1
Q
Contract (Restatement)
A
A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
2
Q
A contractual promise creates both a _____ and a _______
A
a duty and a right
3
Q
Is a contractual promise legally enforceable?
A
Yes, a contractual promise is legally enforceable
4
Q
The elements of a contract are …
A
Offer, acceptance, and consideration
5
Q
What is freedom of contract?
A
the belief that parties should be free to enter agreements without government intervention so long as the agreements do no violate a law.
Under this policy, courts don’t interfere to determine if there was a fair deal. Instead they establish:
(1) whether a contract formed,
(2) if a party breached, and
(3) the remedy for the breach.
6
Q
Under the policy of equity and fairness …
A
Tempers freedom of contract by recognizing situations in which the deal is so unfair that social justice demands courts look at the substantive terms of the deal.
Rests on the premise that there are imbalances in bargaining power and sometimes courts should rectify wrongs in the marketplace that result from the imbalances.
7
Q
UCC - applies to …
A
the sale of goods
8
Q
Common law - applies to …
A
every other type of transaction that is not a sale of goods
9
Q
Goods according to the UCC =
A
“Goods” means all things which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities and things in action. “Goods also includes the unborn young of animals and growing crops and other identified things attached to realty as described in $2-107
$2-107 -
Sale of minerals. Crops or other things attached to realty which can be severed.
10
Q
Predominant Purpose Test:
To determine if the UCC Article 2 applies to a mixed services and sale of goods contract, ….
A
courts should determine whether the predominant purpose of the transaction is, reasonably stated, either the rendition of service, with goods incidentally involved, or a sale of goods, with labor incidentally involved.
11
Q
Important factors to consider in the Predominant Purpose Test
A
The language of the contract - Does the language emphasize goods over services or vice versa? What was the underlying purpose of the contract?
The nature of the business of the supplier of goods and services - Does the supplier primarily sell goods or services?
The intrinsic value of the goods vs. the cost of the service - According to the contract, what costs more? Goods or the services?
12
Q
Gravamen Test:
Focuses on the nature ….. It asks, …….
A
Focuses on the nature of the complaint rather than the character of the transaction. It asks, “Did the essence of the complaint arise from the performance of services or from the goods sold?
13
Q
A contract requires
A
an offer, acceptance, and consideration.
14
Q
A contractual promise is legally enforceable upon ____ _____.
A
contract formation
15
Q
Contract Formation (Restatement)
A
The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and consideration.
16
Q
Mutual assent includes the process of ______ and _______. Mutual assent results from a negotiation process where the two parties reach an ________ on the ________ ____ ____ ________.
A
Offer and acceptance. Agreement on the terms of the contract.
17
Q
A bargain exists if ….
A
if something of legal value is exchanged for something else of legal value.
18
Q
“Quid pro quo” means
A
something for something
19
Q
Mutual assent requires ….
A
that both parties have the intent to enter a bargain (offer and acceptance).
20
Q
A party’s manifestation of assent is judged by … The parties’ words and conduct will ….
A
A party’s manifestation of assent is judged by the objective reasonable interpretation of their outward expression of consent and not by their subjective intent.
The parties’ words and conduct will normally be given the same meaning that would be given by a reasonable person in the same circumstances.
21
Q
Failing to read a contract is …. There is a ….
A
Failing to read a contract is not a defense.
There is a rebuttable presumption that if a party signs a contract, then they are deemed to have read, understood, and intend to be bound by the terms.
22
Q
Basic Rules of Interpretation (objective theory of mutual assent):
Ordinary Meaning-
A
Interpret language according to the objective and ordinary meaning of the words.
Focus on the objective meaning of words and not the subjective meaning that a party might ascribe to the terms. Start by looking at the dictionary definition of a word, but also consider the context of the exchange to help determine the parties’ intent.
23
Q
Basic Rules of Interpretation (objective theory of mutual assent):
Technical Meaning -
A
Technical terms and words of art are given their technical meaning.
If the parties are in a business or location that uses specialized terms, then use the specialized meaning instead of the ordinary meaning. If the technical term relates to a particular business, then it is often referred to as “trade usage”.
24
Q
Basic Rules of Interpretation (objective theory of mutual assent):
Surrounding Circumstances-
A
Words and conduct are interpreted in light of all surrounding circumstances.
Context can be important in ascertaining the meaning of words. Circumstances that might affect the meaning of words include the time, place, age, culture, and relationship of the parties, among others.
25
Promise (Restatement)
A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made”
26
Promisor =
The person making the promise
27
Promisee=
The person to whom the promise is made
28
Manfiestation of Intention (as an element of a promise) means ...
Means to make one’s intention known to others. Either by words or conduct. A promisee must know about the promise to enforce it. Consequently, a party’s unexpressed secret intentions do not fall within the rule.
29
To Act of Refrain from action (as an element of a promise) ...
Just as one can promise to do something, you can also promise not to do something (refrain from acting).
Abstaining from action is often referred to as forbearance.
30
Promisee Is Justified in Understanding a Commitment Has Been Made (as an element of a promise) ...
(If the expression of intent shows...)
Indicates that a party has objectively committed to acting or refraining from acting. If the expression of intent shows doubt or hesitation, or otherwise leaves open the possibility that a party might not act (or refrain from acting), then there is no commitment and therefore no promise.
A statement that falls short of a commitment is often referred to as a statement of present intention.
31
Whose Meaning Prevails? (Restatement)
(1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. (both parties have the same subjective meaning)
(2) Where the parties have attached different meanings to a promise or agreement thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made
(a) That party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or
(b) That party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.
(If Party A knows or has reason to know that Party B has a different interpretation than Party A, then Party A is bound by Party B’s interpretation.)
(3) Except as stated in this section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent. (If there was no meeting of the minds (neither party is aware of the other’s interpretation) then court may decide no contract formed.)
32
Whose Meaning Prevails? (Restatement)
(1) Where the parties have attached the ________ ________ to a promise or agreement or a term thereof, it is interpreted in accordance with _____ _______. (both parties have the same _________ meaning)
(2) Where the parties have attached _________ ________ to a promise or agreement thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made
(a) That party _____ _____ ____ ____ ____ ____ _____ attached by the other, and the other ______ _____ _____ ____ _____ _____ _____ _____; or
(b) That party ______ ______ ______ _____ _____ ____ ____ ______ _____ attached by the other, and the other ____ ____ ______ _____ _____ ____ attached by the first party.
(If Party A knows or has reason to know that Party B has a ______ _______ than Party A, then Party A is _____ ______ Party B’s interpretation.)
(3) Except as stated in this section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent. (If there was ____ ____ _____ ____ ____ (neither party is aware of the other’s interpretation) then court may decide _____ ______ _____.)
(1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. (both parties have the same subjective meaning)
(2) Where the parties have attached different meanings to a promise or agreement thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made
(a) That party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or
(b) That party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.
(If Party A knows or has reason to know that Party B has a different interpretation than Party A, then Party A is bound by Party B’s interpretation.)
(3) Except as stated in this section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent. (If there was no meeting of the minds (neither party is aware of the other’s interpretation) then court may decide no contract formed.)
33
An offer defines ...
the terms of the contract, i.e. the duties and rights of the parties.
34
Offeror =
party making the offer
35
Offeree =
the party to whom the offer is made
36
The offeror has __________ - sometimes referred to as the ______________.
The offeror has complete control over the proposed terms of the contract - sometimes referred to as the master of the offer.
37
The offeree has ____________ - the right ___________________.
The offeree has the power of acceptance - the right to form the contract merely by agreeing to every term of the proposed offer.
38
Preliminary negotiations =
Discussing a potential contract, but an offer has not been made. If one of the elements from an offer is missing but the parties are still talking.
39
An Offer Requires:
(4 elements)
1 - a manifestation of present intent to enter a bargain; (outward expression based on objective standard) (offeror’s language must unequivocally express their intent to enter a bargain. Any hesitation, wavering, or uncertainty - court will determine that no offer has been made & parties were in preliminary negotiations.)
2 - stated in certain and definite terms;
3 - communicated to an identified person or persons; (offeror determines who has the power of acceptance, doesn’t have to be a specific individual, but must be a method for identifying person or persons) (an offer is distinguished from invitations to deal)
4 - so that an offeree can reasonably understand that a contract would result if accepted.
