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Contracts

1. Common Law vs. Article 2 Sale of Goods


UCC : 2. Sale of goods 1. Goods are all things movable (does not apply to the sale of real estate, services, or intangibles, or to construction contracts) 1. Maybe real estate when: minerals, growing crops and uncut timber, and fixtures removed from the land under some circumstances. 3. If both goods and services, court determines which is dominant. 1. If payment divided between goods and services then split up and apply law for each. 4. Merchants v. Non-merchants 1. One who generally deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved. 2. Almost anyone in business (firm offers)

5.

Offer & Acceptance


1.

Offer
1. 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. Ask three questions: 1. Promissory 1. Must be an intent to enter into a contract. Look at: 1. Language 1. Quotes are not offers unless coupled with "for immediate acceptance" 2. Offers made in jest and that can reasonably be understood this way will have no legal effect: 2. Surrounding circumstances 1. Offers in jest that a person reasonably hears to be serious is an offer because it is interpreted objectively. 3. Prior practice and relationship of the parties 6. Method of communication 1. The broader the communicating media less likely offer, more likely a solicitation of an offer. 2. Advertisements 1. Ads, catalogs, circular letters, and the like containing price quotes are usuallyconstrued as mere invitations for offers. 2. Usually just announcment of pirces at which the seller is willing to take offers. 3. Where the language can be construed as a promise, and the terms are certain and definite, and the offeree is clearly identified. (first come first serve)

7. Industry Custom 8. Definite 1. Enough terms included so that a contract would be capable of being enforced. (if leaves out some terms, and contains some objective standard for the court to supply missing term, contract will be found) 1. Identity of the offeree 1. Identify offeree or a class to which she belongs to create a power of acceptance. 2. Subject matter 1. Sale of goods: Quantity 2. Output contracts: no specific quantity but offer is sufficiently definite because the quantity is capable of being made certain by reference to objective, extrinsic facts. 1. Quantity can not be unreasonably disproportionate, assumed parties will act in good faith. 3. Missing Terms under Article 2-204(modern): 1. Does not prevent contract if parties intended to make a contract and there is a reasonably certain basis for giving a remedy and the court will then supply reasonable terms. 1. Terms have to be consistent with parties intent as otherwise expressed. More terms left open, less likely they intended to enter an agreement. 3. The Price 1. Except for contracts in real property no price won't necessarily exclude contract (services/court would imply usual price for services) 2. Article 2-305 Gap filler for sale of goods (modern) 1. Reasonable price at the time of delivery if: 1. Nothing is said as to price 2. The price is left to be agreed to by the parties and they fail to agree; or 3. The price is to be fixed by some external factor or third party and it is not so set. 3. Price fixed by party under article 2-305 1. Contract formed even if the parties agree that one of the parties will fix the price in the future. (price to be set at delivery) 2. However party must fix price ingood faith. If not other party can cancel contract or fix a reasonable price herself. 9. If too vague, presumption of missing term cannot be added and contract not enforced. 1. Divide profits on a "liberal basis" too vague. 2. Purchase for "8,000 or less" is also too vague.

3. Vagueness can be cured by part performancewhen it clarifies the vague terms. 4. Contract must be definite and certain in its terms- even if the offer lacks certainty, the problem can be cured if there is some way in which the offer is capable of being made certain (part performance or acceptance) 10. Terms to be agreed on Later 1. Normally if material term, the offer is too uncertain. 2. Article 2 can permit a reasonable price term to be supplied if other evidence indicates that the parties intended to form a contract. 11. Communication to offeree 1. To have power to accept must have knowledge of the offer.

12.Home Office Approval Clause


If offer is contingent on home office approval, then it is not truly an offer, just a proposal.
B's "acceptance" incorporates by reference all the original terms of the proposal.

A offer w/ home office approval clause (proposal) B accepts (offer includes A's proposal) A home office gives notice of approval (acceptance)

13. Termination
0.

of the offer

Termination by acts of parties 0. Revocation by offeror


1. Revocation by direct communication 1. Revocation by publication 1. Offers made by publication can be terminated by publication of revocation through comparable means 1. Exception: Even if not comparable means and the offeree still gets notice it is effective revocation. 2. Revocation by indirect communication 1. Revoked if offeree indirectly receives: 1. Correct info 2. From a reliable source 3. Of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer. 3. Effective when received 1. By publication is effective when published

14. Limitation on Offeror's Power to revoke 0. Can be revoked at any time before acceptance even if he has
promised not to revoke for a certain period, except under certain situations. 0. Options

1. When offeree gives consideration to hold offer open


15. Merchants Firm Offer Under Article 2 (modern) 0. If a merchant 1. Offers to sell goods signed in writing; Very broad

definition, affix a symbol of authentication.


