OFFER
Offer: communication must promise a commitment to do or not do something
 Negotiations: parties discuss details but make no commitments
 Advertisements: not considered offers – it’s an invitation to deal or make an offer
o Exception: an ad that limits the number of people who may accept “first come,
first serve”
o Rewards: considered an offer – because it limits the number of people who can
accept.
 Statements made in just: would a reasonable person believe there was a deal?
Essential Terms of an Offer
Communication must identify the offeree and make subject matter reasonably certain
 To be sufficiently certain are enough essential terms provided so that a contract
including them would be capable of being enforced?
o Art. 2: we need a quantity term – if it’s omitted there is no legally valid offer
 Can also include “output” or “requirements”
o Sale of land: price and description (doesn’t have to be super descriptive)
o Services: description of work
Termination by the Offeror: Revocation
 When an offeror can revoke:
o General Rule: offeror can revoke at any time before offer is accepted.
 How an offeror can revoke:
o Direct revocation: “I revoke”
o Indirect revocation: information from a reliable third party that offeror is no
longer willing or able to contract.
Irrevocable Offers
1. Option Contacts: promise to hold offer open for certain period of time PLUS consideration.
2. Merchant’s Firms Offer: (only applies to sale of goods)
 A merchant is anyone who either regularly deals in goods of kind being sold or has
knowledge or skill peculiar to the practices or goods involved.
o Business sales, not personal
o Almost anyone working in any business is a merchant – has knowledge even if
they don’t regularly enter into contracts. BUT only when acting on behalf of their
business NOT personal life.
 If a merchant promises in writing and signs the offer can’t be terminated for the time
stated OR if no time is stated it can be terminated in reasonable time, NO longer than 3
months.
 With a merchant’s firm offer you don’t need consideration to make irrevocable
3. Detrimental Reliance: the offeror makes a promise in the offer and should expect the
offeree will rely on that offer to his detriment.
4. Beginning Performance under Unilateral Offer: accepted ONLY by performance, can’t
revoke once performance beings.
 Irrevocable for a reasonable period of time for you to complete performance
Termination by the Offeree: Rejection
 Direct Rejection: when the offeree declines the offer
 Counteroffer: response to an offer that rejects the original offer but proposes a different
deal
o Mere Inquiry: proposes a different deal without rejecting the original offer
 Conditional Acceptance: kills original offers, provides new offer
o Acceptances that contain new or additional terms
o Mirror Image Rule: acceptance has to mirror the terms of the offer
 “I accept”
 Art. 2 does not follow this rule: acceptance can contain new or different
terms
o A seasonable expression of acceptance operates as an acceptance UNLESS
acceptance is made expressly conditional on asset to additional or different
terms – IF it looks like an acceptance, its an acceptance.
 Lapse of Time: offeree must accept the offer within time period specified, or if no time
period is specified, within a reasonable time.
o Reasonable time: depends on facts
 Be suspicious of any offer that’s not accepted within 30 days
Termination by Operation of Law
 Death or incapacity of the offeror or offeree instantly kills the offer
o Irrevocable offers don’t terminate with the death or incapacity of one of the
parties – the offer survives through the term of the irrevocable offer.
 Subject matter of contract become illegal
 Subject matter of contract is destroyed
ACCEPTANCE
Acceptance: a timely manifestation of assent to the terms of the offer
 How to accept: offeror is the master of their offer & they often don’t specify method of
acceptance – so offeree can accept by any reasonable means
 Generally: cannot accept through silence
o Exception: if recipient of an offer knows services are being rendered with
expectation of compensation and is silent, its an acceptance.
o Exception: custom or agreement between parties – if parties agree that a silence
will constitute an acceptance or they have been dealing with each other prior
and its custom that silence constitutes an acceptance, then the law will support
the contract.
Acceptance Under Article 2
 An offer to buy goods for current or prompt shipment can be accepted by a promise to
ship or through actual prompt shipment
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“nonconforming goods” aka goods that don’t fit its description in the contract
1. Shipment of nonconforming goods = acceptance and breach UNLESS the seller
notifies buyer in reasonable time that nonconforming goods are offered as an
accommodation.