40
Certainty (Restatement for Certain and Definite Terms)
(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.
41
Certainty (Restatement for Certain and Definite Terms):
(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless _____________________________.
(2) The terms of a contract are reasonably certain if ___________________________________________.
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show ______________________________________________.
(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.
42
The offer need not contain all terms necessary to perform the contract, just ...
the essential terms.
43
A contract may form even though the parties have not ....
agreed on every single term needed to carry out their duties under the contract.
44
Courts are reluctant to find an agreement unenforceable for ____________, especially if _________.
Courts are reluctant to find an agreement unenforceable for lack of certainty, especially if a party performed under the assumption that a contract was in place.
45
Typical list of essential terms includes:
the parties,
the subject matter,
the price,
the payment terms,
and the duration.
46
The benchmark test to determine if a term is essential remains ...
whether a court needs that term to determine whether a breach occurred and the appropriate remedy.
47
These essential terms tend to be recurring issues in court:
1) time of performance, 2) price to be paid, and 3) scope of work to be done or property to be transferred.
48
In limited situations, a court might imply ...
a reasonable term if one of these essential terms is missing.
49
For 'time of performance' - courts typically
imply a reasonable time
50
For 'price to be paid' - under the common law if a price is not agreed to then the court
likely will find no contract formed.
51
For 'Scope of work/Property transferred' - too much uncertainty can
make it unenforceable.
Examples = sale of real property, land must be identified. Promise to employ someone for an unspecified job at an unknown salary are not specific enough. Contracts for construction without any plans tend to be unenforceable. For some types of contracts, the terms don’t necessarily have to be exact, if technical precision is not at issue.
52
Agreement to agree = In a negotiation where ...
the parties cannot agree on some essential terms, they’ll have an agreement to agree in the future.
53
For an agreement to agree to be enforceable must meet the standard set by restatement i.e.
i.e. 1) that the parties manifest intent to enter a bargain, and 2) enough certainty exists in the terms to determine a breach and a remedy.
54
Elements of an Offer
Intent to Enter a Bargain-
Must be an unequivocal outward expression without hesitation. Very clear that offeror is willing to enter a contract.
Certain and Definite Terms-
Only reasonable certainty needed as to essential terms.
Communicated to Person(s)-
Identified party or parties. Not to public at large.
Reasonably Understood to Create a Contract if Accepted-
Clear that the offeree has the power of acceptance to create a contract.
55
Advertisements and Price Quotes as Offers?
Advertisements, catalogs, flyers, and price quotations are usually not offers but are merely invitations to bargain.
56
A price quote could be an offer if
if (1) there are enough terms in the price quote to satisfy the certainty requirement, and (2) the objective meaning of the quote shows intent to enter into a bargain.
57
Under the common law, advertisements are
not an offer. Unless language suggests otherwise (satisfies elements of an offer)
58
Often advertisements satisfy which elements of an offer? Most advertisements fail to be an offer because?
Often advertisements satisfy the first two elements of an offer (manifesting intent to enter into a bargain and certain and definite terms). However most advertisements are not directed to an identified person or persons; they are directed to the public as large.
59
Misleading advertisements - courts will sometimes ...
enforce deliberately misleading advertisements, where lure into a store and item is unavailable and try to sell a higher priced item. Referred to as bait and switch.
60
A rebuttable presumption exists that family members ...
do not intend to hold each other legally accountable for promises unless there is “clear and convincing evidence” that they intended to do so.
The phrase “clear and convincing evidence” refers to a higher standard of proof at trial than is normally needed.
61
An agreement for a social engagement is also normally ...
thought not to result in a legal obligation.
62
Under the UCC - Contract Formation in General
1. A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties that recognizes the existence of such a contract.
2. An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undermined.
3. Even though one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
63
Under the UCC - Contract Formation in General
1. A contract for sale of goods may ____________________________, including conduct by both parties that recognizes the existence of such a contract.
2. An agreement sufficient to constitute a contract for sale may be found ___________________________.
3. Even though one or more terms are ______, a contract for sale _____________________ if the parties have __________________ and there is a __________________________.
1. A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties that recognizes the existence of such a contract.
2. An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undermined.
3. Even though one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
64
To determine intent for an offer, common law relies more on ______ , while the UCC relies more on ________.
To determine intent for an offer, common law relies more on language, while the UCC relies more on conduct.
65
Under the UCC, courts are more willing to find that .... UCC provides guidance for courts to imply reasonable terms - these provisions are called ....
Under the UCC, courts are more willing to find that a contract exists even if the parties left some terms open if there is evidence the parties intended to enter a bargain.
UCC provides guidance for courts to imply reasonable terms - these provisions are called “UCC Gap Fillers” - can imply a reasonable price under the UCC, but usually not the common law.
66
A bilateral contract forms when
the parties exchange promises, i.e. before either party actually performs under the terms of the contract.
67
A unilateral contract, the contract only forms after
one party performs under the terms of the contract
68
One party makes an offer for a unilateral contract and the only way to accept the offer is for the other party ...
to actually perform the duties under the contract.
69
Acceptance (Restatement) & what are the three elements?
Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
three elements are: (1) manifestation of assent, (2) assent to the terms of the offer, and (3) in the manner invited or required.
70
Manifestation of Assent (in acceptance) - must be
unequivocal in order to bind the offeror. Whether there is a manifestation of assent is based on the same objective analysis as used to determine if there was an offer by the offeror. The offeree’s assent must be unambiguous.
71
The acceptance need not be in ____, ______ are okay.
words, actions
72
Mirror Image Rule
The acceptance must mirror every term in the offer exactly. If the offeree changes even one term - no matter how slightly - the purported acceptance is a counteroffer.
73
Conditional acceptance is not usually a thing (exception under UCC), conditional acceptance is a ...
counteroffer
74
Manner Invited or Required (as an element of acceptance) -
An offeree must accept in the manner invited or required in the offer.
The offeror may specify the manner of acceptance, in this case the offeree must accept according to the specifications of the offeror. Otherwise there is no contract.
75
If the offer is silent on how to accept - the offeree ...
can accept “in any manner and by any medium reasonable in the circumstances.”
76
In a bilateral contract , once the promises are exchanged,
each party is legally obligated to perform their duties under the contract.
77
In a bilateral contract, since a promise can be made thru words or conduct, an offeree that begins ...
to perform their duties could be deemed to have made a return promise to form a contract.
78
Invitation of Promise or Performance (Restatement) (bilateral)
In case of doubt, an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.
If the offeree chooses performance, then the beginning of performance is deemed the acceptance, and the offeree is contractually bound to complete performance.
(bilateral)
79
In essence, the partial performance is interpreted as a return promise through action rather than words; ...
consequently, a bilateral contract is formed when the offeree begins performance.
80
UCC similar to restatement, gives offeree a choice of how to accept an offer.
“An order or other offer to buy goods for prompt or current shipment shall be construed as inviting ...
acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods.”
81
Termination of the Power of Acceptance:
The power of acceptance may be terminated by:
1. Rejection by the offeree, or (terminates power of acceptance)
2. Counteroffer by the offeree, or (rejects offer and creates new offer)
3. Revocation by the offeree, or (terminates power of acceptance)
4. Lapse of time, or (terminates power of acceptance)
5. Death or Incapacity of the Offeror or the Offeree. (terminates power of acceptance)
82
Rejection: (and general exceptions)
An offeree's power of acceptance is terminated by their rejection of an offer. An offeree may communicate their rejection through words or actions.
Exceptions:
1. An offeree states they are not presently going to accept but retains the right to reconsider.
2. The offeror indicates the offer remains open even if the offeree rejects the offer or makes a counteroffer.
83
Statements a party makes and Legal Effect of Statements:
Offeree says, “I am not going to accept your offer.” -
Offer is rejected. POA is terminated.
84
Statements a party makes and Legal Effect of Statements:
Offeree says, “I am not going to accept your offer right now, but I might accept the offer in the future.” -
Offer is not rejected. POA is not terminated.
