I. PRELIMINARIES
Is it a sale of services or a sale of goods?
Servicse, Real estate, employment, insurance: Use the common law
Goods: UCC- Article 2, supplemented by the common law
Mixed: Look to see which of the two predominates
II. HAS A VALID CONTRACT BEEN FORMED?
1. Is There Consideration?
Was There a Bargain?
· Bargain Theory (2nd R 71)
o General Rule: A bargained-for exchange constitutes consideration
o Requirements for a Bargain (Reciprocal Conventional Inducement):
§ Reciprocal:
· It must be sought for by the promisor in exchange for the promise/performance
· And given by the promisee in exchange for the promise/performance
o Present Action: This is required in order for there to be a bargain. You can’t promise something you have done in the past.
§ Inducement: As before mentioned, it must be sought for by the parties
§ Conventional: In most cases we do not care what the motive of the parties is, we look at the exchange using a reasonable person test. (2nd R 81)
o No need for an obvious benefit or detriment if there is an induced forebearance of a legal right (Hamer v. Sidway)
What type of bargain is it?
· Bilateral Contract:
o This exists when there is a promise in exchange for a promise
o Ramifications: Here, both parties are bound up front and neither one has a free way out of the K
· Unilateral Contract
o Here we have a promise being made in return for performance
§ This kind of bargain is made when there is reluctance on the part of the promisee to make a promise
o Ramifications: The promisee has the ability to change his mind for free because he are not bound to perform
§ Here the binding actually occurs when the performance is completed by the promisee
Occasions where there is no bargain and no consideration:
· Bargains in which one party promises to do only what she is already legally obliged to do are not binding
· Promises to surrender or forbear from asserting a legal claim that is invalid
o Exception to the Exception: There is consideration for forbearance over an invalid claim if it was brought forward in reasonableness and good faith. (Fiege v. Bohem)
§ 1st R 76b
§ Honesty/good faithà subjective
§ Reasonable beliefà objective
§ 2nd R 76 gets rid of reasonableness requirement, emphasis on honesty and good faith (WE HAVE THIS WHAT DOES IT MEAN? WE LOOK AT RESTATEMENTS AND DON’T SEE THIS)
· Nominal consideration
o Peppercorn consideration is not considered consideration because there is no actual bargaining for it
§ Exception to the Exception: There may be the appearance of a peppercorn, but if it was bargained for, it is consideration
· Apparent bargains involving an illusory promise
o This occurs when there is a statement made in the form but not in the substance of a promise
o Mutuality of Obligation:
§ Bilateral Contracts: Mutuality is required in the sense that they are bound to perform. This does not mean that their obligations need to be equal (2nd R 79). Neither one of the parties is allowed to change their mind for free. If one of the parties does in fact have a free way out of the K, then neither party is bound.
What if there is a donative promise:
· General Rule: A donative promise to make a gift is unenforceable for lack of consideration
is consideration because of the limitation of options.
§ UCC 2-306(1):
· The needs must be actual. Stock piling is not allowed.
· It must be made in good faith
o Good faith is:
§ UCC 1-201(19): Honesty in Fact
§ UCC 2-103 (1)(b): In the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade
· The observance of “reas. comm. stand.” Is objective
· Merchant is a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill (UCC 2-104(1))
· There cannot be an unreasonable disproportionateness compared to estimates, or prior requirements/outputs
§ A party may add minimums or maximums in order to protect themselves
o Implied Promises: (Wood v. Lucy, Lady Duff-Gordon) although a party does not seem to have made a promise expressly through words, a promise nevertheless may be implied from the party’s words or actions.
§ If the person who gives a substantial upfront payment, there is no need to imply consideration.
UCC 2-306(2)
