CONTRACTS I OUTLINE

1. In General

• Contract- a set promises to do or not to do something that are enforceable by law

• Incidental damages- compensation for any commercially reasonable charges, expenses, or commissions incurred with respect to:

1. inspection, receipt, transportation, or care
2. stopping delivery
3. effecting cover, return, or resale of the goods
4. efforts to cover the goods

• Consequential damages- any loss to the aggrieved party that the breacher had reason to know about and which could have been avoided without the breach.

• Always ask this question 1^st: Does the transaction involve a service or a good?

1. Three types of relief available for breach of contract:

1. Expectancy- when one is placed in the position that he or she expected to be in had the contract not been breached.

1. Reliance- when one is reimbursed for the loss caused by relying on the contract. Puts P where they were before the breach occurred.
2. Restitution- taking any benefit away from the breacher and giving it back to the aggrieved party. (taking back fees that were paid for in the nose operation)

1. Bilateral and Unilateral contracts:

1. Unilateral- this is a promise made in exchange for some type of performance. (i.e. a reward to catch a crook; one is not obligated to catch crook, but will get reward if they do!)

1. THE BARGAINED FOR EXCHANGE: PROMISE + CONSIDERATION

• Restatement (second) 71:

1. to constitute consideration, a performance must be bargained for;
2. it is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for the promisor’s promise.
3. the performance may consist of an act, forbearance, the creation, modification, or destruction of a legal relation.
4. the performance or return promise can be given to the promisor or some other person and may be given by the promisee or some other person.

1. THE NATURE OF CONSIDERATION

1. Consideration does not have to be the dominant want of the person in question; it can be a sub-ordinate want and will be sufficient to make a contract enforceable.
2. Bargained-For-Theory: a performance or a promise is bargained for if it is sought by the promisor in exchange for his promise. (a trade-off)
3. Cross-Inducements: each induces the other with something while bargaining. Both must be operating for it to be considered sufficient consideration. ( if you do not find anything that induces the promisor to make the promise, then we do not have consideration)

1. both promises must actually prompt the other to make his promise; it is not sufficient if one makes a promise because the other has already done something for them. Something received in past is not sufficient for consideration of a present promise.
2. a new promise to pay an old debt is consideration; a partial payment of a debt is also consideration to pay the old debt.

1. giving up a legal right to do something is a detriment (uncle story/nephew case)

1. RESTATEMENT (SECOND) 74:

• Forbearance to assert a claim is consideration if:

1. The claim is valid
2. An invalid claim is sufficient for consideration, if:

1. the facts of case are uncertain
2. the law in case is uncertain

1. The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument was bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists. (any bargained for claim will suffice)

USE A TWO PART ANALYSIS FOR CLAIMS AS CONSIDERATION:

1. CLAIMANT MUST GENUINELY BELIEVE SHE HAS A CLAIM
2. THIS BELIEF MUST BE A REASONABLE BELIEF (OBJECTIVE)

1. MODIFICATION OF CONTRACTS: RESTATEMENT 89

1. the modification was made before the contract was fully performed
2. the circumstances prompting the modification were unanticipated by both parties
3. the modification is fair and equitable

1. No Consideration Required for Modification: A modification of a sales contract does not require consideration to be binding.
2. Writing Requirement:

1. An agreement cannot be rescinded or modified without a signed writing if the original agreement:

1. Is in writing; and
2. Is signed; and
3. Requires that modifications or rescissions be made with a signed writing.

2. Such a term must be signed separately if

1. One party is not a merchant; and
2. the other term is on a form supplied by the party who is a merchant.

3. Statute of Frauds Requirement: The requirements of the statute of frauds must be satisfied if the modified contract falls under 2-201(1). (K>$500)
1. Creation of Waiver: Although an attempt to modify of rescind a contract fails, it can operate as a waiver.
2. Retraction of Waiver:

1. A party who has made a waiver affecting an executory portion of a contract may retract the waiver by giving reasonable notice to the other party that Strict performance will be required of any term waived.
2. In order for the retraction of the waiver to be effective, the other party must receive the notification requiring strict performance.
3. A party will not be able to retract such a waiver if it would be unjust in view of a material change of position in reliance on the waiver.

Consideration is irrelevant if there is no future behavior. If there is only present behavior there is no need for consideration. (Ex. Transfer)

Transfer: A delivery of an item with donative intent.

1. if a party already has a legal duty to perform then any promise to pay a person more for that which they already must do is not sufficient consideration. (Alaska packer’s case)
2. however, if the promisor is getting something more than he originally bargained for then this can be found to be consideration for the modification.
3. This does not apply to 3^rd parties; example: an owner, general contractor, and a sub-contractor. The owner’s promise to the sub contractor to give bonus for good work is enforceable because sub contractor only had duty to the general contractor and not actually to the owner.
4. HONEST DISPUTES ABOUT THE ORIGINAL AGREEMENT WILL AVOID THE PRE EXISTING LEGAL DUTY RULE BECAUSE THEY ARE NOT SURE EXACTLY WHAT THE ORIGINAL DUTY WAS.

• Modifications can be valid always if the parties: ( MUTUAL RECISSION)

1. rescend the old agreement
2. agreement to rescend shows consideration
3. then make the new agreement

1. ENFORCING PROMISES BASED ON RELIANCE

1. an actual promise
2. the promisor should "reasonably" expect this promise to induce an action or forbearance
3. the promise actually does induce this action or forbearance
4. injustice can only be avoided by enforcement of the contract

• FOR CHARITABLE SUBSCRIPTIONS & MARRIAGE SETTLEMENTS, ONE DOES NOT NEED TO PROVE THAT RELIANCE PRODUCED ACTION/FORBEARANCE

1. charitable subscriptions are enforceable without consideration; promissory estoppel is used due to a matter of public policy that these should be enforceable.
2. FORESEEABLITY is the key to estoppel: the promisee must detrimentally rely on the promisee and the promisor must have been able to "reasonably foresee" that his promise would induce the action or forbearance. (grandpa gave girl $2,000 so she didn’t have to work)
3. One can also detrimentally rely on a promise by not doing something, such as not seeking other work that is available. (Feinberg v Pfeiffer)
4. Past services are not valid consideration for a present promise.

• EQUITABLE ESTOPPEL: A statement made of fact that is relied on by a person and therefore will be enforceable even if it is not correct, it will be considered correct if it was detrimentally relied upon.

1. RESTITUTION BASED ON UNJUST ENRICHMENT

• 3 ELEMENTS

1. must be a benefit conferred
2. has to be of value to the recipient (D ACCEPTS AND RETAINS THE BENEFIT)
3. has to be inequitable for him to retain it without paying for it
4. P DID NOT VOLUNTEER IN CONFERRING THE BENEFIT

• RESITUTION IS THE ONLY RELIEF POSSIBLE IN UNJUST ENRICHMENT CASES!

• Look at two things in determining unjust enrichment:

• The giver of the benefit must show that it was not a gratuitous gift (he expected compensation)

1. the status of the individual is taken into consideration in these cases. Ex. A lawyer expects to be paid for legal counsel, a painter expects to be compensated for painting houses.
2. If one does something for another that the law would ordinarily make the person do then we can say that it is not a gratuitous gift. (taking care of another’s children)

1. PROMISE FOR BENEFIT RECEIVED: RESTATEMENT 2^ND 86

• The person that is getting benefit must show that he expected to be compensated for the benefit that he has given the other. If he does, then it would be unjust for him not to pay for benefit.

1. GRATUITOUS PROMISES & GIFTS

1. THESE ARE NOT ENFORCEABLE
2. gratuitous transfers are though; once the item has been transferred as a gift we do not need to look at consideration. Consideration is for making PROMISES enforceable.
3. MUST SHOW THAT THE PERSON GIVING THE GIFT HAD DONATIVE INTENT. NO BARGAINED FOR EXCHANGE IN GRATUITOUS GIFTS.
4. MUST SHOW THE PERSON DID NOT EXPECT TO BE COMPENSATED FOR THE SERVICE.

