What law governs the transaction? Is there a deal? Flashcards
three avenues for what law governs
A. If a contract is solely for the sale of goods (i.e., tangible, movable items), UCC Article 2 governs the transaction, regardless of whether the parties are merchants or non-merchants.
»> However, many of the important UCC rules (14 in total) apply only to contracts in which at least one of the parties is a merchant.
»> Article 2 covers the sale of ordinary goods (a suit off the rack) and custom-made goods (a tailor-made suit).
• Items Attached to Land
»> Article 2 applies to the sale of minerals, oil, gas, and structures if they are to be severed from the land by the seller.
»> Article 2 applies to the sale of crops, timber, and fixtures regardless of which party is to sever the asset from the land.
»> Article 2 also applies to the sale of the unborn young of animals.
»> A sale of “present” or “future” goods operates as a contract to sell under Article 2.
B. If the contract involves only non-goods (i.e., real estate, services, or intangibles), the common law governs the transaction.
C. If the contract involves both goods and non-goods, the predominant (a/k/a primary or dominant) purpose of the contract governs.
• The predominant purpose test is an all-or-nothing test; thus:
»> if the predominant purpose of the contract is goods, the UCC governs the entire contract
»> if the predominant purpose of the contract is non-goods, the common law governs the entire contract
predominant purpose test (when used; 4 elements; example)
• Predominant Purpose Test
– Test: To determine the predominant purpose of a mixed transaction, courts examine:
• (1) the language of the parties’ contract (not the dispute)
• (2) the nature of the business of the supplier of the goods and non-goods (e.g., service)
• (3) the reason the parties entered into the contract (i.e., what each bargained to receive)
• (4) the respective amounts charged under the contract for goods and for non-goods
3 necessary elements of a deal/mutual assent; mutual assent analysis
• A “deal” consists of three parts:
– (1) an offer
– (2) which is “alive” at the time of the attempted acceptance, and
– (3) a proper acceptance
• “Mutual assent” is judged by the objective theory of contracts
– Whether an offer or revocation has been made is judged from the perspective of a reasonable offeree
– Whether an acceptance, rejection, or counteroffer has been made is judged from the perspective of a reasonable offeror
four types of contracts/agreements
– Express contracts: mutual assent established by the parties’ language (oral or written).
• Option contracts: an express contract to hold an offer open for a fixed period of time.
– Contracts implied-in-fact: mutual assent established (at least in part) by the parties’ conduct (e.g., silently accepting benefits where it is reasonable to assume the other party expects compensation).
– Contracts implied-in-law (i.e., quasi-contracts): these are not contracts, so there is no mutual assent. A quasi-contract is simply a remedy designed to prevent unjust enrichment.
> > > **important note on unjust enrichment & restitution: if the non-breaching party has to pay someone else to finish the job, and in the end ends up spending more than they had originally planned to, they will never be “unjustly enriched” – even if the breaching party was not fully paid for their work! – the non-breaching party will only have been unjustly enriched if they were able to get the job completed with another party for a total price LESS than he had originally planned
offer (definition, 3 components, timing)
• Definition: An offer is an expression of present willingness to enter into a bargain, made in such a way that a reasonable offeree would believe that she can conclude a bargain merely by giving assent.
**look at from reasonable, objective offeree’s perspective!
• A valid offer has three components:
– a. INTENT on the part of the offeror to enter into an immediate deal (in the eyes of the offeree)
»> i.e. no contract if you reserve the right to cancel!
– b. The CONTENT of the offer must be sufficiently definite
• Ideally, the offer should identify the parties, the subject matter, the price, and the time of performance. But certain terms are essential:
»> for real estate offers, there must be a price and an adequate description of the land
»> for UCC offers, there must be a quantity term (e.g., numerical or buyer’s requirements or seller’s output)
»»> **but you can likely use course of performance/dealing to argue that the quantity was established
»> for employment offers, there must be a duration (no duration results in an at-will contract)
• Advertisements, price quotes, and catalogs are generally not offers - will 99% of the time not result in a contract
»> rare exception: where there is a price quotation/catalogue sent as a response to a specific inquiry, including delivery terms/conditions of sale – general rule is that the broader the comm in the media (like a magazine ad or trade publication), the less likely it will be viewed as an offer
– c. COMMUNICATION of the offer to the offeree
• only persons aware of the offer may accept
• only persons to whom the offer was directed may accept (i.e., offers are not assignable, but option contracts are assignable)
• Timing: An offer is effective upon RECEIPT by the offeree.
