Contracts 2A

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paul
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23007
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Contracts 2A
Updated:
2010-06-10 18:02:51
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Formation Contracts
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Contracts 2A - Formation of Contracts
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  1. What is a "Contract"?
    A (1) legally enforceable (2) agreement

    Note that the terms "agreement" and "contract are not synonymous—i.e., you can have an agreement, but if it is not legally enforceable, it is not a contract.
  2. Contracts can be express or implied. How is each one created?
    • Express Ks: Created by parties' WORDS
    • Implied Ks: Created by parties' CONDUCT
  3. What is a Quasi-Contract?
    It's NOT a contract at all!

    Rather, it is a REMEDY that courts can employ to protect against unjust enrichment when contract law produces an unfair result.

    Exam tip: If you see an unfair result, but contract law doesn't provide any remedies, consider whether quasi-contract could be applied
  4. If a court imposes a quasi-contract, how much can the wronged-party recover?
    Can recover the reasonable value of the benefit conferred on the unjustly-enriched party.

    Note: "reasonable value" ≠ K price
  5. A contract can be Bilateral or Unilateral. What does this mean?
    • Bilateral K: offer can be accepted in any reasonable way
    • Unilateral K: Offer can be accepted only by performing

    Exam tip
    : A contract is bilateral UNLESS (i) the offer expressly limits acceptance to performance, or (ii) you're dealing with a reward, contest, or prize
  6. Has a Contract been formed? (hint: 3 steps)
    • 1: Is there an OFFER?
    • 2: Has the offer been TERMINATED?
    • 3: Has the offer been ACCEPTED?
  7. OFFER: Can an Advertisement be an offer?
    • Generally: advertisement are NOT offers.
    • However: an advertisement that specifies quantity of a good for sale can be an offer if the price is also supplied or can be determined.
    • Example (offer): "One blue dress just like Monica's, only $ 1!"
    • Example (not an offer): "Incredible offer! Breakfast special for $2.49."
  8. OFFER: What is the issue with Indefinite terms?
    If a term is too indefinite, a court will not be able to enforce it. If you lack enforceability, you lack a contract (all you have is an agreement)
  9. OFFER: Will an open Price term make an agreement unenforceable?
    Depends on whether a court would be able to read-in a reasonable price for the open term.

    An open term does not usually present a bar to enforcement—a court is usually able to read-in a reasonable price for the open term. HOWEVER, where real property is involved, an open term will present a bar to enforcement, as a court will not attempt to read-in a reasonable price in such a case.
  10. OFFER: A Requirements Contract is one based on the buyer's "needs" or "requirements." As such agreements enforceable?
    Usually YES.

    Although quantity may be uncertain, UCC Article 2 allows such agreements to be enforceable. The quantity is based on the buyer's good faith needs or requirements, and can usually be determined.

    Note: Where there is a sudden and drastic increase in the buyer's needs, the buyer cannot require the seller to deliver more than is reasonable based on past experience. To do so would be to unfairly "surprise" the seller. This is true even if the sudden and drastically increased order quantity is made in good faith.
  11. How is an offer TERMINATED?
    • Lapse
    • Revocation
    • Rejection
    • Death of a party before acceptance
  12. TERMINATION: When does an offer LAPSE?
    An offer lapses after a stated term or a reasonable time has passed.

    Hint: Look at the amount of time between the date offer is made, to when acceptance is finally given. If it seems longer than you'd think is reasonable, it probably is
  13. TERMINATION: WHEN can an offer be REVOKED? (note the 4 exceptions)
    GENERALLY, an offeror may revoke his offer at any time BEFORE acceptance. Exceptions (offeror may not revoke):

    • 1) Options
    • 2) Foreseeable reliance
    • 3) Starting performance (on a unilateral K), and
    • 4) Firm offers (from a "merchant")
  14. TERMINATION: HOW may an offeror REVOKE his offer?
    • Direct revocation: Tell offeree directly that change of mind.
    • Indirect: The offeror (i) engages in conduct that indicates he's changed his mind, AND (ii) the offeree is aware of the conduct (P is aware that D has sold his car to T)
  15. TERMINATION: When will an OPTION prevent an offeror from revoking?
    When the option is paid for—i.e., supported by consideration (this is the MS rule)

    NY Distinction: an option need not be supported by consideration if it is in a writing signed by the offeror
  16. TERMINATION: When will FORESEEABLE RELIANCE prevent an offeror from revoking?
    In the RARE situation of a subcontractor who offers the performance of work to a general contractor.

    The reason is that a subcontractor, through experience and industry custom, would expect the general contractor to rely on the sub's pricing in negotiating a prime K. Outside of this specific situation, however, courts and the examiners will treat pre-acceptance "reliance" as unforeseeable.
  17. TERMINATION: When will STARTING PERFORMANCE of a unilateral K prevent an offeror from revoking?
    • • MBE: When performance BEGINS
    • • NY: When performance is COMPLETE

    Note for NY: An offeror can revoke all the way until performance is complete—even if offeree has already begun performance and EVEN IF the offeree is nearly finished performing. If this seems unfair, it is! But there is a remedy, and that remedy is for the reasonable-value of the benefit conferred through quasi-contract.

