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Questions to ask...
1. Does the transaction involve UCC or Common Law? (do we have Goods? Merchants?)
2.Has an offer been made? (intent, content, communication)
3. At the time acceptance was attempted was the offer still open? (lapse, revoked, previously rejected, option, death/incapacity?)
4. Was the Acceptance Defective? (Intent, Terms(mirror image/UCC) & acceptance communicated as stated in offer OR in a reasonable manner)
5. Was there Mutual Assent? (intent to be bound)
6. Was there Consideration? (pty agrees to do what he was not legally obligated to do OR pty refrains from doing what he would otherwise be able to do BECAUSE of the bargain?)
7. If NO consideration, was there a justifiable reliance to pursue Promissory Estoppel)
8. Are there Defense to Contract formation? (Statute of Frauds, Mutual Mistake, Misunderstanding, Material Misrepresentation, UnConscionable)
9. If Defense to formation, any exception to defense? If Statute of Frauds applies, can we find a way that the courts will enforce? (admission, waiver, merchants exception, specialty goods, Promissory Estoppel, Partial Performance); If there was a Misunderstanding Defense (mutual?)
10. Excused Performance? (Illegality, Impossibility)
Define: Mutual Assent
Mutual Assent Test
Mutual Assent - Intent to be bound to the promise or terms of the bargain.
Objective Persons Test: The law imputes to a person an intention corresponding to the reasonable meaning of his words & acts, EXCEPT when an unreasonable meaning which he attaches to his manifestations, is known to the other party.
Party that performs without knowledge of the offer...
A party that does not know of the offer prior to performance is not able to assent, and as such, there has not been a valid acceptance, nor has there been mutual assent.
What are the General elements of a valid contract?
Contract - A promise or set of promises, for the breach of which, the law gives a remedy.
- General Elements of a contract:
- 1) offer
- 2) acceptance
- 3) consideration
Offer: A manifestation of intent to enter into a present bargain.
- Must have I.C.C.
- - Intent
- - Content: definite & certain Terms
- - Communication: must be communicated to offeree
A manifestation of Assent to the terms thereof made by the offeree in the manner invited. (Favors Offeree as it is effective upon dispatch)
Advertisements as Offers Rule
Rule: Advertisements & order forms are 'mere notices' and solicitations for offers which create no power of accepance in the recipient.
R2K - A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows, or has reason to know, that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
What is the exception to the Advertisements as Offers Rule?
- Exception: Advertisements that are clear, definite, and explicit, and leave nothing open for negotiation constitutes an offer, acceptance of which will complete the contract.
- NOTE: Were there assurances in the ad?
What are the 4 ways to Destroy an Offer?
- - Revocation
- - Rejection
- - Lapse
- - Death/Incapacity of the Offeror
(Exception- offers that have option contracts are irrevocable for the time specified in the option contract)
When is Revocation Effective?
Revocation Rule: Can be revoked at anytime for any reason or no reason before acceptance.
Revocation becomes effective upon receipt (including constructive receipt... in your mailbox, etc.)
Express - terminates the offeree's power of acceptance when the offeree RECEIVES a manifestation of intent to withdraw offer.
Indirect - terminates the offer when the offeror takes definite action inconsistent with an intention to enter into the proposed contract & the offeree has reliable information of it.
Rejection - Types?
- Express - NO!
- Implied - Counter offer (except under the U.C.C.)
If no definite time is stated, then the offer is open for a reasonable time, but the reasonable time should not exceed 3 months.
: Acceptance is effective when the offeree RELINQUISHES control / on dispatch (considered to be continuously accepting the entire time in transit)
- - An uncommunicated intention to accept an offer is not acceptance.
- - Private acts by the offeree does not constitute acceptance. (signed but didn't mail)
Acceptance by Non-Authorized Means Rule
If an authorized means of acceptance is expressly OR impliedly present, any attempt by the offeree to accept by a nonauthorized means is not effective until the acceptance is actually received by the offeror.
Acceptance under Common Law?
Common Law: Mirror Image Rule: Acceptance must be in total assent on the terms of the offer. (A suggested modification does not prevent contract formation regardless of whether the modification is accepted BUT intent as a suggestion must be obvious to other parties.. otherwise triggers rejection/counter-offer)
Acceptance under U.C.C.?
UCC: A definite & seasonable expression of acceptance or written confirmation operates as acceptance even if it states terms additional to or different from those offered or agreed upon, UNLESS Acceptance is EXPRESSLY made conditional on assent to the additional terms.
(order form that stated "subject to terms" was held NOT to be Express assent)
Presumption in regards to:
Unilateral Contracts - generally
Bilateral Contracts - generaly
- Unless otherwise indicated by the langauge or the circumstances, an offer is treated as inviting acceptance in ANY manner & by any medium reasonable in the circumstances.