offer “alive” at time of acceptance - four ways an offer may “die”
by its own terms
revocations by operation of law
revocations by offeror
terminations by offeree
offer “alive” at time of acceptance - by its own terms
– i. By Its Own Terms. The offeror is the “master” of the offer. As such, she may place a specific limit (e.g., one day or five minutes) on the time to accept. If no such limit is placed on the offer, the offer is open for a reasonable time.
offer “alive” at time of acceptance - revocations by operation of law (rule and 3 types)
– ii. Revocations by Operation of Law. An offer is automatically revoked (regardless of the other party’s knowledge) by the:
• Death or the adjudicated incapacity of the offeror or offeree
»> **Death or adjudicated incapacity DOES NOT terminate an OPTION contract or a UNILATERAL contract where the offeree has already commenced performance
• Intervening illegality or destruction of the subject matter
»> These events will also terminate an option contract (b/c if the item has been destroyed, there’s not much you can do)
• Non-adjudicated insanity of the offeror or offeree (but knowledge of the other party is necessary for this type of revocation to be effective)
offer “alive” at time of acceptance - revocations by offeror (general rule - 2 situations)
– iii. Revocations by the Offeror. As a general rule, offers are freely revocable, even if the offeror promises not to revoke the offer. An offer is revoked when:
- An unambiguous verbal (oral/written) revocation is communicated by the offeror to the offeree prior to acceptance
- The offeree obtains reliable information showing that the offer is no longer open (e.g., notice that the item has been sold to another person) prior to acceptance - ***offeree must be aware, or offer was never validly termed and can still be accepted!
offer “alive” at time of acceptance - revocations by offeror (timing, mailbox rule, receipt)
• Timing: When is a revocation effective?
– A revocation is effective upon “receipt” by the offeree. Revocations by the offeror must pre-date the acceptance.
»> Mailbox Rule: As a general rule, acceptances are effective upon dispatch (e.g., VALID mailing), but revocations are always effective upon receipt by the offeree; thus, it is possible that a revocation will be communicated to the offeree prior to the receipt of the acceptance by the offeror (because it’s still in the mail) but subsequent to the mailing of the acceptance»_space;> in such cases, the revocation is ineffective.
– Receipt: A written offer, revocation, counteroffer, or rejection is “received” when the writing comes into the POSSESSION of the person addressed, REGARDLESS of when such document is opened or read.
offer “alive” at time of acceptance - revocations by offeror (four types of non-revocable offers - option contracts; merchant firm offers; detrimental reliance; unilateral contracts)
• Rule: Offers are inherently revocable, except:
– option contracts. an agreement, SUPPORTED BY CONSIDERATION (even nominal consideration), to hold an offer open for a fixed period of time
»> under the Restatement, an option contract is enforceable if it merely recites nominal consideration
– a merchant’s firm offer (UCC-only rule). an offer to buy or sell goods made by a merchant in a signed writing in which the merchant promises to hold the offer open for a stated time (or a reasonable time if no precise time is stated); such “firm offers” are irrevocable for the stated time (or reasonable time), but in no event more than 90 days
»> if the offer provides for a period longer than 90 days, the offer may still be accepted after 90 days if it has not been revoked; the 90-day period is simply the maximum period of irrevocability
»> “signing” requirement is liberally construed and can be satisfied by sending an offer on your company letterhead
• ***if the offeree is the one who provides the form, it must be separately signed by the offeror to be effective!
– detrimental reliance. the offeree has detrimentally relied on the offer and that reliance was reasonably foreseeable by the offeror
»> if a general contractor relies on the bids of subcontractors in preparing the general contractor’s bid, the subcontractors’ bids are irrevocable until a reasonable time after the owner/architect awards the contract to the general contractor.
– unilateral contracts. if the contract is unilateral in nature and the offeree has commenced performance (something more than mere preparation to perform), the offeree must be given a reasonable time to complete performance (but note: the offeree is not bound to complete performance unless it was a bilateral contract)
»> common examples: flyers for a reward for finding a dog; the family member that promises to pay another family member for giving up video games or coming to work sober
»> REMEMBER: if the offeror dies before the performance is fully carried out, the offeree can still complete performance and get payment from the offeror’s estate
»> **your fallback for mere preparation is you could still claim detrimental reliance
offer “alive” at time of acceptance - terminations by the offeree (general CL rule, counteroffer, express rejection, conditional acceptances)
– iv. Terminations by the Offeree. The offeree may also terminate an offer. When an offeree terminates an offer, it is called a “rejection.” Methods of rejection:
• Counteroffer. a counteroffer by the offeree permanently revokes the offer and, in fact, constitutes a new offer
– mere inquiries/questions alone (“Will you take $9,000?”) are not rejections
– in some cases, the original offer may be revived after a counteroffer
»> A offers to sell her car to B for $10,000. B replies, “I will not pay more than $9000.” A responds, “I need the entire $10,000.”
