Formation Flashcards
(29 cards)
What are the types of law that govern contracts?
- Common Law: governs any contracts not governed by UCC (employment contracts, personal service contracts)
- UCC Article II: governs sale of goods (anything moveable); tangible personal property (special rules govern transactions between merchants)
- Mixed: When the sale involves both services and good, predominant purpose of the contract reigns
What is a merchant under the UCC?
Person that regularly deals in transactions involving certain types of goods or holds himself out as having special knowledge or skill about those goods
Note: anyone in business qualifies as having “knowledge” of transaction
Analyze whether P and D are merchants
Some rules under Article 2 apply only to merchants. A merchant is one who deals in goods of the kind sold or who by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction. Anyone in business would likely qualify as having knowledge of the practices involved in this transaction
Elements needed to form a valid contract
- Mutual assent (offer and acceptance)
- Consideration
- No defenses to formation
To form a valid contract there must be mutual assent (e.g., offer and acceptance) and consideration.
Offer
- an expression of a promise, undertaking, or commitment to enter into a contract,
- with certain and definite terms,
- communicated to an offeree
The fact that an offer gives the offeree a choice of terms does NOT make it too uncertain. When the offeree accepts, the terms of the contract will be certain.
Under common law, what terms must be included in the offer?
- Parties
- Subject matter
- Price
- Quantity
What is the only essential term the UCC requires in a contract?
In contract for sale of goods, quantity must be certain; UCC will supply gap fillers for missing terms as long as parties intended to make K.
Use for UCC requirements contracts
What is a requirements contract?
Buyer agrees to buy from seller all the particular goods buyer requires and seller agrees to sell them to buyer.
Don’t need to mention specific quantity; it’s considered definite because it refers to the buyer’s actual requirements
Are advertisements offers?
Ads are not offers unless they contain specific and detailed information as to the price, quantity, and who can accept
An offer creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror. To be an offer, a communication must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms. Usually, an advertisement is not an offer.
Termination of Offer by Operation of Law
- Incapacity: Death/insanity of either party
- Destruction of subject matter
- Illegality: Supervening illegality of subject matter (contract becomes illegal)
Other termination methods
* Lapse of time
* Revocation by offeror
* Rejection by offeree
Define
unilateral contract
Offer of unilateral contract can only be accepted by full performance
Offer is binding once performing party begins performance
Define
continuing offer
offer for series of contracts that are revocable at will (unless made irrevocable through consideration)
Define
options contract
Offer promising to keep the offer open for a specific period of time
* Revocable unless consideration is given (makes it irrevocable)
UCC Merchant’s Firm Offer
Offer is irrevocable IF:
1. Merchant offers to buy/sell goods
2. In signed writing and
3. Gives assurances that offer will be held open
Maximum period: 3 months
Under Article 2, if a merchant offers to buy/sell goods in a signed writing and the writing gives assurances that it will be held open, the offer is not revocable for lack of consideration during that period. Article 2 limits this period to three months.
Define
Acceptance
Manifestation of assent to the terms of the offer
* Must be communicated to offeror
* Must be unequivocal
Common law vs. UCC Acceptance
Common Law’s Mirror Image Rule: offeree must accept every term of offer; otherwise, it’s rejection and counteroffer
UCC’s Battle of the Forms: acceptance with additional/different terms valid but:
* additional terms not part of contract if (a) it’d materially change contract, (b) offer limited to its terms, (c) offeror objected within reasonable time, (c) one party isn’t a merchant
* different terms: knockout rule; use gap-filler terms
- The common law requires the absolute and unequivocal acceptance of each and every term of the offer (the mirror image rule). Any different or additional terms in the acceptance make the response a rejection and counteroffer.
Mailbox Rule
Acceptance by mail is effective at the time mail is sent (time of dispatch), not when it’s received
* doesn’t apply to option contract
* Offeree sends rejection then acceptance - first received is effective
* Offeree sends acceptance then rejection - acceptance effective unless rejection received first and offeror detrimentally relies.
Consideration
(a) Bargained-for exchange for value OR
(b) act or forbearance by promisee that has benefit to promisor or detriment to promisee
Agreement must have consideration on both sides
Past Consideration
Majority’s Pre-existing Duty Rule: If party promises to perform an existing legal duty in exchange for a new promise, it’s NOT sufficient consideration, because it fails the “bargain” requirement
Exceptions:
* new or different consideration promised
* compromise of honest dispute
* modification fair and equitable because parties didn’t anticipate unforeseen circumstances
* pre-existing duty is owed to a third party
* good faith modification allowed under UCC Article 2
* promise ratifying voidable obligation
* written promise to pay time-barred debt
Promissory Estoppel (substitute for consideration)
A gift promise is enforceable if necessary to prevent injustice: if promisor reasonably knew that promise would induce reliance on gift and promisee did detrimentally rely on it, then gift promise is enforceable.
* Awarded reliance damages
List of Defenses to Formation
- SOF
- Mistake/Ambiguity
- Fraudulent Misrepresentation
- Unconscionability
- Duress
- Illegality (terminates offer)
- Incapacity (terminates offer)
Defenses to Formation
Mutual Mistake
Contract voidable by adversely affected party if:
* (i) both parties were mistaken on a basic assumption underlying contract
* (ii) mistake concerns essential element of agreement and thus has a material effect; and
* (iiI) party seeking to void contract didn’t assume risk of mistake
Unilateral Mistake
Contract voidable by mistaken party if only one party was mistaken but:
* (i) nonmistaken party knew or had reason to know of mistake;
* (ii) mistake had a material effect; and
* (iii) mistaken party didn’t assume risk of mistake
* Note: relief usually granted for computational errors
Defenses to Formation
Fraudulent Misrepresentation
Contract is voidable if a party used fraudulent misrepresentation to induce the other party to enter contract, and the other party justifiably relied on the misrepresentation
- Doesn’t matter that exercise of reasonable care would’ve revealed misrepresentation
Defenses to Formation
Illusory Promise
Illusory promise is an apparent commitment that doesn’t actually bind the party. Both parties must be bound for bilateral contract to be enforceable. Lack of mutuality of obligation voids contract.
For example, a valid requirements or output contract term will say, “all the widgets I require” or “all that you produce,” but a term such as “all the widgets I want” or “all you want to sell me” is illusory.
