What law applies & K Formation

Question 1

UCC 2 or Common Law?

Answer 1

UCC 2 applies if there is a sale of goods. Common law governs if not.

Question 2

Define “Goods”

Answer 2

• All things movable at time they are identified as the items to be sold.
• Applies to most tangible things (cars, horses, hamburgers).
• Does NOT apply to real estate, services (club membership or employment), intangibles (patents, trademarks), or construction contracts.

Question 3

Merchants vs. Nonmerchants

Answer 3

• “Merchant” defined:
   (1) regularly deals in kind of good sold or
   (2) by profession holds themselves out as having special knowledge or skills as to the practices of good involved.
• Broad vs. Narrow “Merchant”:
   Anyone in business is a merchant for UCC provisions dealing with general business practices. (Statute of frauds, firm offers, modification).
   Merchant only w/respect to goods of kind involved in the subject transaction for others. (Implied warranty of merchantability).

Question 4

Which law applies if it is a mixed contract of goods and nongoods?

Answer 4

• (1) Determine which aspect is dominant and apply law governing that aspect to whole contract; UNLESS
• (2) Contract divides payment between goods and services = UCC to goods and Common to services.

Question 5

When is there sufficient communication for the offer to be formed?

Answer 5

Communicated to the offeree such that the offeree must have knowledge of the offer to have the power to accept.

Question 6

When are rejection and revocation effective?

Answer 6

Effective upon receipt – if written, then when delivered not read.

A written revocation of an offer is effective when it is received by the offeree (published if by publication). At common law, a written communication is considered to have been “received” as soon as it comes into the physical possession of the person addressed (or of someone authorized by him to receive it) or when it is deposited in some place authorized as the place for this or similar communications to be deposited. (NOT mailbox rule like acceptance),

Question 7

Termination by the Offeree

Answer 7

• (1) Lapse of time:
   Must accept w/in specified time or, if no time specified, w/in a reasonable time.
   Reasonable time is question of fact and depends on all circumstances at time of offer / attempted acceptance. (can be as long as years (reward offers) or as short as the conversation).
• (2) Rejection (Effective upon receipt – if written, then when delivered not read).
   Express Rejection: Statement that they do not intend to accept.
   Counteroffer as Rejection:
• Counteroffer contains the same subject matter but different terms.
• Mere Inquiry is not a counteroffer, test is whether a reasonable person would believe the offer had been rejected).
   Conditional Acceptance as Rejection: Conditional acceptance is essentially a new offer.
• Offer that results from a conditional accep¬tance cannot be accepted by performance. If the parties ship or accept goods after a conditional acceptance, a contract is formed by their conduct, and the new terms are not included.
   Rejection of an Option: Does NOT terminate original offer. The offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree’s rejection.

Question 8

Termination by the Offeror

Answer 8

• Directly Revoked:
   May revoke by directly communicating the revocation to offeree.
   Offer by publication can only be revoked by publication through comparable means.
• Indirectly Revoked: When the offeree receives: (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. (sold car to someone else).

Question 9

Limitations on Revocation of Offer

Answer 9

1. Options.
2. Merchant’s firm offer.
3. Detrimental Reliance.
4. Performance in Response to a True Unilateral Contract Offer. (irrevocable once begun, must give reasonable time to complete performance, offeree not bound to complete).
5. Beginning Performance of Bilateral Contract. (contract accepted upon beginning performance - so offer is irrevocable).

Question 10

Merchant’s Firm Offer

Answer 10

• Under Article 2:
• (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,
• then the offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed 3 months).

Question 11

When does detrimental reliance make the offer irrevocable?

Answer 11

When (1) the offeror could reasonably expect that the offeree would rely to their detriment on the offer, and (2) the offeree does so rely, then offer will be held irrevocable as an option contract for a reasonable length of time.

Question 12

When is an offer terminated by operation of law?

Answer 12

• Death or insanity of either party (unless the offer is of a kind the offeror could not terminate, such as, an option supported by consideration). Death or insanity need not be communicated to the other party.
• Destruction of the proposed contract’s subject matter OR
• Supervening illegality.

Question 13

What is acceptance?

Answer 13

An acceptance is a manifestation of assent to the terms of an offer.

Offeree must know of offer. True of bilateral or unilateral. (If unknowingly starts performance for unilateral then not contract).

Question 14

Acceptance of Bilateral Contract Offer.

Answer 14

However the contract says.

1. Method. By promise to perform or beginning promise. (any reasonable manner and by any medium under circumstances.
2. Must be communicated to offeror.  Silence generally not accepted UNLESS:
   * (1) Prior dealings and trade practices make it commercially reasonable for offeror to consider silence acceptable, or
   * (2) If the recipient of services knows or should have known that the services were being rendered with the expectation of compensation and, by a word, could have prevented the mistake, the recipient may be held to have accepted the offer if they fail to speak.
3. Mirror Image Rule. absolute and unequivocal acceptance of each and every term of the offer. Anything else is a rejection and counteroffer.