2. Gives assurance that it will be held open 3. The offer is not revocable for lack of consideration during time stated, or if no time stated, then for a reasonable time. (no more than three months) 16. Detrimental Reliance (modern) Section 87 0. Where the offeror could reasonably expect the offeree would rely to her 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. 1. Very least offeree would be entitle to relief measured by the extent of any detrimental reliance. 2. When Offeror would reasonably contemplate reliance by the offeree in using the offer before it is expected. 0. Sub contractor must reasonably have foreseen the possible use of its subcontracting bid in the making of the general contractor's irrevocable. 17. Part Performance- Unilateral Contract Offers 0. Acceptance by performance only the beginning of performance or the tender of part performance creates an option contract and renders the offer irrevocable for reasonable amount of time. 45 1. Must begin performance to make irrevocable, not just preparations: 0. EXCEPTION: 2nd.R 87 1. Substantial preparations to perform may constitutedetrimental reliancesufficient to make offeror's promise binding to the extent of the detrimental reliance. 2. Offeree not bound, and no contract formed until performance completed.

18. Part performance- offer indifferent as to manner of acceptance 0. 62 (45 drenan case) Bilateral contract may be formed upon the start of performance by offeree rendering revocation impossible and offeree is bound to complete performance BUT: 1. Notification at start of performance may be necessary if performance not obvious to offeror

0. Implied notice if performance is obvious BUT: if there are terms in the contract (time frame, etc.) that can't be accepted completely through performance should give notice. (carpenter case: couldn't prove performance indicated that he accepted time frame, or that his cutting wood was unique to that contract, could have been doing it for other job) Full completion within time-frame and according to offer details is sufficient notice. But the question is how much less completion would still qualify to imply a return promise. If include "upon acceptance clause", despite home office clause, performance is sufficient without notice. 2. Preparations for performance. What is begun or tendered must be part of the actual performance invited, rather than preparation for performance, in order to make the rule of this Section applicable. BUT preparations to perform may bring the case within 90 or (87(2) in Drenan's case) on justifiable reliance: 0. 90: A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. 1. Promissory estoppel

19.

Termination by Offeree
0. Rejection 0. Express rejection 2nd. 36 1. Terminates the offer. 20. Counteroffer as Rejection 2nd. 39 0. Made by offeree contains same subject matter as original offer but differs in terms. 1. Serves as a rejection as well as a new offer. Usually happens when: 0. Counteroffer combined with express rejection 1. Acceptance conditional upon additional terms 2. BUT 1. Mere inquiry will not terminate the offer when it is consistent with the idea tha thte offeree is still keeping the original proposal under consideration. (taking under advisement)

1. "Would you consider lowering your price?"-inquiry 2. "I couldn't possibly pay your asking price but could pay $5,000 less"-counter-offer 21. Effective when received by the offeror 22. Revival of an Offer 0. Offeror may restate the same offer and create a new power of acceptance. 23. Rejection of Option 0. Despite rejection you are free to accept original UNLESSofferor has detrimentally relied on the Oferee's rejection R2nd. 37 24. Lapse of time 0. Must accept within specified or reasonable time 1. Look to When offer is received by offeree 0. Period of expiration commences when the offer is

received by the offeree BUT 1. If offer is delayed in transmission and this factis or should have been apparent to the offeree, the offer terminates at the time it would have expired had there been no delay.

25. Termination by Law


0.

Termination by death or Insanity of Parties


0. Terminated and communication to other party is not necessary R.2nd 48 1. Doesn't work if rules limiting an Offeror's power to terminate are applicable (option contract, offer becomes irrevocable because gives consideration)

1. Destruction of subject matter


0. Destruction of subject matter terminates the offeree's power of acceptance. 2nd. 36

2. Termination by supervening legal prohibition of propsed contract


0. IF subject mater of the proposed contract becomes illegal offer will terminate. 2nd. 36

26. Acceptance
0. Who may accept 0. Party to whom offer is addressed or directed
1. May also have power of acceptance if member of a class to which an offer has been directed. 1. If made to the public, anyone can accept.

