Contracts 1 Final

What are the simplified parts of a contract?

offer, acceptance and consideration

Objective theory of contracts

agreement between parties exists if a reasonable person could judge the acts/behaviors of the parties to objectively construe an agreement

Exceptions to the objective theory of contracts

social contracts or when one party knows/has reason to know of the intent of the other party and that party doesn’t know/haver reason to know of the first party’s differing intent

Bilateral contract

both parties bring something to the table/make a contract

• performance occurs more than once (repeated)

• promise inferred from beginning of performance

• can accept by starting performance but promise to complete (once started, must finish)

• majority of contracts are this type

Unilateral contract

• performance as acceptance only

• offer can be revoked at any time

  • offeror doesn’t need to pay until performance completed

  • includes rewards, prizes, offers to a group

• modern standard: offer becomes irrevocable once performance starts

Option contract

buying the ____ to accept for a period of time

• promise by offeror to not revoke AND consideration paid by offer to offeror for that promise

• NOTHING can terminate as long as it is in place

Bargain

agreement to exchange promises- exchange promise for performance or exchange performances

Express contract

assent manifested though words, oral or written

Implied in fact contract

assent manifested through conduct

offer

manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that he assented to that bargain

What are advertisements not?

Offers

• no guarantee of product

• too general

• can be withdrawn without notice

What terminates an offer?

• rejection

• revocation

• counteroffer

• lapse

• death or incapacity

Indefiniteness

when terms are uncertain; must be a process in place to decide on ___ issues; will render a contract void unless parties remove

Substantial/reasonable certainty standard (traditional rule to determine indefiniteness)

• agreement as to all essential terms

• all essential terms are objectively determinable

• agreements to agree not enforceable

• terms must be reasonably certain

  • reasonable if you can determine if there was a breach/what remedy

UCC 2-204- Indefiniteness

contract doesn’t fail under indefiniteness if:

• parties intended to make a contract

• reasonably certain basis for giving remedy

UCC 2-305: agreements to agree

if parties intended to do so, can conclude a contract without a settled price… in the event that it is reasonable at time of delivery:

• nothing is said as to price

• price is left to be agreed by parties and they fail to agree OR

• price is to be fixed in terms of agreed market value or other standard

Material terms in real estate contract

• price

• lease/duration

• interest being conveyed

• grantor/grantee or lessor/lessee

• payment terms

• description of property

Material terms in service contract

• service/performance

• timing

• price

• names of parties

Notification of acceptance

required if:

• offer requires it or

• acceptance by promise

• without it, acceptance is ineffective unless not required or

• acceptance by performance and offeree has reason to know offeror has no adequate means of learning of performance

Manner of acceptance (rest. 30)

• affirmative answer in words or by performance

• can be accepted in any reasonable manner and by reasonable medium

Manner of acceptance (UCC 2-206)

• can be accepted in any reasonable manner and by any reasonable means necessary

• shipping is manner of acceptance

  • wrong items w/ no notice → breach

  • offer acceptance of different items → new K

Silence as acceptance (rest. 69)

not acceptance unless:

• offer says it is an acceptable form of acceptance

• offeree intended to accept through ___

• prior dealings of parties make it reasonable for offeree to notify offeror of intent to not accept

Revocation

manifestation of intent that the offeror is no longer willing to go forward with contract; must happen before acceptance

Exceptions to revocation

• consideration

• written promise to keep open by merchant

• partial performance in response to offer that seeks performance only

• written promise to keep open that recites consideration

• offeree’s reliance on offer

UCC 2-205: Firm Offers

• an offer to buy or sell goods

• by a merchant

• offer must be written and signed

• must say offer will be held open in writing

• not revocable for time stated or reasonable time (~3 months)

  • can be determined based on circumstances, purposes, notorious

• no need to state consideration

• no requirement of fair exchange

Rejection

terminates offer unless option K or offeror indicates otherwise

• counteroffer is a _____ of the original offer

• inquiry as to different terms does not terminate

• Offerees ___, offerors _____

Mirror image rule

terms of acceptance must mirror the offer

• if acceptance doesn’t mirror → counteroffer

• performance after counter accepts the counter

  • last form wins = last shot principle

UCC 2-207 (general)

• acceptance may contain terms that are additional to or different from those in offer

• acceptance is definite and seasonable (timely)

  • unless acceptance is expressly made conditional on assent to additional or different terms (conditional acceptance)(still a K if not)

UCC 2-207 (test)

• Definite and seasonable?

  • Expressly conditioned on assent?

• additional or differential?

  • additional- knockout rule

  • differential- conflict, so look at if terms materially alter

• proposal or otherwise?

  • otherwise → is either party a merchant?