1. CONDITIONAL AND ILLUSORY PROMISES

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; or

(b) One of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration.

1. PERSONAL SATISFACTION CLAUSES:

• Conditioned precedents do not make contracts or promises illusory. An example would be a personal satisfaction clause.

• If there is no industry standard to apply to the "satisfaction" part then the law will determine if the person acted in "good faith" when deciding if it was satisfactory.

• They may also employ the "reasonable person" test when deciding if the satisfaction clause was satisfied

1. PARTIES NOT OBLIGATED TO ONE ANOTHER

• If either party is not obligated in any way at all by the promise then the promise is considered to be illusory.

1. OUTPUT CONTRACTS

• This is a contract that exists when one person says that they will take all that another can produce. (Feld v. Henry S. Levy & Sons). In this case they dealt with the contract for bread crumbs.

Mote on 2-306: Most courts believe that 2-306 provides a ceiling but no floor. "Good Faith" is the Only recourse for a floor. So long as a merchant is reasonable and Honest (good faith) there is no minimum amount in output requirement contracts. In order to meet the good faith requirement though a merchant must continue to produce even if it is unprofitable as long as it will not endanger his business.

1. REQUIREMENT CONTRACTS

• These are those contracts that state, " I will buy all the sand I need from you. Implies that one will deal with that person exclusively. (McMichael v. Price)

1. "GOOD FAITH" REQUIREMENT

• Both of these types of contracts must show good faith by the persons involved. By this we mean that one cannot stop the contract for bread crumbs unless it is in good faith. In that case they stopped because prices went up on cost of production. This is not considered good faith.

• Two types of GOOD FAITH:

1. Merchants: reasonable commercial standards apply in the good faith test (reasonable and honest)
2. Non-merchants: must only be honest about reason for stopping
3. Varying prices is not a good faith reason for termination

1. MUTUALITY

1. Each party must have a duty or an obligation to the other party
2. Mutuality is necessary to make a bilateral contract enforceable
3. One must ask, "Is there any circumstance here where one or both of the parties may back out of the contract. If this backing out would cause a breach then you have mutuality. If not, it is an illusory promise.
4. Good and Bad Buzz words to look for:

1. Good words that show mutuality: All I need, all you can produce, all I require
2. Bad words that should arise doubt: all I want, all I desire, all I like, etc…

1. EXCLUSIVE DEALINGS BETWEEN PARTIES

• In these situations, each party must show their BEST EFFORTS to either supply the goods or for the other person to promote the sale of the goods. (Wood v Lucy Lady Duff). In this case each has to use best efforts to uphold their end of the bargain.

1. MORAL OBLIGATIONS

• These are enforceable when there is a pre-existing obligation that has become unenforceable by reason of law and a new promise is made to reenact it. This happens in the following situations:

1. Bankruptcy Cases

• A promise that is made to pay all or part of an indebtedness of the promisor, discharged in bankruptcy proceedings that begun before the promise was made, is enforceable.

1. Minors who come of age
2. Debts dealing with the statute of limitations

1. A promise to pay all or part of an antecedent contractual of quasi contractual indebtedness owed by the promisor is binding if the indebtedness is still enforceable or would be except for the effect of the statute of limitations.
2. The following facts operate as such a promise unless other facts indicate a different intention:

1. a voluntary acknowledgement of the obligee, admitting the present existence of the antecedent indebtedness, or
2. a voluntary transfer of money, a negotiable instrument, or other thing by the obligor to the obligee, made as interest on or part payment of or collateral security for the antecedent indebtedness, or
3. a statement to the obligee that the statute of limitations will not be pleaded as a defense.

1. MECHANICS OF A CONTRACT: OFFER AND ACCEPTANCE

• TWO PRONG OBJECTIVE TEST FOR VALID OFFER:

1. OFFEREE GENUINELY BELIEVED OFFEROR INTENDED THE OFFER
2. A REASONABLE PERSON IN THIS SAME SITUATION WOULD HAVE BELIEVED THAT D INTENDED TO OFFER.

• AN OFFER IS THE MANIFESTATION OF WILLINGNESS TO ENTER INTO A BARGAIN, SO MADE AS TO JUSTIFY TO ANOTHER PERSON IN UNDERSTANDING THAT HIS ASSENT TO

• NEITHER REAL NOR APPARENT INTENTION THAT A PROMISE BE LEGALLY BINDING IS ESSENTIAL TO THE FORMATION OF A CONTRACT, BUT A MANEFESTATION OF INTENTION THAT A PROMISE SHALL NOT AFFECT LEGAL RELATIONS MAY PREVENT THE FORMATION OF A CONTRACT.

1. There is no need for a "meeting of the minds" to form a contract, only a need for an objective manifestation of willingness to deal. (if it was reasonable for offeree to believe offeror intended to deal)
2. Husband and wife promises are not usually legally enforceable
3. An exchange of promises without any intent to be legally bound will not be enforceable if a party states that the contract is not legally enforceable. (no legal recourse for breach here)
4. RULE OF THUMB: ADS ARE NOT OFFERS! This is due to the quantity factor. What if they run out of stock of what the ad was offering? This is why they are not offers. However, if it is a first come, first serve ad, then it might be a valid offer. (Lefowitz v Surplus Fur Coats)

(a) Ads are usually considered solicitations for an offer from customers.

5. IF THERE IS NOT A QUANTITY STATED, THEN NOT VALID OFFER. IT DOES NOT HAVE TO BE EXACT, BUT IT CANNOT BE, "I’LL BUY SOME COTTON".
6. GOOD TEST FOR DETERMINING A VALID OFFER:

1. Ask this question: Would a reasonable person believe they could close the deal by responding with acceptance? If yes, then usually you have a valid offer.

1. The offeror is the master of his offer. He can dictate the means of acceptance that will be sufficient to conclude the deal.

UCC 2-328: SALE BY AUCTION

1. THE BIDDERS ARE THE OFFERORS MOST OF THE TIME.

1. ACCEPTANCE

1. 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.
2. Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise.
3. Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.

• Except as stated in 69, or where the offer manifests a contrary intention, it is essential to an acceptance that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably. (reasonable time)

• In case of doubt, an offer is interpreted as inviting the offeree to accept by either the promise to perform or an actual rendering performance, whichever the offeree chooses.

***the moment that acceptance takes place, both parties are bound***

1. Unless otherwise unambiguously indicated by the language or circumstances,

1. an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;
2. 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 non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the non-conforming goods are offered only as an accommodation to the buyer.

1. Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. (must always notify the offeror even after performance has begun)

• An acceptance by an in-invited means must be received by the offeror before it is valid. This will still be taken as a new offer by the offeree and the original offeror will then have the option to accept or reject.

• A prohibited means of acceptance does not constitute an acceptance and is not make a contract. (ex. You should do X to accept, but instead, you do Y.)

• If you send the right goods=acceptance
• If you send the wrong goods=acceptance, unless you seasonably notify the buyer that it is only a accommodation. (wrong goods can mean price, quantity, etc.. any respect of difference)

• You order right handed widgets, and you receive left handed widgets. You can keep the left widgets or hold the seller to the right widgets. He accepted by sending the widgets, and breached by sending left widgets.

• If he seasonably notifies buyer of left widgets, then it becomes a counter-offer.

• IF AN OFFER PRESCRIBES THE PLACE, TIME, OR MANNER OF ACCEPTANCE ITS TERMS IN THIS RESPECT MUST BE COMPLIED WITH IN ORDER TO CREATE A CONTRACT. IF AN OFFER MERELY SUGGESTS A PERMITTED PLACE, TIME, OR MANNER OF ACCEPTANCE, ANOTHER METHOD OF ACCEPTANCE IS NOT PRECLUDED.