2. If the offer requests performance form an unlimited number of persons, performance by anyone knowing of the offer will cut off the power of every other person to accept; PROVIDED that the offeror desires only one performance and there is no indication he is willing to pay more than once. 1. Lost and reward 27.

Offeree's power of acceptance cannot be Assigned


0. Unlike rights under an existing contract, the offeree's power of acceptance cannot be assigned 1. EXCEPTION: option contracts

28.

Offeree must know of offer


0. Must know of offer in order to accept.

29.

Acceptance of offer for Unilateral contract


0. If offer provides that it may only be accepted by performance note following rules: 0. Completion of performance 1. Offer is not accepted until performance is completed. BUT part performance may create an option so that the offer is irrevocable for a reasonable period of time. As offeree, don't have to finish performance. 1. Notice 1. Offeree is generally not required to give the offeror notice that he has begun requested performance, but is required to notify the offeror with reasonable time after performance done. (R.2d) 2. Failure to give notice still forms contract, but offeror's duties are discharged forfailure of an implied condition. BUT no notice required after performance if: 1. Offeror waived notice; or 2. Offeree's performancewould normally come to the offeror's attentionwithin a reasonable time. 1. Compare Article 2-206(2) 1. When kx accepted by beginning performance, if offeree fails to notify the offeror of the acceptance (beginning of performance rather than completion) within reasonable time, the offeror may treat the offer as having lapsed before acceptance. (no contract was ever formed, as opposed to R2d. View that a contract was formed but performance is excused by failure of a condition.)

30.

Acceptance of Offer for Bilateral Contract


0. Unless offer specifically provides that it may be accepted only through performance, it will be construed bilateral and may be accepted either by promise to perform or by the beginning of performance (implied promise) 0. you have to at least try to give notice of acceptance if hidden performance. Even if notice gets lost if you made a reasonable effort then you have fulfilled the requirement.

31. Generally, acceptance must be communicated


0. EXCEPTION: Waiver in offer 0. If offer provides that acceptance need not be communicated, then not required. 32. Silence as acceptance R2d. 69 0. Normally no, but if offeree silently takes offered benefits, courts will find an acceptance. 0. Especially true if prior dealings or trade practices known to both, create reasonable expectation by the offeree that silence represents and acceptance. 0. Here offeree is under duty to notify offeror if she doesn't accept.

33. Method of Acceptance

Unless offer specifically says so, it is construed as inviting acceptance in any reasonable manner. 1. Act as an acceptance 0. Offeror is the master of her offer an may require an act to signify acceptance. 34. Offers to Buy goods for current or Prompt shipment( Article 2) o 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. 0. Shipment of nonconforming goods 0. Acceptance as a bilateral contract, but also a breach unless seller notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation.

36. Acceptance Must Be Unequivocal

Classical courts required the mirror image rule of each and every term of the offer. 1. Common law rule 0. Any different or additional terms in the acceptance make the response a rejection and counter-offer 0. DISTINGUISH: Statements that make Implicit terms Explicit 1. Stating implicit terms. 1. DISTINGUISH: Grumbling acceptance 1. Acceptance accompanied by an expression of dissatisfaction. Acceptance as long as it stops short of actual dissent. 2. DISTINGUISH: Request for Clarification 1. "The $1,000 price- that includes shipping, doesn't it?" Is not a counter offer. 37. Article 2-207- Battle of the Forms o Abandoned mirror image rule, provides that proposal of additional or different terms by the offeree in a definite and timely acceptance does not constitute a rejection and counteroffer, but rather is effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional terms. Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants. 39. Bilateral Contract formed by performance(Art. 2-207) 0. Conduct by both parties that recognizes the existence of a contract is sufficient to establish a contract.

40. When Effective- The Mailbox Rule


o

Acceptance by mail or similar means creates a contract at the moment of dispatch, provided that the mail is properly addressed and stamped, unless: 0. The offer stipulates that acceptance is not effective until received; or 1. An option contract is involved (only effective uponreceipt) R2d.63 If offeree dispatches an acceptance BEFORE he receives a revocation sent by the offeror, a contract is formed. 43. Offeree sending BOTH acceptance and rejection 0. Rejection sent first, then acceptance 0. No mailbox rule; whichever received first applies. 1. Acceptance sent first, then rejection

0. Mailbox rule generally applies;acceptance sent first mailbox rule applies, but if the offeror received the rejection first and changed his position in reliance on it, the offeree will be estopped from enforcing the contract. 0. R.2d S.90: 1. Promise for which promisor should reasonably 2. Doesn't have to be definite substantial reliance. (this was the case with the first) 3. On part of the promisee or a third person. 4. Some courts didn't embrace promissory estoppel because they didn't want to be so generous with their remedies. 1. But they found out they didn't have to embrace classical contract remedies and could adjust it.

