Basics: Governing Law & Contract Formation (mine)

Question 1

Contracts: Governing Law

Answer 1

Sale of goods –> UCC art. 2

Lease of goods in NY –> UCC art. 2A

All others –> CL

Question 2

“Contract” & types (based upon formation)

Answer 2

= “legally enforceable agreement

1. Express vs. Implied

• express = formed by parties’ words;
• implied = formed by their conduct

2. Bilateral vs. Unilateral

• unilateral = offer can be accepted ONLY by complete performance
• bilateral = offer can be accepted in any manner

Question 3

What to do if no enforceable K?

Answer 3

Restitution

• = equitable remedy
  
  • protects against unjust enrichment when contract law yields unfair result
• entitles to “reasonable value of benefit conferred”
  
  • NOT the contract value

Question 4

Contract Formation

Answer 4

To form a contract, requires:

1. Apparent, mutual assent to form same bargain at same time
2. Mutual consideration

Usual Process: Offer & Acceptance

1. Offer
2. Offer terminated?
3. Acceptance
4. Consideration

Question 5

Contract Formation:

1. Offer

Answer 5

Offer must be:

1. = Manifestation of intent to be bound
   
   • reasonable person standard
2. Sufficiently definite so that it may be enforced
   
   • Art 2: quantity must be objectively determinable (requirements K ok)
   • Price- not required

Question 6

2. Offer Terminated?

Answer 6

4 ways to terminate:

Lapse

Revocation

Rejection by Offeree

Termination of Offer By Law

Question 7

Offer Terminated:

Lapse

Answer 7

Offer automatically lapses after “reasonable period of time”

Question 8

Offer Termination:

Revocation by Offeror

Answer 8

General Rule:

• Offer can be revoked by offeror any time before acceptance

How:

• Direct revocation
  
  • = offeror directly communicates notice of revocation to offeree
• Indirect revocation
  
  • = offeror engages in conduct that indicates intent to revoke & offeree is aware of the conduct

Exceptions: Irrevocable offers (NY: 3 types; MS: 4 types)

Question 9

Irrevocable Offers

(NY: 3 exceptions; MS: 4 exceptions)

Answer 9

(= exceptions to rule that Offeror can revoke any time before acceptance)

1. Option Contract

• MS: OPtion K
  
  • K for which consideration exchanged for agreeemnt not to revoke offer
• NY: Option K
  
  • = written, signed promise not to revoke offer
• Duration: time stated

2. Merchant’s Firm Offer [UCC Art. 2]

• Merchant’s firm offer =:
  
  • signed
  • written offer
  • by merchant
  • that gives assurance offer will remain open
• Duration:
  
  • default: reasonable period not to exceed 3 mos.
  • can overwrite but not exceed 3 mos.

3. Foreseeable Reliance upon Offer

• narrow
  
  • (generally, reliance not foreseeable until accept)
• ex: contractor relies upon subcontractor’s offer

4. Unilateral K IF offeree Commences Performance [MS only]

• Upon commencement of performance, unilateral k’s offer becomes irrevocable
• (BUT acceptance not until complete)

Question 10

Termination of Offer:

Rejection by Offeree

Answer 10

Includes:

• Counteroffer
  
  • does NOT include mere inquiry/bargaining
• *Conditional acceptance [CL & Art 2]
  
  • = rejection & counteroffer

Question 11

What happens where offeree’s acceptance varies terms?

Answer 11

CL: Mirror Image Rule

• If offeree’s response differs in any way, then his communication = rejection & counteroffer
• (no contract formed)

Art 2:

• If offeree’s response communicates acceptance, but varies terms –> K formed, BUT offeree’s different terms may not be included
• For new terms to be included, must be:
  
  • 1. Boht parties are merchants
  • 2. Altered terms are not material
       * test = whether will cause offeree surprise/hardship
  • 3. Offeror did not object before/does not object within reasonable time after offeree’s acceptance

Question 12

Offer Terminated:

Termination by Operation of Law

(4 ways)

Answer 12

1. Death of Either party

• Exception: Option Contract
• Effective: upon date of death (not notice)

2. Insanity of Either Party

• Exception: Option Contract
• Effective: upon date declared insane by court

3. Destruction of Subject Matter of K
   * (before acceptance)
4. Illegality of Subject Matter of K

Question 13

Requirements K

Answer 13

= K for seller’s entire output OR buyer’s entire demand

UCC art. 2:

• Enforceable, even tho omit quantity, b/c quantity can be determined by objective facts

Unenforceable ONLY if drastic increase in demand/supply

• effect: would take other party by surprise

Question 14

3. Acceptance

Answer 14

Default rules:

• Means of acceptance is controlled by the offer’s terms
• if not restricted, can accept in any reasonable manner
  
  • Starting performance?
    
