Contracts

Front 1

I. Applicable Law
What does Article 2 of the UCC Cover?

What does C/L of Ks cover?

Back 1

UCC Covers:
"Transactions in Goods"
(1) Transactions: Sales of goods
(2) Goods: movable at time of contracting

NOTE: Distinction btwn personal ppty (Art 2) and real ppty

Goods Include:
(1) unborn young of animals
(2) some things attached to real ppty
(a) timber to be cut
(b) growing crops
(c) buildings/minerals on real ppty IF the seller is to sever them from the ppty

C/L covers provision of SERVICES

Front 2

I. Applicable Law
How to deal with "Mixed Contracts," Contracts involving both sale of goods and provision of services?

Back 2

Majority Rule: Predominant Purpose Test (What is the K really about?)

Ex: K w/ an artist to paint a picture. Article 2 or C/L? Mixed b/c canvas and paint are goods, doing the painting is a service. Predominant purpose is to provide the service of painting, so C/L governs.

Alternative Test: Component Test: each aspect governed by the applicable law.

Front 3

I. Applicable Law
Is a lease a "transaction"?

Back 3

Leases of personal ppty now covered by Article 2A (analogous to Art. 2)

A lease is:
(a) a transfer of the right to possess and use goods
(b) for a term
(c) for consideration

A lease DOES NOT include:
(a) a sale of personal ppty (use Art. 2)
(b) a transfer of possession of the goods for purpose of creating or perfecting a security interst (see Art. 9)

Article 2A's warranty and remedy provision are similar to those provisions in Art 2.

Front 4

I. Applicable Law
What is the conjunction of C/L and Article 2?

Back 4

The common law supplements Art. 2, unless otherwise displaced by Art. 2.

Exam: You may be asked to apply Art. 2 but fall back on C/L if no Art. 2 provision.

Front 5

II. Formation of a Valid K
What are the basic elements?

Back 5

(1) mutual assent

(a) manifested through offer and acceptance

(b) such that a RP would believe
a K formed

(2) consideration, and

(3) capacity to contract

Front 6

II. Formation of a Valid K
Is there an Offer?

Back 6

Made by Offeror (OR)

Later taking offer back = revocation

1. Terms must be certain and definite

Common Law: All essential terms must be covered
(1) Subject Matter of K
(2) Price
(3) Quantity

UCC: Even more liberal K formation
(1) K formed if:

(a) Parties intended to make a K
(b) there is enough information to fashion an appropriate remedy if K is broken

(2) Requirements/outputs Ks may satisfy the quantity terms even if state merely "offer to buy all your output."

2. Language used: look for words of promise, undertaking, or commitment

(a) distinguish from words that merely indicate an intention to sell or an interest in buying

EX: I "promise" to sell my Camry (subject matter) for $10K (price) = offer

vs: I'm "interested" in selling my Camry for $10,000 - no K.

3. The fewer the number of potential acceptors, the more likely the communication is an offer.

Front 7

II. Formation of a Valid K
Is an Advertisement an Offer?

Back 7

No, not generally.
Consider:
(a) Certainty and definiteness of terms
(b) Language - usually no words of promise, commmitment or undertaking
(c) Number of potential acceptors = too many!

BUT, Advertisements may be offers if they involve a limited number of acceptors, specify quantity, price, and subject matter, and use language of commitment, promise, or undertaking.

EX: This $50 dress, for $1. First come, first served.

Front 8

II. Formation of a Valid K
What about Auctions?

Back 8

OFFER is made: by a bidder.
ACCEPTANCE: by fall of auctioneer's hammer.
"With reserve:" normal method: seller reserves right to take goods back before hammer falls if dissatisfied w/ bids
"Without reserve:" must sell to highest bidder.

Front 9

II. Formation of a Valid K
What is a bilateral K?

Back 9

1. Bilateral: offer seeks a return promise - "promise for a promse"
EX: I promise to sell you my Camry if you promise to pay $10,000 for it.

Contract formed when you make the return promise to pay.

Front 10

II. Formation of a Valid K
What is a unilateral K?

Back 10

Offer seeks a performance.

EX: If you find me a buyer for my Camry, I will pay you 5% of the sales price.

Contract formed when you perform by producing the buyer.

RSTMT 2d: if offer invites OE to pick btwn acceptance by promise or performance, the tender (beginning) of performance is acceptance and also an implied promise to complete performance.

UCC 2-206: If beginning performance is a reasonable method of acceptance, the OE must NOTIFY the OR of its acceptance w/in a reasonable time or the OR may treat the offer as having lapsed prior to acceptance.

