Modules 1-4 - K formation Flashcards
How can a bilateral contract be accepted?
any reasonable way; mostly by beginning performance, but must be unequivocal
How can a unilateral contract be accepted?
accepted by performance
Unilateral k formation
(1) When the offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance; and
(2) where there is an offer to the public, such as a reward offer
Void contracts
one that is totally without any legal effect from the beginning; cannot be enforced by either party
Voidable contracts
one that one or both parties may elect to avoid, such as raising a defense that makes it voidable (ex. infancy, mental illness)
Unenforceable contracts
otherwise valid, but isnt enforceable due to a defense, such as SOL or SOF
What law controls sale of goods?
UCC Article 2
What law controls service contracts?
Common law
What is a good?
all things movable at the time they are identified as the items to be sold under the k; does NOT apply to intangibles or real estate
ex. cars, horses, hamburgers
What is a merchant?
one who regularly deals in goods of the kind sold or who otherwise by their profession holds themselves out as having special knowledge or skills as to the practices of the goods involved
Who can be a merchant under UCC Article 2?
almost anyone with regard to a provision dealing with general business practices
What is the narrow rule for who can be a merchant under UCC Article 2?
requires a person to be a merchant with respect to goods of the kind involved in the subject transaction (ex. implied warranty of merchantability)
What if a contract involves a mixed sale of goods and services?
Look at the predominant purpose to see what law controls
What is the question that must be asked with regard to mutual assent?
Did words or conduct manifest a present intention to enter into a contract?
Definition of offer
For a communication to be an offer, it must create a REASONABLE EXPECTATION in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms
To determine if a communication creates a reasonable expectation/offer, ask 3 questions!!!!!
(1) Was there an expression of a PROMISE, UNDERTAKING, OR COMMITMENT to enter into a k?
(2) Were there CERTAINTY AND DEFINITENESS in the essential terms?
(3) Was there COMMUNICATION of the above to the offeree?
Standard for evaluating promises
objective reasonable person standard
Are negotiations an offer?
general rule is NO
What will the court look at to determine if an offer was made?
basically all surrounding circumstances of the communication, as well as prior relationship and practice of parties involved (if any)
Use of broad communications media and/or advertisements…
likely NOT an offer, more like solicitations of offers
Ex. The Astros advertise tickets in the NY Post: “Incredible offer! Ticket special for $19.” This is just a SOLICITATION for offers, not a valid offer (if contained quantity term, might be offer)
An offer must be ___________ and __________ in its terms.
definite; certain
To be considered an offer, a statement must _____________ ______________ the offeree or a class to which they belong to justify the inference that the offeror intended to create a power of acceptance.
sufficiently identify
With regard to the subject matter of an offer, it must be…..
certain; includes PRICE and QUANTITY TERM (UCC Article 2)
Offer: Real estate transactions
(1) Identify land (with particularity); AND
(2) price terms
Offer: Sale of goods
QUANTITY must be certain or capable of being made certain
Requirements contract
buyer promises to buy from certain seller all of the goods the buyer REQUIRES, and the seller agrees to sell that amount to the buyer
MUST BE REASONABLE AND PROPORTIONATE
Output contract
seller promises to sell a certain buyer all of the goods that the seller PRODUCES, and the buyer agrees to buy that amount from the seller
MUST BE REASONABLE AND PROPORTIONATE
Offer: contract for employment
if the DURATION of the employment is not specified, the offer, if accepted, will be construed as creating a contract terminable at the will of either party
Offer: contract for services
NATURE OF THE WORK to be performed must be included in the offer
What if the offer has missing terms?
Does not prevent formation if it appears that the parties INTENDED TO MAKE A CONTRACT and there is a REASONABLY CERTAIN BASIS for giving a remedy
Majority –> court can SUPPLY REASONABLE TERMS for those that are missing
Offer: failure to state a price?
fine in every contract EXCEPT sale of land contracts
if Article 2 k, price will be a reasonable price at the time of DELIVERY
Timing for performance not included in an offer?
must be performed within a REASONABLE time
What if the terms of the offer are vague?
presumption: parties’ intent was to include a reasonable term goes to supplying MISSING TERMS
presumption CANNOT be made if: parties included a term that makes the k too vague to be enforced
uncertainty can be cured by PART PERFORMANCE that clarifies value term, or by ACCEPTANCE OF FULL PERFORMANCE
What if terms are to be agreed upon later?
