Contracts Part Ii.

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Termination by counter offer – counter offers are considered rejections- different price or changed dickered terms (price/quantity).

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UCC 2-207- Battle of the Forms

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Paragraph 1- this paragraph tells you whether you have an offer or a counter offer; if you have acceptance then go to the second paragraph OR if you have a counter offer then go to the 3rd paragraph. Two ways to get a counteroffer- change dickered terms or if you see proviso language.

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Battle of the Forms Paragraph 1

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Paragraph 2- this paragraph is only used if you have a contract. No dickered terms- if not between merchants the additional term is merely a proposal for an addition to the contract. If between 2 merchants the additional term is attached to the contract UNLESS: the offer is expressly limited to its terms—notification of objection is done within a reasonable time—the terms would materially alter the contract.

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Battle of the Forms Paragraph 2

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Paragraph 3- Used only if you find a counter offer- If the writings of the parties do not form a contract but the conduct of the parties show there is a contract-The Terms of the Contract are: The terms which the writings agree AND the terms of Article 2 of UCC: terms that are disputed or unclear will be determined by gap fillers (ex-open price term in 2-205)

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Battle of the Forms Paragraph 3

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- If the parties don’t include the necessary parts in a contract then the courts will not enforce the contract. If the parties truly intend a contract and only forget to include minimal things the court WILL enforce the contract. If UCC applies they can put in gap fillers and many other usage and trade provisions unless no quantity is indicated.
a- Usage of trade- the custom within any given industry
b- Course of dealing-the conduct in past relationships with one another
c- Course of performance- what the parties do while performing this one contract.

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Indefiniteness

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- a bargained for exchange of something which in the eyes of the law has value-

Quid pro quo- this for that

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Consideration

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1- To constitute consideration a performance or a return promise must be bargained for.
2- A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise
3- The performance may consist of:
a- an act other than a promise OR
b- a forbearance OR
c- the creation, modification or destruction of a legal relation or to some other person
4- The performance or return promise may be given to the promisor or to some other person (3rd party) May also be given by the promisee or by a 3rd party.

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Restatement 2nd – 71

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The consideration helps provide objective evidence that the parties intended to make a binding agreement—If the parties are aware that providing consideration by one will make the others promise enforceable the parties will act more carefully and will be less likely to make thoughtless or bad bargains or mistakes. GIFTS OF LOVE OR AFFECTION ARE NOT CONSIDERATIONS. A waiver of any legal right at the request of another IS sufficient consideration for a promise. (giving up smoking and drinking to get $)

Ex. Hammer v. Sidway case

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Courts will not enforce a promise unless the promisee has given consideration for the promise

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What is the promise you’re trying to enforce? What is the act/promise sought in return? Is it bargained for? Does the act/promise have value that the law recognizes?

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TEST to determine if there is consideration

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offered consideration must be something that has value in the eyes of the law.

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Sufficiency

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quantity of the amount being exchanged- adequacy determines whether the two items that you exchanged are equal. The general rule is that the courts don’t look at adequacy because they wont determine if u have a good deal or not -- unless it is merely an exchange of money or fungible goods (things that are exactly the same) or if P is seeking an equitable remedy

Cannot give away something that isn’t legally yours (wife gives away husbands stuff)--- 1 cent isn’t consideration for $200 unless it’s a unique coin. Putting something in writing doesn’t change the situation. & past consideration is NOT consideration.

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Adequacy

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an offer is binding as an option contract if: (r-87)

a- It is in writing and signed by the offeror, recites a purported consideration for the making of the offer and proposes an exchange on fair terms within a reasonable time OR made irrevocable by statute.
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 include such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

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Option Contract

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Forebearance to assert an invalid claim is consideration only if

1- There is an honest and reasonable belief that the claim is valid AND
2- It is brought up in good faith

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Forbearance as Consideration: the majority rule:

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there is consideration if a claim or defense is doubtful because of the uncertainty of facts of law OR if the forbearing party believes it is valid. (mother thought man was the father of the baby& made him pay child support)
Ex: you get a shot from the dr and arm gets swollen and you go back and agree not to sue if they give you 10k later you realize the swelling was from something else—consideration is still valid because dr thought it was a valid claim

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Minority rule-74 restatement 2nd-

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- if a promise is illusory, there is no consideration because the “promise” given does not fetter (restrain,confine) the promisor’s future. --- An illusory promise is a statement which appears to be promising something, but which in fact does not commit the promisor to anything at all.

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The Illusory Promise

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a- CL: If the agreement allows one party to terminate simply by giving notice at any time the party with the termination right has not furnished consideration.

b- Modern: As long as the terminating party has the obligation to give notice (even if this obligation is an implied one), this duty of notice itself furnishes consideration.

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One common kind of “illusory” promise occurs when the promisor reserves the right to change his mind.

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when a contract doesn’t precisely state a promise but a promise can be implied from the circumstances surrounding the agreement.

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Implied promise

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a promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performance UNLESS:
a- Each of the alternative performances would have been consideration if it alone had been bargained for OR
b- One of the alternatives would have been consideration and before the promisor exercises his or her choice- events may eliminate the alternative which would not have been consideration.

Ex: I promise to sell you my car if: you promise to like me OR you pay me $400= no consideration -- if you see the word OR both must be consideration-if this hypo contained the word AND this would be consideration.

Consideration-= value OR value ---- no value AND value

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Alternate promises

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CL: courts held that such output and requirements contracts were invalid for lack of consideration (as well as indefiniteness)

Modern: Requirements and output contracts are enforced today.

