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4 questions to ask for contract questions
- 1. What universe- UCC or common law?
- 2. Has an enforceable contract been formed?
- 3. Has the contract been performed?4. What are the remedies for breach?
UCC governs: ____
all parties who enter a goods contract, not just merchants
common law governs: ______
deals with real estate or services
All or nothing rule
A mixed contract must either be governed by common law or the UCC
Predominant purpose rule
If service plays a bigger role in a mixed contract, it is governed by common law. If the sale of the good plays a bigger role, it is governed by the UCC.
4 issues of contract formation
- Agreement (offer and acceptance)
- Defenses to formation
- Statute of Frauds
contract formation: agreement: What is an offer?
a manifestation of a willingness to enter into an agreement (by the offeror) that creates a power of acceptance (in the offeree)
[the fuzzy caterpillar]
contract formation: agreement requires objective test: a reasonable person must conclude that the parties intend to be bound?
contract formation: agreement: How specific must an offer be? (indefiniteness)
common law: All essential terms must be covered in the agreement, i.e. parties, subject, price, and quantity
Ucc- identify parties, subject, and quantity, but price does not need to be stated.
contract formation: when conduct indicates assent or agreement, the agreement is considered _____
implied in fact
contract formation: the court can permit the plaintiff to recover the value of the benefit in order to prevent unjust enrichment in a ____contract
(see slide 39 for elements)
contract formation: agreement: an example of a requirements contract
I don't know how many I may need over the next X years, but I promise to buy all of them from you
contract formation: agreement: example of an output contract
I don't know how many I will make over the next X years, but I promise to sell all of them to you
contract formation: agreement: how to terminate an offer? 
1. Offeror expressly communicates revocation to the offeree
- 2. Constructive revocation: offeree learns that offeror has taken an action that is absolutely inconsistent with continuing ability to contract
- ~ if not a unique item, selling that item to someone else not considered constructive revocation
3. The offered rejects the offer
4. The offered makes a counteroffer
5. Offeror dies
6. A reasonable amount of time passes
While an offer generally terminates upon the death or mental incapacity of the offeror, an exception of for option contracts if consideration paid.
contract formation: agreement: 4 irrevocable offers
2. firm offer (UCC)
3. offeree has started performance
4. detrimental reliance
contract formation: agreement: 4 irrevocable offers: option
Option added to an offer adds a protective layer BUT must state that it is irrevocable [caterpillar's shield]
contract formation: agreement: 4 irrevocable offers: firm offer rule elements
A merchant in the UCC can make a firm offer to buy or sell goods
-Merchant: someone who makes a business of buying and selling the goods at issue.
-Offer must be written, contain an explicit promise not to revoke, and be signed by the merchant
-firm offer lasts as long as stated in the offer or for a reasonable time period not to exceed 90 days
contract formation: agreement: 4 irrevocable offers: offeree has started performance rule
a unilateral offer to contract cannot be revoked by the offeror if the offeree has started performance.
contract formation: agreement: unilateral contracts
unilateral contracts cannot be satisfied by mere preparation for performance
contract formation: agreement: 4 irrevocable offers: offeree has started performance: what is a unilateral contract? does the promisee have the right to finish? provide an example.
-acceptance comes from an action of the promisee, not by a return promise
- yes, promisee has the right to finish
- example: I promise to pay you $1,000 if you paint my house.
contract formation: agreement: 4 irrevocable offers: detrimental reliance: basic rule
an offer cannot be revoked if the offer reasonably and detrimentally relies on the offer in a foreseeable manner
- look for a general contractor/subcontractor context
contract formation: agreement: definition and rules of acceptance
- a manifestation of a willingness to enter into the agreement by the offeree
1) governed by the objective test
2) starting place is "the offeror is master of the offer."-- offeree must accept the offer according to the rules of the offer.
3) offer must be specific to the person trying to accept it; you can't accept an offer directed elsewhere
4) must know about the offer in order to accept it
5) must communicate acceptance to the other party for it to be effective.
contract formations: agreement: conditional offers still require consideration (i.e. I will sell this if you respond within 24 hours. Offeree must still provide consideration to leave the offer open! otherwise, offeror can revoke)
contract formation: agreement: acceptance: What if the seller tries to accept by shipping the wrong goods?
