Contracts I

Flash Cards

Is there a K?

There are three bases for contractual obligation:

1. Traditional K

2. Reliance

3. Restitution

Is there a traditional K?

Formation of a traditional K requires MA + KSN.

Is there mutual assent?

Mutual assent typically takes the form of offer + acceptance.

Is there an offer?

A communication is an offer if it invites assent and indicates that assent will conclude the deal.

Are there factors of an offer?

(1) complete terms,

(2) language of commitment,

(3) may say it is an offer though not dispositive,

(4) and must reasonably be intended as an offer.

Is there a promise - general rule?

A promise is an assurance that a thing will or will not be done in the future.

Is there a promise - R§2(1)?

A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.

Is there revocation?

Offers are freely revocable at any time prior to acceptance, except in the case of an option K.

Is there acceptance?

• Mirror Image Rule

• Mailbox Rule

• Last Shot Rule

What is the mirror image rule?

Acceptance must mirror the terms in the offer.

What is the mailbox rule?

Acceptance is effective upon dispatch when

(1) the offer states mail is an acceptable form of acceptance,

(2) mail is properly stamped and addressed, and

(3) the offer is not for an option K.

What is the last shot rule?

A party impliedly assents to and thereby accepts a counteroffer by conduct indicating lack of objection to it. (The last form exchanged sets the terms of the K.)

Is there a counteroffer?

If the offeree changes the terms of the offer, a counteroffer is created which amounts to a rejection of the offer and terminates the offeree’s power of acceptance.

Is this an option K (acceptance)?

An acceptance under an option K is not operative until received by the offeror.

Offer Sub-Rules

• Ads and form letters are not offers.

• Purchase orders are always offers.

• Preliminary negotiations are not offers.

“Ads are not offers” Sub-Sub-Rules

• Offers by ad must be (1) clear, (2) definite, (3) express, (4) unconditional, and (5) invite action with no further communication or negotiation.

• Misleading ads may be treated as offers.

• Offerees must be identifiable.

Preliminary Negotiations Sub-Sub-Rules

If the addressee knows or has reason to know that the person making the communication has to further assent, there is no offer.

Direct revocation sub-rules

Direct revocation requires the offeror to communicate the revocation to the offeree.

Indirect revocation sub-rule

Indirect revocation occurs when

(1) the offeror takes definite action inconsistent with an intention to enter into the proposed K and

(2) the offeree acquires reliable information to that effect.

Is there an option K?

1. Traditional Option K

2. R45 unilateral option K

3. R87(2) option K

4. UCC 2-205 Firm Offer

Is there a traditional option K?

A traditional option K requires:

1. a promise by the offeror to hold the offer open for a specified period of time or a reasonable period of time, and

2. KSN by the offeree for that promise.

Is there an R45 unilateral option K?

An option K is created when the offeree begins the invited performance and where the offer invites acceptance by performance and not a promise, as long as the offeree timely completes performance.

*does not apply to bilateral Ks

Is there an 87(2) option K?

An offer that results in:

1. foreseeable reliance by the offeror, and

2. substantial reliance by the offeree, becomes binding as an option K to the extent that it

3. avoids injustice

Such reliance must be induced by the offer and must be reasonable.

Was there foreseeable reliance by the offeror (R87(2) option K)?

Foreseeable reliance is when the offeror knew or should have known the offeree would rely on the offer.

Was there substantial reliance by the offeree (R87(2) option K)?

Substantial reliance is found in incurring substantial expense, undertaking substantial commitments, or foregoing alternatives.

Was the reliance reasonable (R87(2) option K)?

How clearly established are the terms?

Is 87(2) limited in this context?

87(2) is limited when:

1. The offeror makes a bona fide mistake known to the offeree, and

2. when the offer expressly states or clearly implies it is revocable at any time prior to acceptance, and

3. is rarely successful outside of a construction bidding context.

Is there a firm offer?

UCC 2-205 -

An offer by a merchant to buy or sell goods in a signed writing for lack of KSN with assurance that it will be held open is not revocable during the time stated or a reasonable period of time not to exceed 3 months

Is the offeror a merchant?

A merchant can be a merchant re: the goods, a business practice merchant, or a merchant by attribution.

What is a merchant re: the goods?

A merchant re: the goods is a person who deals in goods of the kind.

What is a business practice merchant?

A business practice merchant by his occupation holds himself out as having knowledge or skill peculiar to the goods involved in the transaction. (Most people are.)

What is a merchant by attribution?

A merchant by attribution has such knowledge or skill per his employment of a business practice merchant.

Is the offer to buy or sell goods (UCC 2-205)?