1. IF PERFORMANCE IS ACCEPTANCE, THEN THERE IS NOT A REQUIREMENT OF FURTHER NOTIFICATION TO THE OFFEROR BY THE OFFEREE.
2. IF THE OFFEREE KNOWS THAT THE OFFEROR DOES NOT HAVE A REASONABLE MEANS OF SEEING THE PERFORMANCE HAS TAKEN PLACE AS ACCEPTANCE, THEN THE OFFEROR IS DISCHARGED OF CONTRACTUAL DUTY, UNLESS

1. THE OFFEREE EXERCISES "REASONABLE" DILIGENCE TO NOTIFY THE OFFEROR OF ACCEPTANCE
2. THE OFFEROR ACTUALLY DOES LEARN OF PERFORMANCE WITHIN A REASONABLE TIME
3. THE OFFER INDICATES THAT NOTIFICATION OF ACCEPTANCE IS NOT REQUIRED

• UNLESS OFFEROR MANIFESTS CONTRARY INTENTION, AN OFFEREE WHO LEARNS OF AN OFFER, AFTER PARTIAL PERFORMANCE OF THE OFFER HAS BEEN RENDERED, CAN ACCEPT THE OFFER BY COMPLETING THE REQUESTED PERFORMANCE.

1. AN OFFER CAN BE ACCEPTANCE BY THE RENDERING OF A PERFORMANCE ONLY IF THE OFFER INVITES SUCH AN ACCEPTANCE.
2. EXCEPT AS STATED IN 69, THE RENDERING OF A PERFORMANCE DOES NOT CONSTITUTE AN ACCEPTANCE IF WITHIN A REASONABLE TIME THE OFFEREE EXERCISES REASONABLE DILIGENCE TO NOTIFY THE OFFEROR OF NON-ACCEPTANCE.
3. WHERE AN OFFER OF A PROMISE INVITES ACCEPTANCE BY PERFORMANCE AND DOES NOT INVITE A PROMISSORY ACCEPTANCE, THE RENDERING OF THE INVITED PERFORMANCE DOES NOT CONSTITUTE AN ACCEPTANCE IF BEFORE THE OFFEROR PERFORMS HIS PROMISE THE OFFEREE MANIFESTS AN INTENTION NOT TO ACCEPT.

2. TIMING MECHANISM FOR THE ACCEPTANCE OF A CONTRACT

1. MAILBOX RULE: once the acceptance leaves the possession of the offeree it becomes a valid acceptance and the parties involved are bound.

1. AN ACCEPTANCE MADE IN A MANNER AND BY A MEDIUM IS OPERATIVE AND COMPLETES THE MANIFESTATION AS SOON AS IT LEAVES THE POSSESSION, WITHOUT REGARD AS TO WHETHER IT REACHES OFFEROR
2. OPTION CONTRACTS NOT OPERATIVE UNTIL ACCEPTANCE IS RECEIVED

1. THREE TYPES (MEANS) OF ACCEPTANCE

1. Invited Means- the offeror expresses the modes of communication that are acceptable. This can also be implied (ex. "If you want to buy my car, then let me know!" this implies phone call, fax, letter, etc…)
2. Uninvited Means- if the offeree uses a method that is not specified, it can be a valid acceptance, but the risk of communication is on the offeree, and the acceptance is not valid until it is received by the offeror.
3. Forbidden Means- a forbidden means of acceptance is not valid and does not result in the formation of a contract. However, this forbidden means can be viewed as an offer from the offeree, and the original offeror must now accept this new offer to form a contract between the parties.

1. OVERTAKING ACCEPTANCE RULE:

1. a rejection is not valid until it is received by the offeror
2. an acceptance is valid upon leaving possession of the offeree

1. WHEN A REJECTION IS SENT AND THEN FOLLOWED BY AN ACCEPTANCE, THE ACCEPTANCE MUST OVERTAKE THE REJECTION SO THAT THE OFFEROR RECEIVES THE ACCEPTANCE BEFORE HE RECEIVES THE REJECTION. (EX. Send it overnight mail)
2. IF IT DOES NOT OVERTAKE THE REJECTION, IT BECOMES A COUNTEROFFER AND THE ORIGINAL OFFEROR HAS OPTION TO ACCEPT OR REJECT.
3. IF OFFEREE SENDS AN ACCEPTANCE BY MAIL, AND THEN SENDS A REJECTION THAT BEATS THE ACCEPTANCE TO THE OFFEROR, ESTOPPEL WILL NOT ALLOW THE OFFEREE TO ENFORCE THE CONTRACT BY CLAIMING THAT ACCEPTANCE WAS IN THE MAIL. AS LONG AS THE OFFEREE HAS GIVEN OFFEROR REASON TO BELIEVE HE DID NOT WANT THE GOODS. ESTOPPEL WILL ONLY STEP IN IF THE OFFEROR HAS RELIED ON THE REJECTION AND SOLD GOODS TO SOMEONE ELSE.

1. BEHAVIOUR AS AN ACCEPTANCE

1. WHERE AN OFFEREE FAILS TO REPLY TO AN OFFER, HIS SILENCE WILL BE ACCEPTANCE ONLY IN THE FOLLOWING CASES:

1. WHERE OFFEREE TAKES BENEFITS OF OFFERED SERVICES WITH REASONABLE OPPURTUNITY TO REJECT THEM AND REASON TO KNOW THAT THEY WERE OFFERED WITH EXPECTATION OF COMPENSATION.
2. WHERE OFFEROR HAS GIVEN REASON FOR OFFEREE TO KNOW THAT SILENCE OR INACTION, AND WHERE OFFEREE BY REMAINING SILENT INTENDS TO ACCEPT.
3. DUE TO PREVIOUS DEALINGS, IT IS REASONABLE FOR THE OFFEREE TO NOTIFY THE OFFEROR IF HE DOES NOT INTEND TO ACCEPT.

1. AN OFFEREE DOES ANY ACT INCONSISTENT WITH THE OFEROR’S OWNERSHIP OF THE OFFERED PROPERTY IS BOUND BY THE TERMS UNLESS MANIFESTLY UNREASONABLE. IF ACT IS WRONGFUL, IT IS ONLY ACCEPTANCE IF RATIFIED BY THE OFFEROR. (he may not want to sue in contracts, maybe tort law)

HYPO: A man approaches you while you are sitting on your porch. He says, " the house sure does need painting. You reply, " yep, it sure does". He says, "do you want me to start in the front or back?" You say, "you can choose." What is he entitled to?

ANSWER: At least unjust enrichment due to the paint job, but probably a implied contract under restatement 69.

IF THERE ARE PREVIOUS DEALINGS THAT WOULD LEAD THE OFFEROR TO BELIEVE THAT SILENCE ON THE PART OF THE OFFEREE IS AN ACCEPTANCE, THEN THIS MAY CONSTITUTE AN ACCEPTANCE. ( RUSSEL V TEXAS CO.)

UCC 2-204: FORMATION OF CONTRACT, IN GENERAL

1. A CONTRACT FOR THE SALE OF GOODS MAY BE MADE IN ANY MANNER SUFFICIENT TO SHOW AGREEMENT, INCLUDING CONDUCT BY BOTH PARTIES WHICH 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 UNDETERMINED.
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 ACONTRACT AND THERE IS A REASONABLY CERTAIN BASIS FOR GIVING AN APPROPRIATE REMEDY.

5. Nature and Effect of a Counter-0ffer

1. An offeree’s power of acceptance is terminated by his rejection unless the offeror has manifested a contrary intention.
2. A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement.

1. A counter-offer 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 counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree.

• If the counter-offer addresses steel rails and the original offer is for iron rails, then the counter-offer does not impose a rejection to the original offer. (not of same matter)

• A conditional statement in an acceptance that the offeror must do something will amount to a rejection of the offer.

• However, a mere request may be found to be an acceptance with proposals for additions to the offer.

