MBE Contracts (with Florida Distinctions)

What are the two sources of contract law?

Article 2 of the Uniform Commercial Code (UCC) and state common law

What does the UCC govern?

The UCC governs "sale of goods"

What is considered a sale?

any transaction in which the seller transfers title of goods to the buyer

What are considered goods?

any "movable item"

How may contracts for the sale of goods be made?

may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract

Hybrid Cases

Involve both the sale of goods and a services contract

Majority Rule - To determine predominant purpose of a contract, the following factors are used

1) the language of the contract

2) the nature of the supplier's business: AND

3) the relative values of the good versus the service

Minority Rule - Partition the contract - apply UCC to the sale of the goods portion of the contract , and then apply common law to the services portion of the contract

Sale of Goods with Incidental Services

A sale of goods with services being incidentally involved, such as the sale and installation of a water heater, would be governed by the UCC

Services Contracts with Incidental Goods

A rendition of services with goods incidentally involved, such as contract with an artist to paint a portrait, would be governed by common law.

What does common law govern?

Contracts that do not involve the sale of goods

1) service contracts

2) real property

3) assignment of legal claims

Express Contracts obligations

found where the parties make oral or written "expressions" of their commitments

Implied-In_fact contractual obligations

consensual agreement that fail to express the agreement of the parties in its entirety

implied contractual obligations (quasi-contractual obligations)

arises where there is an equitable imposition of a would-be contract. it is an equitable remedy available to prevent unjust enrichment, and arises in situation where one party bestows a benefit on the other

Quantum Meruit

"As much as he deserves" - the damages awarded in a quasi-contract case

Signed Writing Requirements

Email and fax are sufficient to satisfy the writing requirements of contract law

What is an offer?

The manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it

What can a manifestation be?

It can be oral, written, or made via conduct. Inward thoughts or subjective intentions are irrelevant

What are some cases where multiple offeree issues arise?

Remember C.A.R

C = Commercial Advertisements - where possible offers occur in catalogs, price lists, and circulars

A = Auctions - where the item is sold to the highest bidder

R = Reward Offers - which are general offers that name a price for a service but do not specify an offeree

Commercial Advertisements

Under the American advertisements addressed to multiple recipients are generally treated as invitations for offers rather than offers

Exception: "first-come, fist-served" or "first 10 customers only" Language constitutes an offer

Power of Acceptance

An offer creates the power of acceptance in an eligible offeree - The party to whom the offer was made has the power to bind the offeror to the contract

What is acceptance?

The assent or agreement by the person to whom the offer was made that the offer is accepted.

What are the ways to terminate acceptance?

1) Lapse of time

2) Death or incapacity of either party

3) Revocations by Offeror

4) Rejection by the Offeree

Lapse of time

A stated time period after which an offer terminates. If no time is stated, an offer terminates after a reasonable time.

Face-to-Face Conversation Rule

An offer made in a face-to-face conversation generally lapses at the end of the conversation

Death or Incapacity of Either Party

An offer will terminate upon the death or incapacity of either party, the offeror or offeree.

However, death of a party's representative (agent) will not terminate the offer.

Revocation by Offeror

Under the rule of free revocability in America contract law, the offeror is free to revoke an outstanding offer, terminating the offeree's power of acceptance, at any tie and for any reason, so long as the revocation

1) occurs prior to acceptance, and

2) is effectively communicated

What are the wats of communicating a revocation?

1) Direct Revocation - where the offeror communicates the revocation directly with the offeree; AND

2) Indirect revocation - where the offeree learns of the offeror's intention to abandon the deal from a third-party source

Two conditions must be met

1) the offeror has taken definite action inconsistent with the intention to enter the proposed contract

2) the offeree acquires reliable information of the offeror's inconsistent actions

Revocation of an Offer Made to Multiple Offerees

Called the functional equivalents rule - where an offer is made by advertisement in a newspaper or other general notification to the public or some segment thereof, the power of acceptance is terminated when the notice of revocation is communicated by advertisement or other general notification equivalent to the used for the offer and no better means of notification is reasonable available

Rejection by the Offeree

1. Express Rejection

2. Counteroffer

3. Nonconforming Acceptance

Counter Offer

Any response to an offer (other than outright rejection) which presents alternative terms for a contract.

Is both a rejection and an offer

Mere Inquiry Rule

An offeree may test the waters by making a mere "inquiry" about the offeror's willingness to negotiate without creating a counteroffer and terminating the power of acceptance

Mirror Image Rule

A common law rule that requires that the terms of the offeree's acceptance adhere exactly to the terms of the offeror's offer for a valid contract to be formed.

