Contracts and Sales – Page-by-Page Notes (435–441)

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• I. WHAT IS A CONTRACT?
  • A contract is a promise or set of promises, for the breach of which the law gives a remedy, or the performance of which the law recognizes as a duty.
• A. GENERAL DEFINITION
  • Core idea: a contract is a legally enforceable promise or set of promises.
• B. COMMON LAW VS. ARTICLE 2 SALE OF GOODS
  • Generally, common law governs contracts; Article 2 governs contracts for the sale of goods.
  • Article 2 adopts much of common-law contract doctrine, but when they conflict, Article 2 controls for the sale of goods.
  • 1. “Sale” Defined: A sale is a contract in which title to goods passes from seller to buyer for a price. [UCC §2-106(1)]
  • 2. “Goods” Defined: Goods are all things movable at the time identified as the items to be sold under the contract. [UCC §2-105(1)]. Goods include most tangible items but exclude real estate, services, or intangibles. Some goods related to real estate (minerals, growing crops, fixtures removed) may fall under Article 2 under certain circumstances.
  • 3. Contracts Involving Goods and Nongoods: If a contract covers both goods and services, courts apply the dominant portion’s law to the whole contract. If payment is allocated between goods and services, Article 2 applies to the goods portion and common law to the services portion.
  • 4. Merchants vs. Nonmerchants: Article 2 rules often depend on whether the seller and/or buyer are merchants. A merchant is one who regularly deals in goods of the kind sold or who by their occupation holds themselves out as having knowledge or skill about the goods involved [UCC §2-104(1)]. Some provisions apply to all businesspeople; others (like the implied warranty of merchantability) are restricted to merchants in the relevant goods.
  • 5. Good Faith and Fair Dealing: Every contract within the UCC imposes an obligation of good faith in performance and enforcement. Good faith = honesty in fact and observance of reasonable commercial standards. [UCC §1-304]
• C. TYPES OF CONTRACTS
  • 1. As to Formation
  • a. Express Contract: Formed by language, oral or written.
  • b. Implied in Fact Contract: Formed by conduct manifesting assent.
  • c. Quasi-Contract or Implied in Law Contract: Not a true contract; courts use restitution to avoid unjust enrichment.
  • 2. As to Acceptance
  • a. Bilateral Contracts—Exchange of Mutual Promises.
  • b. Unilateral Contracts—Acceptance by Performance.
  • c. Modern View—Most Contracts Are Bilateral: 1) Acceptance by Promise or Start of Performance; 2) Unilateral Contracts Limited to Two Circumstances (clearly indicated as the only acceptance method or public reward offers).
  • 3. As to Validity
  • a. Void Contract: No legal effect from the beginning (e.g., an agreement to commit a crime).
  • b. Voidable Contract: One or both parties may void.
  • c. Unenforceable Contract: Valid contract but defenses (e.g., statute of limitations, Statute of Frauds) prevent enforcement.
• D. CREATION OF A CONTRACT
  • When a suit seeks to enforce a contract, courts ask three questions: (i) Was there mutual assent? (ii) Was there consideration or substitute for consideration? (iii) Are there defenses to the contract’s creation?

