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3 kinds of K law—common law, UCC Article 2, and UCC Article 2A. How do you know which one applies?
- Article 2: Sales of goods (moveable, personal property)
- Article 2A: Leases of goods (not real property)
- Common Law: All other contracts
What is a "Contract"?
A (1) legally enforceable (2) agreement
I.e., you can have an agreement, but if it is not legally enforceable, it is not a contract.
Contracts can be express or implied. How is each one created?
- Express Ks: Created by parties' WORDS
- Implied Ks: Created by parties' CONDUCT
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
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
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.
Has a Contract been formed?
- 1: There was an OFFER
- 2: The offer was not TERMINATED.
- 3: The offer was ACCEPTED.
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."
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).
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.
A Requirements Contract is one based on the buyer's "needs" or "requirements." As such agreements enforceable?
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.
An illusory promise is not a contract: e.g. "I agree to buy as many as I want."
How is an offer TERMINATED?
- Death of a party before acceptance
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
TERMINATION: WHEN can an offer be REVOKED?
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 (Art. 2 Ks from a "merchant")
EXAM TIP: For firm offers, check to see if it's an option first before falling back on Art. 2 firm offers.
- **MBE: Once an offeree starts to perform, offeror can no longer revoke, but merely preparing to perform is not enough (could try foreseeable reliance).
- NY: Offeror CAN revoke until performance is completed.
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.
TERMINATION: When will an OPTION prevent an offeror from revoking?
MBE: When the option is paid for—i.e., supported by consideration.
NY Distinction: an option need not be supported by consideration if it is in a writing signed by the offeror
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.
TERMINATION: When will STARTING PERFORMANCE of a unilateral K prevent an offeror from revoking?
**Note for NY:
- MBE: When performance BEGINS
- NY: When performance is COMPLETE**
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.
: merely preparing to perform
is not enough to prevent an offeror from revoking under with the MBE or NY
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.
Firm offers have a MAX TIME LIMIT of 3 months.
TERMINATION: How can the bar examiners trick you in a FIRM OFFER (revocation) question?
Firm offers > 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.
- 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.
TERMINATION: Suppose an offeror has decided to revoke. WHEN is her revocation EFFECTIVE?
When it is actually RECEIVED by the offeror
TERMINATION: How can an offeree REJECT an offer?
- Counteroffers such as "I will only pay $ X.XX." (but mere bargaining is not a counteroffer)
- Conditional "Acceptance" (not an acceptance at all—it is the same as saying "no")
- Common Law* Mirror Image Rule: Acceptance that varies the terms of the offer–even slightly–operates as a revocation.
- *Separate card for Art. 2 rule
TERMINATION:: Under UCC ARTICLE 2, can an acceptance MODIFY the terms of an offer without operating as a rejection?
. Under Article 2 (sale of goods), an acceptance can modify the terms of an offer and still operate as a valid acceptance.
, the modified term will be included
in the resulting K only 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
If ANY condition is not mt, offeree's term is NOT part of the K, but still have a enforceable K!
- ***A disclaimer of all warranties is treated as a material change
- ***If a term is customary in the industry, it is not material
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)
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
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
, the K will be bilateral, and acceptance may be manifested through any reasonable means.
ACCEPTANCE: Does an offeree manifest acceptance of a BILATERAL K by commencing PERFORMANCE?
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.
ACCEPTANCE: Does an offeree manifest acceptance of a UNILATERAL K by commencing PERFORMANCE?
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.
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)
ACCEPTANCE: Can an offeree's SILENCE operate as an acceptance?
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.
ACCEPTANCE: When an acceptance is delivered by MAIL, when is it effective?
MAILBOX RULE: Unless an exception applies, a mailed acceptance is effective as soon as it is placed in the mail
- • 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)
DEFENSES to contract FORMATION
- Lack of legal capacity (voidable, but not for necessities or if ∆ enjoys benefits of K)
- Economic duress (rarely successful)
- Misrepresentation or Non-Disclosure of a Material Fact (even if innocent)
- Ambiguity or Misunderstanding (unless one party knows or has reason to know of other party's misunderstanding, then the innocent party's understanding will govern)
- Mutual Mistake regarding a Material Fact
- Lack of Consideration (see separate cards)
- Public Policy
- K is Unconscionable
LACK OF CAPACITY Defense to K Formation
Infants, Intoxicated, Mentally Incompetent
GENERAL RULE: Any incapacitated ∆ may disaffirm the K. (Only care about capacity of ∆.)