if the term is MATERIAL, the offer is TOO UNCERTAIN
To have the power to accept an offer, the offeree must have ____________ of the offer.
knowledge
Termination of offer: lapse of time (offeree)
offeree must accept within specified timeframe, or if none stated, within REASONABLE TIME
this is a question of FACT
Termination of offer: express rejection (offeree)
statement by the offeree that they do not intend to accept the offer
Termination of offer: counteroffer as rejection (offeree)
offer made by the offeree to the offeror that contains SAME SUBJECT MATTER as the original offer, but DIFFERS IN ITS TERMS
ex. “I’ll take the house at that price, but only if you paint it first”
A counteroffer is BOTH a __________ and a ________ ___________.
rejection; new offer
An ______ wont terminate an offer when it is consistent with the idea that the offeree is still keeping the original proposal under consideration.
The test is whether a __________ ____________ would believe that the original offer has been rejected.
inquiry; reasonable person
Conditional acceptance as rejection
when an acceptance is made expressly conditional on the acceptance of new terms, it is a REJECTION of the offer
INCLUDED IN ARTICLE 2 CONTRACTS
When is a rejection of an offer effective?
When received by the offeror
Rejection of an option
rejection or counteroffer to an option DOES NOT constitute termination of the offer; offeree is still free to accept the original offer within the option period, UNLESS the offeror has DETRIMENTALLY RELIED on the offeree’s rejection
Revocation of offer (offeror)
revoke directly or indirectly; offeree has to know that the offer is being revoked for it to be effective revocation
Indirect revocation of offer by offeror (elements)
Offeree must receive:
(1) correct information;
(2) from a reliable source;
(3) of the acts of the offeror that would indicate to a REASONABLE PERSON that the offeror no longer wishes to make the offer
When is a revocation effective?
when received by the offeree
Limitations on offeror’s power to revoke
can be revoked at will by offeror, even if he has promised not to revoke for a certain period of time
EXCEPTIONS: Option contracts; merchants firm offer, detrimental reliance, beginning performance in response to true unilateral contract offer, beginning performance if offer is indifferent as to manner of acceptance
Option contract (limitation on offeror’s power to revoke)
offeree gives consideration for a promise by the offeror not to revoke an outstanding offer
ex. offeror offers to sell her farm to an offeree for $1 million and promises to keep the offer open for 90 days if the offeree pays the offeror $1,000 to keep the offer open
Merchant’s firm offer (limitation on offeror’s power to revoke)
(1) if a merchant, (2) offers to buy or sell goods in a SIGNED WRITING, and (3) the writing GIVES ASSURANCES that it will be held open, the offer is NOT REVOCABLE for lack of consideration during the time stated, or if no time stated, within a REASONABLE TIME
BUT CANNOT EXCEED 3 MONTHS
detrimental reliance (limitation on offeror’s power to revoke)
when the offeror could REASONABLY EXPECT that the offeree would RELY TO THEIR DETRIMENT on the offer, and the offeree does so rely, the offer will be held IRREVOCABLE as an option contract for a REASONABLE length of time
must be FORESEEABLE
beginning performance on true unilateral k offer (limitation on offeror’s power to revoke)
offer for unilateral k becomes irrevocable ONCE PERFORMANCE HAS BEGUN; offeror must give offeree REASONABLE TIME to complete performance, but they do not have to complete performance (withdraw at any time prior to completion)
substantial preparation for performance does not make the offer irrevocable, but CAN constitute DETRIMENTAL RELIANCE, making irrevocable
beginning performance if offer is indifferent as to manner of acceptance (limitation on offeror’s power to revoke)
bilateral –> formed upon start of performance by offeree; once offeree BEGINS performance, k is complete and revocation becomes IMPOSSIBLE
termination of offer by operation of law
death of either party (only terminates for REVOCABLE OFFERS)
destruction (subject matter no longer exists)
SUPERVENING ILLEGALITY
Define acceptance
manifestation of assent to the terms of the offer; offeree must know of the offer in order to accept it
Who can accept an offer?
