CONTRACTS/SALES Flashcards
UCC vs. Common Law
UCC Article 2 governs transactions for the sale of goods. Where the UCC is silent, common law applies. A “good” for the purposes of the UCC is any item readily moveable at the time of the agreement.
Common law governs service contracts.
Predominant Purpose Test
Where an agreement includes goods and services, the “predominant purpose” of the agreement determines the applicable law. A court will consider the value of the goods vs. services, the contract language, and the nature of the business.
Requirements of an Enforceable Contract
Offer, acceptance, and consideration.
Offer
An outward manifestation of a present intent to be bound that creates the power of acceptance in an offeree and includes all necessary terms.
UCC Necessary Terms: Description and quantity.
Common Law Necessary Terms: Description, quantity, and price.
Reward Offers
Reward offers are valid offers that create a unilateral contract that is accepted upon completion of performance.
Commercial Advertisement
Commercial advertisements are not offers, but rather an invitation for offers, since acceptances could exceed the quantity available.
This does not apply in instances in which the advertisement specifies who can accept, such as “first come, first served” or “while quantities last”.
Irrevocable Offers
FOUR
Firm offer (UCC)
Option contracts (Common Law)
Unilateral contracts
Reasonably foreseeable substantial detrimental reliance on the offer
Rejecting an Offer
Can reject outright; with a counter offer (must be more than a mere inquiry); or with non-conforming acceptance under the mirror image rule.
Mirror Image Rule
Under common law, acceptance must mirror the terms of the offer. Any acceptance outside of the offered terms constitutes a rejection and counteroffer.
Terminating an Offer
An offer can be terminated prior to acceptance when there is:
- Lapse (a “reasonable time” has passed to accept)
- Death/incapacity
- Revocation (communicated to the offeree, either directly or indirectly, barring any exceptions)
- Rejection (outright, non-conforming acceptance under the mirror image rule, or a counter offer)
UCC Firm Offer
Under the UCC firm offer rule, a merchant can make a firm offer without consideration. A firm offer is irrevocable if it is in writing and signed by the merchant and states expressly that the offer will be held open. Offer is then irrevocable for the time stated, or for a maximum of 90 days.
Indirect Revocation
An indirect revocation terminates an offer prior to acceptance.
Requires the offeror to take action inconsistent with the intent to go through with the deal and the offeree to have learned of such inconsistency from a reliable source.
Common Law Option Contract
A common law offer with a separate agreement to keep the offer open, secured by consideration, is not revocable.
Acceptance
Must be an outward manifestation of assent to the terms of the offer.
Under the common law mirror image rule, the acceptance must mirror the terms of the offer exactly; if the terms of the acceptance vary, it constitutes a rejection and counteroffer.
An acceptance by mail is effective upon dispatch under the mailbox rule.
Acceptance with Varying Terms
Under the common law mirror image rule, the acceptance must mirror the terms of the offer exactly; if the terms of the acceptance vary, it constitutes a rejection and counteroffer.
Under the UCC, additional terms in the acceptance are permissible as long as the acceptance was not expressly conditioned on those terms. Additional terms will then become a part of the contract as long as they are not objected to within a reasonable time or materially change the contract.
“Materially alter the contract” = anything that would cause surprise or hardship to the other party if it were incorporated without the other party being aware.
UCC Acceptance by Seller
A seller can accept a buyer’s offer in three ways:
- By promising to ship conforming goods.
- By actually shipping conforming goods.
- By shipping non-conforming goods, which constitutes both an acceptance and a breach at the same time.
3(a). If a seller ships non-conforming goods as an “accommodation”, it constitutes a rejection and counteroffer which the buyer is free to accept or deny.
Seller Shipment of Non-Conforming Goods
Shipping non-conforming goods constitutes both an acceptance and a breach at the same time.
If a seller ships non-conforming goods as an “accommodation”, it constitutes a rejection and counteroffer which the buyer is free to accept or deny.
If the buyer keeps the non-conforming goods, it is an acceptance of the counteroffer.
