CONTRACTS
Formation
Offer + acceptance + consideration
Common law – sale of services + real property
UCC – sale of goods
OFFER
- Objective manifestation of willingness to enter into agreement
- Creates power of acceptan ein offeree
- Terms sufficiently certain
o UCC – must contain quanityt
o Common law – all essential terms (price, parties, quantity, subject)
Termination of Offer
- Operation of law (offeror death/intervening events)
- Revocations
o Offers generally freely revocable
o Rejection
o Counteroffer ( rejection + new offer)
o Lapse of time (reasonable time – but use 30 days as default rule)
 Expiration
Irrevocable Offers
1. Firm Offer (UCC)
a. Offer by merchant – terms give assurance it will be held open – signed in writing
i. No consideration
ii. Irrevocable during time stated or reasonable time (not more than 3 months)
2. Option Contract (Common Law)
a. Parties exchange separate consideration for promise to keep offer irrevocable for an agreed time
i. Not created until receipt of acceptance
ii. Requires mutual assent
3. Part Performance (Unilateral contract)
a. Offer that invites performance as reasonable method of acceptance makes offer irrevocable upon
partial performance
i. Preparation not enough
4. Detrimental Reliance (equitable)
a. Offeree reasonably relies on offer in some manner
ACCEPTANCE
- Communication of agreement
o Promise
o Performance
o Any reasonable manner under the circumstances (when unspecified)
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MIRROR IMAGE RULE (Common law)
o Acceptance must be mirror image of offer
o Deviation from terms (new/additional term) is a counter offer
-
UCC –
o New or additional terms
 When one party not merchant – treated as proposal for addition to contract must be
separately accepted by offeror to become part of contract
 Two merchant parties
 Contract created with new/additional terms unless (objection, material alteration,
original offer said only accept this way)
CONSIDERATION
- Bargained for exchange
- Performance or returned promise
NOT CONSIDERATION:
- Promises based only on past actions
- Promises based only on moral obligation
- Promises that aren really promises
- Illusory promises
- Pre-existing duty rule
BREACH
- Must be material to be actionable for common law
o Failure to substantially perform
o When minor – non-breaching party entitled to “set off” in price
- UCC – perfect tender rule
o Any deviation is actionable breach
o Buyer has right to:
 Accept goods
 Reject entire shipment
 Accept part, reject part
NONCONFORMING GOODS
- When merchant ships nonconforming goods, offeree has power to accept/ reject nonconforming goods.
STILL A BREACH
- Offeree also has the power to accept in part or reject in part.
- If offeree fails to reject, after having reasonable opportunity to inspect the goods, then the buyer is
deemed to have accepted the goods.
o If accepted the goods and notifies the offeror – can still sue for breach of contract. Suing for the
damages – difference in value of the different goods and incidental/reliance damages…
ACCOMMODATIONS
- When you specifically write “accommodation,” and acceptance didn’t occur. You can now accept
or reject the new offer.
- If acceptance occurred, then there is a contract & breach at the same time when what is delivered
is not what was contracted for.
- HAVE TO SPECIFICALLY SAY ACCOMMODATION
Mailbox Rule
- Acceptance sent by mail, email, or fax is valid at moment of dispatch unless
o Wrong address
o Offeror expressly states otherwise
o Option contract
o Offeree-sender send termination letter before acceptance letter
o If offeree-sender places counteroffer/rejection letter in mail and then shortly laster puts
acceptance letter – it is whichever one the offeror receives first
DAMAGES
-
Benefit of the bargain
Expectation damages
o Incidental
o Consequential
- Subtract expenditure or losses avoided
No punitive damages
UCC Contract Damages:
2 ways:
- Cover: difference between K price and reasonable substitute transation + incidental/consequential
damaegs
- Contract Market differential: difference K price and market value + incidental/consequential damages
Reliance damages – when impossible to measure expectation damages === expenses of preparation and part
performance == as well foreseeable expenses incurred in reliance
Lost profits – UCC lost Volume Seller Rule
- Can’t be speculative
Liquidated Damags
- Clause
- Agreement to limit and settle damges claims before any breach ccures
- To be enforceable:
- - in event of breach, damages difficult to calculate
- Amount agreed upon reasonable estimate of harm
Expectation Damages = (Loss in Value) + (Other Loss) – (Cost Avoided) – (Loss Avoided)
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Loss in Value = (The value that the plaintiff should have received under the contract) – (the value
that the plaintiff did receive)
Other Loss = (Incidental Costs) + (Consequential Costs)
o “Incidental Costs” are costs, typically associated with breach of contract actions, incurred in
a reasonable attempt to avoid loss even if unsuccessful (e.g., cost of storing rejected goods,
finding a new buyer, finding a replacement vendor, etc.).
o “Consequential Costs” are foreseeable costs unique to the plaintiff incurred as a result of
the breach.
 Unforeseeable consequential costs are NOT recoverable unless the breaching party
had some reason to know about the possibility of the unforeseeable
damages. See Hadley v Baxendale (1854) 9 Exch 341.
Cost Avoided = The value that the plaintiff saves by not having to perform any further (e.g.,
Estimated Expenses – Amount Spent)
Loss Avoided = The value that the plaintiff recovers by salvaging or relocating resources that
would have been used for performance of the contract
Miscellaneous Rules to Remember
1. Past consideration is no consideration
2. Reliance is a backup argument
3. Merchant is a person who deals in goods of the kinds or otherwise by his occupation holds himself out
as having knowledge or skill peculiar to the practices or goods involved
4. Acceptance can be by performance
5. Just b/c liquidated damages are authorized doesn’t mean they automatically fail to materially alter the
contract.
6. A sale-of-goods contract may be made in any manner sufficient to show agreement, even though the
moment of its making is undetermined
7. Delegations are valid (depending on circumstances)
8. Mailbox rule does not apply to option contracts – acceptance effective upon receipt
9. Restitution is preventing unjust enrichment
10. Accommodation with nonconforming goods becomes a counteroffer that offeree can accept/reject/accept
in part/reject in part