    Further note: merely preparing to perform is not enough to prevent an offeror from revoking under with the MBE or NY
  18. TERMINATION: When will a FIRM OFFER prevent an offeror from revoking?
    UCC Article 2 Firm Offers: When the offer is for (i) the sale of goods, (ii) from a merchant, and (iii) the merchant PROMISES in a signed writing to keep an offer open.
  19. TERMINATION: How can the bar examiners trick you in a FIRM OFFER (revocation) question?
    • Firm offers for more than 3 months: An offer can only be firm (i.e., irrevocable) under Article 2 for 3 MONTHS. After 3 months, the offer may still be open, but the offeror merchant can revoke. This is the case even if, for example, the merchant's signed promise indicates that the offer will be firm beyond 3 months.
    • No time period stated: The offer will be held open for a reasonable time, not to exceed 3 months
    • Signed, written offers: Must also have a PROMISE to hold open in order to be firm (i.e., irrevocable). This is a frequent trick on the bar.
  20. TERMINATION: Suppose an offeror has decided to revoke. WHEN is her revocation EFFECTIVE?
    When it is actually RECEIVED by the offeror
  21. TERMINATION: How can an offeree REJECT an offer?
    • Counteroffers such as "I will only pay $ X.XX) (but mere bargaining is not a counteroffer, e.g., "Will you take $ Y.YY?")
    • Conditional "Acceptance" (not an acceptance at all—it is the same as saying "no")
    • Acceptance that varies (modifies) the terms of the offer
  22. TERMINATION: Under the COMMON LAW, can an acceptance MODIFY the terms of the original offer without operating as a rejection?
    Absolutely not!

    This would not be an effective acceptance because under the common law, the acceptance must accept the terms of the offer in its entirely ("mirror image")
  23. TERMINATION:: Under UCC ARTICLE 2, can an acceptance MODIFY the terms of an offer without operating as a rejection?
    YES. Under Article 2 (sale of goods), an acceptance can modify the terms of an offer and still operate as a valid acceptance.

    Moreover, the modified term will be included in the resulting K if ALL THREE of the following are satisfied:

    • 1) BOTH parties are MERCHANTS
    • 2) the modification is NOT A MATERIAL CHANGE***
    • 3) NO OBJECTION is made by the offeror within a REASONABLE TIME

    • ***A disclaimer of all warranties is treated as a material change
    • ***If a term is customary in the industry, it is not material
  24. TERMINATION: When will a party's DEATH terminate an offer?
    • 1: Party dies before acceptance, AND
    • 2: Offer was revocable (i.e., no option, foreseeable reliance, starting performance, or firm offer from merchant)
  25. How is an offer ACCEPTED?
    • If the K is BILATERAL, acceptance is can occur through any reasonable means
    • If the K is UNILATERAL, acceptance occurs by performance
  26. ACCEPTANCE: When is a K UNILATERAL?
    • • Offer expressly states that performance, and performance alone, will constitute acceptance
    • • Offer is for a reward, contest, or prize

    Otherwise, the K will be bilateral, and acceptance may be manifested through any reasonable means.
  27. ACCEPTANCE: Does an offeree manifest acceptance of a BILATERAL K by commencing PERFORMANCE?
    YES!

    An offeree may manifest acceptance to a bilateral contract through any reasonable means—this includes COMMENCING performance, as commencing performance to a bilateral contract carries with it an implied promise to finish the job.

    NB: IF the contract were unilateral, however, merely commencing performance would not constitute acceptance. In a unilateral contract, only completion of performance constitutes acceptance.
  28. ACCEPTANCE: Does an offeree manifest acceptance of a UNILATERAL K by commencing PERFORMANCE?
    NO!

    Although a bilateral K may be accepted by commencing performance, an offeree is not treated as accepting a UNILATERAL contract until performance is COMPLETE. This means that even after commencing performance, an offeree may cease performance without being in breach because there has been no acceptance.
  29. ACCEPTANCE: In a UNILATERAL K, performance is not effective as an acceptance until it is complete. Does this mean that once an offeree has commenced performance, the offeror is free to revoke? (hint: NY Distinction)
    • MBE: No! Even if performance is not complete, once the offeree has commenced performance the offeror may not revoke the offer.
    • NY: Yes! An offeror can revoke at any time up until the point at which performance is complete.
  30. ACCEPTANCE: What result, if an offeree performs but does so improperly?
    • Common Law: Simultaneous acceptance and breach
    • Sale of Goods (Art. 2): Simultaneous acceptance and breach unless seller is sending the goods as an accommodation to buyer (not an acceptance)
  31. ACCEPTANCE: Can an offeree's SILENCE operate as an acceptance?
    NO

    That would be unfair to the buyer, who might not be aware of the offer. NY Rule: unsolicited merchandise received in the mail is a gift.
  32. ACCEPTANCE: When an acceptance is delivered by MAIL, when is it effective? (note exceptions)
    Unless an exception applies, a mailed acceptance is effective as soon as it is placed in the mail. (compare the mailbox rule to the rule on rejections, which must be received in order to be effective)

    Exceptions—

    • • offer expressly requires actual receipt (acceptance must be received to be effective)
    • • offer is irrevocable (acceptance must be received to be effective)
    • • acceptance sent first, followed by rejection (acceptance effective on mailing unless offeror receives rejection first and relies on it)
    • • rejection sent first, followed by acceptance (it's a race, whichever the offeror receives first is effective)

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