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Course: Contracts Outline Fall 2004
School: unknown
Year: 2004
Professor: unknown
Course Outline provided by Legalnut.com
 

 

OUTLINE

 

Contract – legally enforceable agreement

To be valid, must have

  1. offer

  2. acceptance

  3. consideration

  • the courts apply an objective test to determine whether there has been an offer or acceptance. The subjective intent of the parties does not matter, and their words and actions will be judged by what a reasonable person believed those actions and words meant. §19

 

Quasi contract – sort of like

  • equitable remedies

Unilateral – contract that results from an offer that requires performance to accept

- ex. offer for reward – performance in return not a promise in return

v. v.

Bilateral – contract from an offer that is open to how it can be accepted.

- a promise in return not a performance in return

 

Nature of offer controls the type of contracts

Unilateral – 1) reward 2) expressly requires performance

 

Void contracts: no contract has been formed so there’s no duty to perform under it

Ie. a contract lacking consideration is void.

 

Voidable contracts: one or more parties have the power to either ratify or avoid a

contract.

 

Unenforceable contracts: contracts that have some legal consequences, but they aren’t

enforceable in an action for damages or specific performance due to defenses.

 

Executory Contracts: one that’s not fully performed.

 

  1. APPLICABLE LAW

  1. Common

  2. UCC Article 2

  • use the common law unless it is the sale of goods [not services]

  • goods – movable personal property

  • Q? Do I apply common law or UCC

 

  1. FORMATION OF CONTRACTS

  • Agreement – Offer and Acceptance

  • legally enforceable – consideration, promissory estoppel

 

  1. Offer – §24 through words and actions, written

[not was heard, heart, mind]

  1. communication by the offeror

  2. creating a reasonable expectation in the offeree

  3. that oferor is willing to enter into the contract

  4. on specified terms

  5. such that offeree need only accepts in order to form contract

  1. Manifestation

  2. Commitment

  • indication of commitment – held to words or actions

 

  1. ESSENTIAL TERMS

  1. subject matter

  2. price

  3. payment terms

  4. quantity

  5. quality

  6. duration

  7. work to be done

** all can be implied by the courts.

 

  1. PROBLEM

  1. Advertisements

  • not offer

  • invitation to you to make an offer

  • TEST

  1. language used

  2. if the party is named in the offer it is more likely to be an offer; if it is addressed to an infinite group, less likely to be an offer.

  3. The more definite the proposal, the more reasonable it will be to treat it as an offer.

  • it is binding if the quantity, price, stated to whom offer was made and seems to be worded as a “promise”

  • missing price term §33 §34

    • can you be legally obligated without manifestation of what to pay

    • all material terms must be present

    • UCC 2-305 one can have an offer if price is missing if the parties intend

    • UCC 2-204 formation in general

    1. ambiguous material terms §20

    • cannot have vague or ambiguous

    • assume further negations to work out

    • without quantity term there is no reasonable certainty therefore no valid contract. [except output/requirements contracts]

    1. requirements of contracts

    • measures quantity of goods to be purchase by the buyers needs

    • ok to express quantity in terms of buyers requirement

    • look for increase in requirements

    • -Unreasonably disproportionate test

      *Output contracts, requirements contracts

      *in a requirements contract, a buyer agrees to buy all he needs of a state item, for a stated period of time, from the seller. An output contract is the flip side of that – in it, a seller agrees to sell all he produces of a stated item, for a stated period of time, to the buyer. In these types of contracts, the quantity isn’t stated, but it’s proven by referring to objective, extrinsic facts. In the case of an output contract, that’s the seller’s output, and for a requirements contract, it’s the buyer’s requirements.

       

      NOTE: the quantities in question must remain within the reasonable anticipation of the parties for the contract to be enforceable. UCC §2-306. However, either business can terminate operations, by retiring or selling the business, as long as it’s done in good faith.

      UCC §2-306 the requirements must remain within the reasonable anticipation of the parties in order to be enforceable.

      A STATE MUST SUFFICIENTLY IDENTIFY THE OFFEREE TO CONSTITUTE OFFER. IT CREATES AN OFFEREE AN IMMEIDATE POWER OF ACCEPTANCE

      NO ONE EXCEPT THE OFFEREE CAN ACCEPT THE OFFER.

      Offer determination can be based on communication. Where the language itself is not definite, the relationship between the parties, prior practices, method of communication, and the like can frequently determine whether an offer has been made.

       

       

      ONCE THERE IS COMMUNICATION THERE IS AN OFFER

      BUT MAKE SURE THAT THE OFFER HAS NOT BEEN TERMINATED

      Once terminated the offer is gone forever.

       

      Four ways for TERMINATION to occur §36

      1. lapse of time §41

      • How old was offer when accepted?

      • Based on “reasonable time” the situation at hand

      1. death of either party before acceptance §48

      2. revocation §42 §43 §46

      • A make offer to B, A changes mind before B can accept

      • Revocation of a “general offer” must be accomplished by equivalent notice to the original offerees.

      HOW?

      1. Later statement “I change my mind”

      2. Later conduct “sell it to someone else”

      WHEN?

      1. have to complete revocation before acceptance occurs

      2. if revocation of offer is sent through mail effective at receipt

      WHEN NOT?

      1. option contract

      • Promise to do with consideration [even nominal]

      • Gives on the right to accept until a specified period of time; it may not be revoked until that time has elapsed.

      • Option contracts are even kept open after one changes the terms because that option is open until the specified time and P’a actions are merely negotiations.

      • UCC 2-205 firm offers – an offer can be irrevocable in the absence of consideration “firm offer” as long as the offeror is a merchant, the transaction concerns the sale of goods, and the assurance not to revoke was embodied in a signed writing”

      • §25 define option contract

      • §87(1) when binding

      1. where offer is foreseeable and reasonable relied on

      2. Where there is part performance for offer to enter into a unilateral contract.

      • preparation is not enough

      • §45 Marchiondo v. Scheck

      1. UCC firm offer rule. If merchant in a sign writing promises to keep offer open then cannot revoke.

      1. Rejection §38 §36

      • UCC §2-602 good must be rejected within a reasonable time after delivery, and seller must be notified.

      • UCC §2-601 partial accetpace

      a) offeror kills off the offer – DIRECT and expressed

      • INDIRECT rejection

      b) counter offer [vs. bargaining] §38 §39

      • Bargaining is not a rejection, turns on the language.

      • Counter offer is an outright rejection of the original offer

      • It is an offer that can be accepted or rejected by the new offeree

      1. conditional acceptance

      • “I accept IF

      • add additional terms

        • “I accept AND

        • MIRROR IMAGE RULE in common law

        • acceptance must look like the offer t/f adding terms is a rejection

        • UCC can add terms in acceptance under 2-207.

        • Determining or adding new stuff = legal acceptance

        • Insisting on new stuff = no contract

        • Non material additions: where both parties are merchants, and the offeror has not limited the offer to the original terms, and the changes are not material, the offeror’s silence on the additional terms constitutes acceptance of them (he must have a reasonable time after receipt of the acceptance in which to object

        • Material additions: if the additional term proposes a material change, it will require assent to become part of the contract.

        • Different terms: If a proposal is considered to provide a different term, most courts would deem the contract silent on the matter.

        • Seasonable expression of acceptance

        • can add additional terms

        Q? Are both parties merchants?

        Q? Are new terms material after the deal?

        Q? Are new terms rejected to by the offeror?

        If yes to all then the terms are accepted

        1. destruction of subject matter §35

        2. Intervening illegality §35

         

        1. Acceptance §35 §50

        1. Who is accepting?

        1. a person accepting must be the person who offer was made offers are person specific §52

        2. only if a reasonable person could assume that he was the intended offeree; if he knew or had reason to know the offer was intended for someone else, the acceptance could not be valid.

        3. offeree must know of offer at time of acceptance

        UCC, not always under 2-207(3)

        1. How is it being accepted?

        • watch for agreements to agree – which are not valid contracts

        • watch for grumbling acceptance – not offering different terms but just expressing a dislike for the one’s presented

        • installment contracts: under UCC §2-612, a buyer must accept each installment unless it’s value is “materially impaired”, AND the defect cannot be cured.

        1. return promise §56

        • not possible in unilateral [performance req. to accept]

        • when start of performance §54

          • looking to the nature of the offer

          • starting to perform [under bilateral – flag pole case]

          • not possible in unilateral [ performance req. to accept]

          1. mail box rule §63(a)

          • applies only to acceptances

          • where it is reasonable to respond to offer via mail then acceptance dates from time it was sent

          • It is valid as long as it is correctly addressed and posted, and regardless of whether it ever actually reaches the offeror.

          • §64 an acceptance under an option contract is effective ONLY upon receipt.

          • when a “acceptable mode” of transmission is presented acceptance is only valid at receipt NOT at mailing because offeree went against the request of offeror.

          • UCC §2-206 if the offeror specifically limits the acceptance to certain means, the acceptance is not valid if transmitted any other way. (in the absence of such limits, acceptance by any reasonable means is effective.)

          • tested with the revocation of offer in mailing

          1. pattern of business may bind a contract to one’s silence

          - §69 Acceptance of Silence or exercise of Dominion

          • offeror CANNOT insist upon silence as a means of acceptance. UNLESS prior agreement between parties that silence will mean acceptance [ie. book clubs]

          • where silence is coupled with taking benefits (cashing a check) after an opportunity to reject, there can be an implied acceptance, and a contract exists.

          1. there are three means of acceptance under UCC 2-606

           

          1. after a reasonable opportunity to inspect, manifest to seller that goods conform OR are acceptable in spite of non-conformance

          2. fail to reject within a reasonable time

          3. act inconsistently with seller’s ownership

           

          RULES WHEN OFFEREE BOTH ACCEPTS AND REJECTS THE OFFER

          • When you have a confused offeree – that is someone who both accepts and rejects the offer – you have to determine whether or not there’s a contact.

          • The problem here springs from the fact that acceptances are effective when mailed (according to the “mailbox rule”) and rejections are valid when received.

          • Whether a contract results depends on two things: which was mailed first – the rejection or the acceptance – and which was received first.

          • With that in mind, here are the rules for the various possibilities.

          1. rejection sent, then acceptance sent, then rejection received, then acceptance received. No contract; the acceptance constitutes a counter-offer

          2. rejection sent, then acceptance sent, then acceptance received, then rejection received. Contract.

          NOTE: when the rejection is mailed first, look to the offeror’s expectation to see whether there’s a contract or not. If the offeror receives the rejection first, there’s no contract; and if he receives the acceptance first, there’s a contract.

          1. acceptance sent, then rejection sent, then rejection received, then acceptance received. Courts are split. Some courts follow the offeror’s expectations, and since the rejection was received first, that means there’s no contract. Other courts say there’s a contract, unless the offeror relied on the rejection before receiving the acceptance.

          2. Acceptance sent, the rejection sent, then acceptance received, then rejection received. No problem; there’s a contract. This is an easy one, because there’s no conflict between the timing rules on acceptances and rejections.

           

          OFFER + ACCEPTANCE = AGREEMENT

          It is NOT a contract – NOW you need to establish legally enforceable.

          Move to Q? is there consideration?

           

           

          1. CONSIDERATION is bargained for legal detriment

          §71 must be present to have an enforceable contract.

          Valid consideration is a bilateral contract =

          legal value + bargained for exchange

          Valid consideration for an unilateral contract =

          The promisee’s continued performance constitutes consideration in a unilateral contract

          Legal detriment is

          1. promisee does something he’s not obligated to do

          2. promisee refrains from doing something he is legally entitled to do

          conditional promise – when the promisor’s commitment is

          triggered by an event or happening that’s outside the promisor’s unfettered discretion

          illusory promise – that’s cloaked in the language of commitment,

          but there’s no restriction on the promisor’s right to renege on his promise.

          Aleatory contract – that’s conditional on the happening of a

          fortuitous event (one that may not occur) ie insurance policies

          A seal is NOT valid consideration

           

          1. Requirements for valid consideration

          1. bargain element

          • each party must have intended to secure something from the other that he was not otherwise legally entitled to

          • each party must be bargaining for something from the other

          1. value element

          • must be legally sufficient

           

          1. executory promise §89

          • gratuitous promises are not legally enforceable

          • there is no consideration

          1. forbearance from acting

          • has the promisee, at the insistence of promisor, done or undertaken anything?

          • If one is precluded from exercising a right he has, that is consideration

          1. requirement of bargained for consideration §72 §73

          • consideration must be bargained for

          • it must be offered by one and accepted by another

          1. amount of consideration

          • it is sufficiency not adequacy that is looked at by the courts

          • §75 nominal consideration is not bargained for consideration and should not be enforced.

          • Designed to make an otherwise gratuitous promise enforceable.

          1. sufficiency of exchange

          • must be a promise to commit to do or to refrain from doing a particular thing

          • adequacy of consideration §79

            • the exchange needed be fair.

            • A promise does not have to be the same value of B’s.

            • Again only if there is legal benefit or detriment

            • Where consideration is grossly inadequate, it may indicate fraud, duress, or a similar problem, which a court would address.

            1. commercial value

            • courts normally do not inquireinto the adequacy of consideration in terms of commercial value, leaving that to the parties to decide what is of value to them.

             

            1. Inadequate consideration

            1. nominal consideration will not be enforced when the promise is grossly disproportionate.

            2. Parties intentions for a valid agreement mean nothing – there has to be consideration.

             

            1. Exception for changed conditions

            §89 new modification made my enforced if

            1. modified promise was made before contract performed by either side

            2. circumstances which prompted the modification were unanticipated by either party

            3. modification is fair and equitable

            UCC 2-209(1)

            • Modification needs no consideration to be binding as long as modification meets test of good faith, whereas without legitimate commercial reason is unenforceable.

             

            1. mutuality of obligation requirement

            1. for a contract to be enforceable, both parties must have adequate consideration so that both parties are bound by the contract

            2. there can be no way out for just one of the parties, if one is not bound, neither is bound.

            3. Requirement contracts “I’ll buy all that I require from you”

            • The intent of the parties to enter into a contract made it mutually binding

            • The implied promise

              • a promise that one will use reasonable force to do something for another is fairly implied

              • UCC 2-306(2)

               

              1. moral obligations as consideration

              1. used when A will be given remedy for performing a benefit for B although no contract ever existed.

              2. §86 Promise for Benefit received.

              1. a promise made in recognition of a benefit previously received the promisor from the promisee is binding to the extent necessary to prevent injustice.

              2. A promise is not binding under subsection 1

              1. if the promisee confererred a benefit as a gift or for other reasons for the promisor has been unjustly enriched

              2. to the extent that its value is disproportionate to benefit

              1. elements

              1. P has rendered services or expanded property which confers a benefit on D

              2. P rendered such performance with the exception of being paid

              3. P was not acting as an intermeddler or volunteer

              4. Allowing D to retain benefit without paying P would result in the unjust enrichment of D at P’s expense.

               

              1. 3 problem areas

              1. past consideration

              • there is no such thing

              • part payment of a debt

                • owes $600 out of $1000 - no legal detriment

                • RULE: part payment of a debt that is due and undisputed is not consideration for the release

                1. pre-existing legal duty rule

                • RULE: doing something already legally obligated to do is not consideration for promises to pay you.

                • Where a offers $$ for B to do C BUT B is already legally under a duty to do C. B’s performance is not sufficient consideration. There is

                NO NEW legal detriment imposed.

                • UCC: issue is good faith not pre-existing duty rule

                 

                1. CONSIDERATION SUBSTITUTE promissory estoppel §90

                1. someone makes a promise

                2. which he should reasonably exptect

                3. will lead to the promisee’s action or forbearance

                4. the promisee does in fact justifiable rely on the promise to his detriment and

                5. injustice can be avoided only be enforcing of the promise

                1. Certain promises are enforceable even without bargained for consideration.

                • invoking §90 means that a detrimental action or forbearance has been induced by promisee in reliance on the promise by the promisor.

                • 3 part test

                  1. Is there a promise?

                  2. Is the reliance reasonable?

                  • Is there a detriment? Is there a foreseeable?

                  • Is the enforcement necessary to avoid injustice?

                    1. Approach

                    • if you cannot fulfill the §71 then you move to §90

                    • if you answer yes to all three questions then you apply §90

                    • Remember Q? 3 is subjective for the jury

                    • If you have one no then you can NOT apply §90.

                     

                    1. Basic Principles

                    • a promise may be enforced even without consideration if the promisor induces action in some way on the promisee

                    • equitable estoppel is a right arising from acts, admission, or conduct which have induced a change of position in accordance with the real or apparent intention of the party against whom they are alleged.

                     

                    1. Charitable Contributions.

                    • inadequate consideration as long as it’s legal is valid

                    • it is difficult in determining whether words are a condition requesting consideration or a condition in a gratuitous promise.

                     

                    1. RULE FOR NECESSARIES

                    • Is the only exception to infancy

                    • It is something that an infant or minor needs, it is voidable.

                    • something someone already needs

                    • A desire for everyone to get necessaries.

                    • RULE: person lacking capacity are legally obligated to pay for necessaries.

                     

                    1. UNCONSCIONABILITY DOCTRINE §208 UCC 2-302

                    2. ability of court to refuse to enforce all or part of contract agreement because terms were oppressive or were represented in such a way that they unfairly surprise the other party §178 §179

                    3. whether a contract is oppressive is tested at the time contract was entered into

                    4. Issues of unconscionability goes to judge NOT jury.

                    5. Contracts of adhesion

                    1. will not be enforced

                    2. when the consideration by one party is grossly disporportionate to what the other party gives.

                    3. Unequal bargaining power, when the seller knows of buyer’s poverty.

                    4. UCC 3-302

                     

                    1. AMBIGUITY

                    2. §20

                    3. an agreement is not sufficiently clear to be legally enforceable

                    1. has to have an ambiguous terms in the contract

                    2. does each party have different meaning of the minds

                    3. neither party knows or has reason to know of meaning attached by the other.

                    1. if one party knows of ambiguity then not ambiguous. It is legally enforceable as understood by the other party

                    2. court will side with offoree because offoror created the terms and thus had greater control over them.

                     

                    1. Fraud, Mistake, Duress, Unconscionability

                    2. one may make a claim a defesnse to get out of a contract if it was induced by one of the first three.

                    3. Fraudd occurs where one party obtains the other party’s assent to a contract by misrepresenting a material terms

                    4. Coercion under certain circumstances to get the promisor to amend his consideration is taking unjustifiable advantage of the other party.

                     

                    1. Duress occurs where one party’s assent is induced by any wrongful act or threat, such his assent wasn’t a matter of free will

                    1. violence (or threats of it)

                    2. imprisonment

                    3. wrongful seizing or holding the P’s goods or land (or threats to do so) and

                    4. anything else.

                    1. Mistake of material fact means that the contract is not enforceable

                    - what it is = material what the value is = not material

                    1. Court outlines five factors which must be met to avoid liability because of mistake. §152 §153 §151

                    1. mistake was material

                    2. enforcement would be unconsciouable

                    3. mistake was not from culpable negligence

                    4. party to whom bid is submitted will not be prejudiced expect by the loss of bargain

                    5. prompt notice of the error was given.

                    1. Unilateral mistake

                    • One has mistake of fact. If one knows of the mistakes of others

                    • RULE: Unilateral mistake is not a basis or defense to contract formation. Agreement is enforceable even if one party makes mistake

                    • EXCEPT: if it is an OBVIOUS mistake where other side knows or has reason to know then can’t take advantage of the mistake.

                     

                    1. TERMS OF THE CONTRACT

                    • In the words of the parties

                    • Prior dealings with the parties becomes the basis of the terms

                    • Custom and Usage industry standard what others have done

                    1. Battle of the Forms

                    UCC §2-207 does not require mirror image

                    1. Source of Terms

                    Q? is it material?