Under the UCC, considered acceptance PLUS breach
contract formation: agreement: acceptance: mailbox rule
acceptance sent by mail is valid when the letter is sent
does not apply:
- - if the offeree sends something else first (e.g. rejection, counteroffer)
- - to other types of communication (e.g. revocations, rejections)
- - to option contracts
- - unclear if it applies to non-mail: fax, email, etc.
contract formation: agreement: acceptance: mailbox rule: hypo: I send you an offer. You mail back your acceptance. I call you before I receive your letter and revoke. Is this a contract?
contract formation: agreement: acceptance: mailbox rule: hypo: I send you an offer. You mail back your acceptance. The letter gets lost and never shows up. Is there a contract?
contract formation: agreement: acceptance: mailbox rule: hypo: I send you an offer. You mail back your acceptance. You change your ind and call me up before I receive your letter to reject the offer. Is there a contract?
Yes, unless I detrimentally relied on the rejection
contract formation: agreement: acceptance: mailbox rule: hypo: I send you an offer. You mail back a rejection. You change your mind and mail back an acceptance a few hours later. Both letters arrive at my house on the same day. Is there a contract?
It depends on what's opened first. The send has lost the mailbox protection by mailing something else first.
contract formation: agreement: acceptance: 4 exceptions to the communication element via silence
1) unilateral reward offers or contests
2) unilateral offers in which the parties are geographically close, such that the offeror will see that performance has occurred
3) a past history of silence serving as a acceptance such that the offer should reasonably notify the offeror if she does not accept
4) statement from offeror requiring silence for acceptance and intent from offeree to accept the offer by silence
contract formation: agreement: acceptance: definition and example of implied-in-fact contract
an acceptance without writing or speaking, but communicated by gestures or actions.
going to the salon and typically don't communicate offer or acceptance, but going to stylist's chair and getting hair cut, etc, constitute contract
contract formation: contractor/subcontractor: when a contractor requests bids, the subcontractor is the offeror and the contractor is the offeree who accepts the offer
contract formation: contractor/subcontractor: when a subcontractor refuses the work after contract relied on that subcontract price, contractor who reasonably and detrimentally relied may seek damages. Contract is seen as an irrevocable option.
contract formation: agreement: counteroffer: mirror image rule
In common law, the terms in the acceptance must match the terms of the offer exactly- otherwise not an acceptance but a counteroffer.
~includes conditional acceptance
contract formation: agreement: counteroffer: mirror image rule: conditional acceptance hypo: I offer to mow your law on Saturday. You say "Ok, if you come over on Sunday") Is this a contract?
contract formation: agreement: counteroffer: UCC 2-207(1) paraphrased rule
For the most part, a contract is still valid if the offeree accepts it in a reasonable amount of time and changes or adds terms of the offered contract. BUT If the offeree states that she will only accept the contract if the offeror agrees with the additional or different terms, the offeree has not accepted the contract.
contract formation: agreement: counteroffer: UCC 2-207(1): hypo: You send a purchase order. I send back a timely confirming memo saying Ok, and on the back, include a bunch of terms that all match yours, except for a clause that says "buyer agrees to indemnify seller against a lawsuit for harm arising from the chainsaw." Do we have a contract?
Yes. The change is not a major part of the agreement, it is just one term changed. Contract is still valid.
contract formation: agreement: counteroffer: UCC 2-207(2) paraphrased rule
New terms may only apply if:
- - both parties are merchants
- - the new term does not materially alter the deal
- - the initial offer did not expressly limit acceptance to its terms; and
- - the offeror does not object within a reasonable time to the new term
- ~ a contract is valid even if the new terms are invalid (and thus omitted from the contract)
- ~ it is very difficult for the new terms in the acceptance to govern the contract
contract formation: consideration: 3 key questions
1. Who is making the promise that needs to be supported by law (that person is the promisor; the other party is the promisee)