GENERALLY: only the person to whom the offer is addressed can accept; cannot be assigned (generally)
if offeree PAID CONSIDERATION to keep offer open (option), the right to accept IS TRANSFERABLE
What is required for accepting a bilateral contract offer?
must be communicated to the offeror; silence generally is not treated as an acceptance (unless there are prior dealings between the parties to that allow this)
Methods of accepting offer
an offer is construed as inviting acceptance in ANY REASONABLE MANNER and by any medium reasonable under the circumstances
OBJECTIVE MANIFESTATION of the offeree’s counter promise is usually sufficient
Accepting an offer to buy goods under Article 2
offer to buy goods for current or prompt shipment is construed as inviting acceptance either by a PROMISE TO SHIP or by CURRENT OR PROMPT SHIPMENT of conforming OR nonconforming goods
Acceptance of an offer must be _____________.
unequivocal; common law = MIRROR IMAGE RULE
Acceptance of offer for unilateral contracts
can ONLY BE ACCEPTED BY completing performance
Notice of beginning of requested performance
generally NOT required; but offeree is required to notify offeror within a REASONABLE TIME that PERFORMANCE HAS BEEN COMPLETED
Exception to notice requirement for completion of performance
offeree is NOT required to give notice to offeror that performance has been completed if:
(1) offeror has WAIVED NOTICE; or
(2) the offeree’s performance WOULD NORMALLY COME TO THE OFFEROR’S ATTENTION within a reasonable time
Under Article 2, the shipment of nonconforming goods is an ___________ creating a bilateral contract as well as a ______________ of the k unless the seller _____________ notifies the buyer that a shipment of nonconforming goods is offered ONLY AS AN _____________.
acceptance; breach; seasonably; accommodation
Is a buyer required to accept nonconforming goods under Article 2?
no; if the buyer rejects the goods, the seller is NOT in breach and may reclaim the accommodation goods b/c the tender does not constitute an acceptance of the buyer’s original offer
Article 2 Battle of the Forms (Acceptance)
inclusion of additional or different terms by the offeree in a definite and timely acceptance DOES NOT constitute a rejection and counteroffer; EFFECTIVE AS ACCEPTANCE unless the acceptance is expressly made conditional on assent to the ADDITIONAL OR DIFFERENT TERMS
includes additional or different terms = fine, as long as acceptance is not conditioned on assent to those terms!!!!!!
Article 2 acceptance: one or both parties are NOT merchants
if any party to the k is NOT a merchant, additional or different terms are considered to be MERE PROPOSALS to modify the k and DO NOT become part of the k, UNLESS the offeror expressly agrees
Article 2 acceptance: both parties ARE merchants (majority rule)
additional terms in the acceptance WILL BE INCLUDED in the contract, UNLESS:
(1) they MATERIALLY ALTER the original terms of the k (changing a party’s risk or remedies available);
(2) the offeror EXPRESSLY LIMITS acceptance to the terms of the offer; OR
(3) the offeror HAS ALREADY OBJECTED to the particular terms, or objects within REASONABLE TIME after notice of them is received
Article 2 acceptance: knockout rule (minority rule)
conflicting terms in the offer and acceptance are “knocked out” of the k b/c each party is assumed to object to the inclusion of such terms in the k
if knocked out, use UCC gap fillers
Moment of Mutual Assent Uncertain
if it cannot be determined with certainty which specific communication was the offer and which was the acceptance, but the parties ACT AS THOUGH there is a k, UCC considers this a binding k even tho the moment of making is uncertain
Merchant’s confirmatory memorandum
confirms an oral agreement that contains different or additional terms is also subject to battle of the forms
When acceptance is effective (MAILBOX RULE)
acceptance by mail or similar means is effective AT THE MOMENT OF DISPATCH, unless:
(1) offer stipulates that acceptance is not effective until received;
(2) option contract is involved (effective only upon receipt);
(3) offeree sends rejection, then sends acceptance (WHICHEVER ARRIVES FIRST)
(4) offeree sends an acceptance, then a rejection (acceptance is effective) UNLESS rejection arrives first AND the offeror detrimentally relies on it
Elements of Consideration
(1) bargained-for exchange (promise induce a detriment + detriment induce the promise); and
(2) legal value (a mere peppercorn is sufficient)
Is there a bargain involved if when one party gives a gift to another?