Question 15

Acceptance of UCC 2 Offers to Buy Goods for Current or Prompt Shipment

Answer 15

An offer to buy goods for current / prompt shipment is construed as inviting acceptance either by a promise to ship or by current or prompt shipment of conforming or nonconforming goods.

Question 16

Acceptance of Unilateral Contract Offer

Answer 16

• (1) Accepted on Completion of Performance.
   Not accepted until complete performance.
   Beginning performance may create option so that offer is irrevocable. (Offeree not obligated to complete).
   If unknowingly starts performance for unilateral then not contract.
• (2) Notice:
   Not required when performance begins.
   Required after performance completed w/in reasonable time UNLESS:
• (1) the offeror waived notice; or
• (2) the offeree’s performance would normally come to the offeror’s attention within a reasonable time.

Question 17

Acceptance: Shipment of Nonconforming Goods under the UCC.

Answer 17

 An acceptance creating a bilateral contract as well as a breach of the contract unless the seller seasonably notifies the buyer that a shipment of noncon¬forming goods is offered only as an accommodation. (Only applies when shipment used as acceptance. If accepts w/promise to ship and then ships nonconforming goods as accommodation, then breach.)
 The buyer is not required to accept accommodation goods and may reject them. If the buyer rejects, the shipper isn’t in breach and may reclaim the accommodation goods, because the tender does not constitute an acceptance of the buyer’s original offer

Question 18

UCC 2 Acceptance - Auction Contracts

Answer 18

The UCC contains some special rules regulating auction sales. A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in another customary manner. An auction sale is with reserve unless the goods are explicitly put up without reserve. “With reserve” means the auctioneer may withdraw the goods at any time until he announces completion of the sale.

Question 19

Battle of Forms Provision in UCC 2

Answer 19

 Mirror Image Rule Note Required: Acceptance w/new terms is still acceptance unless acceptance is “expressly” made conditional on assent to new or different terms.
 Whether additional / different terms are included:
* Any nonmerchant = not included unless the offeror expressly agrees.
* Both merchants = additional terms included in contract unless:
* (1) They materially alter the original terms of the offer, such as by changing a party’s risk (warranties) or the remedies available, OR
* (2) The offer expressly limits acceptance to the terms of the offer OR
* (3) The offeror has already objected to the particular terms, or ob¬jects within a reasonable time after notice of them is received.
* Different (as opposed to additional) term treatment:
* Some courts treat different terms like additional terms, and follow the test set out above in determining whether the terms should be part of the contract.
* Other courts follow the “knockout rule,” which states that conflicting terms in the offer and acceptance are knocked out of the contract, because each party is assumed to object to the inclusion of such terms in the contract. Under the knockout rule, gaps left by knocked out terms are filled by the UCC.
* But must still have meeting of the minds (If differences in price, quantity, or quality, then likely not meeting of the minds).

Question 20

UCC Acceptance - Merchant’s Confirmatory Memo.

Answer 20

A merchant’s memo confirming an oral agreement that contains different or additional terms is also subject to the battle of the form’s provisions.

Question 21

When Effective—The Mailbox Rule (Contract Acceptance).

Answer 21

• Acceptance by mail or similar means is effective at the moment of dispatch, provided that the mail is properly addressed and stamped, unless one of these exceptions applies:
   The offer stipulates that acceptance is not effective until received.
   An option contract is involved (an acceptance under an option contract is effective only upon receipt).
   The offeree sends a rejection and then sends an acceptance, in which case whichever arrives first is effective.
   The offeree sends an acceptance and then a rejection, in which case the acceptance is effective (that is, the mailbox rule applies) unless (1) the rejection arrives first and (2) the offeror detrimentally relies on it.
• Acceptance by Unauthorized Means
   An acceptance transmitted by unauthorized means or improperly transmitted by authorized means may still be effective if it is actually received by the offeror while the offer is still in existence.

Question 22

What are the elements of consideration?

Answer 22

Consideration must have be (1) a bargained for exchange and (2) legal valid (detriment to promise or benefit to promisor. (not a gift)

Question 23

Bargained for exchange - Mutuality

Answer 23

The detriment must have induced the promise, and the promise induced the detriment.

Question 24

Consideration - An act or forbearance to act

Answer 24

is sufficient consideration if it benefits the promisor. (Doesn’t have to be economic).

Question 25

Consideration - Past or Moral Consideration.

Answer 25

: is generally NOT consideration: A promise given in exchange for something already does is not bargain UNLESS:
 (1) The past obligation was unenforceable b/c of technicality (Statute of limitations) and the either (i) new promise is made in writing or (ii) is partially performed, or
 (2) The past act benefitd the promisor AND was performed (i) at the promisor’s request, (ii) in response to an emergency, or (iii) a subsequent promise to pay for that act will be enforceable.