Front 11

II. Formation of a Valid K
How are offers terminated?

Back 11

By the OR:
(a) Direct Revoation: go back to OE and say offer is revoked

(b) Indirect revocation: Occurs when the offeree indirectly receives
(i) correct information;
(ii) from a reliable source;
(iii) about acts of OR which indicate he no longer intends to make an offer

EX: Landowner makes an offer to sell land to OE. Before OE accepts, OE learns that Landowner conveyed the land to a 3d pty. Landowner has revoked.

(c) Revocation of offer made by publication

EX: Ad in Friday's Raleigh paper states that on Saturday at 10AM Raleigh car dealer will have "some 1000 cars for only $99. The ad should've read "4 cars . . . ."

Normally, need publication in same newspaper to revoke.

If dealer discovers errors, he could hand out fliers to those at the dealership waiting to accept befoer the acceptance window of time has opened (ex: 10AM).

Front 12

II. Formation of a Valid K
What may limit an OR's power to Revoke?

Back 12

Option Contracts: keeps the offer open for a certain window of time.

EX: Landowner makes offer to sell land to OE for $100K and Landowner agrees to keep the offer open until Oct. 1 if OE pays OR $500 as the option price.

2 Ks: (a) sale of land at $100K; (b) Option K to keep offer open until Oct 1 if OE pays $500.
CANNOT be revoked before 10/1.

Options under UCC (2-205): Instead of consideration to keep offer open, must have:
(a) an offer - apply C/L factors of when becomes an offer
(b) by a merchant (professional in business)
(c) promise must be in a signed writing
(d) writing must give an assurance that offer will be held open
(e) outside time limit of 3 mo. in case of K for sale of goods.

Front 13

II. Formation of Valid K
What else may limit an OR's power to Revoke? (cont.)

Back 13

Part Performance
What is the effect of beginning performance?

(a) Offer looking to unilateral K: OR's offer BECOMES IRREVOCABLE once performance has begun.

RSTMT 1: prevailing view: K formed once preformance has begun. if OE quits, he's in breach. OR's duty to pay is conditional on OE finishing the requested act w/in a reasonable time period.

RSTMT 2nd: Only an option K if formed upon beginning performance, making the offer irrevocable for a reasonable time. The main K is not formed until you comoplete the requested performance. so, if you quit and turn aorund in the middle of the act, you are not in Breach of K.

NC: Can revoke after OE has begun performance, BUT, OE recovers reliance interest (outlay of expenses in performing covered).

Front 14

II. Formation of Valid K
What else may limit an OR's power to Revoke? (cont.)

Back 14

Offer looking to a bilateral K: the OR loses the right to revoke once the OE gives the return promise.

Offer indifferent as to manner of acceptance: the OE may accept by a promise OR performance (beginning performance implies you'll finish).

Front 15

II. Formation of Valid K
What else may limit an OR's power to Revoke? (cont.)

Back 15

Promissory estoppel/detrimental reliance: if the OE has relied on the offer to its detriment prior to the time it could accept hte offer, the OR may be precluded byu the OE's detrimental reliance from revoking the offer for a reasonable time.
EX: sub Ker submits bid (offer) for plumbing work on new school project to General Ker. General Ker (OE) canno taccept bid b/c it doesn't know if it will be awarded the K to build the school. If the General Ker OE based its own bid to construct the school in part on the sub Ker's offer, the sub Ker may be precluded f/ revoking its bid for a reasonable time.

NOT in NC! out of step with other jurs.

Front 16

II. Formation of Valid K
What actions cut off Offeree's ability to accept the original offer?

Back 16

(a) OE's rejection of offer
EX: OR offers to sell Camry to OE for $20K. OE: No thanks. OE: I accept = NO K b/c no offer to accept. "No thanks" took offer off the table. In effect, OE's second response is a new offer.

b)OE makes counter-offer
EX: OR offers to sell Camry to OE for $10K. OE: I'll take it for $8K. OR: No thanks. OE: Okay, I'll take it for $10K = NO K b/c offer to buy was cut off upon counter-offer.

Front 17

II. Formation of Valid K
When is OE's power of acceptance terminated by operation of law?

Back 17

(a) Lapse of time
- end of a stated time
- End of a reasonable time, considering facts and circumstances
EX: Offer made in meeting - if no acceptance during meeting, offer lapses at end of meeting.
EX: Offer over phone expires at end of conversation

(b) Death or Incapacity of one party
- rem: RSTMT 1: once begin performance of offer toward unilateral K = acceptance, so OE owed the whole amount offered.

RSTMT 2nd: beginning performance makes offer irrevocable, so OE owed whole amount offered.

NC: may revoke even after OE has begun to perform. Death of OR terminates offer. OE may be able to recover for reliance/expenditures. May also seek recovery in quantum meruit - restitution: reasonable compensation for benefit received by decedent's estate.

c) Destruction of subject matter - destroys ability to accept offer

d) Supervening illegality
EX: now illegal to buy cars from individuals

Front 18

II. Formation of Valid K
Acceptance: Who has the power to accept?

Back 18

OE - person to whom offer has been directed or addressed has the power to accept.

OE CANNOT assign his power of acceptance to another

Purported OE must KNOW ABOUT the offer.

Front 19

II. Formation of Valid K
What are the valid modes of Acceptance?

Back 19

The method and manner of acceptance may be specified by the OR, and OE must then use the mode specified.

If OR is SILENT about method of accpetance, OE is then entitled to use the same method to accept by which OR communicated the offer.
EX: get offer in mail; accept by mail.

Front 20

II. Formation of Valid K
Acceptance: What is the Mailbox Rule?

Back 20

If acceptance by mail is the required or permitted method of acceptance,

Acceptance is effective UPON MAILING.

EXCEPT: for an Option K: Acceptance of an offer for an option K is effective only when RECEIVED by OE.

When OE sends both an acceptance and rejection:
- K formed when: acceptance is mailed.

- IF OR receives rejection first, and changes his pos'n in reliance on the rejection, then OE is estopped/precluded/prevented f/ trying to enforce the K.

- If OE sends rejection first, then changes mind and sends an acceptance, mailbox rule inoperative and whichever is received first is effective.

Front 21

II. Formation of K
Silence allowed as Acceptance?

Back 21

General Rule: OR cannot force OE to speak up to keep from accepting an offer

EXCEPTION: silence may constitute acceptance IF OE silently takes offered benefits, especially where:

(a) there have been prior dealings btwn both pties

(b) there are customary trade practices both parties are aware of
EX: auto-renewal of car insurance

Front 22

II. Formation of K
Do preparations to perform constitute acceptance?

Back 22

No. BUT, under modern authority, possible protection to the extent OE detrimentally relied on the offer.

Front 23

II. Formation of a Valid K
What are the Common Law Counter-Offer Rules?

Back 23

C/L: Mirror Image Rule or Deviant Acceptance Rule: the acceptance must be a mirror image of the offer, or it will be considered a counter-offer. (no K until accept)

Corrollary: The "Last Shot" Rule: One who delivers last offer before OE accepts makes the terms of the K.

Front 24

II. Formation of a Valid K
What is the UCC Rule for Counter-Offers?

Back 24

UCC 2-207: battle of the forms for Ks for sale of goods

Applies when:
(i) K for sale of goods; AND
Either:
(i) A writing sent by party in confirmation of agreement but writing differs f/ oral agreemetn, OR
(ii) Battle of the forms: offer and acceptance forms have different terms.

UCC 2-207 holds that, in this situation, a K may be formed, even tough the expression of acceptance has in it additional or different terms from those in the offer (assuming OE didn't make acceptance expressly conditional on additional or different terms)

Contract's Terms:

(i) Between MERCHANTS
additional or different terms become part of K unless

a) they would constitute a material alteration of the offer;

"material alteration" if would result in surprise or hardship to OR (EX: arbitration clause b/c we've a litigious society - but it's a fact-based inquiry)

b) offer by its own terms expressly limits acceptance to terms of offer, or

c) offeror has already objected to original term or tells OE promptly he doesn't want the term

(ii) Between 2 NON-MERCHANTS
additional terms don't become part of K but are considered proposals to modify the K. OR must accept them affirmatively, or they're not added.

Front 25

II. Formation of Valid K
What is consideration?

Back 25

It's required to make a promise enforceable. Gift promises aren't enforceable.

Elements:
(a) Maj. View: Detriment to PE is req'd.

(b) 1st RSTMT: benefit-detriment test - exchange must be of some "legal value" - benefit to PR or detriment to PE

(c) 2d RSTMT: Bargained for exchange

(i) Exchange: a return promise or a performance

(ii) Bargain: PR sought the exchange in retrun for his promise, and PE gave the exchange in return for PR's promise

No BARGAIN if PAST consideration!

Distinguish: enforceable promises supported by consideration from a promise to make a gift.

If the Detriment is only a trivial condition on getting the gift (come to my house to get the TV), there's no consideration.

Front 26

II. Formation of Valid K
Adequacy of Consideration?
Forbearance to sue or prosecute a claim?

Back 26

Adequacy: Don't care aboutrelative value, but a gross disparity may signal it's otherwise enforceable.