    • no- must expressly agree bc proposals require it

    • yes- merchants excluded if offer expressly limits acceptance to terms of offer or if terms materially alter K (surprise or hardship)

UCC 1-103

• course of performance

  • K involved repeated performance AND

  • other party, w/ knowledge and opportunity to object, accepts conduct w/o objection

• course of dealing- conduct in previous transactions is fairly to be regarded as establishing common basis of understanding

• usage of trade-practice of having such regularity in the trade as to justify expectation it will be observed in this transaction

Knockout rule

neither offer nor acceptance applies because neither condition agrees (majority rule)

Offeror controls rule

With differing terms, offeror is the master of the offer, acceptance is deemed to have accepted all terms of the offer

types of contracts under 2-207

• K created by writings- offer and unconditional acceptance

  • knockout terms in both offer and acceptance- offeror controls

  • offeror’s terms will remain if offeree’s terms materially alter

• K created by performance by both parties- offer and acceptance expressly conditioned on assent

  • only same terms in buyer/seller forms are part of K

• Oral K that is confirmed by writings from one or both parties

  • different terms knockout

  • term in writing different from oral agreement = oral K controls

Consideration (general)

performance or return promise must be bargained for to make a K

• bargained if:

  • sought by promisor in exchange for promise AND

  • given by promise in exchange for that promise

    • legal detriment

    • detriment induces promise

    • promise induced by detriment

Consideration (forumla)

• promise must incur legal detriment

  • promisee not legally obligated to do or refrains from doing something = detriment

• detriment must induce the promise

• promise must incur the detriment

  • promisor and promisee exchange promise for detriment

What is not considered consideration?

love, affection, unoriginal ideas, gifts

Nominal consideration

courts look at this to decide if there was enough consideration

• nominal = pretense of a bargain; so little value that it cannot be considered as consideration (exception: option K)

forbearance

promise not to pursue a claim

Consideration formula w/ examples

• legal detriment

• sufficiency v. adequacy

• nominal consideration

• forbearance

  • if claim is valid = consideration

  • consideration if good faith belief that it is or may be valid and some objective basis for that belief

• detriment to induce the promise

  • nominal consideration

• promise to induce the detriment

  • past consideration does not induce the promise

Illusory promises

promisor not bound to do or refrain from doing anything (they will not incur legal detriment)

• not consideration because there is no commitment and promisor retains right to change their mind

• a condition doesn’t make a promise ____

• right to cancel not ___ if there is a promise to give notice if they decide to cancel (since seller’s options would be restricted, there is detriment aka there is consideration)

UCC 2-306: Output, Requirements and Exclusive Dealings

• actual output K- not illusory b/c based on output of parties involved (seller has to produce in good faith)

• actual needs/requirements K- not illusory b/c amount is determined by what buyer needs in good faith and is not grossly disproportionate to protect the seller

• offer to sell by company and only becomes a K when order is placed- illusory

past consideration

detriment occurred before promise so promise could not have incurred detriment

• not legal sufficient alone to support K

• moral obligation does not equal consideration

Exceptions to past consideration

• debt barred by statute of limitations but debtor agrees to pay (rest. 82)

• debt discharged in bankruptcy and debtor agrees to pay (but not legal obligated to do so) (rest. 83)

• contractual agreement of minor that when they reach adulthood to perform & mentions promise again once in adulthood (rest. 85)

• promise made in recognition of material benefit previously received binding to extent necessary to prevent injustice (rest. 86)

Pre-existing duty rule

performance of legal duty owed to promisor which is neither doubtful nor subject to honest dispute is not consideration (rest. 73)

Modifications

require consideration; if both parts provided consideration, used to protect both parties from coercion

Exceptions to modification

• consideration

• where there are unanticipated circumstances to cause K to be more difficult to perform and __ seems to be fair OR

• when fairness requires enforcement in view of material change of position in reliance on promise

UCC 2-209- agreements w/ modifications

• need no consideration to be binding

• modification must be made in good faith

settlement of claims

• determine validity of settlement under consideration rules

  • undisputed → performance must be different than what is owed and more than nominal

  • disputed

    • liquidated (amount not set or due) OR

    • subject to good faith/honest dispute

• THEN, if supported by consideration and settlement is not complete, determine if:

  • was settlement an accord or substituted K?

    • accord- agreement for future discharge of an existing claim = puts claim on hold until accord is completed

    • substituted K- immediately discharges OG claim and new agreement substituted in its place

Reliance (rest. 90)

• promise

• foreseeability- promisor should reasonably expect to induce action or forbearance

• ___ - induces such action or forbearance

• binding to extent injustice avoided only by enforcement

Reliance under Option K (rest. 87(2))

• offer

• foreseeability- offeror should reasonably expect to induce action or forbearance of substantial character

• induces such action or forbearance

• __ to extent necessary to avoid injustice

Restatement 89 (c)

reliance can be basis to enforce instead of consideration

Promissory Estoppel

states that a party may recover if another party breaks their promise and the recovering party relied on the agreement

revocation is only enforceable

only enforceable on receipt by the offeree

acceptance is only enforceable

enforceable upon dispatch (so long as it is sent in a timely manner)