Glossary of Contracts I Fall 2006

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Counter offer exists if:
1) Same matter as original offer
2) Proposes a substitute bargain
3) Differs from the original offer
Mirror-Image Rule
Common Law principle that if the terms of an acceptance varied from the offer, it was a counter-offer and no contract was formed.
Last Shot Doctrine
Common law principle that if there is no contract because of the Mirror Image Rule, but performance is done anyway, the terms are from the last communication submitted.
Three types of Misrepresentation
Fradulent Concealment
A misrepresentation is voidable when:
Fradulent OR Material
When there has been PERFORMANCE but the forms dont match in terms and there is no formation - What UCC section?
UCC 2-207(3)
Parties can opt-in to the mirror image rule in this section.
UCC 2-207(1), clause 2
Offer defined

Restatement number
A manifestation of willingness to enter a bargain, so made as to jusify another person in understanding that his assent will conclude it. R2d 24
Five ways an offer can expire
(Restatement Section)
1) Death/incapacity
2) Lapse of a reasonable time
3) Revocation of offer
4) Rejection of counter-offer by the offeree
5) Non-occurence of any condition of acceptance under the terms of the offer

R2d 36

Rememeber: Death,Lapse,Revocation,Rejection,Non-Occurance
Three ways to formation if acceptance contains different or additional terms
UCC 2-207(1) clause 1 - they contain additional or different terms, still a contract
UCC 2-207(1) clause 2 - if they expressly say the acceptance is conditional upon assent to the additional terms, terms must match for formation
UCC 2-207(3) - if there is no formation under 2-207(1) (the acceptance was conditional but didnt match), and there is conduct displaying a contract (i.e. performance), then there is a contract
I accept, here are my terms fact pattern
UCC 2-207(1) clause 1
I accept, but only if you accept these terms" fact pattern
UCC 2-207(1) clause 2
"I accept, but only if you accept these additional terms" + conduct

fact pattern
UCC 2-207(3)
Lack of material terms in Offer/Contract
Restatement 33 - OK, if the terms are reasonably certain. Reasonably certain if we can identify breach and there is a remedy.

UCC - OK if there is INTENT+Reasonable Certain basis for providing a remedy

If its too open, it may not even be an offer
Benefit followed by a promise

fact pattern
Material Benefit Rule
Material Benefit Rule
R2d 86
A promise made in recognition of a benefit previously receiveed by the promisor fromt he promisee is binding to the extent necessary to prevent injustice

The promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched

to extent value is disproportionate to the benefit
2 things you need to have for MBR
an actual benefit conferred
an expectation of compensation
R2d 14

Unless a statute provides otherwise, a person can enter into only voidable contracts until the day before their 18th birthday.
Limits on Infancy doctrine
1) Voidable, but not void
2) Ratification within a reasonable time
3) Disaffirmance must be accompanied by the return of consideration in possession
4) Exception for necessaries
5) Misrepresentation of age
Majority-liable in tort, but can still disaffirm
Minority-estopped from using minority as a defense
5)Emancipated minors can still only create voidable contracts
Modifications of contract under UCC
UCC 2-209

Needs no consideration, but needs good faith
Modifications of contract under Restatement
Pre-existing duty rule

R2d 39
Best Efforts defined
Bloor - Good faith diligence insurance
Cardozo - Efforts to bring profits into existence
Joint Max - Look at the other party as if they were in the same company
A manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in undertanding that a commitment has been made.

R2d 2(1)
a promise or set of promises for which the law provides us a remedy, or the performance of which the law in some way recognizes a duty

R2d 1
Economic Theory of Contracts
Encourage promise making that increases value and discourage those that do not... regulate future behavior
Autonomy Theory of Contracts
Moral Duty - made a choice to rely on the social construct of promise-making and because they relied on that construct and they wer emorally wronged
Bargain Theory
Increase "net beneficial reliance"
Implied-in-fact contracts
Must have
1) Mutual Agreement
2) Intent to contract

