Contracts

UCC governs what Ks?

Sales of goods

What law will govern for hybrid Ks (services and goods)?

It depends on the predominant nature of the transaction

Express K

Oral and written expressions of the agreement

Implied in Fact K

K formed by conduct rather than words

Implied in Law K

K that arises when one party bestows benefit on another and it would be unjust not to pay the reasonable value of the benefit (emergency surgery)

Elements of a K

1) offer
2) acceptance
3) consideration

Offer Elements

1) outward manifestation
2) signal that acceptance will conclude the deal

American Rule for Commercial Advertisements

Ads, catalogs, and price lists are invitations for offers, except when the language identifies who gets a limit supply of goods (aka first 10 customers)

Reward Offers

Reward offers are offers because they are communications that promise $ in exchange for performance of specific tasks

Ways to Terminate an Offer

1) lapse (can be stated time limit or reasonable time)
2) death or incapacity
3) revocation
4) rejection

Direct Revocation

Offeror directly communicates to offeree an intent to withdraw the offer

Indirect Revocation Elements

1) offeror takes action that is inconsistent with the intent to go through with the offer
2) offeree learns of such action from reliable source

American Rule for Revoking Offer

A offeror can revoke even if they gave a specific time to accept

Option K Elements

1) offer
2) separate promise to keep that offer open
3) valid mechanism for enforcing subsidiary promise (consideration)

Reliance (offer)

A court will hold offers open when an offeree has detrimentally relied on them (e.g., contractor relies on subcontractor’s bid in bidding a project)

Firm Offer under UCC

Irrevocable offer by merchant to buy or sell goods without consideration. Requirements:
1) offer made by a merchant
2) in a writing signed by the merchant
3) expressly stating it will be held open (cannot be held open longer than 3 months)

Outright Rejection

Offeree rejects offeror’s offer

Rejection via counteroffer

counteroffer = rejection + new offer (but mere inquiry is not a counteroffer)

Rejection via nonconforming acceptance

Common Law rule, acceptance must mirror the terms and any variation is a counteroffer (Mirror Image Rule)

Bilateral K

Offer seeking acceptance by a promise. Once promises are exchanged, parties are bound.

Unilateral K

Offer seeking performance in return. Offeror not bound until offeree performs, and offeree is never bound

Acceptance (common law)

Acceptance must mirror terms of offer and be communicated to the offeror. Exception: for unilateral Ks acceptance is effective only by completing performance, no communication is required unless offer provides otherwise

Common Law Mailbox Rule

Acceptance by mail is effective upon dispatch if properly posted

Common Law Mailbox Rule for Option Ks

Mailbox Rule not applicable and acceptance is only effective upon receipt

UCC Acceptance by Seller’s Shipment

Seller can accept buyer’s offer to purchase goods for prompt or current shipment in three ways:
1) promise to ship goods
2) shipping conforming goods
3) shipping non-conforming goods (unless seller sends the shipment as an accommodation, then counteroffer)

UCC Battle of the Forms

An offeree’s nonconforming acceptance or confirmation will operate as an effective acceptance of the offer, thus forming a contract

Effect of Additional Terms Between Merchants

Between merchants, additional terms in offeree’s acceptance or confirmation become part of the K unless:
1) the offer expressly limits acceptance to its own terms
2) if offeror objects to the additional terms within a reasonable time
3) if the additional terms would materially alter the K

Effect of Different Terms between Merchants

Different terms in two wirings dealing with the same topic knock each other out, and the default UCC rule will apply

Conditional Acceptance

Conditional acceptance is considered a counteroffer and no K is former until the offeror expressly assents to the additional terms

K formed by Conduct

The UCC provides that the parties’ conduct in recognizing the existence of a K is sufficient to establish a K even though their writings do not expressly establish a K

Consideration

A promise in unenforceable unless it is supported by consideration (a bargained-for-exchange)

Benefit/Detriment Test

Whether there is a benefit to the promisor and/or a detriment to the promisee

Inadequacy of Consideration

Courts will not evaluate the equivalence or fairness of the exchange

Illusory Promises

Promise of performance to the unlimited discretion of the promising party does not constitute consideration (e.g., if you paint my portrait I will pay you $1,000 if I decide I want it)