85
Statements a party makes and Legal Effect of Statements:
Offeror states in the offer “This offer will remain open even if the offeree rejects it.” Offeree replies, “I reject your offer.” -
Offer remains open. POA is not terminated because under the terms of the offer, the Offeree retains the right to reconsider.
86
Counteroffer (Restatement):
1) A counteroffer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.
2) An offeree’s power of acceptance is terminated by his making of a counteroffer, unless the offeror has manifested a contrary intention or unless the counteroffer manifests a contrary intention of the offeree.
87
With a counteroffer, the roles of offeree and offeror ...
are reversed.
88
Under the common law, if the acceptance is not an absolute and unequivocal assent to every term of the offer, then ...
then the purported acceptance is a counteroffer.
89
An offeree does not lose power of acceptance if
(1) their response is too indefinite to be considered a counteroffer, or (2) they expressly keep the original offer under advisement while discussing new terms.
90
Revocation (Restatement):
An offeror may freely revoke an offer at any time before it has been accepted if the offeree receives notice of the revocation.
Notice of the revocation may be received directly from the offeror or indirectly from another party or by other means.
An offeror may revoke their offer through words or actions.
Exception: Irrevocable offers (next chap - chap 6)
91
If the offer has been accepted, then a contract ...
has formed and the offeror may no longer revoke.
92
The offer is revoked even if the offeror merely shows that they have ...
second thoughts about entering the bargain.
93
There must be a notice of revocation but this does not need ...
to come directly from the offeror.
Just reliable information even from a third party that the offer has been revoked before there was acceptance.
94
Lapse of Time (Restatement)
1. An offeree’s power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time.
2. What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made.
95
The offeror may specify how long an offer is open; however, if no time is specified, ...
the offer is open for a reasonable time.
96
One rule of thumb (to determine reasonable time) is that if the parties are bargaining in a conversation (face to face, by telephone, or other means), then any offer made is usually considered to terminate ...
at the end of the conversation.
However, other facts might indicate that the offeror intended that the offer stay open for a longer period.
97
Death or Incapacity of Offeror or Offeree (Restatement) (relating to acceptance)
An offeree’s power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract.
98
For 'Death or Incapacity of Offeror or Offeree' be sure to only extend the rule to mutual assent! If the contract has already been formed, then a party's death ...
does not normally terminate the obligations under the contract provided that the party’s estate can carry out performance. Exception if it required personal services by one of the parties - impossible now that the party is dead.
99
“Executory” means
that something has not yet been done or completed, i.e. unexecuted.
100
A unilateral contract forms when
a promise is exchanged for the actual performance under the contract.
101
In a unilateral contract, at contract formation, the offeree _______, but the offeror __________. Offeror’s duties are _______, but the offeree’s duties have been _________.
In a unilateral contract, at contract formation, the offeree has fully performed, but the offeror has only promised.
Offeror’s duties are executory, but the offeree’s duties have been executed (offeree has fully performed).
102
Unilateral contracts are normally restricted to two types:
(1) offers for rewards, and (2) when the offeror specifies that only performance constitutes acceptance.
103
In a unilateral contract - acceptance takes the form of the ...
offeree’s actual performance - contract only forms after the offeree has performed all of their duties.
104
According to the Restatement- The offeree does not have to notify the offeror that they have accepted by performance unless
(1) the offer requires it, or (2) the offeree “has reason to know that the offeror has no adequate means of learning of the performance” in a reasonably prompt time.
105
What Constitutes Acceptance? Bilateral Contract
Offeror seeks a return promise as acceptance.
106
What Constitutes Acceptance? Unilateral Contract
Offeror seeks full performance of the offeree as acceptance.
107
What Constitutes Acceptance? Offeror Doesn’t Specify
If it is doubtful, offeree may choose to accept by either promise or performance.
108
When does the contract form? Bilateral Contract
Contract forms at the exchange of promises.
109
When does the contract form? Unilateral Contract
Contract forms only when offeree completes full performance.
110
When does the contract form? Offeror Doesn’t Specify
If offeree chooses performance, then the contract forms when performance begins.
111
At contract formation, who has executory duties? Bilateral Contract
Offeror: Executory
Offeree: Executory
112
At contract formation, who has executory duties? Unilateral Contract
Offeror: Executory
Offeree: Executed
113
At contract formation, who has executory duties? Offeror Doesn’t Specify
Offeror: Executory
Offeree: Has begun performance
114
In a traditional auction the bidder is the _______ and the auctioneer is the _________. Auctioneer calls out a price = invitation to deal. __________. Acceptance occurs when ________________. If hammer falls and someone bids a higher price, auctioneer has the __________________ the bidding or declare the goods sold already.
In a traditional auction the bidder is the offeror and the auctioneer is the offeree. Auctioneer calls out a price = invitation to deal. Bidder raising hand is an offeror making an offer on a price. Acceptance occurs when the hammer falls. If hammer falls and someone bids a higher price, auctioneer has the choice to reopen the bidding or declare the goods sold already.
115
For most auctions there is a a reserve price - which is
minimum price that must be bid
116
For most auctions there is a a reserve price - minimum price that must be bid - if the reserve price is not bid, the auctioneer may ... However if the item is expressly “without reserve” then the article ...
For most auctions there is a a reserve price - minimum price that must be bid - if the reserve price is not bid, the auctioneer may withdraw the item. However if the item is expressly “without reserve” then the article cannot be withdrawn unless no bid is made within a reasonable time.
117
Silence as Acceptance:
An offeree’s silence or inaction in response to an offer does not normally operate as an acceptance except in the following cases:
(a) Where the offeror and offeree indicate, by words or conduct, that silence or inaction is acceptance.
(b) Where in previous dealings, the parties operated so that silence or inaction was acceptance.
(c) The offeree has exercised dominion over the consideration that was offered.
(If an offeree could have rejected the consideration but instead takes advantage of it knowing that compensation was expected, then the offeree has exercised dominion over the consideration and is considered to have accepted the goods or services.)
118
Mailbox Rule:
When sent through the mail, an acceptance is effective on dispatch.
Everything else - i.e., an offer, a rejection, a counteroffer or revocation - is effective on receipt.
119
Two special situations with the mailbox rule =
Acceptance then Rejection -
If the offeror relied on the rejection they received first, then the offeror can use the defense of detrimental reliance to estop the offeree from claiming that a contract formed upon dispatch of the acceptance since the offeror relied to their detriment on the rejection.
Rejection then Acceptance -
If an offeree sends a rejection and then changes their mind and sends an acceptance, then the mailbox rule does not apply. Whichever communication that arrives first is effective.
120
Exceptions to the Mailbox Rule:
1. Offeror may stipulate that acceptance is not effective until receipt
2. Acceptance under an option contract is not effective until receipt. (option contract- the person who is holding the right has bargained for a right for time to accept)
3. Federal government contracts. (the government is not bound by the mailbox rule, and all acceptances are effective on receipt.)
121
Irrevocable Offer =
simply means that the offeror may not revoke during the irrevocability period. Any attempted revocation is ineffective and the offeree retains the power of acceptance.
122
The following consists of situations where a court may find that an offer has been made irrevocable:
1. Option Contracts (parties have bargained to make an offer irrevocable) (freedom of contract policy)
2. Conditional Contracts (parties have bargained to make an offer irrevocable) (freedom of contract policy)
3. Part Performance of a Unilateral Contract (courts determine an offer is irrevocable because it would be unjust not to do so) (equity and fairness policy)
4. Promissory Estoppel (courts determine an offer is irrevocable because it would be unjust not to do so) (equity and fairness policy)
5. Merchant’s Firm Offer (UCC makes some offers irrevocable for a certain period of time)
123
Option Contract =
a separate contract that provides a party with the right, but not the obligation, to enter another contract (called the underlying contract) for a bargained period of time. Makes an offer irrevocable for a certain period of time.
Represents a bargain for time. Time for the offeree to decide whether to accept the offer.
Consideration is still required in this contract but can be minimal
124
Option Contract (Restatement)
An option Contract is a contract that limits the ability of the offeror to revoke an offer for a specified period of time.
To be enforceable, an option contract must be supported by consideration; otherwise, the offeror may revoke the offer.
125
An offeree in an option contract does not lose the ...
power of acceptance to the original offer if they make a counteroffer or several, original offer stays open for the amount of time agreed to in the option contract.