• If the offeree places something in the acceptance that was not in the offer but is considered standard in this industry, then it will not be a rejection even though it may appear to be a counter-offer. (i.e. US $, shipped to buyer’s place of business, etc…)

6. FORM AGREEMENTS

• At common law, the party that sent the last form was how it was determined what the terms of the contract were. For obvious reasons, this is not fair or efficient. Parties just kept sending forms until other party got tired of doing it.

UCC 2-207: ADDITIONAL TERMS IN ACCEPTANCE OR CONFIRMATION

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:

1. the offer expressly limits acceptance to the terms of the offer
2. they materially alter it; or
3. notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

1. 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.

FURTHER EXPLANATION OF 2-207:

1. SUBSECTION (1)

• Subsection (1) deals with the question of contract formation. Do we have a contract here based on what has taken place?

1. SUBSECTION (2)

• If yes to Subsection (1), then Subsection (2) addresses the contents of the contract (terms).

• How do we treat additional terms in this situation?

1. IF THEY ARE BOTH MERCHANTS OF THE GOODS, THEN THEY ARE PART OF THE CONTRACT UNLESS THEY SATISFY THE EXCEPTIONS LISTED UNDER SUBSECTION (2), (a), (b), (c).
2. IF NOT BETWEEN MERCHANTS, THEN THEY ARE PROPOSALS FOR ADDITION TO CONTRACT.

Example: offer = X + Y

Acceptance = X + Y + Z

"Z" will become part of contract unless (a), (b), or (c) from above.

RULE: WARRANTY DISCLAIMERS ARE ONE OF THE MOST COMMON MATERIAL ALTERATIONS THEY WILL NOT BE PART OF CONTRACT.

• Additional Terms to a contract must be expressly accepted by the other party. It is not sufficient to hide them in the small print of a document. Usually the party must initial these additional terms to be effective.

[subsections (1) and (2) deal with the expressions of the parties]

C. SUBSECTION (3): conduct of the parties

• This sub-section deals with the making of a contract by the conduct of the parties involved.

• If the conduct of the parties (i.e. taking and paying for the goods) shows the existence of a contract, then there will be one and the terms in which the writings agreed upon will be terms of the K and the conflicting terms will not be a part of the contract.

• If the conflicting terms create gaps in the contract, then "gap fillers" established by the code will fill them in with what is normal for these types of dealings, or what is "Reasonable" in the situation. (reflection of industry norms such as US $, delivery of goods to buyer’s place of business)

• We supply a norm to where the parties have not spoken.

KNOCKOUT DOCTRINE: (ONLY APPLIES TO MERCHANTS)

• When two confirmations collide with one another in terms, the conflicting terms are thrown out the window. We look to the code to find the norms to fill these gaps.

EXAMPLE:

• contract on the phone is made to buy widgets

• then both parties send confirmations, one for white widgets, the other confirming black widgets.

• We will look to the code to see what the norm is or what is reasonable. If the code says "yellow" then the contract will be for yellow widgets.

What if the original offer on the phone was for white widgets, and the confirmation was for black?

• Majority Rule: throw both out by knockout doctrine
• Minority Rule: treat the confirmation as proposal for terms under subsection (2) of UCC 2-207.

7. TERMINATION OF OFFER: DESTRUCTION OF POWER OF ACCEPTANCE

RESTATEMENT 2^ND 43: INDIRECT COMMUNICATION OF REVOCATION

• An offeree’s power of acceptance is terminated when, (1) the offeror takes definite action inconsistent with an intention to enter into the proposed contract and (2) the offeree acquires reliable information to that effect.

RESTATEMENT 2^ND 46: REVOCATION OF GENERAL OFFER

• Where an offer is made by advertisement in a newspaper or other general notification to the public or to a number of persons whose identity is unknown to the offeror, the offeree’s power of acceptance is terminated when a notice of termination is given publicly by advertisement or other general notification equal to that given to the offer and no better means of notification is reasonably available.

RESTATEMENT 2^ND 48: DEATH/INCAPACITY OF OFFEROR OR OFFEREE

• An offeree’s power of acceptance is terminated when the offeror or offeree dies or is deprived of legal capacity to enter into the proposed contract.

• DEFN. promises not to revoke an offer for a given amount of time; must have some type of consideration for the offeror to be bound to keep the option contract open. Anything will be sufficient for the courts. Usually even a promise to pay for the option contract is sufficient consideration.

• The "dead man’s rule" (rest. 48) is designed to protect the power to revoke an offer. We will assume that the offeror would have revoked his offer.

• For this reason, it does not apply to an option contract because the offeror does not have the power to revoke an offer during the period the option contract is open.

• If you send an acceptance, and then the person dies, the contract is good because it was formed the second the acceptance left your possession and offeror was still alive at this time.

(Humble Refining v Westside Investment)

RULE: AN OPTION CONTRACT NULLIFIES THE RULE THAT A COUNTER-OFFER IS ACTUALLY A REJECTION TO THE ORIGINAL OFFER.

• One may negotiate and counter-offer during the period in which his option contract is still open. However, the only exception to this is if the offeree expressly rejects the offer and then the offeror detrimentally relies on the rejection and sells to another, the offeree will be estopped from trying to enforce the option contract.

RULE: AN ACCEPTANCE UNDER AN OPTION CONTRACT IS NOT OPERATIVE UNTIL RECEIVED BY THE OFFEROR. (REST. 63 (B))

RESTATEMENT 2^ND 87: OPTION CONTRACTS W/OUT CONSIDERATION

1. An option is binding as an option contract w/out consideration if it

1. is in writing and is signed by the offeror, and
2. recites a purported consideration for the making of the offer, and
3. proposes an exchange on fair terms within a reasonable time, OR

SUBSECTION (2) ADDRESSES OFFERS THAT A PERSON MAY RELY ON. ONLY RELIEF HERE IS THAT THE OFFER STAYS OPEN FOR A REASONABLE TIME. (creates an option contract)

1. An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce the action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

THIS RESTATEMENT (87) ONLY KICKS IN WHEN THERE IS NO CONSIDERATION FOR THE OPTION CONTRACT.

UCC 2-205: FIRM OFFERS (MERCHANTS ONLY)

• An offer by a merchant to buy or sell goods in a signed writing which by its terms gives 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 3 months; but any such term of assurance on a form supplied by the offeree must by seperately signed by the offeror.

1. 4 THINGS THAT WILL TERMINATED THE POWER OF ACCEPTANCE

1. COUNTER-OFFER
2. EFFECTIVE REVOCATION
3. DEATH/INCAPACITY OF OFFEROR/OFFEREE (

(a) this does not apply to option contracts

4. LAPSE OF OFFER:

1. offer can lapse when the offeror states that it will
2. offeror may establish an occurrence that will make the offer lapse. (i.e. someone else accepting the offer.)
3. offer may lapse after a "reasonable time"

• what is a "reasonable time"?

1. in a face to face discussion about the offer, it will not lapse until the discussion has ended, unless the offeror states that it will. However, this does not mean that it will lapse at the end of discussion, this simply means you have at least that long.
2. "reasonable time" has ended if the acceptance is no longer in your grasp. (i.e. unibomber has been caught and then you give tip to catch him for a reward. He has already been caught, so reasonable time is up.)

1. Option: offeror promises that for a given period thathe will not revoke; during that time you can accept. (offeror foregoes his option to revoke)
2. Lapse: You must accept by Friday or the offer will lapse. Friday only gives the limit for the offeree to accept. Offeror is still allowed to revoke before Friday, but the offeree cannot accept after Friday.

RESTATEMENT 2^ND 45: OPTION CONTRACT CREATED BY PART PERFORMANCE OR TENDER

1. Where an offer invites an offeree to accept by rendering a performance and does not invite promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it. (basically, when the offeree starts to do what is asked, the offeror cannot revoke)

(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. (offeror doesn’t have to pay until completion by offeree)

• Promissory acceptance is inconsequential
• This rule addresses performance acceptances only
• Preparing to perform is not enough, you must actually start the performance
• Rest. 45 does not apply to bilateral agreements
• Ex. Real estate agents (consideration is part performance of trying to find buyer a house.)

