Contracts 2014 Fall – Prof. Kar
I. Breach of K
1. UCC applies to transaction?
a. Applies transaction in goods – moveable at the time of identification of K, excluding money paid.
b. Mixed goods and services: UCC applies if predominant purpose is goods
c. When UCC applies, it supplements and sometimes displaces CL rule
2. Contract formed?
a. Requires mutual assent and consideration
i. Mutual assent(exchange of reciprocal promises) can be shown:
1) Joint signature of a written agreement
2) Behavior or conduct sufficient to show mutual assent
3) An effective process of offer and acceptance: offer has been made, accepted, prior to termination of power to accept
§ Promise: manifestation of intention to act or refrain from acting in a specific way, so made as to justify in understanding that a commitment has been made
ii. Prior to termination of power to accept
Application
b. Offer made?
i. Offer:
1) A manifestation of a willingness to enter into a bargain, so made as to justify another person in understanding that his assent to the bargain is invited and will conclude it.
ii. Objective test to determine whether an offer has been made; a reasonable person in the position of offeree would have taken the offeror’s words or actions to manifest his willingness, not subjectively willing.
iii. In accessing offer or acceptance, the court will look at:
1) Language: a reasonable person would believe that it’s offer, not solicitation of offer? (Meaning, the party is manifesting a willingness to enter into a bargain for X with the other party and inviting his assent in a manner that will conclude it?)
2) History of communications
3) Directedness: offer to you or another person?
4) Definiteness: remedies, performance obligations, price term etc. BUT Under UCC, only the type and q’ty of goods are required.
5) Type of transaction
iv. One might try to argue that: one of 1) to 5)
v. Others:
1) Under UCC: PO is an offer. Price quote is NOT offer.
2) Offer is effective upon receipt
3) Firm offer: an offer + subsidiary promise to keep that offer open for a period of time (can’t be revoked)
c. Accepted?
i. Acceptance
1) A manifestation of assent to terms of an offer, made by the offeree, in a manner invited by an offer
2) Objective test
3) Five factors mentioned above
4) CL’s Mirror image rule
The acceptance must exactly mirror the terms of the offer; else considered rejection or counter-offer
5) UCC 2-207 rejects mirror image rule
§ A written confirmation of a PO can function as an acceptance, even if additional to different from the terms in the original offer, so long as it purports to be definite acceptance & within a seasonable time
§ Additional Terms
o At least one party is Not a merchant: Addt’l terms mere proposal and not part of K w/o further assent
o Between merchants, they become part of K unless: the offer limits acceptance to the terms OR
o They materially alter, OR
o No objection notification given w/i a reasonable time
§ Different Terms (Breach section)
o Under UCC, between merchants, any terms in acceptance that are different from the terms in the offer
o Knocked out and replaced w/ UCC gap fillers (eliminates CL last shot rule)
§ If acceptance is expressly conditional on assent to different/addt’l terms;
o Acceptance operates as a counteroffer
o If the other party expressly and unequivocally accepts them, K is formed to terms of the counteroffer
o If the other party does NOT expressly and unequivocally accepts them, K is formed by conduct under UCC 2-207 (3).
o If K exists by conduct, different or addt’l terms are knocked out / UCC gap filler
6) Duration term constitute a substantive addition to the terms of offer?
It is part of original offer b/c:
a) Prior offers w/ the same language typically a year
b) CS later verified it. -> course of dealings (act) and course of performance ( how understanding).
c) Language (oral or written)
d) Trade Usage
d. Acceptance Prior to Termination of Power to Accept
i. Acceptance occurred:
1) Rejection
§ Qualified acceptance: act as a rejection and a counter-offer under CL
o If additional and different terms, CL rule does not apply to UCC K.
§ Last-shot rule: the last terms that were given out govern contract interpretation
§ UCC 2-207
2) Revocation: may be revoked any time prior to acceptance
3) Lapse of time: either an expressed time limit or a “reasonable amount of time”
§ Mailbox rule: an acceptance is effective upon dispatch.