Mailbox Rule
Acceptance of an offer is effective upon dispatch as long as it was sent before a rejection.
Rejection/revocation of an offer is effective upon arrival.
When a rejection is mailed first and then an acceptance is mailed, the mailbox rule does not apply. The first to reach the offeror controls.
The mailbox rule does not apply to option contracts, which may only be accepted upon arrival.
UCC Acceptance with Additional/Different Terms
Unlike the common law mirror image rule, the acceptance of a contract for the sale of goods can include additional or different terms and still constitute a valid acceptance and create an enforceable contract, unless acceptance was expressly conditioned upon certain terms in the offer.
The effectiveness of the additional/different terms depends on the parties.
Merchant vs. Consumer — Additional/different terms are mere proposals for addition to the contract that do not become enforceable until the offeror expressly agrees.
Merchant vs. Merchant —
- Additional terms become part of the contract unless (1) the offer expressly limits acceptance to only the terms in the offer, (2) the offeror objects to the additional terms within a reasonable time, or (3) the additional terms would materially alter (cause surprise or hardship) the contract.
- Different terms will “knock each other out” and both be omitted; gap fillers will apply.
Conditional Acceptance
If an offeree’s acceptance is made conditional upon a new or different term, it is a rejection and counteroffer. Conditional acceptance does not form a contract.
Conditional acceptance must be clear and conspicuous.
Consideration
A promise/contract is unenforceable unless it is supported by consideration — a legal detriment or bargained-for exchange.
Courts will not inquire as to the adequacy of consideration; only its existence.
A promise to make a gift (gratuitous promise), an illusory promise, and/or past consideration are not adequate to create an enforceable contract.
Past Consideration
A promise in exchange for something already given or performed is not supported by consideration and not binding unless it is (1) a written promise to pay a debt that has expired past the SOL, or (2) a written promise to pay a debt that has been discharged by bankruptcy.
Illusory Promise
A promise of performance that leaves the adequacy of performance to the promising party is not supported by consideration and not enforceable.
Example: “I’ll pay you $5 if I feel like it,” or, “I’ll promote your album if I think it’s good enough.”
Promissory Estoppel
Alternative theory of contract enforcement in which there has been:
- Foreseeable and actual detrimental reliance upon
- A promise in which
- Enforcement is necessary to avoid unjust enrichment.
If enforced, may recover RELIANCE or EXPECTATION damages.
Pre-Existing Duty Rule and the Modification of Contracts
Under the common law pre-existing duty rule, additional consideration is required to modify an existing contract, unless unforeseeable circumstances make performance substantially more burdensome than originally anticipated.
Under the UCC, parties may modify a contract without additional consideration as long as it is modified in good faith.
Guarantor/Suretyship Contracts
A promise to answer for the debt of a third party. Must comply with the SOF.
Main Purpose Exception: If the surety/guarantor’s main purpose in entering into the contract is for their own economic benefit/interest, the SOF is not triggered.
Statute of Frauds
A contract that falls under the SOF must be in writing and signed by the parties against whom enforcement is sought. A contract falling under the SOF that is not in writing and signed is unenforceable barring an exception.
MY LEGS — Contracts in preparation of Marriage; contracts that can’t be performed within one Year; contracts for the sale of Land; Executor contracts; Guarantor/surety contracts; and contracts for the Sale of goods in excess of $500.
The writing must identify the parties, subject matter, and essential terms. (Contracts for the sale of land must include a description/address of the property)
“Signature” = Any symbol intended to authenticate (could be a letterhead or initials).
Exception: Satisfaction by performance or UCC exceptions.
Performance Exception to the Statute of Frauds
1+ Year Service Contracts: Can satisfy the SOF if fully performed on both sides (not partially performed).
Sale of Goods $500+ Contracts: Can satisfy the SOF with partial performance up to the quantity performed, or by beginning the manufacture process of custom goods.
Real Estate Contracts: Partial performance of a real estate contract will satisfy the SOF if 2 out of 3 of the following are achieved: (1) payment of all or part of the purchase price; (2) taking possession of the land; or (3) making substantial improvements to the land.