Exception - UCC - When dealing with merchants - an acceptance that does not match the terms of the offer is still considered effective for formation of a contract so long as the material terms of the original offer are agreed upon.

Also applies to the shipment of nonconforming goods and the battle of the forums

Option Contracts

Promise to hold an offer open for a specified period of time in return of consideration

1) An Offer

2) A subsidiary promise to keep the offer open

3) Supported by separate consideration

Option Contracts - Promissory Estoppel

Courts will sometimes enforce a subsidiary promise to keep an offer open where the offeree has foreseeably and reasonably relied on the option, and injustice can only be avoided by enforcing the promise.

Special Rule for Construction Contracts

The majority rule is that where a general contractor uses a particular subcontractor's bid to formulate his own, an implied option contract is created via promissory estoppel

Prevents the subcontractor from revoking the bid despite the fact that the subcontractor hasn't promised to keep the bid and the general contractor hasn't provided any consideration to keep the bid open

The UCC "Firm Offer" Rule

An offer cannot be revoked for up to 3 months if (1) it is an offer to buy or sell goods; (2) is a signed, written promise to keep the offer open; and (3) the offeror is a merchant.

If no time period is stated, it may be supplied by the courts.

No consideration is needed

What is a merchant?

One who "deals in goods of the kind" that are involved.

If a person does not regularly "deal" in a particular type of goods, he is nevertheless a merchant if he "by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction." (ex. Building contractor).

One is also a merchant if he or she employs a merchant to act in his or her behalf in a transaction. Essentially if you have a degree of commercial expertise not found in a member of the general public you're a merchant

An offer can require acceptance by...?

either a promise or a performance

Bilateral Contract

An offer seeking a promissory acceptance it an offer to enter into a bilateral contract.

A promise for a promise

Unilateral Contract

An offer seeking performance in return is an offer to enter into a unilateral contract.

A promise in exchange for an act

1) an offeror is bound only when the offeree completes performance in accordance with the terms of the offer, AND

2) the offeree is never bound to perform because he has never promised to perform

Ex. Reward Offers and real estate brokerage agreements

Revocation of the Offer in a Unilateral Contract

the modern majority rules is that once the offeree begins performance, an option contracts is created and the offeror may not revoke

What is the Exception for Revocation of Unilateral Contracts?

An offeror may revoke under the modern rule where the offeree is engaged in "mere preparations" to perform rather than the beginning of performance itself.

What does the mailbox rule not apply to?

Unilateral Contracts

What are the two general general requirements to constitute effective acceptance?

1) under the mirror image rule, the acceptance must mirror the terms of the offer

2) the acceptance must be communicated to the offeror

Communicating Acceptance

1) Stipulation - if the offer stipulated a particular means of communicating acceptance, the the offeree must utilize those means in order to make an effective acceptance

2) Reasonable Means of Transmission - if the offer is silent as to the means of communication, then the offeree is free to use any reasonable means of transmission

What are reasonable means or transmission of acceptance?

1) the means used by the offeror

2) the means customarily used in similar transactions

3) a means on communication that is equivalent in expeditiousness and reliability to the means used by the offeror

When must the requirement of acceptance be communicated?

1) Acceptance by silence

2) Acceptance by performance

3) Acceptance by mail or other correspondence

Acceptance by Silence

Generally, silence (or inaction) cannot constitute acceptance - even when the offeror indicates that silence or inaction will be taken as acceptance.

Exceptions:

1) where the offeree takes the benefit of the offeror's services with a resonable opportunity to reject them and with reason to know the offeror's intention

2) where the offeror has given the offeree reason to understand that acceptance may be communicated by silence, in which case the offeree's silence will operate as acceptance if he intends as such

3) where, because of previous dealings or othre circumstances, it is reasonable that the offeree should notify the offeror if he does not intend to accept, in which case his silence will operate as acceptance

Acceptance by Performance

The make of an offer to enter a unilateral contract is free to make communication of acceptane a part of the required performance

The Mail Box Rule

An acceptance is valid when dispatched, as long as the communication is correctly addressed

The offeror may not revoke the offer once acceptance has been dispatched, even if lost in transit

When does the mailbox rule not apply?

Two situations under the mailbox rule involve an offeree who dispatches two responses to an offer: the first purporting to reject the offer, and the second purporting to accept it. In these cases, the mailbox rule does not apply.