Page 436

• II. MUTUAL ASSENT—OFFER AND ACCEPTANCE
• A. IN GENERAL
  • Mutual assent = an agreement on the “same bargain at the same time.” The process usually involves an offer and an acceptance; subjective meeting of the minds isn’t required; the test is objective: the outward manifestations of intent create a power of acceptance in the offeree and a liability on the offeror.
• B. THE OFFER
• 1. Promise, Undertaking, or Commitment
  • To be an offer, the communication must express a promise, undertaking, or commitment to enter into a contract, not merely preliminary negotiations.
  • a. Language: Use of words like “I offer” helps show intent; however, not strictly necessary. Some phrasing (e.g., price quotes) may be invitations to deal unless specific and definite.
  • b. Surrounding Circumstances: Statements made in jest or bragging may still be understood as offers if a reasonable person would understand them as serious. Context matters.
  • c. Prior Practice and Relationship: The parties’ prior dealings affect whether statements are offers or mere negotiations.
  • d. Method of Communication
  • 1) Broad media: Publications can suggest an invitation to offers rather than an offer itself.
  • 2) Advertisements, Catalogs, etc.: Usually invitations for offers due to indefiniteness; sometimes an offer if language is definite and the offeree is identifiable. Price quotes may be offers in response to inquiries.
  • e. Industry Custom: Industry norms can influence whether a proposal qualifies as an offer.
• 2. Definite and Certain Terms
  • An offer must be definite and certain in its terms (enforcement requires enough certainty to enforce a contract). Core terms typically include identity of offeree, subject matter, and price. A promise may be enforceable even if every term isn’t specified if an objective standard exists to supply missing terms.
  • a. Identification of Offeree: The offeree or class must be identifiable.
  • b. Definiteness of Subject Matter: The subject matter must be certain.
  • 1) Real Estate: Identify land and price terms; land description need not be perfect deed language if land is identifiable.
  • 2) Sale of Goods: Quantity must be certain or capable of being made certain (see “Requirements” and “Output” contracts).
  • (a) Quantity cannot be unreasonably disproportionate: Requires good faith and fair dealing; cannot demand unreasonably disproportionate quantities.
  • (b) Established vs. New business: Courts may require an established business to prevent illusory promises; Article 2 acknowledges good-faith output/requirements determined by actual needs.
  • (2) Reasonable range of choices: If an offer allows selection within a reasonable range, it can be definite (e.g., “I will sell you any of these motorcycles for $1000. Pick one.”)
  • c) Employment and Other Services: If duration is not specified, contract is terminable at will; the offer must specify the nature of services.
• 3) Missing Terms
  • Missing terms do not necessarily prevent contract formation if there is intent to form a contract and a reasonably certain basis to provide a remedy. The court can supply missing terms.
  • a) Price: In services, price may be inferred or set by standard practice; Article 2 fills price gaps if not stated in the goods contract (reasonable price at time of delivery).
  • b) Time: If not specified, performance is within a reasonable time.
  • c) Distinguishing vague terms: If terms are vague, courts may cure by part performance or acceptance; if the term is too vague to be enforceable, the contract may fail for lack of certainty.
• 4) Communication to Offeree
  • Offeree must know of the offer for acceptance to be possible; no knowledge means no contract.

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• C. TERMINATION OF OFFER
• 1. Termination by Acts of Parties
  • a. Revocation by Offeror: An offeror can revoke an offer before it’s accepted. Revocation must be communicated to offeree (directly or indirectly) and is effective when received. Revocation by publication or a reliable source can terminate offers.
  • 1) Methods of Communication: Direct communication; publication; indirect communication through reliable sources indicates revocation.
  • 3) Limitations on Offeror’s Power to Revoke: Options, firm offers under Article 2, detrimental reliance, beginning performance for true unilateral offers.
• 2) Termination by Offeree
  • 1) Rejection: Express rejection or counteroffers (which usually operate as rejection and a new offer).
  • 2) Lapse of Time: Acceptance must occur within specified time or a reasonable time; what is reasonable depends on circumstances, the nature of the contract, course of dealing, etc.
• 3) Termination by Operation of Law
  • Death/insanity of a party; destruction of subject matter; supervening illegality; contract terminates by operation of law.
• D. THE ACCEPTANCE
• 1) Who May Accept
  • Generally, the person to whom the offer is addressed or directed; offeree’s power to accept cannot be assigned except option contracts (where the option is a separate contract).
• 2) Offeree Must Know of Offer
  • Offeree must know of the offer to accept.
• 3) Acceptance of Offer for Unilateral Contract
  • Completion of performance generally creates acceptance; starting performance can create an option, making the offer irrevocable for a reasonable time to complete performance; notice of start may be required.
  • Beginning performance—notice may be required to complete acceptance depending on the rule applied (Restatement vs. Article 2).
• 4) Acceptance of Offer for Bilateral Contract
  • Generally, acceptance must be communicated unless the offer states acceptance may be by performance or the statute allows it; occasional exceptions apply (waiver in offer, silence as acceptance, etc.).
  • Method of acceptance: acceptance can be by promise or start of performance; for goods, shipment of conforming or nonconforming goods can constitute acceptance.
• 5) Acceptance Under Article 2
  • Offers to buy goods for current or prompt shipment may be accepted by a promise to ship or by the actual shipment of conforming or nonconforming goods; shipment of nonconforming goods is acceptance and breach unless it’s an accommodation.
  • Battle of the forms: additional terms in acceptance may be included; differences between merchants vs. non-merchants; the “knockout rule” may apply where terms are inconsistent; confirmatory memos by merchants are subject to the same rules.
• 6) Bilateral Contracts Formed by Performance
  • Conduct recognizing contract may form a bilateral contract even where communications did not perfectly align under the mirror image rule.
• 7) Mailbox Rule
  • Acceptance by mail is effective on dispatch unless the offer specifies otherwise or involves an option contract; if acceptance and rejection are sent, the rule depends on which is received first.