126
In an option contract ______ = offeror and ________ = offeree.
In an option contract optionor = offeror and optionee = offeree.
127
Options involve two different contracts ...
(1) the option contract (promising to hold the offer open) and (2) the underlying contract (the original contract being made irrevocable).
128
If the offeree/optionee accepts the offer within the option period they are said to ...
to have exercised the option. The underlying contract is formed when the offeree/optionee exercises the option. Optionee can also choose to let the option expire (not exercise the option)
129
There must be consideration (something of legal value) provided by the optionee for there to be an option contract. If there is no consideration, then ...
there is no legally enforceable contract, only gratuitous promise.
The consideration doesn’t need to be a lot, can be just $1, but has to have been paid for option contract to be enforceable.
130
Acceptance under an option contract is not effective until ...
receipt (mailbox rule not applicable)! (for the underlying contract)
131
Conditional Contract - has the effect of ...
making an offer irrevocable for a period of time.
132
In contract law, a “condition” is an ...
event that triggers a legal right or outcome.
133
A conditional contract only forms if the ...
condition (i.e., the event) occurs.
134
(in a conditional contract) Using a condition serves as a way for parties to ... In other words ...
to keep an offer open until the occurrence of some event. In other words, both parties agree to enter a contract if some event (the condition) occurs.
135
Part Performance of a Unilateral Contract (Restatement - 2nd):
(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.
(2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.
136
In a unilateral contract, an option contract is created when ... The option contract prevents the offeror from ...
In a unilateral contract, an option contract is created when the offeree begins the invited performance. The option contract prevents the offeror from revoking the offer for the time stated in the offer or a reasonable time.
137
(for a unilateral contract) This option contract is not express, it is ...
it is implied by law to do justice.
138
In a bilateral contract, how is the beginning of the offeree's performance interpreted, and what is the effect on the offeree?
The beginning of the offeree's performance is interpreted as an acceptance by conduct (or implied acceptance).
Effect: The offeree becomes contractually bound to complete performance.
139
The part performance doctrine is not needed for the bilateral contract, only the ...
unilateral contract.
140
In a unilateral contract, what is the effect of the offeree beginning performance under the part performance doctrine?
The offer becomes irrevocable, meaning the offeror is bound to keep the offer open until the offeree has a reasonable opportunity to complete performance.
Crucially: The offeree is NOT bound to complete the performance. They are free to stop at any time.
141
In the part performance doctrine, _________ is not part of performance and offeror is not bound during offerees _________ stage. But the offeree have another remedy against injustice through promissory estoppel (if purchased supplies, i.e. experienced a detriment)
preparation ; preparation
142
Promissory Estoppel (Restatement):
A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
143
Subcontractor offer to general contractor is usually __________.
irrevocable
144
Merchant’s Firm Offer (UCC $2-205):
An offer by a merchant to buy or sell goods in a signed writing which by its terms give assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.
145
Merchant’s Firm Offer (UCC $2-205): - Element - offeror is a merchant.
Definition of Merchant (UCC $2-104):
(1) “Merchant means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
146
Merchant’s Firm Offer (UCC $2-205): - Element - A Writing
Writing includes anything typed, printed, written, or in some way reduced to tangible form. Email and other electronic forms are sufficient. An oral agreement does NOT satisfy the writing requirement.
147
Merchant’s Firm Offer (UCC $2-205): - Element - Signature
The signature must show that the document is authentic, but “the circumstances surrounding the signing may justify something less than a formal signature or initialling.”
148
Three Month Limit (UCC) (Merchant's Firm Offer)
1 - The irrevocability period is until the time stated if the time stated occurs within the three-month limit.
2 - If the time stated is outside of the three month limit, then the irrevocability period is for three months. Note that in this scenario, the merchant has said that an offer would be open for beyond three months, so the offer is irrevocable for the first 3 months, but the offer does not terminate at the end of 3 months . The offer becomes revocable after three months.
3 - if no time is stated, then the irrevocability period is a reasonable time if the reasonable time is within the 3 month limit. Reasonable time judged by the facts and the circumstances.
4 - if a reasonable time is outside of the 3 month period, then the irrevocability period is three months.
149
The UCC Merchant’s Firm Offer provision does not preclude the possibility of ...
an option contract for a period longer than 3 months. Parties can make the period of irrevocability longer thru an option contract (w consideration).
150
Battle of Forms - describes ...
a legal issue where two parties use different forms to create a contract and those forms may have different or additional terms that later lead to issues.
151
Battle of Forms - Occurs during what part of contract formation?
during the process of offer and acceptance.
152
Battle of Forms - The forms may ...
agree on essential terms, but have different standardized clauses (fine print) (also called boilerplate)
153
Parties might think there is a contract/reached an agreement, but there was __________________ on standardized forms.
no meeting of the minds
154
UCC & Common Law handle this issue of different standardized clauses in contracts differently.
Common Law uses these two rules:
Mirror Image Rule and the Last Shot Rule
155
Mirror Image Rule:
An offeree’s acceptance must match every term in the offer exactly: otherwise, it is a counteroffer.
Acceptance w varying terms = counteroffer
156
Last Shot Rule:
The last shot rule applies to the following circumstances: In response to an offer, an offeree sends an acceptance that contains additional or different terms. The other party (the original offeror) does not accept the new terms but performs as if the original offer was accepted.
In such a scenario, the offeree is deemed to have sent a conditional acceptance, which the original offeror has accepted through performance.
If a contract is formed in this fashion, then the offeree’s additional or different terms are incorporated into the contract.
157
The party who sends the last form (fires the last shot) ...
wins the battle of the forms, since their terms control. (might result in injustice)
158
UCC $2-207:
Additional Terms in Acceptance . . .
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(a) The offer expressly limits acceptance to the terms of the offer;
(b) They materially alter it; or
(c) Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) 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 this Act.
159
After an offer is made the offeree has several choices:
Reject the offer
Make a counteroffer,
Accept the offer unequivocally
Some other negotiation tactic…
BUT Under the UCC, after an offer is made there are 2 additional responses from an offeree that might form a contract:
An acceptance w varying terms OR
A conditional acceptance
160
An acceptance w varying terms OR
A conditional acceptance
With both responses, 2 step analysis results:
(1) Has a contract formed? And (2) Are the varying terms incorporated into the contract?
161
Under UCC $ 2-207, if a response to an offer alters essential terms (e.g., price, quantity, delivery) in a significant way, what is the result?
It does not constitute a "definite and seasonable expression of acceptance."
Result: No contract is formed under UCC $ 2-207(1).
Reasoning: Such a response acts as a counteroffer (or a rejection/new offer) because the terms are fundamentally different.
162
Under UCC $ 2-207, if a response to an offer largely matches the essential terms but includes additional or different boilerplate terms (non-essential clauses), what is the result?
A contract is formed under UCC $ 2-207(1).
The response is a "definite and seasonable expression of acceptance" because the primary bargain is agreed upon.
The contract is formed on the terms of the offer, and the additional/different terms are treated as proposals for addition to the contract (UCC $ 2-207(2)).
Note: Whether those non-essential terms become part of the final contract depends on whether both parties are merchants and other specific rules in UCC $ 2-207(2).
163
Under the common law, an acceptance with varying terms = _______. but under the UCC, an acceptance with varying terms is ______.
Under the common law, an acceptance with varying terms = counteroffer, but under the UCC, an acceptance with varying terms is an acceptance that forms a contract (as long as timeliness is not an issue). Although a contract formed, the varying terms are not necessarily part of the contract.
164
under UCC - Additional terms =
additional term not in the original offer.
165
under UCC, different terms =
conflicts with or contradicts what is in the original offer.
166
There is a jurisdictional split on how to deal with different terms. Some courts treat different and additional terms the ... But an increasing number of jurisdictions use ...
There is a jurisdictional split on how to deal with different terms. Some courts treat different and additional terms the same. But an increasing number of jurisdictions use the ‘knockout rule’ with different terms.
167
Knockout rule =
different terms are excised/excluded/knocked out from the contract and any remaining gaps in the contract are filled with ‘UCC gap fillers’
168
The UCC has a comment that treats different and additional terms the same, even though some courts are using ...
the knockout rule.