FORBEARANCE TO SUE : if claim is INVALID, and person who sought to sue reasonably and in good faith believed the claim to be valid, then giving it up was a detriment to them, constituting consideration.

If the claim is VALID: any promise made to drop the claim is enforceable.

Front 27

II. Formation of Valid K
Past Consideration and Moral Obligation Enough?

Back 27

No. B/c there's a failure of the Bargain requirement b/c performance was already rendered when exchange promised.

BUT, Modern trend and NC: If acts have been previously performed by PE at the PR's request and with reasonable expectation of compensation, the new promise will be enforceable.

AND, some states and RSTMT 2d have extended this to unrequested acts (such as acts of a hero) if rendered during an emergency.

A NEW promise to perform a past obligation that would be enforceable but for a technical bar (like SoL) will be enforced according to its terms by most courts if the new promise:
(1) is in writing; Or
(2) has been partially performed.

Front 28

II. Formation of Valid K
What is the Pre-Existing Duty Rule?

Back 28

C/L: a promise to perform a preexisting legal duty doesn't count as consideration b/c PE is already under an obligation to do that very thing.

Comes up often when attempt to modify K.
EX: Contractor agrees to build house for $400K, but then changes price of $500K. Contractor can't enforce the $500K amount b/c he was already under a preexisting legal duty to do the work for $400K.

EXCEPTIONS:
(i) New or different consideration promised
EX: Contractor agrees to finish the house sooner than promised.

(ii) Unforeseen circumstances
EX: builder is going to have to remove a lot of rock to do the project.

(iii) The modification is fair and equitable.

Front 29

II. Formation of Valid K
UCC and Pre-Existing Duty Rule?

Back 29

UCC 2-209: a K for hte sale of goods may be modified WITHOUT consideration so long as the modification is done in GOOD FAITH w/ MUTUAL ASSENT for the modification.

Front 30

II. Formation of Valid K
Accord (offer to settle a claim) and Satisfaction (settling a claim)?

Back 30

Two Issues:
(1) is there acceptance of offer to settle; and
(2) is there consideration to support promise to take less?

Distinguish: UN/LIQUIDATED

Liquidated: certain in amount
Need:
Assent (cash check for wrong amount) + Legally enforceable promise w/ consideration

Unliquidated Claim - uncertain in amount:
promise not to sue is consideration.

Front 31

II. Formation of Valid K
Promissory Estoppel, as a Consideration Substitute

Back 31

Elements:
(1) promise that might reasonably induce action or forbearance (inaction)
(2) person to whom promise was made reasonably relies on promise to his detriment;
(3) injustice is avoided only by enforcing promise; AND
(4) Remedy may be limited as justice requires

Generally, may be offensive attack, but NOT in NC!

No consideration b/c NC doesn't recognize it. But, be sure to tell EXAMINER that you know the doctrine.
AND, remember, it may be used Defensively, to avoid liability, in NC.

Front 32

II. Formation of Valid K
Effect of Sealed Instrument?

Back 32

Olden Days: legally enforceable w/o consideration

NC: older Sup. Ct. opinion suggests it's a substitute for consideration; more recent authority suggests it raises a presumption of consideration rebuttable by clear and convincing evidence.

UCC: does NOT recognize seal as substitute for consideration

Front 33

II. Formation of Valid K
Statute of Limitations

Back 33

For a sealed instrument: 10 years

Otherwise: 3 years

UCC: 4 years

Front 34

II. Formation of Valid K
Capacity

Back 34

Minors: Must be at least 18

Viodable at option of minor. If other pty is adult, they're bound unless minor voids it.

After 18, minor may affirm Ks made during his minority, and they'll become binding (no longer voidable).

Front 35

II. Formation of Valid K
Capacity: Misrepresentation of Age

Back 35

(1) minor may still elect to avoid or disaffirm the K

(2) In most states, adult may have an action against minor in tor for fraud, misrepresentation, deceit

BUT in NC: no action in tort b/c policy is to protect minors

Front 36

II. Formation of Valid K
Capacity: Restitution req's for a minor upon disaffirmance or avoidance

Back 36

Cannot avoid K for necessaries, but minor is only liable for the "reasonable value of the necessaries"
EX: if adult charges minor a lot for a lease, minor must pay only reasonable value

May be statutory exceptions that make certain Ks of minors valid, such as student loans, insurance Ks

Property in minor's possession MUST BE RETURNED to other party

NC Set-off rule: adult sets off from what she returns to minor the amount that the property to be given back to adult is worth

Front 37

II. Formation of Valid K
NC Rule for Minor Artist/Athletes

Back 37

Minor may disaffirm K UNLESS Er obtained prior court approval of K.

