OFFER & ACCEPTANCE
24, 33- Offer, Reasonable Certainty- a manifestation of intent with terms that are reasonably certain
(provide a basis for determining breach and remedy) which upon acceptance will conclude a bargain is an
offer. Also see UCC 2- 204.
30, 32- Offer, Type and Form of Acceptance Requested- Offer can request performance or promise, and
in doubt, the offeree may choose.
60 – Time, Place, Manner of Acceptance Specified by Offer – if offer prescribes a time, place, or manner
of acceptance, such terms must be complied with to create a contract. If it merely suggests such terms, then
other terms are not precluded. UCC 2-206(1) Unless otherwise specified, an offer invites acceptance in any
manner and by any medium reasonable in the circumstances.
63 - Effectiveness of Acceptance through Correspondence – Mailbox Rule - Acceptance (not for option
contracts) is effective upon dispatch, as long as it is properly dispatched and offer allows for such manner of
acceptance (if it is improperly dispatched or in wrong manner, it is effective on dispatch as long as it is
received within time a proper dispatch would have been, if not it is an offer)
56 – Acceptance by Promise; notification – when offeree accepts with a promise, he must use reasonable
diligence to notify offeror, or offeror must receive acceptance seasonably.
62 – Acceptance by Beginning Performance – if acceptance by promise or performance is invited, the
beginning of performance is an effective acceptance and acts as a promise (but where only performance is
invited, an option is created) (where only promise is invited, not acceptance; Restatement Second claims
part performance not reasonable reliance under 87(2)—casebook doubts this result).
UCC 206(2) – Acceptance by Beginning Performance; notification – where acceptance by beginning
performance is allowed, an offeror without notice within a reasonable time may treat the offer as having
lapsed despite offeree’s part performance.
69 – Acceptance by Silence – silence or inaction result in acceptance only where (a) offeree takes benefit
with reason to know of offeror’s expectation of compensation, and reasonable opportunity to reject; (b)
offeror has indicated that silence is acceptable and offeree intends for his silence to be acceptance; (c)
because of past dealings, buyer should notify if he doesn’t intend to accept.
41- Termination of Power of Acceptance, Lapse of Time- an offeree's power of acceptance terminates at
the time specified in the offer, or if not specified, after a reasonable time. An offer by correspondence is
seasonably accepted if mailed by midnight the day when the offer is received. Face-to-face offers generally
expire after the end of the contact/meeting.
38, 39, 48, 40- Termination of Power of Acceptance, Rejection, Counter-Offer, Death- a rejection or
counter-offer terminates the offeree's power of acceptance, unless either side has manifested a contrary
intention (standing offer, taking it under further advisement); death or incapacity of either party terminates
power of acceptance. Rejection and counter-offer are effective on receipt (subsequent acceptance which
arrives first is effective).
42,43- Termination of Power of Acceptance, Revocation, Indirect Revocation- an offeree's power of
acceptance terminates when he receives a manifestation of intention not to enter into the proposed contract,
or when he acquires reliable information of offeror's definite action inconsistent with intention to enter into
the proposed contract.
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39, 59 – Counter-offers, Purported Acceptance – if a reply contains different (or additional) terms than
the offer, and it contains no intention to keep the other offer under advisement or it conditions acceptance on
assent to additional terms, it is a counter-offer, which terminates power of acceptance.
UCC 2-207 Additional Terms in Acceptance (Battle of the Forms) – a definite acceptance or written
confirmation which states additional or different terms from those offered is a valid acceptance, unless
acceptance is expressly made conditional on assent to the additional or different terms.
Contract terms under 2-207 – between merchants additional terms become part of the agreement unless
the offer expressly limits acceptance to its own terms; they materially alter it (esp. surprise or hardship),
notification of objection to them has already been made, or is made seasonably after.
Knock-out – conflicting terms drop-out and are replaced by gap-fillers, course of performance, course of
dealing, usage of trade, etc. When no contract is formed under 2-207, but the parties actions indicate a
contract, the terms shall be those upon which the writings agree and the gap-fillers, courses, usages, etc.
68 - Receipt – Receipt is when the party comes into possession, actual or constructive.
UCC 2-328 Auctions – the hammer-strike is acceptance.
87(1)- Option Contracts- an offer is binding as an option, if it is a signed writing by the offer, recites
consideration, and proposes an exchange on fair terms with a reasonable time.
63b - Acceptance of option contracts effective upon receipt. – although in some jurisdictions, in the
absence of statute or contract term, acceptance is effective on dispatch (normal expectation of parties).
87(2)- Reliance on Offer Creates Option- an offer that induces § 90-type reliance before acceptance is
binding as an option contract to the extent necessary to avoid injustice.