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• E. AUCTION CONTRACTS
  • UCC rules: when goods are auctioned, the sale is typically complete when the hammer falls; auctions with reserve vs without reserve; bids on seller’s behalf may allow the highest bidder to back out in some circumstances.

Page 439

• II. MUTUAL ASSENT—OFFER AND ACCEPTANCE (continued)
• B. THE OFFER (continued)
• 1. Promise, Undertaking, or Commitment (continued)
• 2. Definite and Certain Terms (continued)
• 3. Communication to Offeree (continued)
• C. TERMINATION OF OFFER (continued)
• 1. Termination by Acts of Parties (continued)
• 2. Effective When Received (continued)
• D. THE ACCEPTANCE (continued)
• 1. Who May Accept (continued)
• 2. Offeree Must Know of Offer (continued)
• 3. Acceptance of Offer for Unilateral Contract (continued)
• 4. Acceptance by Bilateral Contract (continued)
• 5. Acceptance Under Article 2 (continued)
• 6. Bilateral Contracts Formed by Performance (continued)
• 7. When Acceptance Effective—The Mailbox Rule (continued)
• a. Effect of Offeree Sending Both Acceptance and Rejection (continued)
• 1) Offeree Sends Rejection, Then Acceptance—Mailbox Rule Does Not Apply (continued)
• 2) Offeree Sends Acceptance, Then Rejection—Mailbox Rule Generally Applies (continued)
• b. Acceptance by Unauthorized Means (continued)

Page 440

• E. AUCTION CONTRACTS (continued)
• III. CONSIDERATION
• A. INTRODUCTION
• B. ELEMENTS OF CONSIDERATION
  • 1) Bargained-For Exchange: Act/forbearance by promisee must benefit the promisor; the economic value need not be present; past/moral consideration generally insufficient, with exceptions (debt barred by technical defense, material benefit rule, etc.).
  • 2) Legal Value: Adequacy; token/sham consideration is insufficient; legal detriment and benefit; preexisting duty not consideration; forbearance to sue.
• C. MUTUAL AND ILLUSORY PROMISES—THE REQUIREMENT OF MUTUALITY
  • 1) Requirements & Output Contracts: Enforceable; consideration exists due to legal detriment; 2) Conditional Promises; 3) Right to Cancel or Withdraw; 4) Exclusivity/Best Efforts; 5) Voidable Promises; 6) Unilateral/Option Contracts; 7) Suretyship Promises; 8) Right to Choose Among Alternatives.

Page 441

• D. PROMISSORY ESTOPPEL OR DETRIMENTAL RELIANCE
• IV. REQUIREMENT THAT NO DEFENSES EXIST
• A. INTRODUCTION
• B. ABSENCE OF MUTUAL ASSENT
• 1) Mutual Mistake as to Existing Facts; a. Mistake in Value generally not a defense; b) Unilateral Mistake; c) Mistake by intermediary (transmission); d) Misunderstanding/ambiguous language; e) Misrepresentation (fraud in inducement, material misrepresentation, concealment, reliance, etc.).
• C. ABSENCE OF CONSIDERATION
• D. PUBLIC POLICY DEFENSES—ILLEGALITY
• 1) Typical Illegality Cases
• 2) Effect of Illegality: generally void; timing matters; compare illegal purpose.

Page 442

• E. DEFENSES BASED ON LACK OF CAPACITY
• 1) Legal Incapacity
  • Infants; mental incapacity; intoxication; remedies and rules about disaffirmance/affirmance; necessaries; major/minor rules; guardian implications.
• 2) Duress and Undue Influence
• F. STATUTE OF FRAUDS
• 1) Writing Requirement; electronic records satisfy writing; essential terms; 2) Signature Requirement; electronic signatures; 3) Agreements Covered (executor promises, suretyship promises, marriage, land, contracts not to be performed within one year, goods over $500, special case for merchants and confirmatory memos); 4) Effect of Noncompliance; 5) Situations where contract is removed from the Statute of Frauds (performance, equitable/estoppel, judicial admission); 6) Remedies if contract is within Statute.