1) if the acceptance reaches the offeror first, then the acceptance is effective upon receipt and the parties are bound by the contract

2) if the rejections reaches the offeror first, then the offeree's power of acceptance is terminated and the subsequently arriving acceptance becomes a counteroffer, which the original offeror is free to accept or reject

Acceptance under the UCC

Unless the contract language or circumstances unambiguously indicate otherwise, acceptance, may be made in any manner and by any medium reasonable under the circumstances

A seller's shipment of nonconforming goods with a notice of accommodation _______________.

constitutes acceptance but also constitutes a counteroffer which the buyer is free to accept

Seller's shipment of conforming

Under the UCC, a seller can accept a buyer's offer to purchase goods for prompt or current shipment in one of three ways

1) a promise to ship goods in conformity with the terms of the offer, such as an acknowledgment of order from sent to the buyer

2 )a prompt or current shipment of the goods in conformity with the terms of the offer; OR

3) the seller can also accept the buyer's offer by shipping nonconforming goods.

Seller's shipment of nonconforming goods without a notice of accommodation...

constitutes acceptance of the buyer's offer under UCC, but also constitutes a breach of the resulting contract under the perfect tender rule.

The Battle of the Forms

UCC rule stating that if both parties are merchants, then additional terms contained in the acceptance may become part of the sales contract if certain requirements are met

Conditional Acceptance (UCC)

Acceptance with differing or additional terms is still UCC acceptance, unless expressly conditional on different/additional terms.

Dickered v. Boilerplate Terms

Typically, the forms will be in agreement as to to the dickered terms - those specific to the transaction - but may vary with respect to the boilerplate terms - standard terms that appear on the parties' respective forms regarding issues such as arbitration and warranties

Transactions involving a Consumer

When at least one party to the transaction is not a merchant, the additional or different terms are construed as proposals for addition to the contract. Thus, they are not a part of the contract unless the offeror expressly agrees to the additional terms

Transactions Where Both Parties Are Merchants

in a transaction between merchants, there is a distinction between additional term and different terms.

Additional terms becomes part of the contract, with a few exceptions

Different terms employ the knockout rule and omit both the offeror's original provision and the offeree's differing from the resulting contract

What are additional terms?

a nonconforming acceptance contains additional terms when its provisions addresses an issue or topic not addressed in the original offer

What are different terms?

a nonconforming acceptance contains different terms when the offers says one thing about a particular issue and the would-be acceptance says something else

When do additional terms not become part of the contract?

1) the offer expressly limits acceptance to the terms of the offer

2) the offeror objects to the additional terms within a reasonable time after receiving notice of them

3) the additional terms would materially alter the contract

Materially Altering Terms

those that would result in surprise or hardship if incorporated without the express awareness of the other party

The different between battle of the forms for merchants is

real time via face-to-face or telephonic communications later followed up with written confirmation. The Different terms in this case are not knocked out but are treated as mere proposals. However, if both merchants send written confirmation with different terms the different terms are knocked out.

Conditional Acceptance

if the acceptance is made expressly conditional on assent to the additional or different terms, the nonconforming acceptance will not be effective to form a contact

Majority Rule - a would-be acceptance which tracks the language of the exception as set out in Section 2-207 constitutes a conditional acceptance of the language in question is clear and conspicuous

Minority Rule - a would-be acceptance constitutes a conditional acceptance only if it clearly communication that the offeree is unwilling to do business with the offeror unless and until the offeror agrees to the offeree's terms

Contracts Formed by Conduct

The UCC also provides that the parties' conduct in recognizing the existence of a contract is sufficient to establish, even though their writing do no otherwise establish a contract

A promise is unenforceable unless it is supported by _____.

Consideration

Bargain/ Bargain for Exchange

the exchange of a promise for consideration

Gratuitous Promise

A promise not supported by valuable consideration and, therefore, not binding.

What constitutes Insufficient Consideration

1. illusory promise

2. gratuitous promise

3. promise of past consideration

4. nominal promise

5. promise of pre existing duty

Defenses to gratuitous promises

1) the promise was not supported by consideration

2) there is a want of consideration, or consideration is lacking

3) there is legally insufficient consideration

Failure of Consideration

A claim that the party has not performed in accordance with his promise

Preexisting Duty Rule

Florida Distinction

A promisor cannot provide consideration where that consideration is a duty the promisor is already obligated to perform.

In Florida, consideration is found if the preexisting duty is for the benefit of a new intended party beneficiary (typical in construction contracts)

Florida also permits public servants to accept rewards for services performed in apprehending any criminal

Bargain For Exchange

Florida Distinction

Unless there is a "legal detriment" on both sides of an exchange, there is no contractual relationship

In Florida, a contractual relationship is recognized as as long as there is either a benefit or a detriment to at least one party

Benefit-Detriment Approach

A benefit received by the promisor or detriment incurred by the promisee

Hybrid Consideration Approach

A promise in exchange of a detriment

Bargain-for-Exchange

A promise or performance is provided from each side in exchange for a return promise or performance provided by the other side.

