Contracts: UCC, Common Law, and Consideration

UCC and Common Law

• UCC (Uniform Commercial Code)
  • Covers sales, formed in 1952.
  • Article 2 focuses on the sale of goods.
  • A "good" is tangible personal property that can be moved or manipulated.
• Common Law
  • Judge-made law developed over time.
  • Differs from the UCC, especially on acceptance.

Acceptance: UCC vs. Common Law

• Common Law: Mirror Image Rule
  • Offer and acceptance must exactly match; otherwise, there's no contract.
• UCC: More flexible in creating contracts.
  • More willing to find a contract even if terms aren't identical.
  • Can add terms to fill blanks in an agreement (UCC 2-205 to 2-210).
  • Gives special duties to merchants (those who regularly deal in specific goods).

Valid, Unenforceable, Voidable, and Void Contracts

• Valid Contract: Contains all seven essential elements:
  • Offer, acceptance, consideration, capacity, consent, legality, and sometimes a written form.
• Unenforceable Agreement: Has all elements of a contract but cannot be enforced due to another rule (e.g., some contracts must be in writing).
• Voidable Contract: One party can choose to walk away (e.g., victim of fraud, misrepresentation, undue influence, duress, mistake; or if a minor or mentally infirm).
• Void Contract: Lacks one or more essential elements for a contract to exist.

Bilateral vs. Unilateral Contracts

• Unilateral Contract: Promise in exchange for an act. Requires completion of the act for acceptance.
  • Example: "Everyone wants to come up and stand on their head for the remainder of class."
• Bilateral Contract: Promise for a promise. Making the return promise is sufficient for acceptance.
  • Example: "I'll give you 200 for those shoes." Agreement to give you the shoes is enough.

Express vs. Implied Contracts

• Express Contract: Terms are explicitly stated.
• Implied Contract: Terms are derived from facts and circumstances.
  • Example: Regularly purchasing a "fifth of liquor and a lottery ticket" every Friday implies an agreement to continue this pattern.

Quasi Contract

• Not a real contract; created by the court to prevent unjust enrichment.
• Occurs when one party voluntarily receives a benefit without paying for it.
  • Example: If someone paints your house, and you see them do it but say nothing, a court might create a quasi-contract to ensure you pay for the service.

Promissory Estoppel

• Not quite a contract, but treated similarly by law.
• Elements:
  • A promise is made that would induce reliance.
    • Examples:
      • Getting hair quaffed and buying a suit for a new job.
      • Quitting an existing job to start a new one.
      • An uncle offering 200 for being a good student.
      • Promise to give the farm in exchange for care.
  • Significant reliance on the promise.
  • Harm resulting from that reliance.

Executory vs. Fully Executed Contracts

• Executory Contract: Performance obligations still remain.
• Fully Executed Contract: All obligations have been fulfilled.

Offer and Acceptance

Offer

• Manifestation of willingness to enter into a contract if the other party agrees to the terms.
• The offer is complete once sent.
• Offeror: The person who makes the offer.
• Offeree: The person who receives the offer.
• Roles can change during negotiations through counteroffers.
• Requirements of an offer:
  • Intent to be bound
  • Definite material terms
  • Communication to the offeree
• Definite terms example:
  • Not definite enough: I'm gonna take care of you.
  • More definite: Providing specific care.

Special Offer Issues

• Advertisements: Generally invitations to make an offer, not offers themselves.
• Rewards: Considered offers for a unilateral contract.
• Auctions: Bidders make offers; acceptance occurs when the auctioneer says "sold."
• Request for Bids: Used in contractor situations.

Duration of Offers

• Last for a reasonable time, depending on the circumstances, or as expressly stated in the offer.
• Offers expire over time; they don't improve with age.
• Stock offer might be valid for 15-20 minutes.
• House offer might be valid for a couple days.

Revocation of Offers

• An offer can be freely revoked before acceptance; revocation is effective upon receipt.
• Exceptions:
  • Firm offer under the UCC: A merchant's offer to another merchant to keep a price open for a specified time (up to three months).
  • Subcontractor's bid relied upon by a general contractor.
  • Option contract: Separate agreement to keep an offer open for a specific period.
  • Offers for a unilateral contract: Must give the offeree an opportunity to complete the act.
• Death or insanity of either party terminates an offer.
• Destruction of the subject matter terminates an offer.
• Intervening illegality terminates an offer.

Rejection of Offers

• Rejection terminates the offer.
• If rejection and acceptance are sent simultaneously, whichever is opened first takes effect.
• Rejection first: The deal is dead.
• Acceptance first: There is now a deal, rejection is irrelevant.

Acceptance

• Must not change material terms of the offer (otherwise, it's a counteroffer).
• Requires intent to be bound.
• Must be communicated to the offeror.
• Common Law: Acceptance must mirror the offer (mirror image rule).
• UCC: Has rules for conflicting terms (battle of the forms, 2-207); can fill in missing terms (2-205 to 2-210).
• Acceptance of Unilateral Contract: Complete the act.
• Acceptance of Bilateral Contract: Make the requested promise.

Silence as Acceptance

• Generally not considered acceptance unless there is a pattern or set of circumstances that establish that practice.
• Only the offeree or its agent may accept an offer.

Communication of Acceptance

• The offeror may stipulate terms of acceptance (manner or time).
• If the offer requires a specific method of acceptance, it must be followed.
• If no specific method is specified:
  • Authorized means: Any means suggested or used by the offeror.
  • Unauthorized means: Any method not suggested or used by the offeror.

Mailbox Rule

• For authorized means of acceptance, the contract is effective upon dispatch.
• For unauthorized means, acceptance is effective upon receipt.
• Acceptance by shipment: Shipping the exact goods serves as acceptance; shipping the wrong goods is acceptance and breach at the same time.
• Accommodation: Informing the buyer that a substitute is being sent serves as an offer what may consider to be an accommodation.

Consideration

• Something of legal value that is bargained for and given in exchange for a promise.
• Legal value: A promise to do something one is not legally obligated to do or to refrain from doing something one has the right to do (forbearance).
  • Example: Agreeing not to fart for the term of the class is a valid consideration.
• Adequacy of consideration: Courts do not evaluate how good or bad the deal may be; they enforce the agreement.
• Must be bargained for and given in exchange; must be a part of the original terms.

Preexisting Duties

• Not consideration.
  • Agreement not to commit a crime or a tort.
  • Promises to perform preexisting contractual duties.

Liquidated vs. Nonliquidated Debt

• Liquidated Debt: The amount is known with certainty.
  • Paying less than the full amount is not consideration because there is a preexisting legal duty to pay the full debt.
• Nonliquidated Debt: There is an honest dispute about the validity or amount of the debt.
  • Modification of the debt can be supported by consideration.
• Payment in full on a check: Cashing the check under protest means it does not amount to a modification of the agreement.

Past Consideration

• Is not consideration.
• Performance rendered before the promise was made is considered a gift, not part of a bargain.
• Example: Disneyland trip is not consideration if it wasn't part of a bargain for exchange.

Forbearance to Sue

• A promise not to sue can be valid consideration if there is a valid claim.

Mutuality of Obligation

• Both parties must be bound to definite terms.
• An illusory promise is not binding because one party is not truly obligated.
  • Example: Only purchasing as much broccoli that you want is not a real promise.

Exceptions to the Requirement of Consideration

• Promissory estoppel.
• Firm offer under the UCC.
• Charitable subscription.
• Reliance is key in all these exceptions.