- IF language is silent or ambiguous as to method of acceptance, contract can be accepted by either promise or performance BUT presumption is that of a Bilateral Contract.
- Unilateral - An offer than can only be accepted by completion of performance. No Notice is required, Performance of the conditions of a proposal is an acceptance of the proposal.
- Once performance starts, an option contract is created when the offeree beings the invited performance or tenders part of it.
- What is "sought" by the offeree constitutes perforamance, MERE preparation is NOT performance.
- An offer than can only be accepted by a promise. (Promise for a Promise). Notice to agent, within scope of agent's authority, is notice to the principal, and the agent's knowledge is binding on the principal.
Option: a Promise to keep an offer open for a specified period.
Characteristics of Option Contracts
- Requires consideration to be binding (exception for Merchants, Firm Offer under 2-205; must be signed with assurance to hold open)
- Option with Consideration = IRREVOCABLE for period specified.
- Will stand in the face of counter offers.
Result of Option without valid Consideration?
When the consideration that supports the option fails, the option is destroyed, but not the offer; The option becomes an offer can be revoked anytime before acceptance.
Option Contracts - Acceptance Effective When?
- Option contracts are commonly subject to a definite time limit, and the usual understanding is that the notification that the option has been exercised must be received by the offeror before that time.
- Whether or not there is such a time limit, in the absence of a contrary provision in the option contract, the offeree takes the risk of loss or delay in the transmission of the acceptance and remains free to revoke the acceptance until it arrives.
- Similarly, if there is such a mistake on the part of the offeror as justifies the rescission of his unilateral obligation, the right to rescind is not lost merely because a letter of acceptance is posted.
Acceptance by Silence Rule
Generally, silence is not acceptance, but where the relation between the parties is such that the offeror is justified in expecting a reply, or the offeree is under a duty to reply, the latter's silence will be regarded as acceptance.
Firm Offer Rule
If a MERCHANT makes an offer, in a SIGNED WRITING, which contains an ASSURANCE that it will be held open, then it is regarded as irrevocable in spite of the absence of consideration for the time stated, or if no time is stated, for a reasonble time not to exceed 3 months.
Equitable Estoppel Rule
- One by his acts or representations, or by his silence when he ought to speak, intentionally or through culpable negligence,
- induces another to believe certain facts exist,
- and such other rightfully acts on the belief so induced in such a matter that
- if the former is permitted to deny the existence of the facts, it will prejudice the latter.
Additional Terms under the U.C.C.
- If you find a seasonable expression of acceptance, but need to determine what additional terms are part of the contract:
- - Consumer is a party to the contract: Additional Terms are treated as proposals only & are not binding unless expressly consented to! (was there assent... shirnk-wrap/click through? pty that fails to read does so at their own peril)
- - As between Merchants, additional terms are binding if they are immaterial
- - As between Merchants, Additional Terms that are material are proposals that must be expressly consented to! (subject to... not considered Express Consent language) --> Must clearly express in a manner sufficient to notify the offeror that the offeree is unwilling to proceed with the transaction unless the additional or different terms are included in the contract.
Note: If merchant receives the goods but doesn't agree to the terms, can still return the goods within a reasonable time.
What constitutes a "MATERIAL CHANGE/ALTERS"?
A change that does not substantially alter the performance obligations of the parties Or substantially shift the risk.
(generally Arbitration clause alters the contract)
Under U.C.C. if you cannot find that there has been a seasonable acceptance or written confirmation of a deal…but there is delivery, receipt or performance in some way...
- Must use 2-207-3. THE KNOCK OUT RULE
- It is a catchall to determine if there is a contract.
- We may have a deal! BUT under what terms?
- Overlapping terms are binding.
- Terms that do not overlap are "knocked out" and the court uses gap fills for the knocked out terms. (QUANTITY CANNOT BE DETERMINED BY GAP FILL)
- The general rule is that real estate agents have no implied authority to contract on behalf of their principals.
- NOTICE to agent, within the scope of the agent's knowledge is binding on the agent's principal.
- Apparent authority must be founded on the principal's actions since no agent by his own act can create evidence of authority.
Agreement to Agree on Future Term of a Present Contract
- In order to be binding, an agreement must be sufficiently definite to enable a court to give it an exact meaning.
- Leaving the terms for future ascertainment, without providing a method for the determination, renders the agreement unenforceable for uncertainty.
Letters of Intent Rule
The intent of the parties at the time of their entry into the understanding must control, and EXCEPT in cases of ambiguity, THEN it is determined by what the contract itself says.
- A bargained for exchange.
- The forbearance of a legal right is a legal detriment which constitutes good consideration. (i.e. drinking under 21 is not a legal right)
- It is bargained for if it is what is "sought" by the promisor in exchange for the promise.