• Express Rejection. “No thanks” or “Not interested.” A rejection permanently revokes the offer, even if the offeror had originally indicated that it would be held open for a longer period.
– Effective Date of Rejection. rejections (express or otherwise) are effective upon receipt by the offeror.
– Option Contracts. A rejection or counteroffer made by the “offeree” during the option period does not terminate the option contract, unless the “offeror” detrimentally relies on the offeree’s rejection.
• Conditional Acceptances. a conditional acceptance (“I accept if [or but or provided that or on the condition that or so long as”] . . . is a rejection/counteroffer and permanently revokes the offer
offer “alive” at time of acceptance - terminations by the offeree (common law Mirror Image and Last Shot; UCC Battle of the Forms)
• Common Law:
– Mirror Image Rule: if the “acceptance” deviates (in even the slightest fashion) from the terms the offer, the “acceptance” constitutes a counteroffer and a rejection
»> Last Shot Rule: if the parties perform without an express contract, the last document governs
• UCC Battle of the Forms: Article 2 abolishes the Mirror Image Rule and modifies the Last Shot Rule. Under the UCC, if the “acceptance” adds a term (“I accept and ….”) to the offer, ask two questions:
– Is there a contract? Answer: Yes (as long as “acceptance” of the additional term was not an express “condition” of acceptance). - so there must be a definite expression of acceptance to all the non-boilerplate terms
»> **for exam purposes, the answer is typically yes (unless it includes a proviso – “acceptance expressly made conditional on an assent to the additional/different terms in this acknowledgement” – which would turn it into a counteroffer)
– Does the deal include the additional term? Answer: It depends.
»> if BOTH PARTIES are MERCHANTS, the additional term is part of the contract, unless (1) the original offer limited acceptance to the exact terms of the offer; (2) the offeror objects to the additional term within a reasonable time after receiving the acceptance; or (3) the additional term materially alters the offer – causing “surprise” and “hardship” (e.g., changes the remedies available to the offeror, significantly limits the offeree’s liability, or disclaims warranties; arbitration clauses). An additional term that materially alters the offer does not equal a rejection; in such cases, there will be a contract, but without the new term.
»> if either party is a NON-MERCHANT, the additional term is NOT part of the contract, UNLESS the additional term is expressly accepted by the offeror (after receiving the acceptance)
**note on different/conflicting (rather than additional) terms: there is a split of authority – some states apply the same rules as for additional terms, other states knockout different/conflicting terms and then apply the UCC gapfillers
– if the proviso is in the contract (i.e. no express contract under question 1): Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of the UCC (i.e. any consistent terms plus UCC gapfillers – which will allow buyers to get consequential damages)
acceptance (definition; who may accept - 2 categories; examples)
• Definition: An acceptance is a manifestation of assent to the terms of the offer.
• Who may accept?
– Only those who are aware of the offer
• A places an ad in the local newspaper offering a reward of $50 for return of his lost wallet. Without knowledge of the reward, B finds the wallet and returns it to A. One day later, B learns of the reward and demands $50 from A. Is B legally entitled to the $50?
»> No, because B was unaware of the reward at the time she finished the acts necessary to accept the offer.
»> NOTE: Knowledge of the offer is not necessary to collect a standing offer of reward made by a governmental body (e.g., A city ordinance provides that a standing reward of $1,000 will be paid for information leading to the arrest and conviction of anyone guilty of arson within the city limits. A furnishes such information. A is entitled to the reward whether or not he knew of the reward.)
– What if B learned of the reward after she found the wallet but before she returned it to A?
»> B would be entitled to the reward because she knew of the reward before finishing the acts necessary to collect it.
– If A wishes to revoke the offer (before anyone has accepted), how could A do so?
»> Equal Publicity Rule: A must give equal publicity (e.g., same newspaper, same number of days, etc.) to the retraction as he did to the offer.
• Buyer sends a letter to Seller offering to buy Blackacre for $100,000. Coincidentally, on the same day Seller sends a letter to Buyer offering to sell Blackacre for $100,000. Is there mutual assent?
»> No. Under the common law, two offers that cross in the mail that have identical terms do not create a contract because neither party was aware of the other’s offer. The UCC has a more flexible rule.
»> note: The UCC has a more flexible rule - A contract for the sale of goods may be found even though the moment of its making is undetermined.
– Only those persons to whom the offer was made (thus, offers may not be assigned or accepted by bystanders to whom the offer was not directed).
• Option contracts may be assigned.
how may an offer be accepted
– The offeror is the master of the offer and may limit the form of acceptance (e.g., by fax only), but must do so unambiguously.