44. Acceptance by unauthorized means 0. If certain means are specified and acceptance given in different means, may still be effective if it is actually received by the offeror while the offer is still in existence. 0. Mail instead of fax, good on reception. (no Mbox rule) 1. Incorrectly addressed envelope, will be effective upon receipt if offer still open. (no M-box rule)

45.

Consideration
Must have valuable consideration on both sides of the bargain to make an executory bilateral contract fully enforceable from the moment of formation.

1.

Elements of Consideration

Must be bargained for exchange between parties And that which is bargained for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit or a detriment to the promisee. Detriment is now emphasized in determining whether an exchange contains legal value.

2.

Bargained for exchange

Requires that the promise induce the detriment and the detriment induce the promise. Unless both is present, the "bargained-for exchange" element of consideration is not present.

1. Gift- not bargaining for consideration 1. Act or Forbearance by Promisee must be of benefit to promisor 1. Not enough that the promisee incurs detriment; the detriment must be the price of the exchange. The test is whether the act or forbearance by the promisee would be of any benefit to the promisor. 2. If promisor's motive was to induce the detriment, it will be treated as consideration. 1. "come to my house and I'll give you a TV" -promisee suffers detriment, but promise of the television was not made to induce the promisee to come to the promisor's house. 46. Economic benefit not required 0. Need not have economic value; peace of mind or the gratification of influencing the mind of another may be sufficient to establish bargained-for consideration, provided that the promisee is not already legally obligated to perform the requested act.

47. Past or moral considerations 0. Generally not sufficient consideration 0. If something was already given or performed before the promise
was made, it will not satisfy the bargain requirement. Not given in exchange for the promise when made 1. Exceptions: 0. Promise to pay arising out of past material benefit 1. 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. 2. Includes situations in which the promisee performed an act at the promisor's request or performed an unrequested act during an emergency. 3. 86 follows this rule but adds that the promise is unenforceable to the extent it is disproportionate to the benefit conferred. 48.

Legal Value
0. Legal benefit and legal detriment theories 0. Majority Rule 0. Still adhere to the view that detriment to the promisee in performing an act or making a promise is the exclusive test of consideration. The fact that this act or promise may confer a legal benefit on the other party, taken alone, is not sufficient consideration. 1. Minority First restatement 0. Either detriment or benefit to the other party will suffice 2. Second Restatement:

0. Departs from benefit/detriment test and only asks whether something was bargained for and given (or promised to be given) in exchange. 49. Detriment and Benefit Defined: 0. Legal detriment to promisee- if he does something he is under no legal obligation to do or refrains from doing something he has a legal right to do. 1. Legal Benefit to Promisor-reverse side of legal detriment. Forbearance or performance of an act by the promisee which the promisor was not legally entitled to expect or demand, but which confers a benefit on the promisor. 50. Traditionally promise to perform or an existing legal duty is not

consideration:
0. Police officer bringing kid back for a reward. (already has duty to do it) 1. Exception: New or different consideration promised 0. If promisee has given something in addition to what she already owes in return for the promise she now seeks to enforce, or has in some way agreed to vary her preexisting duty, such as by accelerating performance, there is consideration. 2. Exception: Preexisting duty owed to a third party 0. Traditionally when a preexisting duty was owed to a third party, courts held that the new promise did not constitute consideration. However the MODERN view adopted by the 73 and the majority of jurisdictions says that the new promise constitutes consideration. 0. Can enforce because didn't owe a duty to third party under original contract. 3. Exception: Honest dispute as to duty 0. If scope of the legal duty owed is subject of honest dispute, then a modifying agreement relating to it will ordinarily be given effect. 0. The compromise by each party is a detriment. 4. Exception: Unforeseen Circumstances 0. Under majority view, mere unforeseen difficulty in performing is not a substitute for consideration. 0. But if unforeseen difficulty arises to level of impractibility, such that the duty of performance would be discharged, most states will hold it as an exception to preexisting legal duty rule. 5. Exception: Modification of contract for the sale of goods: 0. At common unenforceable unless new consideration. Article 2209 does not follow this; contract modifications when sought in good faith are binding without consideration. 1. Modifications extorted in bad faith are extortion and are unenforceable. 51. Forbearance to sue 0. May constitute consideration if the claim is valid, if claim is invalidand the claimant is aware of this fact, he has no such right;

1. But even if it is invalid, in law or fact, if the claimant reasonably and in good faith believes his claim to be valid, forbearance of the legal right to have his claim adjudicated constitutes detriment and consideration.