UCC 2-306 validates requirements and output contracts. – output requirements and exclusive dealings.
Ex: I will sell toy all the widgets that I manufacture next year if you promise to buy them. You promise. We have a quantity and a contract.

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Requirements Contract/Output Contract

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Look for words of obligation: Require, need, use, produce. --- Words of obligation + good faith=a requirements contract.
Ex: I offer to buy from you all the widgets I need during 2009 there is a contract upon acceptance

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Requirement contract

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flip side” of a requirements contract. Ex: I offer to sell all the widgets that I make during 2009 to you.

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Output contract

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- if there is only a continuing offer, there would NOT be a contract for the entireyear upon acceptance—you would have a series of contracts created upon each acceptance—The offer can be revoked before the 1 year has run. LOOK FOR AMBIGIOUS WORDS- want, wish, might want, might require etc—I offer to buy all the widgets that I want during 2009 from you.
Ex: Office pavilion v. ASAL- contract was illusory because there was no set quantity that the D had to purchase per year- D could therefore simply not buy any at all- there is no consideration when the quantity is not specified.

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Continuing offer

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: General rule- Past consideration is NO consideration

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Past Consideration

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a- A promise to pay indebtedness that is now barred by a statute of limitation.
If the debtor voluntarily promises not to plead the statute of limitations or claim that the debt is voidable due to the statute after the contract is in default, the contract promise will be enforceable.
b- A promise to pay indebtedness incurred as an infant after the infant reaches maturity: legal age 18
Upon reaching maturity, ifa person voluntarily and with knowledge of the facts promises to pay an obligation that was voidable because that person was a minor when the contract was made-the new promise is enforceable.
c- A promise to pay an indebtedness discharged in bankruptcy
d- A promise made in recognition of a benefit previously received by the promisor to the extent necessary to prevent injustice. (material benefit to the promisor)
Material benefit to the promisor- the promisor must have received a material benefit to the promisee.
- Under circumstances that created a moral obligation
- There must have been a subsequent

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Exceptions: Moral Obligations

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If the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched OR to the extent that its value is disproportionate to the benefit.

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Promise is NOT binding- rest. 2nd-86

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Obligee: one to whom an obligation is owed. Obligor: one who owes an obligation

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Obligor and Obligee

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general rule-there is no consideration if you only promise to do something you are already obligated to do. Rest. 2nd -73 supports this majority rule

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Pre-existing Duty

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modification of an executor contract- a promise modifying a duty under a contract not fully performed on either side is binding ---if the modification is fair and equitable in view of the circumstances not anticipated by the parties when the contract was made OR to the extent provided OR to the extent that justice requires enforcement in view of material changes of position in reliance on the promise.
The law will not allow extortion or holdouts-
Two ways to get around the Pre-existing duty rule: 1- add something new or different OR Make a new contract by ascending the 1st one.

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Exception: Rest 2nd s 89

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- An agreement modifying a contract within this article needs no consideration to be binding.
HYPO: plaxico has a contract with the Giants to play football- he then enters into a contract with Nike to endorce Nike products as long as he plays football. Can Nike successfully laim that Plaxico had a preexisting duty to play football? -Can he claim under 2 contracts- Yes with the same duty--- He does not have a duty to play football with Nike before he makes the promise.

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UCC 2-209

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A debt barred by statute, bankruptcy and debts incurred at infancy do not require payment unless the debt is reaffirmed.

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Past Due Monetary Debts

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Voluntary acknowledgment to obligee admitting the existence of debt--- Voluntary transfer of money-partial payment--- Obligor’s statement to obligee that the statute of limitations will not be pleaded as a defense

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Reaffirmation

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Accord- Agreement where parties have substituted something that is owed with something else--- an obligee promises to accept a stated performance in satisfaction of the obligator’s existing duty. If theres performance of the accord ot discharges the original duty.

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Accord and satisfaction

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this suspends the original dispute if what is promised in the accord is not delivered the promisee can sue for what was originally promised OR the accord--- When what is promised in the accord is delivered the original promise and the accord promise is discharged—breach of the accord by the obligee doesn’t discharge the original duty, but the obligor may maintain the suit for specific performance of the accord and damages for partial breach.

Satisfaction is carrying out the accord-satisfaction of the new agreement.

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R-281

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UCC 3-331- section 3 of the UCC applies to negotiations. When the amount owed is in dispute AND a party in good faith tenders a check as full payment of the amount owing AND that check or the accompanying correspondence makes it clear that check is being tendered in satisfaction of the entire amount owing… IF the party receiving the check cashes the check THEN the claim is discharged. UNLESS: the party who sent the check was previously instructed where such a check must be sent and that party did not send it to the correct person or place OR if the party who received the payment, within 90 days repays the amount sent back to the party making the payment. (silence may be considered acceptance).

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Accord and satisfaction by use of check

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writing without prejudice or under protest on a check does NOT preserve a person’s right to collect more, if that check is tendered as an accord and satisfaction.

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UCC 1-207

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a substituted contract is a contract that is itself accepted by the obligee in a satisfaction of the obligor’s existing duty---- the parties meant to immediately discharge the original duty- the substituted contract discharges the original duty and breach of substituted contract by the obligor-does not give the obligee a right to enforce the original duty.

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Substituted Contract

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if they have made a substituted contract can only sue for not delivering the substituted contract not the original obligation because it has been discharged.

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R-279