Contracts

When does UCC Article 2 apply?

UCC Article 2 applies to any contract for the sale of moveable goods.

For mixed contracts, the UCC applies when the predominant purpose of the contract is for goods rather than services, ie. the services would be unnecessary without the goods (Den Mat).

The primary legal basis for enforcing a promise is _____

breach of contract (under the bargain theory)

A promise needs to be supported by ___ to be an enforceable ___.

A promise needs to be supported by consideration to be an enforceable contract.

What is consideration?

Consideration is “something” the promisee gives up as a bargain in exchange for the offeror’s promise.

For something to be bargained-for in exchange it must have produced reciprocal inducement: it induced the offeror to make the offer and the offer induced the offeree to provide consideration

What counts as “something”?

a legal detriment/legal benefit counts as “something.”

It is enough that something is promised, done, forborne, or suffered by the offeree, regardless of its value to the promisor (Hamer).

• The “something” may be implied from the writing as a whole if the contract’s terms make no business sense without it.

What doesn’t count as consideration?

1. Pre-existing duty (unless K modification): the offeree does what they’re already legally obligated to do.

2. Illusory promise: the terms of the return promise reserve a choice of alternative performance, ie. a promise that isn’t committal.

   • If one party can unilaterally change or end their promise/performance (Halliburton)

3. A gift/mere gratuity

4. Past consideration: a benefit that the promisor already received before the promise can not have been induced by the promise 

5. Conditional gift: a mere condition of receiving a gift is not consideration if it’s not what induced the gift. 

6. Nominal consideration: a performance/return promise that has a token value is not consideration.

What is the objective theory of interpretation?

Offer and acceptance are based on the objective theory of interpretation: whether there is offer and acceptance depends on the parties’ outward, observable words and actions rather than their unexpressed, internal, or subjective intentions

What is an offer?

An offer is conduct or words showing a willingness to enter a bargain, such that a reasonable person would understand they are being invited to agree, and that their agreement would finalize the deal.
Generally, an offer must be clear, definite, and explicit and would be understood as such by a reasonable person.

What do we consider when we’re trying to decide whether an offer is clear, definite, and explicit?

• Does it include price, dates, parties, method of acceptance?

• Does it have a limited group of recipients?

• Is it supported by prior communications/negotiations?

Is an ad an offer?

An ad generally doesn’t constitute an offer. It is simply an invitation to make offers, or an announcement of the price at which the seller is willing to receive offers.

Exceptions:

1. the ad is clear, definite, explicit, and leaves nothing open for negotiation.

2. Although addressed to a wide audience, a reward is intended to induce an offeree to perform, showing the offeror's willingness to commit.

Under the common law, what happens when a party backs out before acceptance?

Until acceptance, either party can back out, and there would not be an enforceable contract.

• The solution is option contracts: a mini contract supported by consideration to keep the contract open for a set period, preventing the offeror from revoking it during that time.

Under the UCC, what happens if an offer says it will stay open?

UCC 2-205 (firm offer rule)

• If it assures that it’ll stay open, a merchant’s signed written offer to buy or sell goods is not revocable for lack of consideration.

  • If it states a time, it stays open that time

  • If it doesn’t state a time, it stays open for a reasonable time.

  • Either way, never more than 3 months.

  • If the assurance appears on a form the offeree drafted, the offeror must sign that form as well. 

What is acceptance?

Under objective theory, acceptance is determined by whether a reasonable person would interpret one’s actions and words to manifest assent to enter into the exchange as offered.

• The reasonable person is context-dependent based on age, education, experience and other relevant circumstances (Acedo).

Generally, acceptance must be absolute, unequivocal, and unconditional.
The offeror can demand a specific method of acceptance. If the method is not specified, any reasonable manner of acceptance is enough.

What is the mirror image rule?

Under the common law, acceptance must be the mirror image of the offer in that it may not introduce additional terms and it must follow the required method of acceptance.

• Any addition the offeree makes to the contract is expressly conditioned on the offeror’s assent, thus constituting a counteroffer.

• Exceptions: 

  •  the “additions” are already implied by the offer (Panhandle).

  • The “additional” terms are innocuous and trivial (ie. not material to the terms)

  • The offeree makes it clear that the additions are merely suggestions/proposals

What is the last shot principle?

The last offer that is proposed is that one that is in the contract.

What is the general definition of promissory estoppel?

Promissory estoppel is an equitable basis of enforcement that lets one party “estop” the other party from using lack of consideration as a defense.

What are the elements of promissory estoppel?

1. A clear and definite promise

2. the promisor should reasonably expect the promise to induce detrimental reliance/forbearance by the promisee

3. actual reasonable detrimental reliance/forbearance by the promisee (the promisee must be worse off than before the promise, ie. they must have suffered a net loss).

4. injustice can only be avoided by enforcing the promise. The remedy is limited to what justice requires.

How do we know that a promise is clear and definite for the purpose of analyzing promissory estoppel?

Through the objective standard: We look at the surrounding circumstances, such as the parties’ history and what the promisor knew about the promisee’s decision.

• a vague promise can be clear and definite if it’s supported by the context.

• an ongoing relationship, a vague assurance given while the promisor knows a decision is pending = clear and definite.

(not usually a big issue unless there is very vague language)

What are three examples of the third element of promissory estoppel not being met?

1. if the promisee would have done the detrimental act anyway —> the promisee did not rely on the promise.

2. if the promisee didn’t lose anything and is just disappointed over a lost gift —> not actual detrimental reliance.