169
Varying terms are ______________________ if at least one of the parties involved is NOT a merchant.
Thus, any modifications to the offer by the offeree ________________________________ to be part of the contract (_______________).
Varying terms are NOT part of the contract if at least one of the parties involved is NOT a merchant.
Thus, any modifications to the offer by the offeree would have to be accepted by the original offeror to be part of the contract (if one party is NOT a merchant).
170
If both parties are merchants, then ...
the varying terms are either included or excluded (instead of just excluded).
171
There are 3 circumstances in UCC $2-207(2) where even between only merchants the terms would not be included:
1. If the original offer expressly limits acceptance by the offeree to the terms of the offer, then any additional terms are automatically excluded/not part of contract.
2. If the additional terms materially alter the contract, then those terms are excluded/not part of the contract. Materially altering the contract might happen if they result in a surprise or hardship to the other party. Or if risk profile is changed/remedies are changed. Courts consider several factors: value of transaction, quantity involved, relationship of parties, the custom and usage of trade, and the course of dealing and course of performance between the parties.
3. The terms are excluded and not incorporated if the other party has objected or sends notice of their objection within a reasonable time.
172
(UCC Merchant rule) Results in excluding _____________ and including ______________ terms.
Results in excluding controversial terms and including non-controversial terms.
173
Conditional acceptance = is one where the offeree ...
accepts all the terms of the offer on the condition that the original offeror accepts the new terms included by the offeree.
174
A conditional acceptance is treated as a _____________, which must be ___________ by the original offeror for a contract to form.
A conditional acceptance is treated as a counteroffer, which must be accepted by the original offeror for a contract to form.
175
The original offeror can respond in 3 ways to a conditional acceptance/counteroffer:
1. Agree to the offeree’s new/varying terms in the conditional acceptance/counteroffer.
2. Reject the new/varying terms in the conditional acceptance/counteroffer
3. Not respond but act as if there is a contract. Under common law, no contract forms here, but under UCC $2-207(3) a contract forms if the parties' conduct suggests they reached an agreement w one another.
176
Under UCC $ 2-207(3), when parties' conduct creates a contract (after a conditional acceptance/counteroffer), what terms constitute the final agreement?
the varying terms are excluded (both additional and different terms).
UCC $2-207(3) is different from UCC $2-207(2) here
Under UCC $2-207(3) the essential terms agreed on in the writing are included (usually specify goods being sold and the price), and gap fillers are used for any supplemental terms that would be missing. (reasonable price, location for delivery, time provisions, etc)
177
Gratuitous promise lacks ______.
consideration
178
Key element of consideration is a bargained for exchange = bargain =
motives in making the exchange
179
In a bilateral contract, the proof of the bargained exchange is by ...
reciprocal promises - the motive for each parties’ promise is because the other party made a promise.
180
In a bilateral contract, the exchange of promises typically creates ...
a duty and a right for each party.
181
3 policy functions of consideration:
Evidentary function- objective evidence of intention to create a binding and legally enforceable agreement.
Cautionary function- makes the parties think about ramifications of entering the agreement beforehand
Channeling Function - allows categorization as legally enforceable or non-enforceable by courts.
182
Consideration:
Every contract requires consideration on both sides of the transaction.
Consideration consists of:
A bargained for exchange between the parties, and
That which is bargained for must be of legal value.
183
Bargained for Exchange:
To establish a bargained for exchange, the promise must induce the detriment and the detriment must induce the promise.
184
Promise must induce the detriment =
promisor’s promise is the reason why the promisee made a return promise to suffer a detriment.
185
The detriment must induce the promise =
the detriment that the promisee agreed to suffer is what motivated the promisor to make the promise.
186
If the consideration is just a pretense for the promise, and both parties know that it is a pretense, then ...
there is no bargain.
187
Legal Value:
Legal value is established if
Legal value is established if there is either: (1) a detriment to the promisee or (2) a benefit to the promisor.
188
Detriment can be:
- Any act that the promisee is not legally obligated to perform;
- Any forbearance of an act that the promisee has a legal right to engage in; and
- Creation, modification, or destruction of a legal relationship.
189
Some courts provide an all inclusive definition of detriment as ...
‘a waiver of any legal right’. There does not have to be an economic detriment, only the promisee has done something that they were not already legally obligated to do.
190
Forbearance =
not performing some act
191
A pre-existing legal duty is NOT
A pre-existing legal duty is NOT consideration!!!
192
A pre-existing legal duty includes
Obey the law, fulfill public official duties, unperformed pre-existing contractual legal duties.
193
Pre-existing contractual duties as consideration are ___________________ because _______________...
Pre-existing contractual duties as consideration are NOT consideration because pre-exisitng to the new promise
194
Benefit to the Promisor =
the promisor receives a benefit when they gain something that they are not legally entitled to have. Can be a tangible item or act or forbearance.
195
You are able to have a benefit to the promisor without ______________________, but it is ________
You are able to have a benefit to the promisor without a detriment to the promisee, but it is rare.
196
The way consideration is identified is different in ....
bilateral and unilateral contracts.
197
consideration is identified in a bilateral contract through ...
Bilateral - through the reciprocal promises, not the actual performance.
198
Bilateral contract forms when ...
Bilateral contract forms when the promises are exchanged.
199
consideration is identified in a unilateral contract from ...
Unilateral - the consideration for the promise is the promisee’s actual performance, if the promisee does not perform then the promisor’s promise is not legally enforceable because there is no consideration.
200
Consideration can also be provided to a ______ (father wants to gift daughter a car, buys a car from dealership and daughter gets car)
third party
201
Gratuitous promises are sometimes referred to as
donative promises or executory gifts.
202
Gratuitous Promises:
An executory gratuitous promise lacks ... and therefore is ... However, if the gratuitous promise is executed, then ...
Gratuitous Promises:
An executory gratuitous promise lacks consideration and therefore is unenforceable as a contract.
However, if the gratuitous promise is executed, then the promisor cannot rescind the promise.
203
Executory =
something that has not yet been done or completed (unexecuted). Executory gift means the promise of a gift - gift has not yet been given.
204
If the gift has already been given/executed, then it is no longer ______. The promisor has performed .... The promisor may not ...
If the gift has already been given/executed, then it is no longer executory.
The promisor has performed the promise (even if no consideration).
The promisor may not take back the gift since title has passed to the other party.
205
Among family members, there is a ... However ....
Among family members, there is a rebuttable presumption that services rendered among family members are gratuitous.
However, this presumption can be overcome by “clear and convincing evidence” that the parties intended a contract.
Clear and convincing = higher standard of proof at trial than is normally needed
206
If there is no consideration for the promisor’s promise, then there are 2 alternative theories to enforce an obligation:
(1) promissory estoppel and (2) restitution.
207
Promissory Estoppel - refers to the situation where ...
a promisee has reasonably relied on a promisor’s promise by taking some sort of action or forbearance.
208
(relating to promissory estoppel) Courts may enforce a promise if the promisee’s action/forbearance was ...
reasonably foreseeable to the promisor and the promisee suffered a detriment.
209
(relating to promissory estoppel) The court might not enforce the entire promise, but ...
The court might not enforce the entire promise, but only as much as compensates for the foreseeable harm that the promisee incurred by relying on the promise.
210
Restitution - doctrine concerned with _____.
unjust enrichment.
211
Restitution is invoked where ... allows a court to ...
where one party has conferred a benefit on another party, and it would be unjust for that party to retain the benefit without compensating the other party. - allows a court to restore what was lost even if there is no bargain.
212
Conditional gift - the promisor intends to give a gift; however, ...
the promisee must perform an action (or forbearance) to receive the benefit of the gift. The action or forbearance (termed a condition) results in a detriment to the promisee.
213
Whether or not the detriment was part of the bargain as consideration - determines whether ...
whether it is legally enforceable.
214
Whether or not the detriment was part of the bargain as consideration - determines whether legally enforceable. Resolution of this turns on the ...
promisor’s motive- if promisor intended a gift then the detriment is a condition to receive the gift and is not consideration.
215
Condition =
an event that must occur to trigger some legal effect or outcome.