4) Death of offeror
ii. One might try to argue that:
a. Even if interpreted as rejection and offer, parties conduct of delivery and acceptance show that they agreed to the deal
e. Consideration
1) Consideration = Promise is supported by consideration if there is return promise or performance
that is bargained for, which means
it is sought by promisor in exchange for the original promise or performance and
given by the promise in exchange for that original promise
2) Mere inadequacy of consideration will not void K
3) Gifts, gratuitous, moral consideration: NOT consideration
4. Interpretation
i. To find a duty to arose, either because of the K (interpretation) or law (construction)
ii. Courts will use a modified objective test (a reasonable person in the position of the parties would have interpreted K which way? Or the party can show that the other party knew or should have known their definitions)
iii. Courts look at language, course of performance, course of dealings, and trade usage, along with other rules such as:
iv. Preferring specific over general Known from associates, Expression of the one excluding others, General terms are given meaning by specific terms (ejusdem Generis), Preferring handwritten over the printed, VERy LoPP-sided (valid, effective, reasonable, legal, and in line with public policy and parties purposes)
v. Application
1) Contextualist rule to decide ambiguity (vs. four corner approach)
§ Integration/Merger Clauses will not be dispositive:
– State the agreement is complete and final
2) One party will invoke Parol Evidence rule (ex. CS will argue that A cannot rely on trade usage to support this interpretation under parol evidence rule b/c it’s final, complete)
§ Parol evidence: evidence that falls outside of the four corners of a written K that is final anc complete
3) Final – inadmissible to contradict the terms of written K
4) Final and Complete – inadmissible to contradict the terms of written K OR to add/supplement them
5) BUT, Admissible if to interpret the meaning of the K, establish subsequent agreement, remedies, invalidity of K, oral condition precedent, collateral agreement
6) UCC: Parol evidence cannot be used to completely negate the terms of written K but can be used for other purposes.
vi. Boilerplate language of K
1) Reasonable expectations of parties trumps boilerplate language (insurance)
i. Contracts of adhesion Requirements
a. Must be a form contract
b. Must be drafted by the superior party
c. Must be on a take-it-or-leave-it basis
2) When reasonable expectations of the parties conflict with the painstaking language then courts go with the reasonable expectations (when trying to figure out the boiler plate terms over the dicta terms)
5. Const
er reaching age of majority
b. Waiting too long to disaffirm
ii. Mental incapacity
1) Absent overreaching, mentally incapacitated adult can rescind only if they can return full consideration
2) Cognitive – unable to understand the nature and consequences of K
3) Volitional – unable to act reasonably and the other party must know or have reason to know
iii. Duress/Economic Duress
1) Wrongful threat of harm towards party through words or actions that induces another to enter into K,
2) Overcoming the free will,
3) Absent reasonable alternatives,
4) The threat was intended or the person reasonably should have expected the threat to induce the action
5) Economic duress: cause the economic hardship and take advantage of the other’s dire circumstances
iv. Undue influence
1) Overpowers the will without convincing the judgment
– Unusual time, place, location, insistence on needing to sign quickly, insistence on consequences of delay, unequal bargaining parties over more dominate party over servient party, no time to consult attorney
v. Misrepresentation
1) Affirmative state of fact,
2) That is false
3) And a material element (a reasonable person would think important in determining his action)
4) Was reasonably relied upon for entering into K
5) Statement of opinions can be actionable if a misrepresentation of state of mind/opinion, if in a special relationship of trust, if expert on the matter, I person is easily susceptible to misrepresentation due to age or mental incapacity
vi. Non-disclosure
1) Failure to state a fact
2) That is true
3) And a material element
4) Was reasonably relied upon for entering into K
5) Had a duty to disclose (to prevent previous assertion from being misrepresented fraudulent, to correct assumptions that might lead to bad faith, to correct written statements that are false, and if you are in a special relationship of trust of confidence)
vii. Statute of Fraud
If applicable, contract will be unenforceable
1. K falls within SOF
1) Goods over $500 to be in writing (UCC)
2) K cannot be performed/completed within one year (exception: lifetime K, possible to perform within a year)
3) All land sales
4) Executor-administrator clause
5) Suretyship provision – promise to answer for the debts of another
i. Promise must be made to creditor, not debtor
ii. Does not apply if creditor releases debtor and replaces w/ person
iii. No economic advantage
6) Marriage (like an arranged one)
2. Formality requirements are met?
Basic Rule
1) Need to be placed in Writing
i. must evidence the existence of K (or offer was made)
ii. identify the subject matter of K
iii. set forth its essential terms (eg. 12 month duration term)
iv. UCC: sufficient to indicate the parties, type of good and quantity
2) Must be signed by the person who is charged
3) Set forth the essential terms of K