Bailey v. West
Legal construction created by courts to avoid unjust enrichment

1) D must ACCEPT the benefit AND
2) The rentention by D of th e benefit would be inequitable without payment of the value thereof
Leonard v. Pepsico
A commercial advertising a Harrier Jet that cost 7000 Pepsi Points was not an offer because a REASONABLE person would know it was done in jest
Lucy v. Zehmer
A man who wrote an offer on a cocktail napkin during an evening of drinking was held to have made a valid offer because all of his outward manifestations showed intent to contract
Examples of things that are not offers
Price estimates (Dyno v. McWane)
Invitations to submit a bid
Opinions about future results
Letters of intent
Catalogs and mass mailings
An advertisement can be an offer if
1) Offeree is identified (i.e. first come, first served)
2) Clear, definite, and explicit
Requirements of Acceptance
1) Must be an express commitment
2) Must be unconditional
3) Must satisfy offeror's requirements
4) Notice if acceptance by promise or by performance if the offeror requests or they hae reason to believe that the offeror will not learn of the acceptance
Gateway Reasoning
Shrinkwrap licenses: The company is the offeror and can choose the ways to invite acceptance, therefore silence as acceptance is valid. The terms of the shrink-wrap license are those in the contract
Step-Saver reasoning
Box-Top licenses constitute a battle of the forms. Therefore, the terms are those agreed upon plus any default UCC provisions.
Silence as acceptance
Usually, offeror cannot cause silence to operate as aceptance, unless

1) Prior dealing
2) Reason to understand
3) Ownership
4) Benefit of services

R2d 69
shipment of non-conforming goods
UCC 2-206(2) - shipment of goods or promise to ship goods is seen as an acceptance

Shipping non-conforming goods and stating that they are sent as an "accomodation" is not an acceptance
Two questions to ask in a Battle of the Forms question
1) Is there a contract?
2) What are the terms?
If you are missing a price term
UCC fills in a reasonable price at the time of delivery if
1) nothing is said as to be price; or
2) the price is left to be agreed by the parties and they fail to agree; or
3) the price is fixed in terms of some agreed market or other standard and it is not so set or recorded.

UCC 2-305(1)
Requirements Contract
Agreement: Seller agrees to sell as much of the item as the buyer requires
Buyer cannot buy any of the contract specified requirements from other selelrs
Seller is free to sell to multiple buyers
Situation where litigation occurs in Requirements Contracts
Contract Price > Market Price
Output Contract
Buyer agrees to take everything that is produced by the seller, usually on a per-item basis
Buyer is free to buy comparable items from other sellers
Seller can only sell the contract output to that particular buyer
Situation where litigation occurs in Output Contracts
Market Price > Contract Price
Default Rule for Requirements/Output contract
1. Parties must act in good faith
2. No quantity unreasonably dispropertionate to any stated estimate may be tendered or demanded
(in absence of stated estimate, a normal or otherwise comparable prior output/reqs)

** Twin obligations of good faith and reasonable proportionality
**Downward deviations to 0 can be acceptable (Empire Bakeries)

UCC 2-306(1)
Good Faith defined
"honesty in fact and the observance of reasonabel commercial standards of fair dealing in the trade"

UCC 2-103(1)(b)
Modifications to contracts
Common Law Rule - Pre-Existing duty rule; unenforceable due to no consideration

UCC - needs good faith, but no consideration

Good faith requires "legitimate commercial reason"

UCC 2-209
Imaginary claims
Releasing imaginary claims can constitute consideration if the party believes they are valid

R2d 74
4 requirements for promissory estoppel
1) a promise
2) promisor reasonably expects that it will induce
3) Actual reliance
4) Enforcement is the only way to avoid injustice
Pre-contractual liability when:
1) Formed a contract but just hadnt formalized it yet (R2d 27)
2) Binding preliminary commitments where one party fails to "bargain in good faith" Hoffman Rule
No meaningful choice: scarce good
No meaningful choice: lack of competition
If there is a hidden clausee that will apply to the person you have a duty to point that out.
There is only 1 home builder on the market. Procedural unconscionability?
Ways to have procedural unconscionability
fraud in the inducement
unequal bargaining power (need more)
Lack of meaningful choice
age (minor vs. older person)
lack of education
Contracts that fall under SOF
1) land purchases/real pr operty
2) Not to be performed within a year
3) sale of goods for the price of $500 or more
Mental capacity - Restatement view
The mental illness causes you not to understand OR
the mental illness causes you to not act reasonably in relation to the transaction AND the other party has reason to know. R2d 15
Mental Capacity - common law standards
Contract was entered into because of the mental disorder. But-for causation. Faber v. Sweet Style Manufacturing
Limits on avoidance for mental capacity
If there has been partial performance or changed circumstances AND
1) fair terms and 2) other party had no knowledge

THen a court may grant relief as justic requires R2d15(2)
Intoxication rule
Reason to know of the inability + unable to act in reasonable manner in relation tot he transaction OR unable to understand the nature and consequences of his actions.