    • if unilateral –> No, only completion is acceptance
    • if bilateral –> yes
  • NO Silence as acceptance [UCC, CL]
    
    • NY: If send unsolicited merchandise, is gift
• Effective
  
  • when mailed
• f
  *

Question 15

Improper Performance?

Answer 15

CL:

• = acceptance and simultaneous breach of K

UCC art. 2:

• = acceptance and simultaneous breahc
• UNLESS:
  
  • sent as accomodation
  • & with notice as accomodation

Question 16

Mailbox Rule

Answer 16

Default rules for effective times:

• Acceptance:
  
  • when mailed
• Revocation:
  
  • when received by offeree
• Rejection:
  
  • when received by offeror

Exceptions

• 1. Option Contracts
• 2. Contract/offer terms state otherwise

Special applications:

• Acceptance then rejection:
  
  • Acceptance effective first –> contract
  • Exception: Rejection received first & detrimental reliance
• Rejection sent, then acceptance:
  
  • *Whichever is received first!

Question 17

4. Consideration

Answer 17

= “bargained-for change in legal position of both parties”

CanNOT be:

1. Past consideration
   
   • = consideration already given/performed
   • NY: exception:
     
     • stated in writing
     • & past performance can be proved
2. Discharge of existent debt
   
   • for less than owed
   • NY exception:
     
     • stated in writing
     • & signed
3. Illusory promise
   
   1. = performance obligation/standard is at complete discretion of one party
   2. ex: unqualified right to cancel

Can be:

1. Financial
2. Promise of future performance
3. Forbearance
4. Renewal of promise to pay existent debt IF:
   
   • _technical defens_e stands in way of enforcement
   • & promised in writing
5. Legal detriment
   
   1. (agreement not to do something obligated to do)

Question 18

Defenses against K Formation

(9)

Answer 18

1. Lack of capacity
2. Misrepresentation/Non-Disclosure of Material Fact
3. Ambiguity/Misunderstanding
4. Mutual Mistake
5. Unilateral Mistake
6. Absence of Consideration
7. Public Policy Exceptions
8. Unconscionability
9. Statute of Frauds

Question 19

Defense against K Formation:

Incapacity: Infancy, Mental Incompetency, Intoxication

Answer 19

Effect: Contract voidable by incapacitated party

a) Infancy

• Minor party may disaffirm K either:
  
  • during minority OR within reasonable time after reaching age of majority
  • but not after ratifies (implicit by accepting benefit of K after reach age of majority)
• Exceptions:
  
  • MS/NY: Restitution for supplying “necessaries”
  • NY: Enforceable K categories
    
    • life insurance for 14.5 yrs +
    • Educational loans for 16 yrs+
    • Realty K’s for marital property
    • K’s for artistic/athletic services

b) Mental Incompetency

• Mentally incapacitated person may disaffirm upon regaining competency (lucid interval/permanent)
• Standard for incompetency:
  
  • NY: to void K,
    
    • MUST be adjudicated incompetent
    • OR must be able to restor other party to previous position

c) Intoxication

• Intoxicated person may disaffirm K IF:
  
  • could not understand the nature & significance o his promise
  • AND other party had reason to know/actual knowledge of intoxication

Question 20

Defenses against K FOrmation:

Economic Duress

Answer 20

Requirements:

1. Selling party th_reatens not to perform on existing contract obligation _
2. Buyer o_nly enters to secure perforamnce_ on existing obligation
3. Buyer has _no reasonable alternative _

Question 21

Defenses against K Formation:

Material Misrepresentation/Omission

Answer 21

–> Contract voidable

Requires:

1. material
2. • Factually incorrect statement OR omission

(need not have intent to defraud)

Question 22

Defenses to K Formation:

Ambiguity/Misunderstanding

Answer 22

Where no mutual understanding, no K (void).

Exception: where one party had reason to know/knew other party’s meaning

ex: two ships named same thing leaving at different times –> no K

Question 23

Defenses to K Formation:

Mistake

Answer 23

a) Mutual Mistake

• Voidable ONLY IF:
  
  • 1) both parties mistaken as to basic assumption upon which the K is formed
  • 2) mistake is material
  • 3) party seeking avoidance did not assume the risk
• “material/basic assumption”?
  