Gratuitous Promises

Promises to make gifts are generally unenforceable due to insufficient consideration unless there has already been a transfer, then it is legally binding

Past or Moral Consideration

A promise in exchange for something already given or performed is not supported by consideration except:
1) a written promise to pay a debt barred by limitations
2) a written promise to pay a debt discharged by bankruptcy

Promissory Estoppel Definition

Promisee that reasonably relies to his detriment on a gratuitous promise may be able to enforce that promise without consideration

Promissory Estoppel Elements

1) a promise
2) foreseeable reliance
3) actual reliance
4) injustice without enforcement

Oral Contracts

Oral and written contracts are equally enforceable unless the contract is subject to the Statute of Frauds

Statute of Frauds Categories of Contracts

MYLEGS
Marriage
longer than one Year
Land sales
Guarantees or suretyships
Sale of goods worth more than $500

SoF - when is the one year time measured from?

Measured from date K is made, not date performance begins

How to satisfy the Statute of Frauds

Writing + signed. Writing:
1) identify parties to the transaction
2) nature and subject matter of the K
3) essential terms of the agreement, such as price and date of performance
Signature: any symbol with intention to authenticate the writing

Alternative way to satisfy Statute of Frauds for Land

Need 2 of 3:
1) payment for all or part of purchase price
2) taking possession of land
3) making substantial improvements to property

Alternative way to satisfy Statute of Frauds for one year Ks

If fully performed, enforceable despite SOF

How to satisfy UCC Statute of Frauds

1) signed writing
2) Merchant’s confirmation (confirmation letter when both parties are merchants, need quantity and no objection within 10 days)
3) Judicial admission
4) Partial performance
5) Specially manufactured goods (custom goods if detrimental reliance and no ability to resell)

UCC Implied Warranties

1) warranty of title
2) warranty of merchantability
3) warranty of fitness for a particular purpose

UCC Warranty of Title

Implied warranty of good title to goods, rightful transfer of goods, and no liens or security interests are attached to the goods. Only able to be excluded by specific language or circumstances which give buyer reason to suspect seller does not claim unencumbered title

UCC Warranty of Merchantability

Goods fit for ordinary purpose for which those goods would be used only if seller is a merchant. Can only be excused if “merchantability” is used or other language that would be reasonably understood by a buyer to exclude the warranty

Warranty of Fitness for a Particular Purpose

Goods being sold are fit for a particular purpose the buyer intends to use them for when the seller has reason to know: 1) the particular purpose for which goods are required and 2) the buyer is relying on seller’s expertise to select reasonable goods

UCC Express Warranties

Can expressly warrant that goods will conform to some standard arises whenever a seller expressly makes them as part of the basis of the bargain

UCC Missing Price Term

A reasonable price at the time established by the K for delivery

UCC Missing Time Term

Reasonable Time

UCC Missing Place of Delivery Term

Seller’s place of business (FOB seller)

Common Law Missing Price Term for Service Contracts

Reasonable value for services rendered

Obligation of Good Faith and Fair Dealing

Honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. Good faith obligation when a K leaves critical terms, such as price, satisfaction, or quantity open to the determination of one party.

UCC Open Quantity Terms

Party entitled to determine the particular quantity of goods to be sold (i.e., party demanding delivery or sale) must do so in good faith

Objective v. Subjective Meaning of Terms

Objective meaning trumps subjective meaning unless one party has reason to know of another party’s subjective understanding

Contra Proferentem

If ambiguous terms are included in the K, then in case of doubt it is construed against the drafter

Use of Extrinsic Evidence

Extrinsic evidence can be used to fill gaps and resolve ambiguities in Ks, but cannot contradict express terms of the K

Parol Evidence Rule

Governs the admissibility of oral and documentary evidence of negotiations and other communications between the parties that took place prior to or contemporaneously with the execution of the K

Partial Integration

Terms within a K are intended as final expression of those specific terms

Complete Integraation

K Intended to represent a complete and exclusive statement of all the terms

How to Determine Partial or Complete Integration

Merger Clause - writing contains complete/entire agreement or other words to that effect

PER - admissibility to explain or interpret terms of written contracts

Parol evidence is always admissible for this purpose

PER - admissibility to supplement terms of written contract

Admissible unless the K is completely integrated (i.e., has merger clause)