• Rest. 45 = only applies to unilateral agreements
• Rest. 87(2) = applies to both unilateral & bilateral

• Rest. 87 (2) does not only apply to express offers, it can be implied as well.

• Offeree must show reliance on the offer. NO RELIANCE = NO OPTION K

RULE: DEATH ONLY REVOKES OPTION CONTRACTS, NOT BILATERAL AGREEMENTS!!!

So, a contractor may use Rest. 87(2) to show that he relied on the offer from the sub-c and therefore, the sub-c will not be able to revoke his offer. He must show he relied on the offer, and that he will be detrimented if the sub-c is allowed to revoke.

THE SUBSTANCE OF AGREEMENTS

1. INDEFINITE AGREEMENTS

RESTATEMENT 2^ND 33: CERTAINTY

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.

• You can put off the negotiation of some of the elements in a contract, but you must get the basic elements included for it to be a valid contract. But, if you agree to negotiate the terms later, and then don’t put forth a "good faith" effort to do so, then you may be in breach. You can negotiate and then not agree, but it must be in good faith.

UCC 2-305: OPEN PRICE TERM

1. The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if

1. nothing is said as to price, or
2. the price is left to be agreed upon and they fail to agree, or
3. the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.

1. A price to be fixed by the seller or by the buyer means a price for him to fix in good faith
2. When the price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.
3. Where, however, the parties intend not to be bound unless the price be fixed or agreed and is not fixed or agreed there is no contract. In such a case the buyer must return the goods already received or if he is unable, then he must pay their reasonable price at the time of the delivery and the seller must return any portion of the price paid on account.

1-205. Course of Dealings and Usage of Trade

1. A course of Dealing is a sequence of previous conduct between two parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
2. A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court.
3. A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement.
4. The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade.
5. An applicable usage of trade in the place where part of performance is to occur shall be used in interpreting the agreement as to that part of the performance.
6. Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter.

1. When Course of Performance Relevant: the course of performance (accepted or acquiesced in without objection) will be relevant in determing the meaning of the agreement between parties when:

1. The contract for sale involves repeated occasions for performance by either party; and
2. The non-performing party knows the nature of the other parties performance; and
3. The non-performing party had an opportunity to object to the nature of that performance.

2. Interpretation of Contract

1. When interpreting the terms of a contract, the following factors shall be constructed to be consistent with each other whenever reasonable:

1. The Express Terms of the agreement; and
2. Any Course of Performance; and
3. Any Course of Dealing; and
4. Any Usage of Trade.

1. When it is unreasonable to read the above factors consistently, then:

1. The Express Terms: shall be used to construe the "course of performance." and
2. The Course of Performance: shall be used to construe both

1. The "Course of Dealing" and
2. The "Usage of Trade"

3. The Course of Performance: Shall be relevant to show the existence or a waiver or modification of any term inconsistent with such Course of Performance.

Order of Authority

1. Express terms
2. Course of Performance (implied terms)
3. Course of dealing (implied terms)
4. Usage of Trade

Factors to consider weather there was an intent to be bound in case of the absence of a writing:

1. Whether there has been an express reservation of the right not to be bound in absence of a writing;
2. Whether there has been partial performance of the contract;
3. Whether all of the terms of the alleged contract have been agreed upon; and
4. Whether the agreement at issue is the type of contract that is usually committed to writing.

STATUTE OF FRAUDS:

THREE QUESTIONS TO ASK YOURSELF WHEN DEALING W/ SOF:

1. IS THIS DEAL ONE THAT IS REQUIRED TO BE IN WRITING (WITHIN SOF)?
2. IF SO, HAS THE SOF BEEN SATISFIED?
3. IF SOF IS NOT SATISFIED, THERE ARE EXCEPTIONS THAT DON’T HAVE TO SATISFY THE SOF; IS THIS ONE?

WHAT ARE THE DEALS THAT FALL WITHIN THE SOF?

1. SURETY AGREEMENTS: when you stand behind an agreement that someone else has made. (co-signor is an example)
2. CONTRACTS THAT IT IS IMPOSSIBLE THAT THEY WILL BE PERFORMED IN ONE YEAR OR LESS. ( > 1 yr. = need writing )
3. LAND SALES
4. EXECUTOR’S PROMISE: an executor of an estate promises to honor the estate’s promises.
5. WHEN MARRIAGE IS CONSIDERATION
6. GAS & OIL ROYALTIES
7. PROMISE OF MEDICAL CARE OR TREATMENT (plastic surgery case)
8. A PROMISE THAT CANNOT BE PERFORMED WITHIN THE LIFETIME OF THE PROMISOR (a will)

(remember LEGGS for nuemonic)

HOW DO YOU SATISFY THE WRITING? (sipps)

S=subject matter

I=identites of parties

P=promises made by parties

S= signed by party charged

• ONLY NEEDS TO BE SIGNED BY THE PARTY BEING CHARGED;
• COULD BE SIGNED BEFORE THE K WAS ENTERED INTO (OFFER)
• DOES NOT HAVE TO BE A BUSINESS DOCUMENT; IT CAN BE A MEMO IN YOUR FILES. ANY WRITING THAT SHOWS A K.

• CAN COMBINE DOCUMENTS TO SUFFICE THE WRITING REQUIREMENT
• THE WRITING MUST IDENTIFY THE PARTY AND THE SUBSTANCE OF THE K. (ESSENTIAL TERMS)
• DO YOU NEED AN ACTUAL SIGNED WRITING TO SUCCESSFULLY SUE FOR THE SOF? NO. AS LONG YOU CAN PROVE THE WRITING WAS EXECUTE AT SOME TIME.

• DEFN OF SIGNED: any symbol executed or adopted by a party with present intention to authenticate a writing.

• The writing need not preceed the contract the K, and it does not need to be for the purpose of the K.
• Ex. In writing = "I am not going to sell you that for that price because the market value went up" * this proves that they did have an agreement and the writing proves it.

WARNING:

1. SOF IS NOT AN ALTERNATIVE TO CONSIDERATION
2. NOR IS SOF SATISFACTION FOR A CONTRACT

THESE TWO ARE NOT WITHIN THE SOF:

1. NOVATION- this looks like a surety, but it is not; when a debtor is substituted for another debtor that cannot pay his debt. This does not have to be in writing. (he is not a co-signor)
2. If the person taking over the debt is protecting his own interest or good, it does not have to be in writing. If the main purpose is to protect his own assets, then it need not be in writing. (MAIN PURPOSE EXCEPTION)

1. YEAR AND A DAY RULE (anything that takes more than one year)

• YOU DON’T MEASURE THE AMOUNT OF TIME IT TAKES TO PERFORM THE CONTRACT.

• CLOCK STARTS = WHEN THE CONTRACT IS MADE
• CLOCK STOPS = COMPLETE PERFORMANCE OF K.

EX. If you make a k today for two years from now, it doesn’t matter if the contract only takes two weeks to complete; it still must be in writing.

POSSIBILITY RULE:

• IF IT IS SOMEHOW POSSIBLE THAT THE K CAN BE COMPLETED WITHIN ONE YEAR OR LESS, THAN IT IS NOT WITHIN THE SOF.

• DOES NOT MATTER IF EVERYONE KNOWS THAT IT CAN’T BE DONE IN A YEAR OR LESS, IS IT CONCIEVABLY POSSIBLE?

EX. If I ask you to wax my car for 2 years, is that within the SOF? Yes.

If I ask you to wax my car for the rest of your life, is that within the SOF? No.

(you could die tommorow, and the K would be complete)

FULL PERFORMANCE EXCEPTION:

• One of the parties has fully performed his or her obligations to the other party. If the party has fully performed then the other party can not raise the SOF defense.

LAND SALES:

What is land for the purposes of the SOF?