2. Buyer of goods is entitled to perfect tender – buyer is entitled to goods &
delivery that match the contract description
 Battle of the forms 2-207: the terms of the acceptance do not have to match terms of
offer (mirror image rule doesn’t apply)
1. When the terms don’t match – triggers battle of the forms
2. If both parties aren’t merchants – terms in the offer govern
3. if both parties are merchants – additional terms automatically become part of
the contract UNLESS
1. new terms in the offer materially alter original terms
2. offer expressly limits acceptance of terms in the offer or
3. the offeror has already objected to the particular term/or objects in
reasonable time
4. material alteration: anything that changes party’s risk or remedies available
 like adding a clause disclaimer of warranty
o express limitation
 language includes that the offer may not be altered and must be
accepted as is
o knock-out rule
 conflicting terms knock each other out of the conflict and the UCC
substitutes a reasonable term in its place
When Acceptance is Effective (Mailbox Rule)
 Rejections & revocations are effective when received
 Acceptance effective on dispatch
 Does not apply if offeror opts out of mailbox rule
o “must be received to be effective”
CONSIDERATION
Consideration: a bargained for exchange of something for legal value
 Legal value: a promise to do something or the actual doing of something that one is not
already legally obligated to do OR a promise to refrain from doing something or
refraining from doing something that one is not legally allowed to do
Sham Consideration & Past Consideration
 courts won’t judge adequacy of consideration – aka you can make a bad deal and court
doesn’t care
 sham consideration: something that’s not really intended to serve as consideration is
NOT consideration
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o the possibility that the thing could have value is sufficient to constitute
consideration
past consideration: something that was done – usually an act – that would have been
consideration if it were bargained for when done, but it wasn’t bargained for.
o If it wasn’t bargained for at time of exchange – it's not good consideration
 If the person relies on it though, there could be damages just no contract
The Preexisting Duty Rule
 Art. 2 DOES NOT follow this rule: it can be modified so long as its in good faith
 A promise to perform something a party is already legally obligated to do is NOT
consideration.
 A contract cannot be modified without consideration
 Exceptions:
o If there is a promise to do anything new or diff from original promise, there is
consideration
 Like adding a new date, etc.
o When a party wants to pay off an existing debt for less than they owe
o Unanticipated circumstances: circumstances arise that were not anticipated
at the time contract was made, modification is fair and equitable, contract
not fully performed on either side.
Mutuality and Illusory Promises
 An illusory promise is an empty promise – so no consideration
o No commitment
o Must be consideration on both sides
 Satisfaction clause: does not render promise illusory because law implies obligation of
good faith
 Exclusive agency contracts: one party agrees to represent a brand as an exclusive agent
o Obligation to use best efforts to represent brand
DEFENSES
Missing formation
 Was there an offer
 Was there a valid acceptance?
 Was there consideration?
Statute of Frauds
 A contract within the statute of frauds is not enforceable UNLESS if its evidenced by a
writing signed by the parties sought to be bound.
 What types of contracts does the statute of frauds cover?
MYLEGS – marriage, year, land, executor, goods, suretyship
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Goods: contracts for sale of goods are within SOF if price of goods is $500+
o Exceptions: specially manufactured goods, written confirmation by merchant, and
performance
o Merchants must have oral agreement, one party must sent written confirmation
sufficient to bind the party if he was the one being sued,
 recipient has 10 days to object to writing
Year: if performance takes a year+ to complete, must be in writing
o Even if its extremely unlikely, if its possible…doesn’t fall within SOF
Land: transfer interest of land for more than 1 year - easement, lease, transfer of land,
mortgages
o Exception: full performance of the seller takes the contract out of the statute, part
performance by the buyer could also do that (need payment, possession and
improvements of land)
Other Defenses
Absence of Mutual Assent:
o Mistake: a factual error regarding a fundamental matter that has a material effect on
the agreed exchange
o Mutual: both parties are mistaken about material fact - DEFENSE
o Unilateral: only one person mistaken about material fact – NOT A DEFENSE
Assumption of Risk: A party who assumed the risk of mistake cant use the mistake as a defense
A party assumes the risk of mistake when:
o Parties know they don’t know a fact OR when a party is in a superior position to know a
fact
Capacity:
 Minority – a contract made by someone under the age of minority (18) is voidable by
the minor.
o Disaffirmance: minor can cancel contract because its voidable and cannot be
bound for it.
 Minor can disaffirm within a reasonable time after reaching age of
majority
 If the minor doesn’t disaffirm within a reasonable time after reaching
majority, the minor is bound.
 a month or maybe two
 Exceptions: contracts for necessaries or necessities: things minor needs
to survive (food, clothing, shelter, med care) – they can disaffirm but they
have to pay for value of benefit received (not contract price)
 Ex: car sold to 17 year old – she can cancel contract even after driving car
o If minor wants to enforce contract, they can.
 Lack of mental capacity – contract is voidable if a person’s mental capacity is so deficient
that they cannot understand the nature or significance of the agreement
o Can void contract when lucid or a guardian can
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Voluntary intoxication: Contract voidable if other party had reason to know of the
intoxication
o Look for signs of intoxication or knowledge
o If signs of intoxication were subtle…there is an enforceable contract
Involuntary intoxication: contract is voidable if the person could not understand the
nature or significance of the agreement when it was entered into
o This includes unexpected reaction to something you did take, drugged, etc.
o Doesn’t matter if other person knew of intoxication or not.