Legal Detriment

Whether the promisee is doing something he has a legal right not to do or is forgoing some activity in which he had a legal right to engage

Insufficient Consideration v Inadequate Consideration

insufficient consideration is an increasingly archaic way of saying that there was not consideration for a particular promise

In contract, a claim of inadequate consideration assumes that there was consideration but argues that it is too small in comparison with the value of the promise for which is is exchanged

Illusory Promise

A promise to perform that leaves performance to the discretion of the promising party

Gratuitous Transfers

Delivery of the would-be gift combined with a present intention to bestow the gift constitutes a legally binding gratuitous transfer

Recitals of Consideration

Many written contracts contain provisions reciting consideration has been supplied

Consideration is not satisfied by a false recital

Exception: some courts will enforce option contracts on the basis of a signed writing with a false recital

A condition on a gratuitous promise does not ____.

satisfy the requirement of consideration.

What is a condition?

a condition is something a promisee must do to avail himself of the promisor's benevolence

Distinguishing consideration from a condition on a gratuitous promise (three factors)

1) the language of the parties

2) commercial versus charitable or familial context

3) the benefit to the promisor

Forbearance of a Claim or Defense

Valid consideration exists when a party agrees to forbear a claim or defense in exchange for a promise or performance by the other party. This is so even if the claim or defense proves to be invalid

When is forbearance of a invalid claim/defense consideration?

1) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law; OR

2) the forbearing party believes that the claim or defense may be fairly determined to be valid

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 the statute of limitations

2) a written promise to pay all or part of an indebtedness that has been discharged in bankruptcy is binding

Past or Moral Consideration (minority rule)

Will enforce a promise made in recognition of a past benefit conferred so long as:

1) the promisee conferred the benefit on the promisor and not on a third party

2) the benefit is material

Exception : where the promisor makes a promise in recognition of benefits that the promisor received under the terms of a contract, the promise is not enforceable

Promissory Estoppel (Absent Consideration)

The legal enforcement of an otherwise unenforceable contract due to a party's detrimental reliance on the contract

Requirement:

1) a promise

2) foreseeable reliance

3) actual reliance (must be induced by the promise)

4) injustice without enforcement

General Rule governing contract formation?

A contract need not be in writing, and that oral and written agreements are equally enforceable

Statute of Frauds

A state statute under which certain types of contracts must be in writing to be enforceable.

(M.Y.L.E.G.S)

1) Marriage - Contract for marriage must be in writing

2) Year - A contract that will not be completed within one year of the formation of the contract

3) Land - A contract for the sale of an interest in land

4) Executor/Administrator - a contract of an executor or administrator to answer for a duty of the decedent

5) Guarantee/Suretyship -

6) Sale of good $500 or more

Performance within One Year

A contract which, by its TERMS, cannot be performed within one year of the date of making the contract

Effective date: date of the agreement

Exception: contract measured by a lifetime

Land-Sale Contracts

Under the statute of frauds, land sale contracts must be in writing and contain:

(1) identification of the parties;

(2) accurate legal description of the land;

(3) mutual promises to buy and sell the land;

(4) the price; and

(5) the signature of the party against whom enforcement is sought.

Includes:

1) Contracts for the future sale

2) Leases greater than one year

Guarantee/Suretyship Agreements

A promise to answer got the debt of a third party

Exceptions:

1) When the creditor discharges the original debtor fro his obligation on the faith of a guarantee by a third party to pay a debt

2) Main Purpose Exception - if the main purpose of the guarantor's promise is to protect or promote his own economic interests, rather than the interests of the debtor (mere selfish interest is not enough)

Satisfaction of the Common Law Statute of Frauds

The general rule is that the contract is unenforceable unless evidence by a writing signed by the party against whom enforcement is sought

What writings can satisfy the Writing Requirement (Statute of Frauds)

1) a letter from one of the parties to a third party describing the agreement

2) the written offer, acceptance of which formed the contract

3) a letter from one of the parties to the other party repudiating, and so admitting, the agreement

What terms are required to satisfy the writing requirement for the Statute of Frauds

1) the identity of the parties to the transaction

2) the nature and subject of the contract

3) the essential terms of the unperformed promises in the agreement

Signature Requirement

The actual signature of the party against whom enforcement is sought is not necessary. Any symbol including initial; typed, stamped, or preprinted signatures, or letterhead, if used with the intention to authenticate the writing will suffice

"Tacking Together" Multiple Documents

The writing need not be a single document, a party may satisfy the Statute by tacking together several documents which, once combined, satisfy all necessary requirements for the Statute of Frauds

If all of the documents are signed by the party against whom the contract is being enforced, or if a signed document incorporated unsigned documents by reference, then the signature requirement is satisfied