- Adequacy of consideration is irrelevant
- Past Consideration is NO consideration
Exceptions to Past Consideration is No Consideration Rule
- Promise that revives a previously legally enforceable obligation that is now barred by the Statute of Limitations (Reaffirmation - most states require a writing)
- Promise to pay a debt legally discharged through bankruptcy.
- Promise to pay obligations incurred by an infant.
Consideration as it relates to
- Sums of money
- Compromise Claims
- Invalid Claim
- Doctrine does not apply to mere exchange of sums of money/coin where the value is exactly fixed.
- A persons agreement not to brng a VALID claim could be considered consideration, but it is NOT valid consideration to compromise over a disputed claim.
- For where such claim is legally groundless, a compromise or suit upon it is not binding as there is no bargained for exchange
Mutual Misunderstanding Rule
If different meanings, were intended on a MATERIAL term of a contract, there is no mutual assent and there is no contract.
Exception: When one party receives the benefit of the other's performance the court is reluctant to hold the contract unenforceable.
When one party knows of the other's meaning & manifests assent intending to insist on a different meaning, he is guilty of misrepresentation and the contract will be enforced to based on the other's understanding.
Purpose - If a contract was not formed, the harmed party can recover damages for detrimental reliance.
- 1- a promise
- 2- which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a 3rd person
- 3- which does actually induce such action or forbearance
- 4- is binding to avoid injustice
A manifestation of intent to act or refrain from acting in a specified way, so as to make a promisee justifiably believe a commitment has been made.
Promissory Estoppel Notes
Being lured away from existing job with the promise of permanent employment is generally sufficient for consideration. (Can pursue breach of contract instead of P.E.)
A statement of opinion of future intent is insufficient to give rise to a promise.
P.E. cannot be based on preliminary negotiations & discussions or an agreement to negotiate the terms of a contract.
P.E. only provides reliance damages NOT expectation damages (lost profits for failure to act on promise)
Mere Gratuity Rule
If the happening of a condition will not benefit the promisor, BUT is merely a means for enabling the promisee to receive the gift, it is not consideration.
INTENT to give without delivery is Null.
Though in the case of doubt, where the promisee has incurred detriment on faith of the promise, Courts are loathe to treat as a mere gratuity.
Illusory Promise Rule
An apparent promise which makes performance optional with the promisor is in fact no promise.
An illusory promise is one that appears to be a promise, but no commitment is being made
Follows the doctrine of Mutuality of Obligation, words of promise which by their terms make performance entirely optional with the promisor do not constitute a promise.
*often consideration for one parties promise to arbritrate is the other parties promise to do the same. 2 Promises to arbitrate, neither can reserve right to arbitrate, must be promise*
Pre Existing Duty Rule
- An agreement modifying a contract is not supported by consideration if one of the parties to the agreement:
- - Does or promises to do something he is already legally obligated to do...
- - or refrains or promises to refrain from doing something he is not legally priviledged to do
- As it is Nudum pactum, a naked promise unsupported by consideration.
- A mere verbal promise, without consideration, cannot be enforced by action.
- A moral obligation is sufficient consideration to support a subsequent promise if there is a Material benefit to the promisor. (HIGH STANDARD for material benefit, such as saving life)
- There must be some pre-existing obligation, which has become inoperative by positive law to form a basis for an effective promise.
Exception to Pre-Existing Duty
- A promise modifying a duty under a contract not fully performed on either side is binding
- When a party to a contract encounters unanticipated difficulties
- And the other party NOT influenced by coercion or duress Voluntarily agrees to pay additional compensation for work already legally obligated to do.
Is enforceable without consideration & without detrimental reliance.
Statute of Frauds Applies to Contracts Involving
- MY LEGS
- Year *contracts that cannot be performed within a year
- Goods* > $500
Contracts that are governed by the Statute of Frauds require
- Must be in writing (Ct allows piecing of several writings)
- Essential Terms (Indicates the quantity of goods sold)
- Must be signed by the party that enforcement is sought against (party to be charged)
Exceptions to Statute of Frauds (meaning courts will treat as having a contract, even though does not meet requirements to bind)
- Admission that a contract exists
- Waive SoF Defense by not raising
- Specialty Goods (goods that can't be resold in the ordinary course of business)
- Promissory Estoppel
- Partial Performance (makes the remainder of agreement unenforceable)
- Merchants Exception (Once a merchant receives the writing, must object to writing within 10 days of receipt or will lose defense)**this is even if pty enforced against didn't sign**
Rule: Where one induces another to enter into a contract by means of a material misrepresentation the latter may rescind the contract. It does not matter if the representation was innocent or fraudulent.
- - MATERIAL -Was the representation material (importance)
- - RELIANCE - Did the other party rely on the misrepresentation?
- - REASONABLE - Was the other parties reliance reasonable?