Illegality: subject matter or consideration is illegal
o Example: Gambling contract – not enforceable in a state that prohibits gambling
Duress and undue influence
o Physical & economic duress
 Physical: involves threatening to do physical harm to the contracting
party – renders a contract void
 Economic – taking advantage of other party’s economic needs
 In most cases economic duress is NOT a defense. Only a defense
when
1. A party threatens a wrongful act that seriously threatens the
other party’s property or finances; AND
2. the other party has no other means to prevent the threatened
loss
Undue influence: person susceptible to pressure; usually a confidante or caregiver uses
power to pressure susceptible person into agreeing to an unfair contract
Unconscionability: allows the court to refuse to enforce unfair contracts or even unfair
terms within a contract
o Determined by circumstances AT TIME the contract was formed
o Price alone doesn’t matter – contract cannot be voided based on poor trade
o Unfair surprise
 Party slips something unexpected into the contract and other party
signed – like a clause expressing judgment – small print
o Unequal bargaining power: one party holds all the cards and forces other party
into bad deal (contract of adhesion)
REMEDIES
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MUCH EASIER TO BREACH CONTRACT FOR GOODS RATHER THAN UNDER COMMON LAW
BCECAUSE ART. 2 REQUIRES PERFECT TENDER/PERFORMANCE
Warranties: if goods don’t live up to them, it’s a breach & you can seek remedies even if you
keep goods
Goal of contractual remedies is to put the nonbreaching party in the position they would
have been had there been no breach.
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Monetary remedies: Compensatory damages try to compensate a party to make up for
what is missing for performance under the contract.
o Expectation damages: damages based on what nonbreaching party expected to get
from the contract
 Example: 20k for boat. Breach & bold is sold. Expected to have a boat.
Replacement boat is 25k. sue for 5k.
o Incidental and Consequential Damages
 Incidental damages: costs reasonably incurred as natural consequence of any
breach – in addition to expectation damages
 Inspections, storage fees, return fees, etc.
 Consequential damages: losses resulting from particular circumstances
 Not a natural consequence of the breach, highly dependent on
circumstances.
 To recover: must show breaching party knew or should have known
about the circumstances at the time the contract was made.
o Reliance Damages: losses suffered in reasonable reliance on the contract
 expenditures made in reliance on a contract are collectable as damages –
very fact specific – reimburse plaintiff, restoring plaintiff to pre-contact
position.
 Award expectation but if we can’t do that because damages are speculative
we fall back to reliance.
o Liquidated Damages: aka a penalty clause. damages set out in advance in the
contract (permitted to be in a clause) if TWO conditions are met:
1. Actual damages difficult to predict at time contract was made
2. Amount is a reasonable forecast of actual damages that will result
 Buyer and Seller Damages under Art. 2
o Cover: After sellers breach, buyer purchases replacement goods
 Can sue for agreed price and market price – you still get benefit of
bargain
o You can retrieve incidental and consequential damages
 Allowed to collect profit damages if wholesaler
 Warranty damages: express and implied promises by seller about the goods sold
o If goods do not confirm to contract buyer still wants to keep – sue in warranty –
recover by subtracting the value as delivered from the value as warranted.
Limitations on Damages in Art. 2:
 Damages must generally be reasonably certain, foreseeable and unavoidable.
 Certain: damages cannot be speculative
 Foreseeable: damages that arise and occur in the natural course of events from any
breach
 Unavoidable: a nonbreaching party cannot recover damages that could have been
avoided with reasonable effort
o Duty to mitigate – can’t pile up losses after you learn of breach…you have a duty
to mitigate
o Rule of mitigation generally does not apply to art. 2
 There is no obligation for an injured buyer to cover or buy substitute
goods
 There is no obligation of an injured seller to re-sell the goods
Specific Performance:
 Specific performance: usually seen in land sale, sale of unique goods, sentimental value,
o No other legal remedy is adequate
o Not unduly burdensome to courts to order the specific performance
o Contract terms must be certain and definite
o NOT AVAILABLE TO PROVIDE SERVICES even if rare or unique
Reformation:
 Remedy available when written K does not accurately reflect contract the parties agreed
to
o Court will fix it to say what the parties thought it was
o Requires:
 Oral agreement
 Written memo of agreement
 Writing must contain a mistake
o Fraudulent misrepresentation: Party misrepresents contents of contract and other
party relies
Restitution:
 Available even when there is no enforceable contract
 Primarily used to prevent unjust enrichment
 Look at how much defendant is wrongfully gained
 Quasi-Contract: used when there is no contract between parties…must show:
o The plaintiff conferred a benefit on the defendant,
o The plaintiff had a reasonable expectation of being compensated,
o The defendant had reason to know of the expectation; and
o The defendant would be unjustly enriched if he were allowed to keep the benefit
without paying for it
When a contract has been breached and nonbreaching party has not fully performed, they can
choose to cancel contract and sue for restitution. BUT if plaintiff has fully performed, can sue
for contract price only.