NO ABSOLUTELY NOT AND DO NOT FORGET THIS
Is an act or forbearance by the promisee sufficient consideration to form a contract?
yes, if it benefits the promisor
A promise given in exchange for something already done _________ satisfy the bargain requirement.
DOES NOT
Exceptions to the past consideration rule
enforceable if A NEW PROMISE is made IN WRITING or is PARTIALLY PERFORMED
if a past act benefitted the promisor and was performed by the promisee AT THE PROMISOR’S REQUEST or in response to an emergency, a subsequent promise to pay for that act WILL BE ENFORCEABLE
Court WILL/WILL NOT inquire into the adequacy or fairness of consideration.
WILL NOT
Legal detriment
results if the promisee does something they are not legally obligated to do or refrains from doing something they have a legal right to do
Legal benefit
forbearance or performance of an act that the promisor was not legally entitled to demand or expect
Pre-existing Legal Duty Rule
performing or promising to perform an existing legal duty is INSUFFICIENT CONSIDERATION
can beat this by slightly modifying consideration from what it was previously
Exceptions to pre-existing legal duty rule
There is sufficient consideration if:
(1) new or different consideration is promised;
(2) the promise is to RATIFY A VOIDABLE OBLIGATION (k’s with minors);
(3) preexisting duty is owed to a THIRD PERSON rather than to the promisor;
(4) there is an HONEST DISPUTE as to the duty; or
(5) there are UNFORESEEN CIRCUMSTANCES sufficient to discharge a party if the modification is FAIR AND EQUITABLE in view of the circumstances NOT ANTICIPATED when the k was made
A ________ ____________ agreement modifying a k subject to the UCC needs NEW/NO consideration to be binding.
good faith; NO
Modification of contracts
generally: k cannot be modified unless it is supported by NEW CONSIDERATION
modern view of k modification
no new consideration needed if:
(1) modification is due to circumstances that were UNANTICIPATED by the parties when the k was made; and
(2) it is FAIR AND EQUITABLE
Discharge of debts
can be discharged through an ACCORD and SATISFACTION
accord: requires CONSIDERATION
Can the consideration for an accord and satisfaction be lesser value than the originally bargained-for consideration?
yes, if the new consideration is of a different type, or if the claim is to be paid to a third party
A debtor’s offer to make a partial payment on an existing debt WILL/WILL NOT suffice for an accord and satisfaction if there is some “bona fide dispute” as to the underlying claim, or there is some alteration in the debtor’s consideration.
WILL
Is a promise to refrain from suing on a claim consideration?
YES, if the claim s VALID or the claimant in good faith BELIEVED that the claim was VALID
Consideration must exist on __________ sides of the contract.
both
If only one party is bound to perform, the promise is ___________ and WILL/WILL NOT be enforced.
illusory; WILL NOT
Right to choose alternative courses of performance
a promise to choose one of several alternative means of performance is ILLUSORY unless every alternative involves LEGAL DETRIMENT TO THE PROMISOR
a promise will not be found illusory if:
(1) at least one alternative involves LEGAL DETRIMENT and the power to choose rests with the PROMISEE OR THIRD PARTY; or
(2) a valuable alternative (one involving legal detriment) is actually selected
Promissory Estoppel: a promise without consideration is necessary to prevent injustice if:
(1) the promisor should REASONABLY EXPECT to induce action or forbearance; and
(2) such action or forbearance is ACTUALLY INDUCED
goal of promissory estoppel
prevent injustice
Why might a valid contract still be unenforceable?
defenses exist!