Any manifestation by words or other conduct by one person to another that, under the circumstances, amounts to an assertion not in accordance with the facts.
If either party to a contract of sale conceals or suppresses a material fact which he is in good faith bound to disclose then his silence is fraudulent.
Capacity to Contract Rule
A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is:
- - under guardianship
- - an infant
- - mentally ill or defective
- - intoxicated
- General Rule
- Consideration Responsibility
- - The contract of a minor, other than for necessaries, is voidable at his option.
- - A minor who disaffirms a contract is entitled to recover all consideration he has conferred incident to the transaction.
- - In return the minor is expected to restore as much of the consideration as, at the time of disaffirmance, remains in the minor's possession.
- - The minor's right to disaffirm is not contingent on upon the return of the property, however, as disaffirmance is permitted even where such a return cannot be made.
Exception: if he lies about his age, he is estopped from denying alleged majority (merely signing a statement is not reliance worthy)
- A person incurs only voidable contractual duties by entering into a transaction:
- - if by reason of mental illness or defect,
- - he is unable to act in a reasonable manner in relation to the transaction
- - and THE OTHER PARTY HAS REASON TO KNOW OF HIS CONDITION.
Measured AT THE TIME OF CONTRACT
Cognitive Test – Party is unable to understand the nature & consequences of the Transaction
VOLITIONAL TEST – Party may have understood the transaction but the mental illness affected her ability to act rationally in relation to the transaction.
Makes A Contract Voidable
- If a party's manifestation of assent is
- - INDUCED by an WRONGFUL THREAT
- - BY the OTHER PARTY that leaves the victim
- - NO REASONABLE ALTERNATIVE (question of fact)
- the contract is voidable by the victim.
- If induced by:
- - NOT a party to the transaction,
- - the contract is voidable by the victim
- - UNLESS the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.
This requirement may be satisfied where the alleged wrongdoer's conduct is criminal or tortious, but an act or threat that is wrong in the moral sense also satisfies this element.
Whenever another by which that other is prevented from acting according to his own wish or judgment, and whereby the will of the person is overborne and he is induced to do or forbear from an act which he would not do, or would do, if left to act freely.
- - Excessive Pressure to persuade one
- - vulnerable to such pressure
- - applied by a dominant subject
- - to a servient object.
Note: vulnerability/weakness need not be longlasting nor wholly incapacitating, but may be merely a lack of full vigor due to age, physical condition, emotional anguish, or a cominbation of such factors.
Undue Influence Rule
If will has been overcome against judgement consent may be rescinded.
Public Policy - Exculpatory Clauses
The law does not favor contract provisions which relieve a person from his own negligence.
- Unless the intention of the parties is expressed in unmistakable language, an exculpatory clause will not be deemed to insulate a party from liability for his own negligent acts.
- ***exculpatory clause can waive general negligence but CANNOT waive Gross Negligence***
Public Policy - Convenants
- Covenant not to compete is invalid unless it protects some legitimate interest beyond the employer's
- desire to protect itself from competition.
Restriction of a restrictive covenant is unreasonable, and thus will not be enforced, if the restraint is greater than necessary to protect the employer's legitimate interest, or if that interest is outweighed by the hardship to the employee and the likely injury to the public.
Rule: While it is certain that a contract is void when it is illegal or immoral, it is equally as certain that it is not void simply because there is something immoral or illegal in its surroundings or connections.
Illegality Rule as it applies to vendors
Rule: The vendor must do something in furtherance of the purchaser’s design to transgress, but positive acts in aid of the unlawful purpose are sufficient, though slight.
Failure to Read Rule
That a consumer does not read the agreement or thereafter claims he or she failed to understand or appreciate some term therein does not invalidate the contract.
- Rule: Where the element of unconscionability is present at the time a contract is made, the contract should not be enforced.
- 2 elements
- 1- Absence of a meaningful choice (Oppression or Surprise due to un equal bargaining power & manner/place contract is entered into)
- 2- Terms that are unreasonably favorable to the
- other party (overly harsh & one-sided results)
- Procedural Unconscionability
- - something wrong in the bargaining process
- Substantive Unconscionability
- - the contract terms per se (may warrant recission even for a unilateral mistake of fact)
-Requirements for avoidance
-Examples of Material Fact
A party who has given an apparent consent to a contract of sale may REFUSE to execute it, or he may AVOID it after it has been completed, IF the ASSENT was founded, or the contract made, up on the mistake of a material fact.
- - Basic assumption
- - Material effect on the agreed performance
- - Risk - the adversely affected party should not bear the risk
- Material Facts:
- - must be in regards to "EXISTING FACT"... not an erroneous belief about what will happen in the future
- - matter of the sale
- - the price
- - collateral fact that materially induces the agreement
Mistake - Conscious Ignorance Rule
A party bears the risk of mistake when he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient.