1. K Formation

Question 1

What are the bodies of K law?

Answer 1

1) Art. 2 UCC: applies to a “sale of goods” “Goods” = movable, personal property

Doesn’t MATTER if the parties are merchants or not

In a “mixed K”, if goods are more significant, then UCC applies

2) K common law: applies to all other non-goods Ks. In a “mixed K”, if services are more significant, then common law applies

On MBE: the lease of goods is classified as under COMMON LAW, but…

NY DISTINCTION:

3) Art. 2A UCC: applies to a LEASE of goods (but NOT the lease of real property)

Question 2

What is the difference b/t express K and implied-in-fact K?

Answer 2

Express K = created by the parties’ WORDS (oral or written) vs. Implied-in-fact K = created by the parties’ CONDUCT

Question 3

What is restitution (a quasi-K)?

Answer 3

An equitable remedy that protects against UNJUST ENRICHMENT

Restitution is the remedy of LAST resort

Recovery in restitution is the REASONABLE VALUE of the benefit conferred (NOT the K price)

Question 4

What is an offer?

Answer 4

Offer = a manifestation of an intent to be bound

Advertisments, generally are NOT OFFERS(!), but rather invitations to submit an offer

• EXCEPTION: where the ad specifies a quantity term, then it’s likely an offer

Open price term (except for real estate K) is OK as the ct can read a “reasonable” price into K

Open quanity term is OK under Art. 2/UCC for Requirement Ks; **PROVIDED **the requrements don’t UNREASONABLY vary as to take seller by surprise

Question 5

When has an offer been accepted? NOTE: NY Distinction

Answer 5

ACCEPTED, when…

1) When the the offer says so: the language of the offer controls E.g., the offer says “you can accept this offer by reporting for work on Monday”→you can only accept by showing up on Monday
2) Starting performance on a bilateral K: starting performance on a bilateral K is an implied obligation to FINISH

NOTE: starting performance on a UNILATERAL K, is NOT acceptance (no obligation to finish!); ONLY finishing performance IS acceptance (REMEMBER: for MBE, once performance has begun, offeror CAN’T revoke offer; in NY, offeror can revoke up until completion) 3) Improper performance… Under common law is a SIMULTANEOUS acceptance AND breach Under Art. 2/UCC is SIMULTANEOUS acceptance AND breach, UNLESS seller is sending the goods as an ACCOMMODATION to buyer (this has to be made clear)→shipment is then a counteroffer (either the buyer accepts and pays FULL K price, OR she doesn’t and there are no damages)

NOT ACCEPTED, when… 1) Offeree remains silent (generally) E.g. “I’ll take your SILENCE as acceptance of this offer” (Note NY exception: unsolicited goods are considered unconditional gifts)

TIMING… generally, acceptance is effective when MAILED (“Mailbox Rule”) NOTE: DOESN’T matter if the letter got lost in the mail; PROVIDED the letter was correctly addressed

Compare with revocation by offeror, which is effective ONCE received by offeree

EXCEPTIONS to Mailbox Rule:

• Offer states otherwise (that the offer is effective once RECEIVED)
• Irrevocable offer, which **must be RECEIVED by deadline **
• Offeree sends REJECTION first, which makes it a RACE (i.e. whichever gets to offeror first cntrl)

NY DISTINCTION: By statute, if the offer is in writing, signed by the offeror, and states that the offer is irrevocable, then the offer is not revocable during the time stated for a reasonable time, even if the offer is not supported by consideration.

Question 6

What is the difference b/t a bilateral K and a unilateral K?

Answer 6

Bilateral K: an offer can generally be accepted in ANY reasonable way (“flexible”)

Unilateral K: an offer can be accepted ONLY by performing (“inflexible”)

2 typical fact patterns: Offer expressly says can only be accepted by performance; offer of reward/contest/prize

NOTE: Look FIRST to see if there is an agreement, THEN see if it’s legally enforceable

Question 7

What are the 4 ways an offer can be terminated?

Answer 7

1) Lapse: an offer lapses after a STATED TERM or a REASONABLE TIME has passed

2) Revocation (by offeror): Generally, an offer can be revked any time before acceptance. How?

• Direct revocation: The offeror indicates directly to the offeree that he has changed his mind about the deal.
• Indirect Revocation: The offeror engages in conduct that indicates he’s changed his mind AND the offeree is aware of the conduct.

3) Rejection (by offeree): an offer terminates when the offeree rejects it (via inappropirate response)

4) Death: death of EITHER party before acceptance terminates a revocable offer, BUT NOT an irrevocable offer (i.e. an option)

Question 8

When is an offer revocable (and irrevocable)? NOTE: NY Distinction

Answer 8

Generally, an offer can be revoked any time before acceptance. How?

• Direct revocation: The offeror indicates directly to the offeree that he has changed his mind about the deal.
• Indirect Revocation: The offeror **engages in conduct **that indicates he’s changed his mind AND the offeree is aware of the conduct.

FOUR EXCEPTIONS where an offer CANNOT be revoked…

1) Option: an option is a promise to keep the offer that is PAID FOR. A promise is not enough to keep an offer open, EVEN if in writing (unless it’s a Firm Offer).

• NY DISTINCTION: a signed, written promise NOT to revoke is enforceable even w/o payment.

2) Firm Offer (Art 2/UCC): in a SALE OF GOODS, if a merchant promises in a signed writing to keep an offer open, the offer is IRREVOCABLE for a maxium of 90 days (3 months) OR, if not specified, a reasonable ≤ 90 days (3 months) NOTE: the terms “merchant” and “signed” are broadly defined under Art. 2/UCC. No consideration is necessary to support this offer.

3) Foreseeable Reliance Before Acceptance (Promissory Estoppel): when it’s REASONABLE that the offeree would RELY on the offer to her DETRIMENT, AND the offeree DOES rely, then the offer will be held IRREVOCABLE for a reasonable length of time. This is RARE esp if offeree can easily accept before detrimentally relying Ct. will step in only when the “interests of justice require it”

4) Partial performance on Unilateral K: an offer for a unilateral K (acceptance by performance) becomes irrecovable once performance ACTUALLY begins

• NY DISTINCTION: Offeror can revoke a unilateral K all the way up until performance has been COMPLETED. Mere preparation is NOT partial performance and can’t stop revocation under this exception (but MAY be irrevocable under promissory estoppel)
• TIMING: a revocation is effective ONLY WHEN it is received by the offeree

Question 9

What are the 3 ways an offeree reject an offer (termination)?

Answer 9

Rejection = an offer terminates when the offeree rejects it (by an inappropriate response)

1) Counteroffer: a valid COUNTEROFFER acts as a rejection by offeree (e.g. Offeree: “I will pay no more than X”).

• NOTE: mere bargaining does NOT act as a rejection

2) Conditional “accpetance”: is not an acceptance at all! It’s a rejection and counteroffer

3) Acceptance with an additional term added by offeree: common law and Art. 2/UCC differ

• Common law: acceptance must MIRROR the offer (the Mirror Image Rule), otherwise it’s a rejection via counteroffer
• Art. 2/UCC (Battle of the Forms): w/ the sale of goods, the offeree’s adding term DOES NOT prevent acceptance Art. 2 Offeree’s term IS included ONLY IF:
  
  • both parties are MERCHANTS;
  • the offer DOES NOT expressly limit acceptance to the terms of the offer
  • there is NO MATERIAL CHANGE (i.e. material = likely to cause hardship or surprise to offeror; NOT customary in industry); AND
  • offeror DOES NOT OBJECT w/in a reasonable time
• Otherwise, the K is formed w/o the offeree’s addt’l term (which has to has to be expressly accpeted by offeror)

Question 10

What is the “lack of capacity” defense? NOTE: NY Distinction

Answer 10

Categories = (i) minors; (ii) intoxicated; OR (iii) mentally incompetent

General rule = an incapacitated DEFENDANT MAY disaffirm the K (i.e. it’s VOIDABLE by ∆ ONLY)

If there is IMPLIED affirmation (retaining the benefit ONCE regaining capacity), then the K is no longer VOIDABLE

EXCEPTION: An incapacitated party is liable for conferred NECESSITIES (e.g. food, shelter, clothing, medical care), but only for the reasonable value of the provisions (NOT the K price)

NY DISTINCTIONS:

1) Certain Ks by infants CANNOT BE VOIDED

• Life insurance Ks by 14.5 yr olds and older
• Educational loans by 16 yr olds and older
• Realty K related to the marital home
• K involving artistic or athletic services

2) For mentally incapacitated

• Adjudicated incompetent → K void
• Unadjudicated incompetent → K NOT voidable UNLESS incompetent can restore other party to previous position

Question 11

What is the “duress” defense?

Answer 11

Ks induced by duress or undue influence are VOIDABLE and may be rescinded by ∆ (the intimdated party) as long as NOT affirmed

NOTE: normally ECONOIMC duress is rare, BUT withholding something someone needs IS economic duress if: (i) the party threatens to commit a wrongful act that would threaten the other K-ing party’s finances; AND (ii) there are no adequate means available to prevent the threatened loss (BASICALLY economic extortion)

Question 12

What is the “misrepresentation/non-disclosure” defense?

Answer 12

Depends on TYPE of misrepresentation:

1) Fraudulent misrepresentation/non-disclosure: If one induces another into a K by using a fraudulent misrepresentation/non-disclosure, the K is VOIDABLE if there is justified reliance
2) Non-fraudulent misrepresentation/non-disclosure: If one party innocently misrepresents/doesn’t disclose, the K is VOIDABLE if there is justified reliance AND the misrepresentation is MATERIAL

Question 13

What is the “mistake” defense?

Answer 13

Two types of mistake…

1) Mutual mistake: if BOTH parties entering into a K are mistaken about a material fact that goes to the essence of the K, then the K is VOIDABLE by the adversely affected party BUT a mutual mistake as to value of an item is NOT considered material enough to be voidable

2) Unilateral mistake: if ONE party has a mistake, it generally does NOT render the K voidable EXCEPTION: if the nonmistaken party knew OR had reason to know of the mistake made by the other party, the K IS voidable by the mistaken party

Question 14

What is the “no consideration” defense? NOTE: NY Distinction

Answer 14

Consideration = a “bargained for exchange”/”legal detriment”; a person can bargain for a promise, performance OR forbearance

1] Past (moral) consideration (a promise given in exchange for something already done) ≠ real consideration!

• NY DISTINCTION: Past/moral consideration IS valid consideration IF it’s expressly stated in a signed writing and performance can be proven

2] Adequacy of consideration is IRRELEVANT if there is a bargain (quid pro quo)

3] Illusory promises are NOT enforceable (e.g. We agree that I can buy as many widgets AS I WANT for $100 each”; the quantity amt is TOO indefinite and based on the whim of one party.)

4] Contract modification (common law vs. Art. 2/UCC)

Common law: NEW consideration is required between ORIGINAL parties to modify a K [Preexisiting Duty Rule]

NY DISTINCTION: don’t need NEW consideration (past consideration binding) if:

• The promise is in writing
• The past consideration is expressly stated
• The past consideration can be proven; and
• The writing is signed by the promisor

Art. 2/UCC: consideration is NOT REQUIRED to modify a K (for sale of goods), just need to show good faith

5] Partial payment of an EXISTING (due and undisputed) debt is NOT valid consideration (e.g. “I’ll pay $x in return for forgiving balance”);

6] BUT… Time-barred (SOL) debt: a written promise to pay a debt which has been barred by SOL IS enforceable even w/o consideration.

7] Promissory estoppel

• FORSEEABLE reliance by promisee may make the promise enforceable even w/o consideration This is a “last resort” remedy by the court.

Question 15

What is the “public policy” defense?

Answer 15

K can be VOID if violates public policy…

1) Covenant Not-to-compete: a ct will invalidate or narrow a convenant not to compete that operates as a restraint of trade, depending on…

• Scope of convenant (duration and geography): the farther in location and the longer in duration, the more likely void
• Need for convenant (uniqueness of services provided): top chef vs. bus boy

2) Exculpatory clause: can eliminate limited liablity for negligence, BUT NOT gross negligence OR intentional torts

Question 16

What is the “unconscionability” defense?

Answer 16

2 types…

1) Substantive: the TERMS are inherently unfair given relative bargaining pwrs (e.g. indentured servitude)

2) Procedural: the agreement PROCESS was unfair (e.g. sneaky terms in very small print)

NOTE: generally “unconscionability” is NOT valid defense against enforcement of K; act must “shock the conscience” for court to find it a valid defense.

Question 17

What are the 9 defenses against formation of a K?

Answer 17

1) Incapacity (making the K voidable)

• Of defendant; look for implied affirmation and necessities

2) Duress (economic or physical)

• Where there’s no reasonable alternative

3) Misrepresentaion/Non-disclosure inducing Agreement

• fraud is not required

4) Mutual mistake

• Must go to a material fact (market value is not material)

5) Ambiguity

• Innocent party’s meaning governs

6) No consideration

• Need a bargain; if none, look for promissory estoppel.
• NY: Signed writing is sufficient if there’s past consideration, modification, or undisputed debt

7) Public policy

• Look for covenant not-to-compete (need & scope)
• Or, exculpatory clause

8) Unconscionability

• substantive (terms) or procedural (process)

**9) Statute of Frauds (SOF) **

Question 18

What agreements are w/in the statute of frauds (SOF)? NOTE: NY Distinction

Answer 18

“MY LEGS”

1) Marriage: a promise where the consideration is marriage (e.g. offering something of value in exchange for marriage like a prenup)

2) (Peformance NOT w/in one) Year: A promise that cannot possibly be performed w/in 1 year from time agreement is MADE

• NOTE: lifetime Ks (“I’ll work until I die”) are NOT w/in this category
• [NY DISTINCTION: lifetime Ks DO fall w/in SOF] if a K’s performance is THEORETCIALLY possible w/in 1 yr then it’s outside the SOF (doesn’t matter that performer is lazy)

3) Land: a promise creating an interest in land must be evidenced by a writing (real property, fixtures, mtgs, greater than 1YR leases or easements, etc)

• NY DISTINCTION: In a principal/agent rel., when dealing with an “interest in land,” the agent must be authorized in writing (or the principal must ratify). This is know as the “equal dignities rule.”

4) Executor (or Administrator): a promise by executor to PERSONALLY pay estate debts (from own funds)

5) Goods (for $500 or more): a K for sale of goods (UCC) ≥$500

• NY DISTINCTION: in NY under Art. 2A/UCC, the LEASE of goods for ≥$1000 must be in writing (don’t be tricked by monthly price for a YEARLY K)

6) Suretyship: the promise to answer for defaulted debt of ANOTHER

7) Contract modification: must be in writing ONLY IF the K AS MODIFIED (not original K) is w/in the SOF

• If not req’d to be in writing, MAY be orally modified, UNLESS UNDER THE UCC, the K says no oral modification (NOTE: under common law, the K cannot prohibit oral modication)

NY DISTINCTION: additional agmts that MUST be in writing (w/in SOF)

1) Assignment of an insurance policy
2) A promise to pay a DISCHARGED debt
3) An agmt to pay a finder’s fee/broker’s commission (EXCEPT to an atty, auctioneer, OR licensed RE broker)

Question 19

What is a satisfactory writing p/t SOF? NOTE: NY Distinction

Answer 19

Depends on the nature of the contract

1) Sale of Goods (Art. 2/UCC): Must contain

• (i) a QUANTITY term (# OR good faith requirements); AND
• (ii) be SIGNED by the would-be ∆ (the breaching party)

2) Lease of Goods (Art. 2A/UCC) [NY ONLY]: Must

• (i) state that it’s a LEASE (including rental pmts, # of pmts, and duration); AND
• (ii) must be SIGNED by the would-be ∆ (the breaching party)

3) ANY other K: Must conatin

• (i) ALL MATERIAL terms (who/what); AND
• (ii) be SIGNED by the would-be ∆ (the breaching party)

Question 20

What are the 4 ways a party can satisfy the SOF w/o a writing? NOTE: NY Distinction

Answer 20

Even though these are SOF categories, we DON’T need a writing when…

Real Property

1) Leases of ONE YEAR or LESS (legislative exception to ensure that short-term leases are NOT invalidated by SOF)
2) “Part Performance” Exception: Requires TWO of THREE of the following: buyer is in POSSESSION of the property; buyer made SOME PAYMENT; buyer made IMPROVEMENTS to the property
* NY DISTINCTION: SOF also not applicable when there has been part perfromance of a lease agmt

One-year duration prong

1) “Full performance” exception: if the full performance of a service K, no need to be evidenced by writing NOTE: partial performance is NOT sufficient; would THEN need evidence of writing

Sale of Goods ≥ $500 (Art. 2/UCC)

1) Goods accepted OR paid for by buyer: SOF satisfaction ONLY applies to goods accepted OR paid for, NOT the whole K!
* NOTE: if the K goods CANNOT be apportioned, then partial pmt satisfies SOF for WHOLE good
2) Custom-made goods: if custom made goods are NOT suitable to anyone else, AND seller made a substantial start to perform, then DON’T need a writing to satisfy SOF
3) ∆ Admission of K in judicial proceeding: if ∆ admits that there is a K in a deposition, testimony, pleading, etc, then DON’T need writing to satisfy SOF
4) Merchant’s confirmatory memo: ONE party can use its own SIGNED writing to satisfy SOF against the OTHER party (would-be ∆)… …IF:

• BOTH parties are MERCHANTS;
• the writing claims AGREEMENT/has QUANTITY; AND
• there is no WRITTEN objection w/in 10 DAYS Typical fact pattern: 2 merchants agree over the phone AND one sends a written confirmation, which can be used against other party if it defaults

Suretyship

1) “Main purpose” exception: if the g’tor gets pecuinary gain from the surety, then it’s NOT w/in SOF and there’s no need for a writing

NY DISTINCTION: NY doesn’t recognize the main purpose exception, so you’d STILL need a writing signed by would-be ∆