PER - admissibility to contradict terms of written contract

Parol evidence is not admissible for this purpose if K is fully integrated

Instances when PER will not apply (so extrinsic evidence is permitted)

1) subsequent agreements
2) collateral agreements
3) attacks on the validity of the written agreement

Risk of Loss - Carrier and Shipment K

ROL passes to buyer when goods are delivered to carrier (FOB seller)

Risk of Loss - Carrier and Destination K

ROL passes to buyer when goods are tendered at destination specified in the contract (FOB buyer)

Risk of Loss - non-carrier and seller if not a merchant

ROL transfers to buyer as soon as goods are made available

Risk of Loss - non-carrier and seller is a merchant

ROL transfers to buyer once goods are physically in the buyer’s possession

Common Law Preexisting Duty Rule

A promise to increase compensation for duties already owed is unenforceable because there is no consideration for the modification

Unilateral Mistake

One party’s mistake about present material facts is not excused unless the other party knew or had reason to know of the party’s mistake

Mutual Mistake

Voidable by a disadvantaged party when:
1) mistake assumption related to material facts
2) mistake is made by both parties
3) disadvantaged party did not bear risk of mistake under the K

Impossibility

Both parties excused if performance has been rendered impossible by events occurring after the K has been formed

Impracticality (common law)

Courts are reluctant to excuse performance for any reason other than impossibility. However, impracticality may excuse performance if:
1) contingency causing impracticability was unforeseen and
2) increased cost/burden of performance would be far beyond what either party anticipated

Impracticability (UCC)

Impracticability can be found typically involves shortages caused by war or embargo

Frustration of Purpose Definition

Where a contingency occurs that dramatically reduces the value of performance to the receiving party

Frustration of Purpose Elements

1) principal purpose in entering K is substantially frustrated
2) frustration was substantial in nature
3) non-occurrence of the event that caused frustration was a basic assumption of the K

Rescission

Permissible where both parties to a K have remaining performance due. Consideration is provided by each party’s discharge of the other’s duties.

Accord and Satisfaction

Parties may make an accord when one party has already performed. The obligee promises to accept substituted performance in satisfaction of the obligor’s existing duty but consideration is required.

Anticipatory Repudiation

A party may anticipate repudiation when
1) other party makes a definitive statement that it will breach or
2) the other party commits a voluntary act that renders the party unable to perform its contractual obligations

Failure to give Adequate Assurance

The failure to respond with reasonable assurances will constitute repudiation (30 days under UCC, reasonable time for common law)

Failure of an Express Condition (common law)

Will discharge the party’s obligation to perform

Failure of an Implied Condition (common law)

Depends on whether it is a material breach (treated as express condition) or if the party has substantially performed

Failure of a Condition (UCC)

The seller is in breach if the goods fail in any respect to conform to the K. Seller then can:
1) reject the goods
2) accept the goods
3) accept part and reject part

Expectation Damages

Aggrieved party will be entitled to the amount that will restore him to the position he would have been in had the K been fully performed.

Reliance Damages

Designed to restore aggrieved party to the position they were in prior to the K

Restitution

The value of benefits conferred upon the other party in the transaction

Third Party Rights to Sue

Parties to a K can modify or rescind a third party beneficiaries provision without consent unless their right under the K has vested by:
1) bringing suit on the matter
2) changing position in justifiable reliance on K
3) manifests assent to the K at the request of the promisor or promisee

Assignment of Rights

All rights under a K are generally assignable, unless
1) assignment would materially change the duties of other parties
2) when the obligor has personal interest in rendering performance to the obligee or third party
3) when it would violate state law or public policy
4) when assignment is prohibited by the K

Delegation of Duties

Occurs when a third party agrees to satisfy a performance obligation owed by one of the parties of the K. This does not relieve the delegator (original party) from his obligations under the K. Generally all contractual duties are delegable except for personal services or when the K prohibits delegation.

Bilateral Executory Accord

An agreement that an existing claim will be discharged in the future by the rendition of a substituted performance (becomes an accord and satisfaction once satisfied)

Under the UCC, when are damages measured for nondelivery or repudiation by the seller?

At the time the buyer learned of the breach

What is created when a general contractor makes a bid based on a subcontractors bid?

Option contract