Contracts: Applicable Law/formation

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Applicable Law

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Generally Common Law governs contracts. However, for contracts involving the sale of goods Article 2 of the Uniform Commercial Code (UCC) governs.

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Mixed Deals

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Use predominant purpose test, apply law that goes to predominate purpose of the contract. Except where payment is divided, apply to each portion of the contract.

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What is a Good

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all things movable at the time they are identified as to be sold under the contract

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Merchants

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Generally, anyone in business can be deemed a merchant; however, some Article 2 provisions require a merchant to deal in goods of the kind involved in the subject transaction (e.g. implied warranty of merchantability).

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Contract Types (Formation)

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Expressed; Implied in Fact; Quasi-Contract (implied in law)

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Expressed Contract

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formed by language either oral or written

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Implied in Fact Contract

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formed by manifestations of assent other than language (i.e. conduct)

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Quasi-Contract

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Not contracts, but an equitable construction to avoid unjust enrichment. Plaintiff may bring action in restitution to recover conferred benefit.

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Contract Types (Acceptance)

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Bilateral, Unilateral

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Bilateral Contract

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mutual exchange of promises, both parties are promisor and promisee, most contracts are bilateral.

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Unilateral contract

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Acceptance may only be through performance, once the act is completed, the contract is formed.

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Contract Types (as to validity)

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Void, Voidable, Unenforceable

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Void Contract

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no legal effect from the beginning, cannot be enforced by either party.

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Voidable Contract

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one that one or both parties my elect to avoid. (e.g. capacity)

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Unenforceable contract

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a contract that is otherwise valid but may not be enforceable due to extraneous factors (e.g. Statute of frauds, limitations etc.)

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Offer

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Manifestation of an promise, undertaking or commitment by words or conduct showing intent to enter into a contract.

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Price Terms and Offers

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Common Law requires price term for real estate sales contract, UCC does not. Real Estate must also describe property; service contract must include description of service

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Definiteness of Terms

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Terms must not be vague or ambiguous (Vague Trigger words: Appropriate/Fair/Reasonable).

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Requirement/Output Contracts

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not vague or ambigious. (Trigger words: "all/only/solely/exclusively) Can only increase requirement if it is not unreasonably disproportionate

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Context of Offers

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Generally advertiesements or price quotations are not offers. Except where it is in the nature of a reward (Carbolic Smoke Ball), or specifies quantity and indicates who can accept

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Termination

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An offer cannot be accepted after it has been terminated.

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Modes of Termination

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Lapse; Death; Revocation; Rejection

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Limitations on Termination

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Firm Offers, Option Contracts, Part Peformance for Unilataral Contracts.

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Lapse (offers)

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an offer lapses at the time stated or after a reasonable time

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Death or incapacity (offers)

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Death or incapacity of a party prior to acceptance terminates the offer; except irrevocable offers

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Revocation

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Can be expressed or implied. Revocation is effective upon receipt (communicated to offeree). Unambigouous statement or conduct.

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Indirect revocation

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offeree obtains 1) correct information 2) from a reliable source 3) that the acts of the offeror would indicate to a reasonable person that the offerror no longer wants to make the offer.

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Option Contracts

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promise to keep offer open for a specified period of time for consideration. Causes offer to be irrevokable. Options are freely assignable

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Firm Offer (UCC)

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Offer is irrevokable for up to three months if is an offer to buy or sell goods, with written promise to keep open and party is a merchant.

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Detrimental Reliance

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Offer is irrevokable for a reasonably period of time if there has been reliance that is reaonably foreseeable and detrimental.

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Part Performance

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The start of performance under a unilateral contract makes the offer irrevokable for a reasonable time to complete performance. (offeree is not bound to complete performance). Not required to give notice of beginning but notice of completion within reasonable time of completion unless offeror has waived notice or would come to his attention in a resonable time. Also applys in bilateral contract where acceptance may be by performance. Note mere preparations to perform are not sufficient (e.g. buying paint)

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Rejection

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Direct or Indirect by counter offer, conditional acceptance; or additional terms. Acceptance is effective upon receipt

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Rejection by Counter Offer

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Counteroffers generally terminate ofer and create a new offer, but cannot terminate an option. Bargaining does not terminate the offer (e.g. would you take X).

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Rejection by Conditional Acceptance

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Common Law: language of condition rejects the offer and is treated as a counteroffer that can then be accepted. UCC: conditional acceptance rejects the offer - it is dead. (Conditional Language triggers: only if, on condition that, etc)

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Additional Terms (common law)

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Common law requires acceptance to be a mirror image. (Mirror Image Rule) Therfore additional terms are treated like a rejection and counteroffer

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Additional Terms (UCC)

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2-207: Battle of the forms: if a contract to buy or sell goods and a response is received with different terms, the terms are not a condition of acceptance (unless expressly made conditional). It is generally treated as a "seasonable expression of acceptance" Additional terms become part of the contract when both parties are merchants, additional term is not material, and not objected to by original offeror.

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Acceptance

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an offer can be accepted by any means unless specified by the offer. Acceptance by unauthorized means may still be effective if received while offer is open. Start of performance is acceptance and can create a bilateral contract. For unilateral contracts, performance must be completed for contract formation. Acceptance must be communicated to offeror for bilateral contract

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Mail Box Rule

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Acceptance is effective when dispached (or placed in mail) if properly addressed and stamped. Must be a situation where there is a distance and delay in commuication. (general rule is all other communications are effective when received). If a rejection is sent before acceptance, whichever received first is effective. Mailbox rule is not effective to meet an option deadline.

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Auctions

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Sale complete when bidding closes. Reserve auctions goods may be withdrawn until sale closes.

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Who can Accept

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accepted only by person who the offer was made (offers are not-assignable); must have knowledge of offer to accept.

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Seller Sends wrong goods in response to offer (non-conforming goods)

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Generally treated as acceptance of offer and breach