Policy: concern w/ minors is that they not be taken advantage of. If court approves, that issue is addressed.

Er must also set aside 15% of minor's gross in a trust fund for minor's benefit once he reaches 18.

Front 38

II. Formation of Valid K
Capacity, other than minors

Back 38

An insane or mentally incompetent party may disaffirm the K, when lucid or through a legal representative, if the incompetent cannot understandin the nature and significance of the contract

Intoxicated or durgged persons: may disaffirm the K (upon recovery) if at the time contract was entered into person was not able to understand the nature and significance of promise made in K AND the other party had reason to know of the intoxication.

Front 39

III. Does the K have to be in writing?

Back 39

Statute of Frauds (SoF)
If K is w/in it, K must be in writing.
SoF Applies to:
(1) interests in land
- within the statute:

(a) leases of land if term of lease is > 1 year (NC = > 3 years

(b)easements extending beyond 1 year

(c) mortgage to a deed of trust

NOT included:
K to build a building on land

Part performance EXCEPTION:
Oral K may be enforceable in part if K has already been partly performed

EX: payment of all or part of purchase price, purchaser in possession of land, purchaser made improvements on land

Partial Performance Exception N/A in NC! - but N.C. says seller was "equitable estopped" from claiming invalid K where purchaser had made payments - really the same result.

To the extent the purchaser has partly performed, he may seek recovery of any benefit he has conferred on the seller under an unjust enrichment or restitution theory, but can also seek payment under K theory.

Front 40

III. Does K have to be in writing?
Statute of Frauds (cont.)

Back 40

SoF applies to . . .
and
(2) Debt of another
EX: you pay for the Camry for the OE.

Must be in writing, BUT, IF the main purpose of the promise is the pecuniary interest of the PR, then the promise need not be in writing, even though its effect is to act as a guarantor of another's debt.

(3) Long-term K: K cannot be performed in less than 1 year from when entered into (ex: K for 2 years of lawn service)
BUT NOT IN NC: long term Ks needn't be in writing!

BUT, if the K (ex: 2 yrs lawn service) may be terminated by either pty upon 30 days' notice:

MAJORITY VIEW: K must be in writing b/c termination is not performance

Minority View: No writing req'd b/c K may come to end before 1 yr.

Front 41

III. Does K have to be in writing?
Statute of Frauds (cont.)

Back 41

SoF applies to . . . and
(4) Ks in consideration of marriage (ex: dowry)

(5) Promise by executor or administrator to pay debts of decedent's estate out of his own funds

(6) Sale of goods for a price of $500 or more (Art 2)

EXCEPT:
(a) specially-manufactured goods
(b) one party admits there is a K under oath
(c) part performance (but only enforced to extent of part performance

K as modified must satisfy the SoF.

(7) Article 2A of UCC - leases of personal ppty where total consideration over term of lease exceeds $1000 (ex: car lease for 3 yrs)

(8) Covenant not to compete against for Er

(9) NC: promise to lend money - commercial commitment by bank for loan exceeding $50K

Front 42

III. Does K have to be in writing?
A note on CNCs

Back 42

If already employed when agree to CNC, then need additional consideration (extension of term, etc)

CNC must be reasonable restraint on EE:
(a) time
(b) territory
(c) type

If provision found unreasonable:
(i) Throw out: get rid of whole CNC if one clause unreasonable
(ii) Blue pencil: re-write unreasonable clauses
(iii) NC - Cross out: cross out unreasonable restrictions

Front 43

III. Does K have to be in writing?
If K w/in SoF, is writing sufficient to satisfy statute?

Back 43

C/L Requirements:
(a) identify party to be charged
(b) identify subject matter (describe w/ sufficient certainty)
(c) terms and conditions
(d) recital of considerations
(e) signature of party to be charged

UCC Requirements:
(a) enough to indicate a K for sale of goods
(b) quantity: rem - "all output", etc is sufficient under UCC
(c) signature of party to be charged
MERCHANT EXCEPTION: don't need charged party's signature

Several Writings may be pieced together to satisfy SoF

Front 44

III. Does K have to be in writing?
Promissory Estoppel - to avoid SoF req't

Back 44

Majority view: Yes - enforce to extent justice requires

Minority View: No - SoF needs writing. period.

NC: no, but "equitable estoppel" may preclude denial of K

UCC 1-103: Courts are split: half say promissory estoppel is an exception, half say Promissory Estoppel is not an exception, half say it is.