- Incapacitated ∆ is still liable for necessaries (food, shelter, clothing, medical care), but only on a quasi-contract basis.
- Implied Affirmation: π may enforce K against ∆ after ∆ gains capacity and retains the benefit of K without complaint.
NY Distinctions for LACK OF CAPACITY Defense to K Formation
- Infants cannot void the following Ks:
- (1) Life insurance contracts by ≥ 14.5 years old.
- (2) Educational loans by ≥ 16 years old.
- (3) ALL contracts by 18 year olds.
- (4) Realty contracts related to the marital home; and
- (5) Ks involving artistic or athletic services.
- Adjudicated incompetent–K void
- Unadjudicated incompetent–K not voidable unless incompetent can restore other party to previous position.
When is a promise supported by CONSIDERATION?
When its been "bargained-for" in exchange for a legal detriment or benefit.
A person can bargain for a promise (usually the case), performance, or even forbearance. Whether consideration is adequate is irrelevant—the law does not care about actual value, and will presume adequacy if there has been bargaining.
Can past consideration support a present promise?
- MBE: No. Past consideration is not consideration at all.
- NYBE: Past consideration is consideration IF (i) its expressly stated in a signed writing, and (ii) can be proven.
Can a K be modified without new consideration?
- Common Law: NO. Performance of a pre-existing duty is not enough to make a K modification enforceable. To be enforceable, the modification must be supported by new consideration (e.g., additional money, extra performance, etc.)
- Sale of Goods (Art. 2): YES. New consideration is not required to make a K modification enforceable, but the proponent of the modification must show good faith.
Can PARTIAL PAYMENT of a DEBT be consideration that supports FORGIVENESS of the debt's balance?
Depends on whether the debt is in dispute
- If the debt is undisputed, partial payment is not sufficient consideration to support a promise to forgive the balance, because payment of the balance is treated as a pre-existing duty.
- NY Distinction: If the agreement to forgive was reduced to a signed writing.
If the debt is disputed
, acceptance of a partial payment on the debt is sufficient to forgive the balance.
If a debtor gives his creditor a signed promise to pay an outstanding debt, can the creditor enforce that promise even if it is made after the S/L on collection has run?
A signed and written promise to pay a debt, collection of which is barred by the statute of limitations, is enforceable even without consideration
Can foreseeable reliance on a promise make that promise enforceable even without consideration?
YES, because of PROMISSORY ESSTOPPEL. for example . . .
Facts: T's lease expires next month. L promises to renew T's lease. In reliance on L's promise, T paints the apartment. L now refuses to renew T's lease.
Result: Even though there was no consideration given by T for L's promise to renew, T can enforce L's promise based on promissory estoppel because it was foreseeable that T would rely on L's promise to T's detriment.
PUBLIC POLICY: A court will invalidate or narrow a COVENANT NOT TO COMPETE that operates as a "restraint of trade." When factors should be considered when deciding whether a covenant acts in "restraint of trade"?
- Scope of the Covenant: consider duration and geography, and whether it is reasonable
- Need for the Covenant: consider the uniqueness of the activities restricted, and whether it is reasonably necessary to protect a legitimate interest of the benefitted party.
PUBLIC POLICY: To what extent may an EXCULPATORY CLAUSE limit tort liability?
An exculpatory clause can limit liability for ordinary negligence, but cannot limit liability for gross negligence or an intentional tort
UNCONSCIONABILITY Defense to K Formation
- K or term of K will be invalidated if it shocks the conscience of the court.
- Substantive unconscionability: do the K terms themselves "shock the conscience"? Terms are unfair.
- Procedural unconscionability: does the process of formation itself "shock the conscience"? (e.g., extremely small print, imbalance of power)