Defense of lack of capacity: minors
anyone under the age of 18 generally lacks capacity to enter into k; CONTRACTUAL PROMISES MADE BY ADULT TO MINOR ARE BINDING
disaffirmance: minor retains right to disaffirm at any time before reaching 18 years old; must be disaffirmed as a whole, and they must return anything that they received under the k that STILL REMAINS at the time of disaffirmance
liable for “necessaries” and may be required to pay them back in restitution
Defense of lack of capacity: mental incapacity
“mental capacity so deficient that they are incapable of understanding the nature and significance of a k may disaffirm when lucid or by later appointed legal representative”
can affirm k during lucid interval or upon complete recovery
K IS VOIDABLE; liable in quasi-contract for necessaries
Defense of lack of capacity: intoxicated persons
“so intoxicated that they dont understand the nature or significance of their promise may be held to have made only a VOIDABLE promise if the other party had REASON TO KNOW of the intoxication”
liable in quasi-contract for necessaries
Defense: Economic Duress
(1) party threatens to commit wrongful act that would SERIOUSLY THREATEN the other contracting party’s property or finances; and
(2) there are NO ADEQUATE MEANS available to prevent the threatened loss
Defense: Undue Influence
(1) undue SUSCEPTIBILITY TO PRESSURE by one party; and
(2) EXCESSIVE PRESSURE by the other party
arises when dominant party is in CONFIDENTIAL/CAREGIVING relationship with the influenced party
Defense: Misunderstanding of k language (absence of mutual assent)
k includes term with 2 possible meanings
neither party aware - no k unless both parties intended the SAME MEANING
both parties aware - no k unless both parties intended SAME MEANING
one party aware - BINDING K based on what the ignorant party REASONABLY BELIEVED the meaning of the ambiguous words
Defense: Mutual Mistake as to Existing Facts (absence of mutual assent)
entered into agreement mistaken about existing facts relating to agreement, may be VOIDABLE by the adversely affected party if:
(1) Mistake concerns BASIC ASSUMPTION on which the k was made;
(2) Mistake has a MATERIAL EFFECT on the agreed-upon exchange; AND
(3) Party seeking avoidance DID NOT ASSUME THE RISK of the mistake (party not seeking avoidance knows more than the other [contractor vs. homeowner] = CAN GET OUT)
Is a mistake in value a mistake of fact relative to the defense of k formation?
NO; these assumptions will generally not be remedied, as both parties usually assume the risk that their assumption as to value is wrong
Unilateral contract mistake of fact
if only one of the parties is mistaken about facts relating to the agreement, the mistake WILL NOT PREVENT FORMATION OF A CONTRACT
if the NONMISTAKEN party knew or had reason to know of the mistake, K IS VOIDABLE BY MISTAKEN PARTY
mistake must have MATERIAL EFFECT on the agreed-upon exchange, and mistaken party cannot have borne the risk
Mistake by the Intermediary (Transmission)
mistake in transmission of offer or acceptance by intermediary, message as transmitted IS OPERATIVE unless the other party KNEW OR SHOULD HAVE KNOW of the mistake
Defense: Fraudulent Misrepresentation
party induces another to enter into k by using this, k is VOIDABLE by innocent party if they JUSTIFIABLY RELIED on the fraudulent misrepresentation
Defense: Material Misrepresentation
k is voidable by innocent party if the innocent party JUSTIFIABLY RELIED on the misrepresentation AND the misrepresentation was MATERIAL
Material if: (1) induce a reasonable person to agree; and (2) maker knows that for some special reason, it is likely to induce THE PARTICULAR PERSON to agree, even if a reasonable person would not
reliance MUST BE JUSTIFIED under the circumstances
Defense: absence of consideration
if the promises exchanged at the formation stage lack the elements of bargain or legal detriment, NO K EXISTS
Defense: Illegality
If consideration or subject matter of k is illegal, k is void (ex. k to commit murder)
If exception does not apply, k is voidable by party who was (1) UNAWARE of the purpose; or (2) AWARE, but did not facilitate the purpose AND the purpose does not involve SERIOUS MORAL TURPITUDE
Exceptions to illegality defense
(1) II is UNAWARE of illegality while defendant KNOWS of illegality
(2) Parties are not in pari delicate (one party is NOT as culpable as the other); or
(3) Illegality is the failure to obtain LICENSE when the license is for revenue raising purposes, rather than for protection of the public
Defense: Unconscionability
allows court to modify or refuse to enforce entire k or provision if:
(1) unfair surprise; and
(2) includes oppressive terms
unfair price is NOT enough to constitute unconscionability
Common examples of unconscionable ks
(1) Inconspicuous risk-shifting provisions
(2) contracts of adhesion (unconscionable if seller does not agree to similar provision)
(3) exculpatory clauses - releasing contracting party from liability from their own INTENTIONAL wrongful acts violates public policy; if for NEGLIGENT acts, may be unconscionable if inconspicuous
(4) limitations on remedies - can do this unless the court finds the clause to be inconspicuous (in the fine print on page 16)
Unconscionably is determined by the circumstances as they existed when?