2. Is there a benefit to the promisor OR a detriment to the promisee (you need just one, not both)
3. Was this bargained for? (did the parties think that they were making a deal when they exchanged promises?)
contract formation: consideration: common law modification pre-existing duty rule and 3 exceptions
promise to do something that you are already legally obligated to do is not consideration (i.e. if rent modification, still may owe money). Have to give new consideration for a modification. exceptions:
- 1) change in performance
- 2) 3rd party promising to pay
- 3) unforeseen difficulties that would excuse performance
- 4) rescission of the contract by destroying the contract
contract formation: consideration: 3 substitutes for consideration
1. promissory estoppel (reliance)
2. quasi contract
3. moral obligation
contract formation: consideration: 3 elements for promissory estoppel
1) a promise is made that would be reasonably expected to induce reliance
2) the promisee does indeed take detrimental action in reliance on the promise; and
3) injustice can be avoided only by enforcement of the promise.
contract formation: consideration: quasi-contract elements
1. the plaintiff confers a measurable benefit on the defendant
2. plaintiff reasonably expected to get paid; and
3. it would be unfair to let the defendant keep the benefit without paying (look for an opportunity to decline or a good reason why there was no opportunity to decline)
contract formation: 7 defenses
- 1. misunderstanding
- 2. incapacity
- 3. mistake
- 4. fraud/misrepresentation/nondisclosure
- 5. duress
- 6. illegality
- 7. unconsionability
contract formation: defenses: elements of misunderstanding
1. parties use a material term that is open to two or more reasonable interpretations (no objectivity test)
2. each side attaches a different meaning to the term; and
3. neither party knows, or should know, of the confusion
contract formation: defenses: mutual mistake elements
1. There is mistake of fact existing at the time that the deal is made
2. the mistake relates to a basic assumption of the contract and has a material impact on the deal; AND
3. the impacted party did not assume the risk of mistake [e.g. in light of possibility that it was a mistake, took the risk anyway]
If all satisfied, adversely affected party can rescind the contract
contract formation: defenses: unilateral mistake elements
- mutual mistake elements P
- mistake would make the contact unconscionable OR the other side knew of, had reason to know of, or caused the mistake
contract formation: defenses: misrepresentation elements
1. a misrepresentation of a present fact (not opinion);
2. That is material OR fraudulent (intentional); AND
3. that is made under circumstances in which it is justifiable to rely on the representation
contract formation: statue of frauds: 2 questions to ask for potential SOF issues
- 1. Does the SOF apply to this type of transaction?
- 2. if so, has the SOF been satisfied?
contract formation: statue of frauds:types of contracts it covers
- 1. marriage: contract made in consideration of marriage (i.e. prenup)
- 2. suretyship- a contract promising to guarantee the debt of another
- 3. one year: a contract that by its terms cannot be performed within one year from its making
- 4. UCC: goods contracts for a price of $500 or more
- 5. real property: a contract for the sale of an interest in real property
- 6. debt
contract formation: SOF: elements of "writing" to satisfy SOF
- 1) does not need to be formal
- 2) signed by one party OK
- 3) indicate contract made
- 4) ID parties
- 5) essential elements
contract formation: SOF: special elements for real estate performance to satisfy SOF
-part performance of real estate satisfies SOF, unlike other service contracts.
- -must have any of these two met:
- ~ possession
- ~improvements on the land
if the goods cost $500 or more, then the contract must also satisfy the Statute of Frauds.
SOF UCC requirements
- - in writing
- - name and intent of the parties
- - quantity term
- - signed by the party to be charged
UCC SOF exceptions: 1) specially manufactured goods 2) part payment 3) receipt and acceptance 4) judicial admission 5) failure to respond to memo
failure to respond exception: if party receiving memo doesn't sign, could still satisfy SOF if:
- - both parties are merchants
- - receiving party had reason to know if its contents (i.e. oral agreement followed by the written confirmation memo)
- - and receiving party fails to object to it within 10 days.
contract formation: warranties: express warranty is a promise or a statement of fact. Opinions not treated as express warranty.
contract formation: SOF & modification: next steps if in SOF world, meet SOF requirements, and there's a modification
- - Is alleged modification in SOF world?
- - If yes, must meet SOF requirements
- - If no, no SOF requirement even if initial deal in SOF world