Question 26

Define legally valid consideration

Answer 26

 Legal detriment means the promisee does something they are not legally obligated to or refrained from doing something they had a legal right to do.
 Legal benefit is forbearance or performance of an act that the promisor was not legally entitled to demand or expect.

Question 27

Adequacy of Consideration

Answer 27

Courts generally do not question the adequacy or fairness of consideration, BUT
 Token Consideration is not valid: Has no value.
 Sham Consideration is only valid if actually paid: (states in contract for $1).
 Ok if has potential value even if that value is not realized.

Question 28

Consideration - Preexisting Legal Duty

Answer 28

Performing or promising to perform an existing legal duty is not consideration UNLESS (NASTY RATS OWE HONEST UC)
 New or different consideration.
 Promise to ratify a voidable obligation.
 Owed to a third person
 There is an honest dispute as to the duty; OR
 Unforeseen circumstances (Modern view = modification is fair / equitable in view of circumstances not anticipated when the contract was made).

Question 29

Consideration - Modification of Contracts

Answer 29

 Tradition: Not allowed unless new consideration.
 Modern view: Modify w/out consideration if (1) due to unanticipated circumstances by parties when contract made and (2) is fair and equitable.
 UCC: Consideration not needed. Only need good faith promises of new and different terms.

Question 30

Consideration - Discharge of Debts.

Answer 30

 Accord must have new consideration.
 New consideration is sufficient even if less than original consideration if different type or paid to third party (interest, payment time, etc.).
 Debtor’s offer to make partial payment is sufficient for accord if bona fide dispute to underlying claim or some slight alteration.

Question 31

Consideration - Forbearance to sue.

Answer 31

Forbearance to sue is consideration if claim is valid or good faith belief that it is valid.

Question 32

Overview of K formula

Answer 32

 K = MA (O + A) + C – D.
Mutual Assent
 Offer: promise, undertaking, or commitment w/definite and certain terms communicated to offeree), and
 Acceptance: before termination by lapse of time, revocation, rejection, or operation of law.
Consideration
 Bargained-for exchange: of something of legal value, or
 Substitute for Consideration: such as promissory estoppel, detrimental reliance, or good faith modification under the UCC.
*No Defenses
 Mistake: Mutual or, under certain conditions, unilateral, or
 Lack of capacity: Makes K void or voidable, or
 Illegality: usually makes K void, or
 Statute of Frauds

Question 33

Requirements” and “Output” Contracts

Answer 33

Requirement contract: Buyer promises to buy all goods it requires from seller, and seller agrees to sell that amount to them.

Output contract: Seller promises to sell all goods it produces to buyer, and buyer agrees to buy that amount.

Rule: Assumed parties act in good faith, so can’t be tender of or demand for a quantity “unreasonably disproportionate” to (1) any stated estimated or (2) if no stated estimated, any normal or otherwise comparable prior output or requirements.

*Look for “require,” “need,” “produce,” “all,” “only,” “exclusively,” and “solely.”

Question 34

Mutual Assent

Answer 34

Offer + Acceptance

Objective Standard: did words or conduct manifest a present intention to enter a contract?

Question 35

Elements of an Offer

Answer 35

Please (PUC) Dont Cry.

Must create a reasonable expectation in the offeree that the offeror is willing to enter a K on the basis of the offered terms.

Reasonable expectation measured by;
(1) promise, undertaking, or commitment,
(2) definiteness of essential terms so its enforceable, and
(3) communicated to offeree.

Question 36

Factors to determine if a promise, undertaking, or commitment occured in making an offer?

Answer 36

1. Prior Practice and Relationship of Parties.
2. Language:
   * More definite the language (“I’ll sell for . . .” or “I promise . . .”), is more likely an offer.
   * “I quote” or “I would consider selling” are usually mere invitations to deal.
3. Surrounding Circumstances:
   * No legal effect if “reasonably understood” in context of jest, anger, bragging.
4. Method of communications:
   * The broader the communication (media) = more likely a solicitation of an offer.
   * Advertisements, catalogs, circular letters, and the like containing price quotations are usually construed as mere invitations for offers or invitations to deal. (unless contain offeree or class, how many, ??)

Question 37

Terms required in CL offer?

Answer 37

Indentification of Offeree and the Subject Matter (reasonable terms can be filled in otherwise except for land (price and land) and service (nature of work, if no duration then assumed at will).

Question 38

UCC required terms of offer

Answer 38

Quantity (UCC fills in blanks).

Quantity being offered must be “certain or capable of being made certain.”

Question 39

What must be included in employment and other services offers?

Answer 39

• If no duration in employment contract, then construed as “at will” if accepted.
• The nature of work must be included in other service contracts.