  • test = whether induced party to enter the K
  • NOT value (both parties assume risk)
• f

b) Unilateral Mistake

• Voidable ONLY IF:
  
  • 1) 1 party mistaken as to basic assumption upon which the K was formed
  • 2) mistake is material
  • 3) party seeking avoidance did not assume the risk
  • • 4) Other party had reason to know of the mistaken party’s mistake

Question 24

Defenses to K Formation:

Absence of Consideration

Answer 24

Look for:

• Illusory promise
• Past consideration
  
  • (NY exception for written & signed)

Question 25

Defenses to K Formation:

Public Policy Exceptions

Answer 25

a) Covenant Not to Compete

• test = whether the covenant operates as a restraint on trade
  
  • 2 factors:
    
    • i) whether necessary (unique service/goods)
    • ii) scope (duration & geographic)
• Effect: court may invalidate OR narrow the scope

b) Exculpatory Clauses beyond negligence

• Cannot exculpate for:
  
  • gross negligence
  • recklessness
  • intentional torts

Question 26

Defenses to K Formation:

Unconscionability

Answer 26

Generally, not a valid excuse

2 types unconscionability:

• a) Substantive
  
  • = unfair terms
• b) Procedural
  
  • = unfair process

Court’s Options:

• Void the entire K/clause
• Rewrite to make fair

Question 27

Defense to K Formation:

Statute of Frauds- scope

(NY- 9 categories; MS- 5 categories)

Answer 27

Statute of Frauds requires particular types of contracts to be memorialized in writing

• CL: by party against whom seek enforcement
• UCC:
  
  • by party against whom seek enforcement
  • OR merchant’s confirmatory memo
    
    • IF:
      
      • both parties are merchants
      • other party does not object to terms in memo w/in 10 days
    • –> Can use opposing party’s signed written confrimation as evidence

MS/NY Scope:

1. On their terms canNOT be performed in 1 year
   
   • Lifetime K?
     
     • MS: not w/in scope of SOF
     • NY: IS w/in scope of SOF
   1. Exception: actual complete performance w/in one year
2. Goods in value of $500+ [UCC art. 2]
   
   1. ​Exceptions:
      
      1. ​1) Goods accepted OR paid for by buyer
      2. 2) Custom-made goods IF:
         
         1. ​seller has made “substantial start”
         2. • no alternative buyer
      3. 3) Judicial admission that K existed
         
         1. (deposition/oral testimony)
3. Transfers of interest in real property
   
   1. includes any interest:
      
      1. mortgage, deed,
      2. leases enduring more than 1 year
      3. real estate agent k’s [equal dignities rule]
   2. Exception:
      
      1. Buyer can enforce IF partial performance (2/3):
         
         1. buyer makes some payment
         2. buyer makes substantial improvement
         3. buyer in possession
4. Suretyship
   
   1. = promsie to answer for the debt of another
   2. MS: Main purpose exception:
      
      1. if original K’s main purpose is to benefit the surety, suretyship need not be in writing
5. Contract modifications
   
   1. if the modified contract falls w/in SOF
   2. Others required by parties?
      
      1. UCC- yes
      2. CL- NO
         
         1. (parties cannot create own SOF)

NY only:

1. Leases of goods in value of $1,000+ [UCC art. 2A]
2. Assignment of Insurance Policy
3. Promise to pay discharged debts
4. Agreement to pay finder’s fee/broker commission
   
   1. UNLESS recipient is:
      
      1. attorney
      2. auctioneer
      3. licensed real estate broker

Question 28

Defenses against K Formation:

Statute of Frauds: Satisfactory Writing

Answer 28

For S/F:

1. Writing, signed by party against whom seek to enforce
2. • States material tersm (who & what)

For UCC art. 2 (2 possible ways)

1. WRiting:
   
   1. 1) signed by party against whom seek to enforce
   2. • 2) states all material terms (q)
2. OR Merchant’s Confirmatory Memo:
   
   1. 1) signed by party seeking to enforce K
   2. 2) states material terms
   3. • 3) opposing party did not object w/in 10 days of receipt

For UCC art. 2A (NY)

1. Writing signed by party against whom seek to enforce
2. State its a lease of goods
3. Include all material terms
   
   1. q, duration, rental payment

Question 29

How modify K?

Answer 29

CL Checklist:

• 1. Modification ONLY if receive additional consideration
• 2. Need SOF?

UCC Art. 2:

• Modification permissible if in good faith
• (additional consideration NOT necesary)