216
Event =
the uncertain occurrence of something not within the control of the promisor. The event could be something within the promisee’s control or something that is outside either party’s control - must be some uncertainty as to whether it will occur.
217
Is the passage of time a condition?
The passage of time is NOT a condition - certain that time will pass.
218
The difference between a promise for a conditional gift and a gratuitous promise is ...
the presence of the condition.
219
If the condition requires the promisee to take action or forbearance, then ... But if the promise is truly for a gift, then ...
If the condition requires the promisee to take action or forbearance, then the promisee incurs a legal detriment.
But if the promise is truly for a gift, then there is no consideration and the promise cannot be enforced as a contractual promise.
220
If the conditional gift has been given or condition has occurred then the promisor ...
the promisor cannot take the gift back/revoke, etc.
221
Adequacy of Consideration - This rule provides ...
that a contract will not be rescinded simply because there is an imbalance in the value of the things exchanged.
222
Illusory promises are those where
a party appears to make a promise to perform but reserves the right not to perform. Reservation indicates that no commitment has been made, thus this type of promise will not serve as consideration.
223
Past Consideration - a party has not formed a bargain if ...
they make a promise based on an event that has already occurred.
224
(past consideration) There has been no bargained for exchange; consequently, a promise based on past consideration is _______.
gratuitous.
225
Moral Obligation - a promise based on moral obligation is one made out of ... Generally, moral obligation is ...
Moral Obligation - a promise based on moral obligation is one made out of love, respect, or a desire to do justice. Generally, moral obligation is not consideration for a promise, thought some exceptions apply.
226
Pre-existing Legal Duty - A promise to do something that ...
a party is already legally obligated to do cannot be consideration for a promise.
227
"Failure of consideration" = when consideration fails, it is because ...
of some supervening cause after an agreement is reached, that the promised performance fails.” A party may rescind a contract for failure of consideration.
228
"Want (or Lack) of Consideration" = is a term courts use to indicate that ...
no contract formed because the promise lacked consideration at the outset.
229
In practice, “failure of consideration” is best understood “to cover every case where ...
a promised exchange of values does not take place, irrespective of whether with or without the fault of the party.”
230
Adequacy of Consideration:
Inadequacy of consideration will not void a contract. There is no requirement that the things exchanged be of equal value.
Gross inadequacy of consideration may be relevant to prove a defense to contract formation, such as incapacity, duress, undue influence, misrepresentation and fraud, nondisclosure, unconscionability, or mistake.
If the purported consideration is nominal, then it is just a mere formality or pretense of a bargain and will not serve as consideration for a promise.
231
Stated simply, courts leave the valuation of consideration ...
up to the parties.
232
Equal Exchange:
If the exchange is equal, then adequacy of consideration ___________________... and is ________.
Equal Exchange"
If the exchange is equal, then adequacy of consideration is not an issue before the court and is enforceable.
233
Unequal Exchange:
There is no _________ that the things exchanged be of equal value.
Courts will let the parties determine the _________. An unequal exchange is _____________.
Unequal Exchange:
There is no requirement that the things exchanged be of equal value.
Courts will let the parties determine the valuation. The unequal exchange is enforceable.
234
Gross Inadequacy:
If the inequality in value is _________, courts will check to see if a __________ (e.g. fraud, mistake, etc.) is applicable.
Gross inadequacy is _________ if _______ applies.
Gross Inadequacy:
If the inequality in value is shocking, courts will check to see if a defense (e.g. fraud, mistake, etc.) is applicable.
Gross inadequacy is not enforceable if defense applies.
235
Nominal Consideration:
Consideration is nominal if it is the ____________________. Promisor intended to give a _______ and consideration is a _________. Nominal consideration is ____________________.
Nominal Consideration:
Consideration is nominal if it is the pretense of a bargain. Promisor intended to give a gift and consideration is a formality. Nominal consideration is not enforceable.
236
Nominal Consideration - usually occurs at the extremes - i.e. where something of great value is exchanged for something of ___________________
almost no value.
237
To prove nominal consideration must prove that it is a pretense of a bargain - to do this look to the parties’ intent. Apply the rule for the
bargained for exchange-
1. Did the promise (of something of greater value) induce the detriment (of something of little value)? (promisee’s motive - usually yes here)
2. Did the detriment (of something of little value) induce the promise (of something of greater value)? (intent to give a gift or enter a bargain from the promisor) (if the answer is no then consideration is likely nominal)
238
Option contract may have __________ to hold open the underlying contract. This is an exception.
nominal consideration
239
Illusory Promise (Restatement):
A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless
(a) Each of the alternative performances would have been consideration if it alone had been bargained for . . .
240
Illusory promise - is one where the promisor appears to be bound by a promise, but in fact he has not ...
committed to performing any action or forbearance.- no actual commitment to act or refrain from acting.
241
Illusory promise is not a real _____ - has no _____________ and is not ...
Illusory promise is not a real promise - has no legal value and is not consideration in a bilateral contract.
242
Consideration is illusory if it makes a party’s performance __________.
optional.
243
Output contract (UCC) -
obligates the buyer and seller for the purchase and sale of all the output that the seller produces of a certain good.
244
In an output contract, the seller obligates himself ... and the buyer is obligated ...
In an output contract, the seller obligates himself to sell a particular good only to the buyer, and the buyer is obligated to purchase all that the seller produces of a particular type of good.
245
Requirements contract (UCC) -
obligates the buyer and the seller for the purchase and sale of all that the buyer requires of a particular type of good.
246
In a requirements contract, the buyer obligates himself to ... The seller is obligated to ...
The buyer obligates himself to purchase a particular type of good only from a particular seller. The seller is obligated to have enough of the good to sell to meet the buyer’s requirements.
247
Since each party has an obligation to another party that was bargained for, under both the output and requirement contracts, consideration _______ and is not ________. The contracts are ____________ _______________. (modern approach)
Since each party has an obligation to another party that was bargained for, under both the output and requirement contracts, consideration exists and is not illusory. The contracts are enforceable obligations (modern approach)
248
Output, Requirements, and Exclusive Dealings
UCC $2-306(1):
A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.
249
Past Consideration:
A promise based on consideration received in the past is generally unenforceable since it was not bargained for.
250
If the promisor made the promise because of a performance (or action) that occurred in the past, then ...
there can be no bargain.
251
Something that has been given before the promise was made, and therefore was neither ... cannot ...
Something that has been given before the promise was made, and therefore was neither induced by the promise nor paid in exchange for the promise, cannot serve as consideration.
252
Moral Obligation:
Moral obligation will not serve as consideration for the enforcement of a promise; however, moral obligation may be relevant as an independent basis to prevent unfairness or unjust enrichment.
253
Exceptions to Moral Obligation:
1. Promises to pay debts barred by the statute of limitations
2. A debt discharged by bankruptcy
3. Debts of a minor reaffirmed upon age of majority
4. Promissory restitution
254
Exceptions to Moral Obligation:
1. Promises to pay debts barred by the statute of limitations
out of a sense of moral obligation a party may reaffirm a debt that is not collectable because the statute of limitations has run - the promise to pay the lapsed debt is considered a new promise and the terms of the new promise are enforceable even if there is no consideration for the promise to pay. Courts would explain that the moral obligation here serves as the consideration for the express promise to pay.
255
Exceptions to Moral Obligation:
2. A debt discharged by bankruptcy
If after the bankruptcy filing or discharge, the bankrupt party makes an express promise that he will pay the debt, then a legal obligation arises by that act. Under these circumstances, a court would find that the moral obligation serves as consideration for the promise.
256
Exceptions to Moral Obligation:
3. Debts of a minor reaffirmed upon age of majority-
A promise w a minor is enforceable if the minor upon reaching the age of majority promises to pay the debt.
257
Exceptions to Moral Obligation:
4. Promissory restitution-
Is a special type of restitution that applies to promises based on past consideration or moral obligation. Such promises, although not enforceable as contracts, might be enforceable as moral obligations if the plaintiff conferred a material benefit on the defendant without any compensation. (discussed more in Chap 13)
258
When 2 parties successfully modify a contract, they have created ... the modified contract must ...