• Parcels of dirt
• Structures such as barns, fixtures, things built on the land
• Minerals (under the earth)
• CROPS ARE ALWAYS GOODS!

What is considered goods?

• Movable objects
• Unborn young of animals

How do we tell if the contract is for goods or services when they are both involved?

MAJORITY RULE: Find out which of the two predominates the agreement. (it has to be one or the other). Ex construction work = service, hair stylist = service ms word=good

MINORITY RULE: You look at the aspect of the deal that is at issue here.

Ex. A xerox machine is sold to a man. With it comes lifetime service.

• Good = if something goes wrong with the actual machine
• Service = if the repair man is not showing up to work on it

• IF SELLER PULLS UP THE STRUCTURE AND SELLS IT, IT IS GOODS!

• IF BUYER PULLS UP THE STRUCTURE FROM SELLER, THEN IT IS REAL ESTATE.

PART PERFORMANCE DOCTRINE OF LAND SALE AGREEMENT:

1. IT IS ONLY ON BEHALF OF THE BUYER
2. BUYER ONLY GETS EQUITABLE RELIEF (AN INJUNCTION TRANSFERRING THE INTEREST IN THE LAND TO HIM) NO MONEY DAMAGES HERE, ONLY TRANSFER OF INTEREST OF LAND.
3. BUYER MUST EXIBIT EXTREME RELIANCE; PAYING THE $ FOR THE LAND IS NOT GOOD ENOUGH. IT MUST BE RELIANCE THAT IS OTHERWISE INEXPLICABLE. SUCH AS MOVING ON TO THE LAND AND BUILDING A HOUSE. (CONSTRUCTION, IMPROVEMENTS, PLANTING CROPS)

• THE REMEDY COMES FROM THE RELIANCE!!!

1. Statute of Frauds

1. A contract for the sale of Goods for >=$5,00 must be in writing to be enforceable by way of action or defence,

1. the writing need only indicate that a contract for sale has been made between the parties.
2. The writing must be signed by the party against whom enforcement is sought (or his authorized agent or broker (ex: if seller is suing Buyer, Buyer’s signature must be on the writing))
3. A writing is not insufficient if it omits or incorrectly states an agreed upon term.

1. Merchant’s Confirmation: A Merchant may satisfy the requirements of writing (2-201(1)) by sending the other Merchant party a confirmation of the contract.
2. Notice of Objection: The confirmation will be an effective writing unless the party receiving the confirmation gives the sender a written notice of objection within 10 days after it received the confirmation.
3. If the party receiving the confirmation does not properly object to it, it will be effective if:

1. The writing is in confirmation of the contract; and
2. It is also sufficient to hold the sender responsible; and
3. It is sent within a reasonable time after the contract was created; and
4. The party reciving the confirmation has reason to know its contents.

1. A contract which does not satisfy the writing requirment in 2-201(1) (but is valid in all other respects), will still be enforceable if:

1. The Goods are to Be Specially Manufactured

1. The Goods are to be specially manufactured for the Buyer; and
2. The goods are not suitable for sale to others in the Ordinary Course of the Seller’s business; and
3. The seller has either substantially begun their manufacture or made commitments to obtain them:

1. before any notice of repudiation was received; and
2. Under circumstances which reasonably indicate the goods are for the buyer.

or b. An Admission is Made

1. If the party against whom enforcement is sought admits (in his pleadings, testimony or otherwise in court) that a contract for sale was made, the writing requirement will be satisfied.
2. The contract is only enforceable (under this provision) up to the quantity of goods admitted.

1. payment has been made and accepted; or
2. Goods have been received and accepted.

FURTHER EXPLANATION: UCC 2-201: FORMAL REQUIREMENTS; SOF

(1) $500 OR MORE IN SALE OF GOODS = WRITING REQUIRED!!!

• ONLY DEALS WITH 2 MERCHANTS
• ONLY ENFORCEABLE UP TO THE AMOUNT OF GOODS THAT IS EXPRESSED IN THE WRITING

1. 10 DAY RULE: One merchant sends a document to another merchant (contract) and the receiving merchant files the document and does not respond. 10 days pass and then there is a dispute to whether they had a contract. This rule says that if you receive it and don’t respond to it in 10 days, then you are stuck with it. (must respond in writing)

• the document must be sufficient against the sender
• this means that if the document contained his signature, relevant terms, etc… all the things that would hold the sender accountable if the recipient brought suit for the sender’s breach.

2-201 3(b): IF THE PARTY ADMITS THAT THERE WAS A CONTRACT, THIS WILL BE SUFFICIENT TO SATISFY THE SOF, BUT ONLY FOR THE QUANTITY OF GOODS THAT HE ADMITTED.

2-201 3(c): PART PERFORMANCE

• enforced to the extent that this transaction has taken place

RULE: IF THE K IS NOT DIVISIBLE, THEN IT IS ENFORCEABLE IN ITS ENTIRETY.

2-201 3(a): CUSTOMARY GOODS

• IF THE GOODS ARE MADE CUSTOMARY FOR THE BUYER, AND THE SELLER CAN SHOW THIS, THE CONTRACT WILL BE ENFORCED IF IT IS ALREADY STARTED OR COMPLETED. (CUSTOMARY T-SHIRTS)

ESTOPPEL INTEGRATED INTO 2-201:

TRADITIONALLY, THE LAW ACKNOWLEDGED THAT CERTAIN TYPES OF RELIANCE MADE SOF DEFENSE GO AWAY COMPLETELY: (3 TYPES)

1. AN ADDITIONAL PROMISE TO EXECUTE A DEAL ("I’LL MEET YOU AT THE COURT HOUSE NEXT WEEK TO EXECUTE THE DOCUMENT") *IT IS AN ADDITIONAL PROMISE TO EXECUTE A PROMISE YOU ALREADY MADE.
2. IF ONE MISLEADS ANOTHER AS TO THE LEGAL REQUIREMENTS OF THE SOF, THEN THEY CAN’T USE IT AS A DEFENSE. ("DON’T WORRY, WE DON’T HAVE TO HAVE IT IN WRITING)
3. WHEN ONE PARTY PROMISES THE OTHER PARTY THAT THEY WILL NOT PLEAD THE SOF AS A DEFENSE.("DON’T WORRYABOUT THE WRITING, I WON’T USE IT AS A DEFENSE IF IT COMES UP")

ALSO, DETRIMENTAL RELIANCE THAT CREATES UNJUST ENRICHMENT FOR ANOTHER, THE COURT WILL DISREGARD THE SOF DEFENSE!

RESTATEMENT 2^ND 139: ENFORCEMENT BY VIRTUE OF ACTION IN RELIANCE

1. A PROMISE
2. PROMISOR REASONABLY EXPECTS IT TO INDUCE AN ACTION OR FORBEARANCE
3. DOES INDUCE THE ACTION OR FORBEARANCE
4. INJUSTICE CAN’T BE AVOIDED UNLESS K IS ENFORCED (DETRIMENTAL RELIANCE BY THE PARTY)

SPLIT COURTS ON THIS:

1. SOME SAY ESTOPPEL IS ALREADY WOVEN INTO 2-201 (3 TYPES ABOVE)
2. SOME CTS SAY THERE IS NO EXPRESS LIMITATION ON ENFORCING CONTRACTS BASED ON RELIANCE, BUT ONLY TO THE EXTENT OF PLACING THE PERSON BACK WHERE THEY WERE.

RULE: RELIANCE ON AN OFFER WILL NOT CREATE AN OPTION K AND OVERCOME THE SOF REQUIREMENT AT THE SAME TIME.