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• G. UNCONSCIONABILITY
• I. Common procedural forms: adhesion contracts; fine print risk-shifting; exculpatory clauses; remedies limitations; timing; effect if a clause is found unconscionable.
• II. Remedies if unconscionability found (refuse enforcement, sever or limit clauses).
• V. DETERMINING THE TERMS OF THE CONTRACT
• A. INTRODUCTION
• B. GENERAL RULES OF CONTRACT CONSTRUCTION
  • 1) Construed as a Whole; 2) Ordinary Meaning; 3) Inconsistencies: express terms vs. printed terms; 4) Preference to enforce; 5) Ambiguities construed against the drafter; 6) Course of Performance; 7) Course of Dealing; 8) Usage of Trade; 9) Priority rules.
• C. PAROL EVIDENCE RULE—SUPPLEMENTING, EXPLAINING, OR CONTRADICTING TERMS
  • 1) Purpose; 2) Integration: final vs. partial; merger clause; 3) Evidence outside scope: validity issues; collateral agreements; interpretation; true consideration; reformation; subsequent modifications; Article 2 terms; 4) Article 2 provisions on interpreting contracts: gap-fillers (price, place of delivery, time for shipment, time for payment, assortment); 2) Delivery terms and risk of loss; 3) Warranties; 4) Modifications; 5) Parol evidence and reformation.

Page 444

• D. ARTICLE 2 PROVISIONS ON INTERPRETING CONTRACTS
• 1) Supplemental gap-fillers: price, place of delivery, time for shipment or delivery, time for payment, assortment.
• 2) Delivery terms and risk of loss: noncarrier vs carrier; shipment vs destination; F.O.B./F.A.S.; effect of breach on risk of loss; risk of loss in sale-or-return and sale-on-approval; destruction of goods before risk passes.
• E. SUBSEQUENT REMEDIES: later modifications, etc.

Page 445

• E. ACCEPTANCE—CONTINUED (Article 2 specifics)
• 1) Offers to Buy Goods—current/prompt shipment: acceptance by promise to ship or by shipment of conforming or nonconforming goods; 2) Battle of the Forms: mirror image not required; additional terms; differences between merchants vs. nonmerchants; confirmatory memos; 3) Effect of conditional acceptance; 4) Moment of Mutual Assent uncertain—UCC approach; 5) Bilateral contracts formed by performance; 6) Mailbox rule.
• F. AUCTION CONTRACTS (brief)
• III. CONSIDERATION (full discussion continues)
• A. INTRODUCTION (restating bargain for enforceability)
• B. ELEMENTS OF CONSIDERATION (bargained-for exchange; legal value; adequacy; past consideration; etc.)
• C. MUTUAL AND ILLUSORY PROMISES—MUTUALITY (explanation that certain contracts like requirements/output, exclusive arrangements, best efforts, etc., create mutuality despite apparent illusory terms)
• D. PROMISSORY ESTOPPEL or DETRIMENTAL RELIANCE (alternative to consideration when injustice would result)

Page 446

• (Continuation of 3) PROMISES AND ESTOPPEL; 4) Practical examples in construction bids and performance.
• 5) Beginning performance—partial performance can bind in unilateral contexts; 6) Beginning performance and acceptance interplay; 7) Comparison of common-law acceptance vs Article 2 acceptance.

Page 447

• (Continuation of 2) Battle of the Forms; 3) Merchant-confirmatory memos; 4) Effect of conditional acceptance; 5) Moment of mutual assent—uncertainty; 6) Bilateral contracts formed by performance; 7) Mailbox rule extension to forms and notifications; 8) Auction contracts—additional clarifications.

Page 448

• VI. PERFORMANCE AND EXCUSE OF NONPERFORMANCE
• A. INTRODUCTION
• B. PERFORMANCE AT COMMON LAW
• C. PERFORMANCE UNDER ARTICLE 2
  • 1) Obligation of Good Faith: honesty and reasonable commercial standards; 2) Seller’s obligations: tender and delivery; 3) Buyer’s obligation to pay and right to inspect; 4) Conditions: distinction between promise and condition; 5) Express vs. constructive conditions; 6) Excuse of condition by hindrance, breach, anticipatory repudiation, prospective inability/unwillingness to perform, substantial performance, divisibility, waiver, estoppel; 7) Impossibility/impracticability/frustration; 8) Discharge by operation of law (death, illegality, destruction, etc.).
• D. HAS THE ABSOLUTE DUTY TO PERFORM BEEN DISCHARGED?

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• VI. CONTINUED: more on anticipatory repudiation, retraction, and remedies.
• E. RESTITUTION AND QUASI-CONTRACT: overview of restitution, measurement, and applications when no contract or unenforceable contract exists.
• F. STATUTE OF LIMITATIONS UNDER UCC (4-year period; accrual rules; special rules for warranty claims).

