K Formation

Question 1

When has an offer been accepted? NOTE: NY Distinction

Answer 1

Yes, when… 1) When the the offer says so: the language of the offer cntrls 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 ISacceptance (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 SIMULATANOUS acceptance AND breach, UNLESS seller is sending the goods as an ACCOMODATION 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, when… 1) Offeree remains silent (generally) E.g. “I’ll take your SILENCE as acceptance of this offer” 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 firstcntrl)

Question 2

What is thedifference b/t a bilateral K and a unilateral K?

Answer 2

Bilateral K: an offer can generally be accepted in ANY reasonable way (“flexible”) Unilaterl 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, a contest or a prize NOTE: Look FIRST to see if there is an agmt, THEN see if it’s legally enforceable

Question 3

What are the bodies of K law?

Answer 3

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-good 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 4

What is the “duress” defense?

Answer 4

Ks induced by duress or undue influence are VOIDABLE and may be recinded 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 5

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

Answer 5

Categories = (i) minors; (ii)intoxicated; OR (iii) mentally incompetent General rule = an incapacitated ∆ MAY disaffirm the K (i.e. it’s VOIDABLE by ∆ ONLY) If there is IMPLIED affirmation (retaining the benefit ONCE (re-gaining capacity), then the K is no longer VOIDABLE 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 yr olds + Educational loans by 16 yr olds + 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 6

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

Answer 6

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 7

What is the “mistake” defense?

Answer 7

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’s 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 8

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

Answer 8

Consideration = a “bargained for exchange”/”legal detriment”; a person can bargain for a promise, performance OR forbearance 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 Adequacy of consideration is IRRELEVANT if there is a bargain (quid pro quo) 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) K 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 if a signed writing embodies the modification Art. 2/UCC: consideration is NOT REQUIRED to modify a K, just need to show good faith Partial pmt of an EXISTING debtis not valid consideration (e.g. “I’ll pay $x in return for forgiving balance”); BUT… Time-bared (SOL) debt: a written promise to pay a debt which has been barred by SOL IS enforceable even w/o consideration EXCEPTION = Promissory estoppel FORSEEABLE reliance by promisee may make the promise enforceable even w/o consideration This is a “last resort” remedy by the ct

Question 9

What is the “public policy” defense?

Answer 9

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 ltd liablity for negligence, BUT NOT gross negligence OR intentional torts

Question 10

What is the “unconscionability” defense?

Answer 10

2 types… 1) Substantive: the TERMS are inherently unfair given relative bargaining pwrs (e.g. indentured servitude) 2) Procedural: the agmt PROCESS was unfair (e.g. sneaky terms in very small print) NOTE: generally “unconscionability” is NOT valid; act must “shock the conscience”

Question 11

What are the 8defenses against formation of a K?

Answer 11

1) Lack of capacity(making the K voidable) 2) Duress (economic or physical) 3) Misrepresentaioninducing Agmt 4) Mutual mistake of a material fact at time of agmt 5) No consideration 6) Public policy 7) Unconscionability 8) Statute of Frauds (SOF)

Question 12

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

Answer 12

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

Question 13

What are the 4 ways anoffer can be terminated?

Answer 13

1) Lapse: an offer lapses after a STATED TERM or a REASONABLE TIME has passed 2)Revocation (by offeror): an offer terminates once the offeror revokes the offer (before acceptance by offeree) 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 14

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

Answer 14

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 ltd acceptance to the terms of the offer there is NO MATERIAL CHANGE (i.e. material = likely to cause hardship or surprise to offeror; NOTcustomary 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 15

What is restitution (a quasi-K)?

Answer 15

An equitable remedy that protects against UNJUST ENRICHMENT Restitution is the remedy of LAST result Recovery in restitution is the REASONABLE VALUE of the benefit conferred (NOT the K price)

Question 16

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

Answer 16

General rule = an offer can be revoked any time before acceptance by… DIRECT revocation (the offeror indicates DIRECTLY to the offeree that he has changed his mind about the deal) INDIRECT recovation (the offeror engages in CONDUCT that indicates that he’s changed his mind AND the offeree is aware of this conduct) 4 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 pmt 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 17

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

Answer 17

“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 be performed w/in 1 year from time agmt is MADE NOTE: lifetime Ks (“I’ll work to 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 than1YRleases 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) 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 NOTE re K 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 18

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

Answer 18

Depends on the type of agmt… 1) Sale of Goods (Art. 2/UCC): Must contain (i) aQUANTITY 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 state (i) that it’s a LEASE (including rental pmts, # of pmts, and duration); (ii) AND 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 19

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

Answer 19

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 Kin 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 ∆

Question 20

What is an offer?

Answer 20

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 isOK under Art. 2/UCC for Requirement Ks; PROVIDEDthe requrements don’t UNREASONABLY vary as to take seller by surprise