52.Mutual and Illusory Promises- The requirement of mutuality


0. Consideration must exist on both sides of the contract; there are many agreements in which one party has become bound but the other has not. Such agreements lack mutuality, and the promise is illusory. If so, consideration fails. 1. In some situations mutuality will be found to exist in certain situations even though the promisor has some choice or discretion: 0. Requirements and Output contracts 2-306 0. Consideration exists, as the promisor is suffering legal detriment by parting with the legal right to buy (or sell) the goods he may need (or manufacture) from (or to) another source. 1. Conditional Promises 0. Enforceable no matter how remote the contingency, unless the condition is entirely within the promisor's control. 1. Promise conditioned on satisfaction (1-304) 1. Not illusory because the buyer cannot reject the goods unless the buyer is truly dissatisfied, must act in good faith. 2. Right to withdraw or cancel 2-309 0. May be an illusory promise, but consideration is valid if this right is in any way restricted, (the right to cancel upon 60 days' notice) 3. Exclusivity Agreements--Best effort implied 2-306 4. Voidable promises are not held objectionable on mutuality grounds 78 53. Unilateral/Option Contracts 0. Unilateral contracts, enforceable because one has begun performance, or option contracts, enforceable because one has purchased time to decide, are not held objectionable on mutuality grounds. 54. Promissory Estoppel or Detrimental Reliance 0. Consideration is not necessary if the facts indicate that the promisor should be estopped form not performing. Under 90 of the first, a promise is enforceabel if necessary to prevent injustice if; 0. The promisor should reasonably expect to induce action or forbearance;

1. Of a definite and substantial character 2. An such action or forbearance is in fact induced. 1. Second R.90 0. Doesn't require forbearnce be of a definitea dn substantial character. 1. Also provides that the remedy "may be limited as justice requires" 0. 1st- expectation damages 1. 2nd- reliance damages

Classical contract flow


o o o

offer
Offeree Mutual assent

Consideration Need all 4 elements Offer: A "Promise , for a price" Could be a return promise Promise to pay you a 1000 if you paint my house. (promise for performance) To stop doing something (different form of promise) Wholly executory contracts Bilateral Kx's and Unilateral Kx's Bilateral- contract is promise for promise. (both committed) Unilateral- I'll pay you 1000 to paint my house this weekend. Accept through performance. After offer made and we say I agree, still no contract. Have to do full performance. Performance or forbearance. Promise for performance. The "promissory" and "definite" criteria for offers If person lays out unclear offer, person can exploit ambiguities and accept any way in their favor. Offers have to be both promissory and definite Promissory -willingness to be immediately bound. I will do this in exchange for my price Definiteness- courts want deals that are definite enough to make sure contracts have been performed. No contract if not definite. If agreement is too vague or indefinite then you have no contract. What is reasonably certain? Judge has to be able to tell if people's performance is within compliance or breach and also has to be able to give appropriate remedy. The creation of the "Power of acceptance" If you make an offer you have empowered the offered to accept and form a binding contract. Create a power of acceptance. If they have power of acceptance and they accept then you have a contract. The revocability of offers You can revoke your offer any time before acceptances. Offers are freely revocable Even if you promise not to revoke it doesn't matter. (you have a few days to think about it...then revoke before that it is ok) Acceptances (restatements section 50 subsection 1) Acceptance has to match offer. Mirror image rule. Manifestation of assent in a manner required by the offer. If offer leaves you flexibility, then you can except either way. If you try and accept and do it wrong, it would be considered counter-offer (attempted acceptance that doesn't match up with offer is counter-offer) Mutual assent Often no question of mutual assent if language is crystal clear. Sometimes context can be unusual. (drinking joking etc.) Could be a major misunderstanding How do we determine what people were thinking, are we going to interpret what it really meant, or instead how it looks to "reasonable person.

Courts are more objective now and all you have to show is that to outside observers there is agreement. Consideration: The "Bargain" Theory And the "Benefit/Detriment" Theory Any promise has to be given in exchange for consideration. What were they trying to accomplish: separate bargains and deals from gratuitous promises.