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• VII. REMEDIES – OVERVIEW
• A. Nonmonetary Remedies: Specific performance; injunctive relief; covenants not to compete; laches and unclean hands as defenses to specific performance.
• B. MONETARY REMEDY—DAMAGES: overview of damages, including compensatory, expectation damages, reliance damages, consequential damages, incidental damages, certainty requirement, punitive damages (generally not available in contract), nominal damages, liquidated damages (enforceability rules under UCC and general contract law).
• C. RESTITUTION: overview of restitution as an alternative to contract-based damages; measure and application in various contexts (when contract breached, when no contract, etc.).

Page 451

• D. SPECIAL REMEDIES UNDER ARTICLE 2 (nonmonetary): Buyer and Seller remedies under UCC: replevin, specific performance, contract-based damages when goods are unique; resale remedies; mitigation principles.

Page 452

• E. MISCELLANEOUS REMEDIES: Protection of third-party beneficiaries, assignees, and other possessory rights; warranties and defenses; and miscellaneous remedial doctrines (acceleration, novation, accord and satisfaction, etc.).

Page 453

• VIII. RIGHTS AND DUTIES OF THIRD PARTIES TO THE CONTRACT
• A. INTRODUCTION to third-party rights (beneficiaries, assignment, delegation, novation).
• B. THIRD-PARTY BENEFICIARIES
  • 1) Which Third-Party Beneficiaries Can Sue?
  • Intended beneficiaries can sue; incidental beneficiaries generally cannot. The intent of the promisee determines vesting of rights; vesting occurs upon manifestation of assent, bringing suit, or justifiable reliance.
  • 2) When Do the Rights Vest? Vesting occurs when beneficiary manifests assent, sues, or relies to their detriment.
  • 3) What Are the Rights of the Third-Party Beneficiary and the Promisee? Promisor’s defenses against the promisee; promisee’s defenses against beneficiary depending on whether the promise to pay is absolute or tied to the promisee’s payment.

Page 454

• C. ASSIGNMENT OF RIGHTS AND DELEGATION OF DUTIES
• 1) Assignment of Rights
  • Terminology: assignor, assignee, obligor.
  • 2) What Rights May Be Assigned? General rule: most rights may be assigned; exceptions include rights that would substantially change the obligor’s duty or risk, rights that are prohibited by law, or contractual prohibitions against assignment. Assignment of “the contract” may limit assignment of rights rather than duties.
  • 3) Effect of Assignment—Real Party in Interest: Assignee becomes the real party in interest; obligor must perform to the assignee once notice is given.
  • 4) What is Necessary for an Effective Assignment? Writing not usually required; adequate description; present words of assignment; no consideration required; revocability depends on whether the assignment is for value.
  • 5) Partial Assignments; 6) Revocable vs Irrevocable assignments; 7) UCC Rules—filing priorities (especially with multiple assignments).

Page 455

• CONTINUED: Delegation of Duties
• 1) Delegation: transfer of contractual duties to a third party; 2) General Rule: most duties may be delegated; 3) Exceptions: personal judgment/skill duties; special trust; change of obligee’s expectancy; contractual restrictions on delegation.
• 4) What Is Necessary for Effective Delegation? Generally no formalities; present intention; words such as “delegate” aren’t required.
• 5) Rights and Liabilities: Obligee must accept performance from delegate for delegable duties; delegator remains liable; delegate liable if they assume the duty; assignment of rights along with delegation may imply assumption.

Page 456

• D. NOVATION DISTINGUISHED FROM OTHER THIRD-PARTY SITUATIONS
• E. POWER OF PERSON OTHER THAN OWNER TO TRANSFER GOOD TITLE TO A PURCHASER
• 1) Entrusting: entrusting goods to a merchant who deals in goods of that kind gives him power (not right) to transfer good title to a buyer in ordinary course; the entruster cannot reclaim in general; remedies depend on whether the entrustee has the right to resell or borrow against the entrustor’s title.
• 2) Voidable Title Concept: the entrustee-buyer may be able to obtain title unless the true owner can reclaim; in some circumstances a bona fide purchaser for value can cut off the true owner’s rights. Exceptions exist for certain fraud cases.

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• 435–456 (continued) – Recap of core concepts: contracts, formation, acceptance, consideration, defenses, and third-party rights. The notes above summarize the major principles on mutual assent, offer/acceptance rules, formation, and third-party rights, which recur in later sections (e.g., performance, obligations, and remedies). For more granular detail (e.g., specific cases, rule variations for merchant vs nonmerchant and for Article 2, and the nuanced “battle of forms” scenarios), please indicate which pages you’d like to cover next and I can continue page-by-page in the same format.

TITLE: Contracts and Sales – Page-by-Page Notes (435–441, initial segment)