R2d 16
Economic Duress
Induced, Improper Threat, and no reasonable alternative

R2d 175(1)
Improper Threat
1) a crime or a tort
2) criminal prosecution
3) threaten to sue in bad faith
4) breach of good faith and fair dealing under contract with the recipient
5) The resulting exchange is not on fair terms AND
a) threatened act would harm the recipient and woudl not significantly benefit the party making the threat
b)already made the threat before
c) what is threatened is otherwise a use of power for illegitimate ends

R2d 174
Physical compulsion
R2d 176
Only way to have unilateral contract
1) Completion of performance is the only manner of acceptance
2) Offer to the public
Test for bilateral/unilateral contract
Bilateral: Each party has a right AND a duty
Unilateral: One party has only a right, and one party has only a duty.
Lapse of reasonable time
Offer expires. What is reasonable depends on the facts of the case
Revocable up until the time it is accepted.

Revocation of an offer ust be done within a reasonable time.

Cannot be revocation unless the offeree knows
Notice - acceptance by performance
Generally, no notice required uness the offeror requests such notification
Notice - acceptance by promise
Needs to occur
Ways to invite acceptance
Words, acts, etc. If not specified, then look at what is reasonable under the circumstances. R2d 30

UCC 2-206(1)(a)
Acceptance by pperformance
complete performance triggers obligation

usually unilateral contract
when compensation/price is "reasonable"
fair market value (Corthell v. Summit Thread)
UCC approach to certainty
Intent + Reasonable Certainty

UCC 2-204
Downward deviations for Requirements contracts
good faith needed. (doesnt matter if disproportionate - Empire Gas)
"Problem" with Requirements Contracts
Seems to be indefinite; missing quantity terms.

OK, ucc has defined performance obligations.
"Problem" with Exclusive Dealing contracts
Appears "illusory" because one party is not obligated to do anything.
Default rule for Exclusive Dealings contracts
Best Efforts
Hold up problem
Usually implies bad faith b/c they are reacting to a change in circumstances
A performance or return promise must be bargained for.

A 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.
Past consideration
Invalid because it wasnt bargained for. Violates present exchange.
How is bargain element missing in a gift?
We are not seeking the performance of another party. Could just be a conditional gift.
When do we consider the adequacy of consideration?
Only if it is a gift dressed up for enforcement. R2d 79

If there really was no bargain-in-fact.
Preliminary agreements
R2d 26
Agreements where memorialization is contemplated
R2d 27
How can non-disclosure be an assertion?
a) Need to correct an earlier statement
b) Knows it would correct a basic assumption and is in bad faith
c) Correct a mistake as to a writing
d) Fiduciary relationship

R2d 161

MAWR - mistake, assumption & bad faith, writing, relationship.

Most fall under (b)
How can affirmative actions be an assertion?
1) Action
2) Intended or known to be likely to prevent anothe from learning a fact
If either the consideration or the subject matter is illegal, the this will serve as a defense to formation.
Evidence to look for in mental capacity
Speed in making the transaction, deviation from prior behavior, testimony from experts.
Limits on avoidance for mental defects
Partial performance or changed circumstances if there are fiar terms and the other party doesnt know about the defect

R2d 15(2)
Test for improper threats
The threatened act

See if it will harm the promisee and not benefit the promisor

example: giving an F - does that benefit the teacher?

This will fit into 176(2)(a)
Mixed contracts - which is controlling, UCC or restatement?
Predominant purpose - whichever is more important. Apply that section to those goods.
UCC Seller's Remedies
1) withold delivery of goods
2) Stop delivery
3) Proceed under 2-704 for goods unidentified to the contract
4) Resell and recover damages (2-706)
5) Recover damages for non-acceptance (2-708)
Right of Resale Requirements
1) Must be in good faith
2) made in a commercially reasonable manner
3) Resale must refer to broken contract
4) must notify the buyer of sale
When would a seller prefer 2-708 to 2-709?
Where we have a market price LESS than the resale price.


He can get the damages from the market price and then make the resale.

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