Goods are all things moveable at the time of contracting.

Goods Sub-Rules (UCC 2-205)

Goods include the unborn young of animals, growing crops, and other identified things attached to realty.

Is the offer signed (UCC 2-205)?

Any symbol or logo executed or adopted is sufficient.

Is the offer in writing (UCC 2-205)?

Any adaptation or reduction to tangible form is sufficient.

Is there KSN (UCC 2-205)?

UCC 2-205 only applies where there is no KSN.

Is there a firm offer clause (UCC 2-205)?

The firm offer clauses gives assurances that the offer will be held open for a specified period of time or a reasonable period of time, not to exceed 3 months.

Is the firm offer clause on a form provided by the offeree (UCC 2-205)?

If so, it must be signed separately by the offeror.

Counteroffers Sub-Rules

• R39 - A counteroffer terminates the power of acceptance unless the offeror or counteroffer has manifested a contrary intention.

• R59 - A counteroffer purports to accept an offer but is conditional on the offeror’s assent to additional or different terms.

Unilateral K Acceptance Sub-Rules

R32 - When ambiguous, the court should assume the offeror intended to allow the offeree to accept by making a return promise or completing the requested performance.

Option K Acceptance Sub-Rule (R45)

The offeror’s obligation under any R45 unilateral option K is conditional on completion of the requested act per the offer terms.

Does UCC §2-207 apply?

UCC §2-207 displaces the common law and deals with MA in a battle of the forms scenario.

UCC §2-207(1) Baseline Analysis

1. Is there an offer?

2. Is there definite, seasonable expression of acceptance with additional or different terms?

3. Is Form 2 expressly conditional?

What does “is it definite” mean in UCC §2-207?

A commitment to go forward with the deal on the same dickered terms as the offer.

What does “is it seasonable” mean in UCC §2-207?

within a reasonable time

What does “are there additional or different terms” mean in UCC §2-207?

The terms in both forms cannot match up.

What are “different terms” in UCC §2-207?

Terms that vary or contradict something already provided for in the offer.

What rule applies if you have “different terms” in UCC §2-207?

Knockout Rule - conflicting terms in both forms cancel each other out to be replaced by gap fillers.

What are “additional terms” in UCC §2-207?

Terms that add new material not already covered in the offer.

What analysis applies if you have “additional terms” in UCC §2-207?

§2-207 & Express Assent Analysis

Is there express assent?

The offeree must be aware of the additional or different terms and assent to them unambiguously. It cannot be presumed by silence, failure to object, nor by conduct.

What happens if you have express assent in UCC §2-207?

The additional or different term is added to the K.

What happens if there is not express assent in a counteroffer under UCC 2-207?

Move to (3).

What is the §2-207 Second Sentence Analysis?

(After Express Assent in Additional Terms Analysis)

1. Is this between merchants?

2. Are the additional terms expressly limited?

3. Do the additional terms result in a material alteration?

4. Is there a timely objection to the additional terms?

What does “is this between merchants” mean in UCC §2-207?

any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants

What happens if the additional terms are expressly limited in UCC §2-207?

Terms are not added to the K.

What rule applies if the additional terms result in a material alteration under UCC §2-207?

Surprise or Hardship Test -

If a term evokes a surprise with reference to reasonable expectations in light of common practice or usage, or

if a term imposes an unbargained for burden (financial or otherwise) on, or detracts significantly from, the reasonable expectations of the other party,

the terms are not added.

What happens if there is a timely objection to the additional terms under UCC §2-207?

The terms are not added to the K.

What does “Is Form 2 expressly conditional” mean in UCC §2-207?

Form 2 must be expressly conditional on the offeror’s assent to the additional or different terms.

What is sufficient language for the “expressly conditional” requirement under UCC §2-207?

Expressly conditional

This is a counteroffer

NOT Subject to

What do you get if you satisfy UCC §2-207?

Mutual Assent

Is there KSN?

KSN requires that a performance or return promise has been bargained for.

KSN Sub-Rules

Courts will not scrutinize KSN nor use it as a way to police the fairness of Ks.

Past services cannot be KSN because they were delivered before and made without reference to the promise.

Unless the moral duty is also a legal one, moral obligations or motives are not KSN.

KSN Sub-Sub-Rules

Mere inadequacy of KSN will not void a K.

R79 - If the requirement of KSN is met, there is no additional requirement.

R81 - The fact that what is bargained for does not itself induce the making of a promise does not prevent it from being KSN.

KSN Analysis

1. Is there a promise?

2. Bargain-Theory?

3. Condition on a Gift?

Promise Sub-Rule

Every offer contains a promise.