at the time the k was formed
Effect of unconscionable clause
court may:
(1) refuse to enforce the k;
(2) enforce the REMAINDER of the k WITHOUT the unconscionable clause; or
(3) LIMIT THE APPLICATION of any clause so as to avoid an unconscionable result
Defense: Statute of Frauds
Certain agreements must be evidenced by a SIGNED WRITING: MYLEGS
(1) K in consideration of marriage (prenup)
(2) K that cannot be performed within 1 year from DATE OF AGREEMENT
(3) K for the sale of land (describe land with particularity, legal description)
(4) Executory contracts (executor/administrator promises to personally pay for estate debts)
(5) K for sale of goods at $500 or more
(6) Surety k (promise to pay debt of another) - if main purpose or leading object of promisor is to serve as a pecuniary interest of his own, k is NOT within SOF
What happens if you do not comply with Statute of Frauds, and you need to?
K is unenforceable at the option of the PARTY TO BE CHARGED; if Statute not raised as defense, it is WAIVED
K modification REMOVED from SOF
must be in writing if it falls within the Statute AS MODIFIED (can modify orally, and provisions in UCC k that say no modification are unenforceable [generally]) –> if between merchant and non-merchant, requires non-merchant’s separate signature
- if writing required and not given, can operate as a waiver; found when the other party has changed position in reliance on the oral modification
Performance REMOVED from SOF
(1) land sale: seller conveys property buyer, seller can enforce buyer’s oral promise to pay; buyer can enforce with part performance doctrine by showing 2 of the following 3 things ([I] payment in whole or part, [ii] possession, and/or [iii] valuable improvements) –> PURCHASER ENFORCE WITH SPECIFIC PERFORMANCE ONLY
(2) service k: full performance required, oral k fine if cannot be completed in 1 year but has been fully performed
(3) Sale of goods k: part performance takes these ks out of SOF if (i) goods have been SPECIALLY MANUFACTURED or (ii) goods have been either PAID FOR OR ACCEPTED [NOTE: if k is only partially paid for or accepted, k is enforceable only to the extent of partial payment or performance]
Writing is NOT required for SOF purposes when:
(1) Specially manufactured goods: enforceable if seller has made a SUBSTANTIAL BEGINNING in their manufacture or COMMITMENTS for their purchase before notice of repudiation is received
(2) Admissions/pleadings in court: you would not admit that you had an agreement if it did not exist
(3) Merchant’s confirmatory memorandum: BETWEEN MERCHANTS; if oral agreement made, one party sends the other a memo evidencing the oral agreement and is enforceable/binding if (i) recipient has reason to know of the confirmation’s contents; and (ii) they do not object within 10 DAYS OF RECEIPT
Equitable and Promissory Estoppel beats SOF
beats SOF if it would be inequitable to allow SOF to defeat meritorious claim
ex. D falsely and intentionally tells II that k is not within SOF or induces II to change position in reliance on oral agreement
Statute of Frauds writing requirement
writing can be receipt, letter, check with details on memo line, written offer that was accepted orally, or on a napkin
Requires one or more writings that (1) reasonably identify SUBJECT MATTER of the k, (2) indicate that a k has been made BETWEEN THE PARTIES, and (3) state with a REASONABLE CERTAINTY the ESSENTIAL TERMS
Does an electronic record satisfy the SOF writing requirement?
YES
What are the SOF’s “essential” or “material” terms?
UCC: (1) QUANTITY; and (2) signed by the party TO BE CHARGED with breach –> also state that a k HAS BEEN MADE
K for services under CL: (1) all MATERIAL terms; and (2) signed by party TO BE CHARGED with breach
Examples of SOF’s “essential” terms
identity of the parties, description of subject matter, terms necessary to make contract definite
A k for the sale of land must contain what?
land description AND price term
A k for employment must contain what?
length of employment
SOF’s signature requirement
any mark or symbol made with the INTENTION to authenticate the writing as that of the SIGNOR; can be printed or typed
UCC: party’s initials or letterhead may be sufficient
If k violates SOF, in almost all cases a party can sue for _________________ of the services or part performance rendered, or __________________ of any other benefit that has been conferred.
reasonable value; restitution