POLICEING BARGAINS:

• 3 CHECKPOINTS WHEN LOOKING AT A BARGAIN

1. STATUS OF PARTIES
2. BEHAVIOR ASSOCIATED WITH THE MAKING OF THE CONTRACT
3. SUBSTANCE OF THE AGREEMENT (TERMS)

• WATCH FOR UNCONSCIONABILITY

CAPACITY

RULE: YOU CAN’T ENFORCE A K ON A MINOR, BUT HE CAN ENFORCE THE K ON YOU. = VOIDABLE

ONLY RESTORATION, NOT RESTITUTION

MISREPRESENTATION OF AGE: (3 VIEWS)

1. PROTECT HIM NO MATTER IF HE LIES OR NOT
2. MAJORITY: K IS UNENFORCEABLE, BUT HE IS RESPONSIBLE FOR THE TORT OF MISREPRESENTATION, AND THE OTHER PARTY WILL BE PLACED IN THE POSITION HE WAS IN.
3. TEXAS (ESTOPPEL): IF THE MINOR PRESENTS HIMSELF AS BEING OF AGE, AND THE OTHER PARTY RELIED DETRIMENTALLY, THEN HE WILL BE TREATED AS THOUGH HE IS OF AGE. HE IS ESTOPPED FROM USING THE MINOR DEFENSE. (OTHER PARTY MUST "REASONABLY" RELY)

NECESSARIES RULE:

If it is a necessary for the minor, then restitution is available for the other party. This does not mean that the K is enforceable, it only means that restitution is available instead of only restoration.

Necessaries = education, legal services, food, clothing

• If a minor pays for something after he reaches majority, for a reasonable time, then there will be an enforceable contract.
• If a minor makes a new promise after he reaches majority to pay for something, it does not need consideration.

MENTAL INCOMPETENCE:

• LOOK AT THE CAPACITY OF THE PERSON AT THE TIME OF THE K.

RESTATEMENT 2^ND 15: MENTAL ILLNESS OR DEFECT

1. IF A PERSON IS UNABLE TO UNDERSTAND THE NATURE & CONSEQUENCES OF THE TRANSACTION THEN IT IS NOT ENFORCEABLE.
2. IN THIS CASE THE OTHER PARTY WILL GET RESTITUTION THOUGH, UNLIKE THE MINOR CASE.

SUBSECTION (2) PROTECTS THE OTHER PARTY. IF THE K IS ON FAIR TERMS AND THE OTHER PARTY DID NOT KNOW OF THE MENTAL CONDITION, THEN THE K WILL BE ENFORCED UP TO WHAT HAS BEEN PERFORMED IN WHOLE OR PART, OR CIRCUMSTANCES HAVE SO CHANGED THAT AVOIDANCE WOULD BE UNJUST.

1. DEAL MUST BE FAIR
2. OTHER PARTY DID NOT KNOW OF THE MENTAL CONDITION
3. IF DETRIMENTAL RELIANCE RESULTS, THEN K MAY BE ENFORCED.

DEFECTS IN BARGAINING:

1. MISTAKES

• THE MISTAKE MUST BE FACTUAL
• IT MUST BE ABOUT REAL, PRESENT WORLD
• CAN BE BY ONE PARTY ( UNILATERAL) OR BOTH (BILATERAL)

1. The effect of the mistake is such that enforcement of the contract would be unconscionable, or
2. the other party had reason to know of the mistake or his fault caused the mistake.

• If the other party knew of the mistaken belief, then they might not have to show that enforcement would be unconscionable.
• A mutual mistake does not have this heavy of a burden. All you have to do is show that both parties were mistaken as to some fact.

Rest 154: When a Party Bears the Risk of a Mistake

A party bears the risk of a mistake when

1. the risk is allocated to him be agreement of the parties, or (express assumption of risk)
2. he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or (Implied assumption of the risk)
3. the risk is allocated to him by the court on the ground that it is reasonable under the circumstances to do so.

• Only a mistake if you think it is A, and it turns out to be B.
• If you just didn’t really know about something, then it is not considered a mistake.

FRAUD:

• It is not fraud if a person really thinks the fact to be true. That is misrepresentation.
• Fraud is a tort. Therefore, you can get punitive damages for fraud.

FOR RECISSION OF THE K, ONE OF THESE ELEMENTS NEED BE PRESENT AND FOR FRAUD, THEY BOTH NEED TO BE PRESENT:

1. STATEMENT MUST BE FRAUDULENT
2. THE STATEMENT MUST BE MATERIAL TO THE K.

1. misrepresentation of fact
2. Sianter (guilty knowledge)
3. Material

1. reasonable reliance
2. a assertion that is not in accord with the facts.

Constructive Fraud:

1. realationship of confidence (Lawyer/Client, Dr./patient)
2. Transaction includes a misrepresentation from the stronger party.
3. to induce detrimental reliance.

Rest 159: Misrepresentation Defined: A misrepresentation is an assertion that is not in accord with the facts.

Rest 160: When Action is Equivalent to an Assertion: Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.

Rest 161: When non-disclosure is equivalent to an assertion

A person’s non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only:

1. where he knows that disclosure if the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.
2. Where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that pary is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.
3. Where he knows that disclosure of the fact would correct a mistakes of the other party as to the contents of effect of a writing, evidencing or embodying an agreement in whole or in part.
4. where the other person is entitled to know the fact because of a relation of trust and confidence between them.

TDPA: Failure to disclose information concerning goods or services, which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed.

UNDUE Influence

1. Confidential relationship
2. stronger party takes advantage of weakness of mind
3. taking a grossly opressive and unfair advantage of another s necessities or distress.

Restatement 177 When Undue infulence makes a contract voidable

1. Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in manner inconsistent with his welfare.
2. If a party’s manifestation of assent is induced by undue influence by the other party the contract is voidable by the victim
3. IF a parties manifestation of assent is induces by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction.

DURESS: A party may avoid a contract if

1. a threat to induce them into the contract
2. the threat is wrongful
3. wrongful threat must produce the contract
4. has to be reasonable captulation… must put up enough of a fight.

Duress is useful for resending a contract already performed.

Threatening to breach can be wrongful

Threatening to discontinue business relationships is not wrongful

176 When a threat is Improper

1. A threat is improper if

1. what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property.
2. what is threatened is criminal prosecution
3. what is threatened is the use of civil process and the threat is made in bad faith or
4. the threat is a breach of duty of good faith and fair dealing under a contract with the recipient.

2. A threat is improper if the resulting exchange is not on fair terms, and

1. the threatened act would harm the recipient and would significantly benefit the party making the threat,
2. the effectiveness of the threat inducing the manifestations of assent is significantly increased by prior unfair dealing by the party making the threat, or
3. what is threatened is otherwise a use of power for illegitimate ends.

1. Unconscionably

Contracts of Adhesion: Form contracts where no real negotiation is posible.

In all likelyhood no one will read the contract

The enforceable elements (ex. Car rental)

1. broad nature of the contact (you rent a car and promise to pay)
2. Negotiated terms (you wanted a red car)
3. all other terms that are not unreasonable.

UNCONCHIONABLITY

a term that shocks the conscious of the court. Unreasonable and oppressive terms.

Restatement 211 Standardized Agreements

1. Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms or agreements of the same type, he adopts the writing as an itegrated agreement with respect to the terms included in the writing.
2. Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing.
3. where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

2-302 Unconscionable Contract or Clause:

1. treatment of unconscionable Contracts or Clauses: If the court finds (as a matter of law) a contract or any clause of the contract to have been unconscionable at the time it was made, the court may:

1. Refuse to enforce the entire contract; or
2. Refuse to enforce only the unconscionable portions of the contact; or
3. Limit the application of any unconscionable clause to avoid any unconscionable result.

2. Proving Unconscionability

1. when a contact clause appears unconscionable, or when a party claims it is unconscionable, the parties shall have a reasonable opportunity to present evidence (to aid the court in making its determination).
2. Evidence presented to the court may include eviednce as to:

1. The commercial setting of the contract
2. the purpose of the contract
3. the intended effect of the contract.

Restatement 208: unconscionable Contract or term

If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid and unconscionable result.