Is the performance or return promised bargained for?

A performance or return promise is bargained for if (1) it is sought by the PROMISOR (2) in exchange for HIS promise and (3) is given by the PROMISEE (4) in exchange for THAT promise.

Apply the bargain-theory for KSN for X and Y, where Y’s promise is disputed.

X will argue X’s promise was bargained for.

Here, X’s promise was sought by Y in exchange for Y’s promise and X gave his promise in exchange for Y’s promise.

Thus, X’s promise was bargained for.

Thus, there is KSN.

Is there a condition on a gift?

Benefit to the promisor test

What is the benefit to the promisor test?

If the happening of a condition does not benefit the promisor, it is a condition on a gift. If the happening of a condition does benefit the promisor, it is not a condition on a gift.

What do you get if there is a condition on a gift?

NO KSN

Is there reliance?

A promise which the promisor should reasonably expect to induct 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. (R90(1))

What is the promissory estoppel analysis?

1. Is there a promise?

2. Is there foreseeable reliance by the promisor?

3. Is there detrimental reliance by the promisee?

4. Does enforcement of the promise avoid injustice?

Is there foreseeable reliance by the promisor?

Foreseeable reliance requires that the promisor knew or should have known that the promisee would rely on the promise.

Is there detrimental reliance by the promisee?

Detrimental reliance requires (1) action/forbearance by the promisee (2) induced by the promise (3) which is reasonable.

Does enforcement of the promise avoid injustice?

Courts examine how clearly established the terms of the promise are and how much detrimental reliance the promisee incurred.

What is the most important part of promissory estoppel per the courts?

detrimental reliance by the promisee

What are the two types of restitution?

• Promissory restitution (R86)

• Non-promissory restitution (Watts)

What determines what type of restitution is triggered?

If there is a promise

What is the promissory restitution 86(1) analysis?

1. Was a benefit previously received by the promisor?

2. Was a subsequent promise made in recognition of a benefit?

3. Should the promise be binding to the extent necessary to avoid injustice?

What is the “avoids injustice” analysis for promissory restitution under R86(1)?

1. Was there a definite and substantial character of the benefit received?

2. Was there formality in making the promise?

3. Was there some part performance of the promise?

What is the “formality” analysis for promissory restitution under R86(1)?

1. Was the promise made immediately after the event or after some deliberation?

2. Is the promise oral or written?

3. Where was the promise made?

What do you do if the answer after R86(1) is “Yes”?

Move to R86(2)

What is the R86(2) analysis for promissory restitution?

1. Did the promisee confer the benefit as a gift?

2. Was the promisor unjustly enriched?

3. Is the value of the promise disproportionate to the benefit received?

What is the “confer the benefit as a gift” analysis for promissory restitution under R86(2)?

1. Were the services requested?

2. What is the relationship of the parties?

Was the benefit conferred as a gift?

A reasonable person under all the circumstances must believe that the benefit was conferred as a gift.

Why does it matter if the services were requested?

If the services were not requested, K law presumes they were volunteered.

Why does relationship of the parties matter?

Familial relationship more strongly suggests the benefit was conferred as a gift.

What is the “unjustly enriched” analysis for promissory restitution under R86(2)?

1. What was the burden in terms of time, expense, etc.?

2. Was there an existing K?

What is the rule for if the promisor was unjustly enriched for promissory restitution under R86(2)?

The promisor would be unjustly enriched if it were unjust to retain the benefit without compensating for it.

Why does it matter if the benefit was burdensome?

It means there is likely unjust enrichment.

Why does it matter if there was an existing K?

It means there is likely no unjust enrichment.

What do you get if the value of the promise is disproportionate to the benefit received for promissory restitution?

The promise is enforced limited to the value of the benefit received.

What do you get if the value of the promise is NOT disproportionate to the benefit received for promissory restitution?

The promise is enforced as-is.

What is the Watts (non-promissory restitution) claim analysis?

1. Did one party confer a benefit on the other party?

2. Is there appreciation or knowledge by that party of the benefit?

3. Would it be unjust for that party to retain the benefits without providing compensation?

What must you always pin down for a restitution claim?

If the benefit conferred is reducible to an economic value.

Did one party confer a benefit on the other party (Watts)?

The benefit conferred must be conferred unofficiously and must be justified by the circumstances.

Is there appreciation or knowledge by that party of the benefit (Watts)?

The person must have some knowledge that the benefits have been conferred on them based on the facts and circumstances.

Would it be unjust for that party to retain the benefits without providing compensation?

The benefit must have been conferred non-gratuitously.