When 2 parties successfully modify a contract, they have created a new contract - the modified contract must meet all contract elements - offer, acceptance, and consideration
259
Most important issue occurring in contract modification is a one-sided modification
One sided modification =
one party may make new or additional promises to perform, but the other party has the same duties as they did before under the original agreement.
260
To modify a contract, there must be consideration __________________________ or _________________.
To modify, there must be consideration on both sides of the deal or an exception must be applicable.
261
Obligor =
the party who owes an obligation (i.e. legal duty) to the obligee.
262
Obligee =
the party who has the legal right to receive the benefit of the legal duty owed.
263
Once a contract has _______ _________, more common to use obligor and obligee.
Once a contract has been formed, more common to use obligor and obligee.
264
Pre-existing Legal Duty Rule (Restatement):
Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration . . .
265
No consideration if duties of _____ ______ are not modified.
BOTH parties
266
The modification of both parties’ duties must be ...
more than a pretense of a bargain.
267
If the payment changes from $ amount to an item with a lower $ amount, this is ...
sufficient for consideration.
268
An honest dispute over performance can prevent the pre-exisitng legal duty rule - plumber doesn’t sue for full payment and accepts lower amount in exchange for homeowner not suing him for breach of contract - homeowner waived _______________...
a legal right (to sue over plumbing installed incorrectly).
269
Modification & Changed Circumstances (Restatement):
A promise modifying a duty under a contract not fully performed on either side is binding
(a) If the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made.
270
Good Faith Modification under the UCC
Modification UCC $2-209(1):
An agreement modifying a contract within this Article needs no consideration to be binding.
271
The UCC differs significantly from the common law in that no consideration is required to ...
modify a contract. Based on the reality of business transactions.
272
Good Faith Requirement - UCC Article 2 requires any contract modification be made in ...
good faith - helps guard against situations where modification is made under duress.
273
Promissory Estoppel - what is it also referred to as?
And using this principle a modification without _________ might be enforceable.
Detrimental reliance. consideration.
274
Waiver - a waiver is technically ... In other words, ...
Waiver - a waiver is technically not a modification, but a relinquishment of a contractual right. In other words, one party agrees not to enforce a particular right that party has against the other party.
275
A claim of waiver is often paired with _____________________.
promissory estoppel
276
The waiver is considered the ...
promise a party made that the other party relied on to their detriment.
277
Documents sometimes have language indicating no oral modification (NOM) or no oral waiver (NOW), but courts ...
still will hold that the causes can be waived by an oral agreement.
278
Mutual Rescission/Release - 2 step process
Mutual Rescission/Release - 2 step process
1. Mutual Recission of Contract -
parties mutually agree to terminate (rescind) the contract or release one another from their obligations. Such termination is a new contract where the parties exchange promises to forgo their original contractual rights - this way consideration is satisfied - old contract no longer effective - requires that both parties have executory duties, both parties must still have performance duties under the contract. If at least one party has fully performed, then there would be no consideration for the mutual release.
2. Enter New Contract -
After mutual rescission, the parties are free to enter a new contract w different terms.
Mutual rescission must be done in good faith, and don’t have to do the 2nd step.
279
Mutual recision is a way to _____ the duty of one party without ______ ______.
modify, legal issues
280
Accord and Satisfaction:
Special type of settlement agreement - to modify the duty of one party without legal issues.
281
Accord =
new agreement (separate contract w an exchange of promises) in which an obligee agrees to accept some sort of different performance than was originally promised in the original contract.
The accord suspends the duty owed under the original contract
Example - one party performs but other party alleges performance was faulty and refuses to pay the full original price.
282
Satisfaction =
the actual performance of the accord. Discharges both the duties under the original contract and the duties under the accord.
283
If an accord has been made, the obligee cannot ... unless ...
If an accord has been made, the obligee cannot go back and sue under the original contract, unless obligor does not perform new duties in the accord, then the obligee can sue under the original or new accord contract.
284
Novation =
occurs when the parties agree to replace an existing obligor with a new obligor - the novation acts to delegate the contractual duty from one party to another. Novation releases the original party of liability.
285
A novation requires:
(1) a previous valid obligation, (2) an agreement by all parties to change the obligations, (3) a rescission of the prior contract, and (4) the formation of a new contract.
Novation rescinds the original contract.
286
Account stated =
arises between parties who were involved in a prior transaction, and one of the parties (the debtor) owes money from the prior transaction to the other party (the creditor).
287
An account stated is normally used because ...
the balance due from the prior transaction may be uncertain or the subject of a dispute.
288
The account stated is the ... It accurately ...
The account stated is the resolution of the uncertainty or dispute. It accurately describes the amount owed from the prior transaction and an agreement by a party to pay it off.
289
To be enforceable as an account stated, both parties must agree:
1. The debtor owes a specified amount to the creditor.
2. The amount stated is what is due on the prior transaction.
3. The debtor promises to pay the amount according to the terms specified.
290
Account stated is often used between parties that have ...
an ongoing business relationship who have a series of transactions constituting an open running account with various items of debit and credit - for long periods neither of the parties may know which of the two is indebted to the other.
291
Courts find that the mere drafting of an account stated either expressly or impliedly creates ... Operates as evidence and a promise to pay, normally NOT ...
Courts find that the mere drafting of an account stated either expressly or impliedly creates a new contract for the purpose of paying off the debt.
Operates as evidence and a promise to pay, normally NOT a discharge of obligation under the contract from the prior transaction.
292
Promissory estoppel - exception to the consideration requirement, courts will ...
enforce a gratuitous promise (promise w/o consideration) if the promisee suffered an unjust detriment by relying on the promise when it was foreseeable to the promisor that the promisee would do so.
293
An action based on promissory estoppel does not necessarily give the promisee ...
the full value of the promise, but it may provide the promisee with compensation to the degree that the promisee suffered by relying on the promise.
294
Key elements in proving promissory estoppel are ...
that a promisee relied on a promise by taking action/forbearance, it was foreseeable to the promisor that the promisee would do so, and injustice results by not enforcing the promise.
295
Promissory Estoppel (Restatement $90(1) ):
A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
296
Promissory estoppel is rooted in what policy?
equity and fairness.
297
Considerations of Promissory Estoppel:
1. Was there a promise?
2. Should the Promisor Have Reasonably Expected the Promise to Induce Action or Forbearance?
3. Did the promisee take action/forbearance in reliance on the promise?
4. Can injustice only be avoided by enforcing the promise?
5. Should the remedy be limited?
6. Detrimental Reliance as a Contracts Principle
298
1. Was there a promise? (relating to promissory estoppel)
Promissory estoppel requires a ________- ______ or ______ by conduct, however its terms need __________________ as a contractual ________ would have to be in order to be ____________. While there is flexibility, the _________ must have been communicated with ________________________________________________- estoppel does not apply to ___________________________________________________________________________.
Promissory estoppel requires a promise, express or implied by conduct, however its terms need not be as clear as a contractual promise would have to be in order to be enforceable. While there is flexibility, the promise must have been communicated with sufficient particularity to enforce commitment - estoppel does not apply to vague, indefinite promises.
299
2. Should the Promisor Have Reasonably Expected the Promise to Induce Action or Forbearance? (relating to promissory estoppel)
The reasonable expectation element refers to whether the promisor could __________ that the promisee would take _____________________ as a result of the _________. Consider it w ___________ _____________ standard but also in consideration of the parties and their relationship (maybe promisor knew promisor would act unreasonably as a result.)
2. Should the Promisor Have Reasonably Expected the Promise to Induce Action or Forbearance?
The reasonable expectation element refers to whether the promisor could foresee that the promisee would take action or forbearance as a result of the promise. Consider it w reasonable person standard but also in consideration of the parties and their relationship (maybe promisor knew promisor would act unreasonably as a result.)
300
3. Did the promisee take action/forbearance in reliance on the promise? (relating to promissory estoppel)
Ask myself - “But for the promise, the promisee would ... If true then ...
3. Did the promisee take action/forbearance in reliance on the promise?
Ask myself - “But for the promise, the promisee would not have acted/refrained.” If true then the promisee acted in reliance on the promise.
301
4. Can injustice only be avoided by enforcing the promise? (relating to promissory estoppel)
Injustice occurs if the promisee has ___________________ as a result of the _______________________ that they took in a _________________________on the promise. To what extent did the promisee ________________________? May or may not be in money terms.