To show unconscionablility there has to be

1. Procedural unconscionability: (ex. Tiny type, laten phrases, with an non english speaker)
2. Substantive unconscionability: The troublesome term must be opressive. There is a rule of thumb that if the price is 2 ½ times the market value of a given item then it may be unconscionable.

Policy is to protect people not on equal grounds. Typically business people can not claim unconscionablity. Lawyers almost never.

1. Warranties and their disclaimer

Parties are free to draft out of warranties with a few exceptions

1. can not avoid possibility of unconscionablity
2. avoid the necessity to deal in good faith

2-312 Warranty of Title:

1. In a contract of sale, the seller makes the following warranties

1. Good Title

1. The title convayed shall be good;
2. and the transfer is rightful

2-313 Express warranties

1. Express warranties by the seller are created as follows

1. Warranty that goods shall conform to an Affirmation or Promise- Created by any affirmation of fact or promise:

1. which is made by the seller to the buyer; and
2. relating to the goods
3. which becomes a significant part of the basis of the bargain

2. Warranty that the goods shall conform to their description - Created when any description of the goods becomes a significant factor in the basis if the bargain.
3. Warranty That the goods Shall Conform to the Sample or Model- Created when a sample or model becomes a significant factor in the basis of the bargain.

2. Substance Over Form

1. It is not necessary for Seller to use formal words such as "warrant" or "guarantee" to create an Express Warranty
2. The following do not alone create express warranties:

1. An affirmation merely of the value of the goods
2. A Statement purporting to be merely the seller’s opinion
3. Compliments or Commendations of the goods. (ex. Sales puff)

Expression of detail language trumps Samples

Samples trump mere description.

Express terms have to be an expression of fact.

It must be testable

It must be about the subject matter

Why use express warranty to get damages instead of misrepresentation?

Misrepresentation requires reliance and you can only avoid a contract. Under a breach of warranty you can claim expectation damages.

2-314 Implied Warranties of Merchantablity (only for merchants)

1. Implied Warranty:

1. A warranty that the goods shall be merchantable is implied in a contract for their sale if:

1. The seller is a Merchant, selling goods if the kind sold; and
2. there is no chance excluding or modifying such a warranty

2. The serving of food or drink for value (regardless of where it is consumed) is considered a sale for purposes of this section.

2. Warranty of Merchantablity: Under the warranty of Merchantablity, the seller warrants:

1. Goods fit Trade Description- Goods must pass without objection in trade under the contract description. (ex: if in order to be considered Orange Juice, a drink must contain 75% juice from oranges)
2. Quality- Fungible goods must be of fair, average quality (within the description of such goods).
3. Uniformity- Must be fit for the ordinary purposes for which such goods are used.
4. Packaging- The goods must be adequately contained, packaged, and labeled
5. Goods Fit Package description- must conform to the promise or affirmations made on the container or label.

What is the test for an implied warranty of merchantablity? The test is what does the buyer reasonably expect the product to do?

How do you test used goods?

Things you can use to determine the buyers reasonable expectation

1. price
2. personal safety (all goods should be safe) (no need for the product to be unreasonably dangerous)

How do you test isolated minorities and merchantablity?

1. what is the gravity of the effect?
2. how large is the minority?
3. If there is a warning the product can be merchantable.

2-315: Implied Warranty of Fitness for a Particular Purpose (not limited to merchants):

The Seller impliedly promises the Buyer that the goods shall be fit for a particular purpose if:

1. At the time the contract was created, the seller had reason to know any particular purpose for which Buyer wanted to use the goods; and
2. The buyer relied on the seller’s skill or judgment to select or furnish suitable goods; and
3. Such a warranty has not been excluded or modified (as per 2-316)

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1. In Texas can not be the normal purpose of the goods (this is a minority rule most sates say any one will do)
2. Seller has reason to know of a particular purpose buyer needs product for.
3. Sellers foreseeable reliance on his implied expression.
4. Failure of the product to serve that purpose.

If the buyer gives specifics for the product it is difficult for the seller to expect the buyer to rely on it.

NOT LIMITED TO MERCHANTS

Texas Deceptive Practices Act (TDPA)

The protections of warranty law in Texas under TDPA

1. Treble damages & attorneys fees
2. Different definition of goods under TDPA (houses can be goods)
3. Protection against unconscionable action (nopt same as 302 under TDPA it is a means of implying liability under 302 it is used to avoid liablity. In Texas it is a sword under 302 it is a shield.)
4. Has to be determined at the time of the contract
5. Not to be used in every tort claim

2-316: Exclusion or Modification of Warranties:

1. Consistent Construction of Words and Conduct:

1. The following shall be construed consistently whenever possible:

1. Words or Conduct relating to the creation of an express warranty; and
2. Words or Conduct tending to negate or limit such warranties

2. Negation or Limitation of such warranties are invalid to the extent that a consistent construction is unreasonable. (if a conflict arises among the two)

2. Requirments for Excluding or Modifying Implied Warranties

1. To Exclude or Modify an Implied Warranty of Merchantablity:

1. The language must mention merchantablity and
2. The language must be conspicuous if in writing (can be oral) (not a jury question)

2. To Exclude or Modify an Implied Warranty of Fitness:

1. The exclusion must be in writing
2. The language must be conspicuous (not a jury question)

3. To Exclude or Modify an Implied Warranty of Fitness: language must be very clear (ex. "there are no warranties which extend beyond the description on the face hereof")

3. Rules Regarding Excluding Implied Warranties:

Notwithstanding 2-316 (above):

1. All implied warranties may be excluded by the use of language which, in common understanding: (total release of implied warranties)

1. Calls the Buyer’s attention to the exclusion of warranties; and
2. makes it clear that there are no implied warranties (unless the circumstances indicated otherwise (ex: sold "as is" or "with all faults") (if not conspicuous then unconscionable) (hard to enforce with new goods because of reasonable expectation test)

2. Buyer’s inspection: implied warranties will be limited to defects which the buyer should have reasonably discovered (under the circumstances) if:

1. the Buyer inspects (to his satisfaction) the goods or a sample model before entering into the contract; or
2. The buyer refuses to examine the goods

3. An Implied warranty can also be Excluded or Modified by:

1. The course of Dealing
2. The course of performance
3. The usage of trade

In Texas if a buyer knows of a disclaimer of warranty even if it is inconspicuous it is enforceable. (minority rule) Must states only ask if it is inconspicuous or conspicuous.

FEDERAL MAYNISON MOSS STATUTE: If consumer goods. If express warranty is given then implied warranties can not be disclaimed.

Conspicuous if

1. in all caps
2. different collar
3. large type

Must be at least large enough to read.

2-317: Cumulation and Conflict of Implied or Express Warranties:

1. Warranties (whether express or implied) shall be construed to be cumulative and consistent with each other, whenever reasonable.
2. If such a construction is unreasonable, the intention of the parties shall determine which warranty is dominant.
3. Rules in Determining the Intention of the Parties (with regard to conflicting warranties)

1. Exact or Technical Specifications of the Goods displace an inconsistent sample, model, or general language of the goods’ description.
2. A sample from an Existing Bulk: displays inconsistant general language or description of the goods.
3. An Express Warranty: displaces inconsistent, implied warranties (other than the implied warranty of fitness for a particular purpose.

1. Contractual Remedy Clauses:

1. These remedies include:

1. Remedies in addition to article 2 remedies; or
2. Remedies in substitution for article 2 remedies; or
3. Changes/limitations on the measure of damages recoverable under article 2, such as limiting the Buyer’s remedies to:

1. Return of the goods and replacement of the price
2. Repair and replacement of non-conforming goods or parts

2. Effect on Other Remedies

1. These types of remedy clauses are optional rather than exclusive.
2. If the parties intend a clause to be the sole contract remedy, this must be clearly expressed.

2. Failure of 2-719 Remedies: The general Article 2 remedies will apply where an exclusive or limited remedy clause either: (remedy fails)

1. Fails in its essential purpose because of the circumstances; or
2. Operates to deprive either party of the substantial value of the bargain