                    Q? is it objected to?

                    Q? is there a material change?

                    1. Warranties

                    1. Express

                    • words of the parties used. Actual

                    • state facts of the goods being sold

                    • make promises of the goods being sold

                    • need to distinguish between sales talk

                    • puffing – look at the language used by the parties

                    1. Implied Warranty of Merchanability

                    • fit for ordinary purposes

                    • if you buy good from a merchant then by operation of law add term to contract

                    1. Implied Warranty of Fitness

                    • situation buyer with particular purpose reliance on seller to provide appropriate good.

                    • Seller is aware of particular purpose and buyers reliance.

                     

                    1. PERFORMANCE OBLIGATION

                    • looking at terms of contract making sure complied with obligation to perform is conditional

                    “if, provided, subject to, condition that”

                    • satisfaction of condition

                    • Express condition must be explicitly complied with

                    • Strict compliance

                    “I will pay if I am satisfied.

                    1. that is not illusory – can be enforced

                    2. if subject matter is such that it involves personal taste, judgement and discretion then it is read literally.

                    3. If a reasonable person would be satisfied.

                    • Sale of goods – seller has to

                    • perfect tender

                    • rejection of goods

                    • revocation

                      1. seller is obligated to deliver exactly what terms called for

                      2. if not perfect tender buyer has option of rejecting goods. [watch for rejecting of offer]

                      3. what if it is hard to see what is wrong?? Then revocation, turns on a substantial problem with goods difficult to discover earlier.

                       

                      1. EXCUSES ON NON PERFORMANCE

                      1. Express Condition – condition never met

                      2. The other party’s Breach

                      1. non-conforming goods using perfect tender UCC

                      2. Material Breach Common Law only

                      • excuse other party from performing

                      • major screw-up Q? of fact for judge.

                      1. Anticipatory Repudiation

                      - the other party is excused

                      1. Later Agreement

                      1. Novation

                      • both agree someone else can perform contract. Mutually agreed upon new persons

                      • excuses original party

                      1. Accord and Satisfaction

                      • doesn’t bring anyone new in

                      • just changes the contract

                      • new agreement = accord

                      • performance of = satisfaction

                      • BOTH must be there.

                      1. Latter Unforeseen occurance.

                      1. Impossibility

                      - has to be unforeseen no one’s fault

                      1. Frustration

                      • takes away purpose of performance

                      • purpose was destroyed by supervening event.

                       

                      1. BREACH REMEDIES §344-7 §350

                      1. Liquidated damages §356

                      • Parties have agreed what damages are to be

                      • Valid when [tested at time when agreement made]

                      1. contract where uncertain to what damages are going to be if there is a breach.

                      2. Reasonable measure of what uncertain damages might be

                      1. Punitive damages

                      • NONE in contracts

                       

                      1. Consequential damages

                      1. direct damages

                      2. RULE: consequential damages recoverable if reasonably foreseeable by both of the parties at time of contract.

                      “because you breached, something bad happened.”

                       

                      1. Reformation

                      • Conform with the written contract to what it is the parties actually agreed to.

                       

                      1. Specific performance

                      • Remedy seeking court order directory parties to do what it was they agreed to do.

                      • equitable remedy – available when $ damages is not adequate

                        1. sales of real estate – k to sell property

                        2. sales of goods – unique goods, antiques, works of art, made to order

                        3. personal services contract – negative specific performance and injunctive relief.

                         

                        1. Money damages

                        • policy of putting innocent person in the same position she would have been in had the contract been performed

                        • Identify non breaching party

                        • What would that person received had contract been properly performed

                        • GOAL: Award that person what it is had contract been performed

                        •  

                          1. DEFENSES FOR ENFORCING A CONTRACT

                          1. Incapacity

                          1. infancy

                          2. infirmity

                          1. illegality

                          2. unconscionability

                          3. fraud & duress

                          4. mistake and

                          5. statute of frauds

                           

                           

                           

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