3. if the promisee could have avoided the loss/detriment but chose not to, or they relied on the promise after learning that it won’t be kept —> not reasonable reliance.

1. Quick disposal sentence for the fourth element of promissory estoppel.

2. What is the remedy?

3. What is one way to avoid injustice without enforcing the promise through promissory estoppel?

1. “If the court did not enforce the promise, injustice will result because of X harm.”

2. Remedy = reliance damages

3. if there’s another way for the promisee to avoid the harm (ex. tort claim), enforcing the promise through promissory estoppel is not the only way to avoid injustice.

What is the general definition of unjust enrichment? How are damages calculated?

The court may order restitution to P based on the reasonable value of D’s unjust enrichment.

The court calculates damages based on D’s unjust gain, not P’s loss.

What are the elements of unjust enrichment?

1. D received a benefit.

2. The benefit was at P’s expense.

3. It would be unjust for D to keep the benefit without paying for it. This usually rules out benefits given as gifts or forced on the defendant.

In regard to the first element of UE, if P provided professional services, how is the benefit ascertained?

The benefit is in the services, not whether they succeeded in bringing the intended outcome.

In regard to the third element of PE, fill in the blanks:

1. Professionals are presumed to expect ——-; those services are not ——-.

2. Even though D didn’t ask for it, if they were unconscious/in an emergency and a professional gave them an emergency service, _______.

3. What is one way to avoid injustice without resorting to UE?

4. If P enriched D ____ and in _____, while D ____ allowed them to continue, that is unjust.

1. professionals are presumed to expect payment for their services; those services are not a gift.

2. even though D didn’t ask for it, if they were unconscious/in an emergency and a professional gave them an emergency service, D is presumed to want it.

3. If P can sue for breach of contract or get the remedy some other way, court’s won’t apply an equitable remedy.

4. If P enriched D reasonably and in good faith, while D knowingly allowed them to continue, that is unjust.

What are the elements of moral obligation?

1. the other party already received a significant benefit from the promisor (past consideration)

   1. The past benefit must be material and substantial (Webb)

2. The promisor made a promise to compensate the plaintiff for the past benefit.

3. The promisor now refuses to perform the promise.

4. Restitution is necessary to prevent injustice.

What are the Webb factors of moral obligation?

1. Benefit was more substantial

   1. (saving promisor’s life)

2. Relationship between the parties created a status-based responsibility

   1. (there is a stronger duty between a boss and an employee rather than two strangers)

3. Promisor made the payments for years.

4. The promisee was very seriously injured

   1. (rendered disabled and permanently incapable of gainful employment).

What does the UCC have to say about the manner of acceptance?

UCC 2-206

Unless the language or circumstances of the offer clearly require otherwise:

• An offer invites acceptance by any reasonable manner and medium.

• An order/offer to buy goods for prompt shipment invites acceptance by either a prompt promise to ship or prompt/current shipment.

  • If the goods are nonconforming → acceptance and breach

  • If the goods are nonconforming and the seller seasonably notifies the buyer that the shipment is offered only as an accommodation → counteroffer.

According to the UCC, what happens when the acceptance contains additional or different terms?

UCC 2-207

1. Did the offeree express definite and seasonable acceptance in a reasonable time? (shipping or promising to ship)

2. Additional terms?

3. Is the offeree’s acceptance expressly conditioned on the offeror’s assent to the additional terms, ie. does the offeree make it clear they are unwilling to proceed without the new terms?

   1. Yes → the additional terms are a counteroffer UCC 2-207(1)

      1. If the offeror expressly accepted the terms → K is formed; it has the additional terms

      2. If the offeror did not expressly accept the terms but the parties continued as if there is a contract → K is formed; additional terms are knocked out (UCC 2-207(3)).

      3. If the offeror did not expressly accept the terms and the parties did not continue as if there is a contract → K is not formed

   2. No →  the contract is formed UCC 2-207(2)

      1. If a party is not a merchant → K does not have the additional terms

      2. If both parties are merchants → terms are part of contract unless 

         1. The offer was expressly limited to its terms

         2. The offeror told the offeree the don’t want the additional terms

         3. OR The additional terms materially alter the contract.

What are the defenses to enforcement?

1. Statute of frauds

   1. traditional law, UCC 2-201

2. Illegality

3. Public Policy

4. Incapacity

   1. Age incapacity

   2. mental incapacity

5. Civil Rights

6. Duress

7. Misrepresentation

   1. classic misrepresentation, omission

8. Fraud

9. Unconscionability

   1. Procedural unconscionability, substantive unconscionability

10. Mistake

    1. mutual mistake, unilateral mistake

11. Impracticability

12. Frustration of purpose

What is the statute of frauds in traditional law? What is the list?

Contracts that fall under the following list can only be enforced if they or some note or memorandum thereof are in writing, and they are signed by the party to be charged or by the party’s agent.

• The list is typically read very narrowly, ie. proving your K falls under SoF is a very high bar.

1. An agreement that by its terms can not possibly be performed within a year from the making thereof.

2. A special promise to answer for the debt, default, or miscarriage of another.

3. An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein.

4. An agreement that by its terms is not to be performed during the lifetime of the promisor.

What is the UCC statute of frauds?

Contracts for the sale of goods for $500 or more need to

1. be in writing and

2. signed by the party against whom enforcement is sought (or their authorized agent/broker). 

• The contract is enforceable only up to the quantity of goods specified.

  • (If you don’t specify the quantity of goods, the K is not enforceable under UCC 2-201.)