follows the preexisting duty rule, which means that a promise to do something that a party is already legally obligated to do (by contract or otherwise) is NOT consideration.
b) Under the UCC, there is no consideration requirement. A contract modification is valid if it is made in good faith (i.e., the UCC does NOT apply the preexisting duty rule).
Which types of contracts trigger the statute of frauds? When does the SoF apply to a modification? (10.3%)
The following contracts are NOT valid unless they satisfy the statute of frauds (usually requires that the contract be a signed writing): [M S O/Y U/G R/L E] [MY LEGS]
(1) Marriage. A contract made in consideration of marriage (e.g., a prenup);
(2) Year. A contract that by its terms cannot be performed within one year from its making;
(a) The one-year provision is interpreted very narrowly – there must be no possible way that the contract could be performed within one year from the time the contract is formed (e.g., A hires B to teach him contract law “for the rest of A’s life” – the statute of frauds is not triggered under the one-year provision because A could die at any time before one year passes).
(3) Land/Real Estate. A contract to transfer, receive, or create an interest in real estate (does not cover leases or easements for one year or less, or licenses and assignments of mortgages);
(4) Executor. A promise to pay an estate’s debt from the executor’s personal funds;
(5) Goods/UCC. A contract for the purchase or sale of goods for $500 or more; AND
(6) Suretyship. A contract promising to guarantee the debt of another;
(a) Main Purpose Exception. If the main purpose in agreeing to pay the debt of another is for the guarantor’s own economic advantage, then the Statute of Frauds does NOT apply.
Modifications. The statute of frauds applies to a modification ONLY IF the contract as modified (not the original contract) falls within the statute of frauds.
How can the SoF be satisfied? (10.3%)
Once it is determined that the statute of frauds is triggered (see above), the next issue is whether the statute of frauds has been satisfied. There are two main ways to satisfy the statute of frauds – by writing and by performance.
A) Satisfaction by Writing. A writing will satisfy the statute of frauds if the writing:
(1) Is signed by the party against whom enforcement is sought;
(2) Shows that a contract was formed; AND
(3) Includes the requisite terms.
(a) The requisite terms under the common law are parties, subject, quantity, and price. The requisite terms under the UCC are parties, subject, and quantity.
B) Satisfaction by Performance. The performance required to satisfy the statute of frauds depends on the type of contract involved:
(1) Services Contracts under the One-Year Provision. Under the common law, FULL performance of a services contract by either side satisfies the statute of frauds. Part performance does NOT satisfy the statute of frauds.
(2) Real Estate Contracts. In most jurisdictions, real estate contracts can satisfy the statute if:
(a) The seller FULLY performs (i.e., conveys the land to the buyer); OR
(b) The buyer performs two of the following three actions:
(i) The buyer takes possession of the property;
(ii) The buyer makes payment in full or part; AND/OR
(iii) The buyer makes substantial improvements to the land.
(3) UCC Goods Contracts for $500 or More. See separate flashcard for special UCC exceptions to the SoF.
What are the exceptions to the SoF requirement regarding UCC contracts? (10.3%)
[PRAMS]
1) Specially manufactured goods. No writing is required if (i) the goods are to be specially manufactured for the buyer, (ii) the goods are not suitable for sale to others, and (iii) the seller has made “either a substantial beginning of their manufacture or commitments for their procurement.”
2) Payment and acceptance by seller. A contract is outside the UCC Statute of Frauds to the extent that payment has been made and accepted. When a portion of the purchase price for a single (indivisible) item has been paid, most courts treat the contract as enforceable.
3) Receipt and acceptance by buyer. A contract is outside the UCC Statute of Frauds to the extent that goods are received and accepted by the buyer. Acceptance of a part of a commercial unit is acceptance of the entire unit.
4) Memorandum and failure to respond (when both parties are merchants). When one merchant (any businessperson) sends to another a memo that is sufficient with respect to the sending merchant, it is enforceable against the receiving merchant if the latter has reason to know the memorandum’s contents, but does not sign it or object in writing within 10 days of receipt.
5) Admission. The statute of frauds is satisfied if the party against whom enforcement is sought admits in court that a contract for sale was made (the contract is not enforceable under this provision beyond the quantity of goods admitted).
Studicata:
There are four main ways a contract can satisfy the statute of frauds under the UCC (“P.A.W.S.”):
(a) Performance. The statute of frauds is satisfied for the quantity of goods for which payment has been made and accepted or which have been received and accepted (the contract is not enforceable under this provision beyond the quantity of goods for which payment has been made and accepted or which have been received and accepted).
(b) Admission in Court. Under UCC § 2-201(3)(b), the statute of frauds is satisfied if the party against whom enforcement is sought admits in his pleading, testimony, or otherwise in court that a contract for sale was made (the contract is not enforceable under this provision beyond the quantity of goods admitted).
(c) Written Confirmation between Merchants. Under UCC § 2-201(2), the statute of frauds is satisfied if:
(i) After an oral agreement between merchants;
(ii) Either party sends a signed, written confirmation of the oral contract (must be signed by the sender); AND
(iii) The written confirmation is received by the other merchant to the oral agreement; UNLESS
(iv) The party receiving the written confirmation gives a written notice of objection within 10 days after receipt of the written confirmation.
the statute of frauds is satisfied when a seller makes a “substantial beginning” toward manufacture of custom goods that are to be specially made for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business under circumstances that reasonably indicate that the goods are for the buyer.
What is the Parol Evidence Rule? (6.9%)
When the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, the writing is an integration. If the writing is not an integration (e.g., non-final expressions such as tentative drafts), the PER does NOT apply.
An integration may be complete or partial:
(1) Complete Integration. If the writing completely expresses all of the terms of the parties’ agreement, then it is a complete integration. ALL other expressions or statements, written or oral, made prior to the writing, as well as any oral expressions made contemporaneously with the writing, are inadmissible.
(a) Merger Clause. A merger clause recites that the agreement is the complete agreement between the parties. This is usually strong evidence that the writing is a complete integration.
(2) Partial Integration. If the writing sets forth the parties’ agreement about some terms, but not all the terms, then it is a partial integration. Other expressions or statements, written or oral, made prior to the writing, as well as any oral expressions made contemporaneously with the writing, are admissible to supplement the writing so long as the evidence does NOT contradict the terms of the writing.
Exceptions to the Parol Evidence Rule (6.9%)
Despite the parol evidence rule, evidence of a prior or contemporaneous oral or written agreement is admissible under some circumstances [even when the writing is a complete integration]. These include: [MS. ACID]
(1) Merchants’ (UCC) Rules. A party may explain or supplement the terms by evidence of trade usage or course of dealings or performance.
(2) Separate Deals. Extrinsic evidence may be offered if it represents a distinct and separate contract.
(3) Ambiguity. Extrinsic evidence may be offered for the purpose of interpreting or clarifying an ambiguity in the agreement.
(4) Conditions Precedent. Extrinsic evidence may be offered if a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred.
(5) Integration. Extrinsic evidence is admissible to establish whether, and to what extent, the writing is integrated.
(6) Defenses. Extrinsic evidence may be offered to establish a defense to the formation or enforcement of a contract (e.g., incapacity, mistake, duress, lack of consideration, etc.).