4. Can injustice only be avoided by enforcing the promise?
Injustice occurs if the promisee has suffered a detriment as a result of the action/forbearance that they took in a reasonable reliance on the promise. To what extent did the promisee incur a detriment? May or may not be in money terms.
302
5. Should the remedy be limited? (relating to promissory estoppel)
a. Restatement provides courts with an opportunity to ________________________ by not enforcing the ______________________ but enforcing only _________________________________________________ by relying on the promise.
b. Whether plaintiff should get ______________ (full value of the promise - ie as if the consideration was adequate for a contract - what would be given as if there had been a contract) or the _______________________ (compensates only for the amount they were out of pocket, extent their economic position deteriorated)
a. Restatement provides courts with an opportunity to limit the remedy by not enforcing the full value of the promise but enforcing only to the extent that a party has suffered a detriment by relying on the promise.
b. Whether plaintiff should get expectation interest (full value of the promise - ie as if the consideration was adequate for a contract - what would be given as if there had been a contract) or the reliance interest (compensates only for the amount they were out of pocket, extent their economic position deteriorated)
303
6. Detrimental Reliance as a Contracts Principle (relating to promissory estoppel)
a. Promissory estoppel and the larger principle of detrimental reliance - detrimental reliance is a flexible concept. It has been invoked any time a promise sought to be enforced is one which , under traditional contracts doctrine, _________________________ for some reason.
b. For example, courts have used detrimental reliance to enforce illusory promises and when a contract fails because of _____________. But in those cases, facts must support the application of the rule.
a. Promissory estoppel and the larger principle of detrimental reliance - detrimental reliance is a flexible concept. It has been invoked any time a promise sought to be enforced is one which , under traditional contracts doctrine, would not be enforced for some reason.
b. For example, courts have used detrimental reliance to enforce illusory promises and when a contract fails because of indefiniteness. But in those cases, facts must support the application of the rule.
304
Common application of promissory estoppel is through ...
charitable subscription.
305
Charitable subscription - involves ...
a promise by a benefactor to a charity, such as a nonprofit foundation, to make a donation.
306
Charitable subscription - Such promises were traditionally thought to be gratuitous, however many modern courts ...
enforce the promise by applying promissory estoppel.
307
As a matter of public policy, courts favor charities and are more likely to _______ gratuitous promises to a _________ than they would in the ________ context.
As a matter of public policy, courts favor charities and are more likely to enforce gratuitous promises to a charity than they would in the commercial context.
308
Restitution allows recovery even if ...
there is no contract.
309
Key concept in restitution is ...
unjust enrichment
310
Restitution is granted if a party has been _________ by receiving a _________ from another party and it would be _______ for that party to ________________________ paying for it.
Restitution is granted if a party has been enriched by receiving a benefit from another party and it would be unjust for that party to keep the benefit without paying for it.
311
Unjust Enrichment (Restatement):
A person who is unjustly enriched at the expense of another is subject to liability in restitution.
312
Restitution is sometimes referred to as an ... but just know this theory of obligation is ... Instead the law ...
Restitution is sometimes referred to as an implied in law contract or more commonly referred to as a quasi-contract - but just know this theory of obligation is not an actual contract. Instead the law imposes an obligation in the name of equity and fairness.
313
Two types of restitution:
1. Quasi-Contract/Implied in Law
2. Promissory Restitution
314
Quasi-Contract/Implied in Law -
provides recovery for a plaintiff when no contract exists provided that the plaintiff conferred a benefit on the defendant, and it would be unjust for the defendant to keep the benefit given the circumstances.
315
Promissory Restitution -
supports the enforcement of some promises based on past consideration or moral obligation. Key difference between promissory restitution and quasi contract is that a promise is a required element of promissory restitution, whereas a promise is not required to bring a cause of action under quasi-contract.
316
Important to know that an implied in fact and an implied in law contract are ________.
different!
317
Implied in fact =
an actual contract where there is consideration for the promise. May be implied in fact through words/conduct (actions not just words ok)
318
Quasi-Contract/Implied in Law (& exceptions):
A court may order restitution if:
1. The plaintiff has conferred a benefit on the defendant;
2. The defendant has knowledge or appreciation of the benefit;
3. The defendant has accepted or retained the benefit conferred and
4. The circumstances are such that it would be inequitable for the defendant to retain the benefit without paying fair value for it.
Exceptions-
Restitution is not available if:
a. A party officiously confers a benefit upon another, or
b. A party has conferred a gratuitous benefit without expectation of compensation.
319
A quasi-contract is not an ... It applies when there is ...
A quasi-contract is not an actual contract. It applies when there is no recovery under a contractual theory.
320
Quasi-contract differs from other theories in that it need not ...
be a promise made to the party seeking recovery. Does not require return promise.
321
In a quasi-contract the focus is on unjust enrichment which is made up of 2 elements:
(1) one party has been enriched by another, and (2) it would be unjust to allow the enriched party to keep the benefit without making compensation.
322
Quasi-contract is unavailable if a party ...
Quasi-contract is unavailable if a party officiously conferred the benefit with an expectation of payment or intended to give a gift that has been given.
323
Known as officious intermeddler doctrine, restitution will ...
not be granted to a party who voluntarily assists or benefits another without contractual responsibility or legal duty to do so but nevertheless expects compensation for their actions.
324
Person is deemed an officious intermeddler if the interference in the affairs of others is ...
not justified by the circumstances - in other words there may be enrichment, but it is not unjust for a party to keep the benefit without paying for it.
i.e. - acting on own accord to repair a house w/o contract or permission or doing so by any reasonable mistake, without the homeowners knowledge, etc.
325
(gratuitous benefit)
Gifts given w/o the expectation of compensation may ... In an action for restitution, a court might ...
Gifts given w/o the expectation of compensation may not be withdrawn. In an action for restitution, a court might deny recovery if the plaintiff intended to give a gift without the expectation of compensation.
326
Theory of quasi contract is relevant when ...
a contract does not exist!
327
Typical Scenarios with quasi contract -
1. Ineffective contract
2. Family Scenario
3. Saving Lives and Property
328
Typical Scenarios with quasi contract - 1. Ineffective contract
Parties attempted to enter a contract, but it failed in some way. There may have been a lack of consideration or a defense to formation such as fraud or mistake - consequence is contract is unenforceable.
If one party conferred a benefit to another under the failed or unformed contract, then it is possible that the other party has been unjustly enriched and there should be a restoration of the benefit.
329
Typical Scenarios with quasi contract - 2. Family Scenario
A rebuttable presumption exists that services rendered by family members are meant to be gratuitous (i.e. a gift). There needs to be a strong set of facts showing that restitution is appropriate - i.e. higher standard such as clear and convincing evidence.
330
Typical Scenarios with quasi contract - 3. Saving Lives and Property
A physician/medical professional may get compensation for rendering medical services in an emergency without prior consent, but an ordinary person will not. Some additional constraints apply beyond quasi contract- the professional can recover, but only if they had intent to charge, it was impossible for the injured party to give consent, and the medical attention must have been necessary to prevent the other from suffering serious bodily harm or pain.
The volunteer who renders medical services gratuitously or officiously cannot recover in restitution.
A party who saves property in an emergency might be compensated- but it is fact specific and the bar is high. The owner of the property has to accept the property back in order for the rescuing party to recover.
331
Key distinction between promissory restitution and quasi-contract is ...
the existence of a promise made because of an action done in the past.
332
Promissory restitution_______________ the same as _______________
Promissory restitution is NOT the same as promissory estoppel
333
Promissory Restitution (Restatement):
1. A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.
2. A promise is not binding under subsec. (1)
a. If the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or
b. To the extent that it value is disproportionate to the benefit.
334
(related to promissory restitution) Factors listed by the restatement to consider when determining if there is injustice by not enforcing the promise:
1. The definite and substantial character of the benefit received,
2. Formality in the making of the promise
3. Part performance of the performance,
4. Reliance on the promise or the probability of such reliance
335
Contract (Restatement)
A contract is a ______________ for the __________ of which the law gives a ________, or the _________ of which the law in some way recognizes as a _______.
A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