45 – Part Performance Creates Option – when an offer invites acceptance by performance only and the
offeree begins or tenders part performance, an option contract is created. The offeror’s obligations are
contigent upon completion of performance in accordance with acceptance of the offer.
37 – Termination of Power of Acceptance under Option Contract – rejection, counter-offer, or death do
not terminate power of acceptance, unless the requirements are met for discharge of a contractual duty.
UCC 2-205 - Firm Offer (Quasi-Option) – an offer in a signed writing which gives assurance that it is not
revocable will be held open for the term stated (not longer than 3 mos.). Power of acceptance can still be
terminated in other ways (i.e. counter-offer)
Implied-in-fact vs. Implied-in-law contract formation – in the former, the parties intended to enter into
an agreement but failed to articulate it. In the latter, one who is unjustly enriched at the expense of another
is required to make restitution provided that they requested the services or knowingly and voluntarily
accepted their benefits.
Preliminary negotiations – see Duty to Negotiate in Good Faith under Interpretation.
CONSIDERATION
71- Requirement of Exchange; Bargained-for Legal Detriment- there must be a bargain for either a
promise, an act, a forbearance, or for the creation, modification, or destruction of a legal relation.
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79- Mutuality Not Required- equivalence in the values exchanged is not required for consideration, but it
hints at either unconscionability or nominal consideration. Courts generally don’t look to the adequacy of
consideration.
90- Promissory Estoppel- a promise, which reasonably induces action or forbearance on the part of the
promisee, is binding if injustice can be avoided only by enforcement.
73,74- Performance of a Legal Duty, Settlement of Claims as Consideration- neither serves as
consideration unless there is an honest dispute or doubt about the required duty, or the claim is at least a
colorable claim made in good faith.
82, 83- Promise to Pay Indebtedness- a promise to pay a debt that is beyond the statute of limitations or
has been discharged in bankruptcy is binding.
86 - Promise for Benefit Received- a promise made in recognition of a benefit received is binding to the
extent necessary to prevent injustice, unless the promisee conferred the benefit as a gift, the promisor has
not been unjustly enriched, or to the extent that the value is disproportionate the benefit.
77 - Illusory Promises – A promise where no definite commitment has been made is not consideration.
INTERPRETATION, TERMS OF CONTRACT
20, UCC 2-201- Interpretation, Misunderstanding- there is no contract if the parties attach materially
different meanings to their manifestations and their levels of knowledge (as to the other party's meaning)
match (3 levels- know, reason to know, completely ignorant); but if one party has greater knowledge than
the other, there is a contract based on the meaning attached by the more ignorant party. (see outline, p13)
209– Integration – evidence of preliminary negotiations and other extrinsic evidence is admissible to show
whether a writing represents the integration of all agreements between the parties. Merger clauses are
evidence of integration, but not conclusive unless conspicuous.
213 – The Parol Evidence Rule – complete integration excludes all parol evidence of prior agreements
within the scope of the contract; parol evidence of a prior agreement is not admissible if it contradicts the
portion of the agreement that is integrated; parol evidence of consistent additional terms is admissible if
there was separate consideration for the terms, or such a term might naturally be omitted from the writing.
UCC 2-202 says that course of performance, course of dealing, and usage of trade are admissible to explain
or supplement the terms. Comment 3 uses the words “would certainly have been included” to describe
inadmissible consistent additional terms. (Exceptions for fraud, condition-to-legal-effectiveness, untrue
recitals of fact or consideration)
The Plain Meaning Rule – unambiguous language may not be interpreted in the light of extrinsic evidence
(four corners of the document). Very few courts follow this rule. Modern rule is that extrinsic evidence can
be used not only to interpret ambiguity, but to show that a term is ambiguous.
UCC 2-208 – Course of Performance – where a contract for sale involves repeated performances and the
parties have knowledge of the nature of the performance and accept such without objection, it shall be
relevant for purposes of interpretation. (express terms control)
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223 – Course of Dealing – a sequence of previous conduct between the parties which establishes a basis for
interpreting their expressions. Unless otherwise agreed, a course of dealing between parties supplements
interpretation. (contrary express terms and course of performance control)
222 – Usage of Trade – habitual or customary practice of regularity such that there is a justified expectation
that it will be observed within a trade (and sometimes within a locality) with respect to a particular
agreement. Unless otherwise agreed, a usage of trade in which both parties are engaged of which they both
have reason to know supplements interpretation. (contrary express terms, course of performance, and course
of dealing control)
Duty to negotiate in good faith – where the parties’ agreement empowers the parties to select terms over
the course of the agreement, or where the expressions of intent are too vague to form a binding contract,
there is an obligation on each party to negotiate in good faith. Breaches of this obligation include
unreasonably: renouncing the deal, abandoning the negotiations, or insisting on conditions that do not
conform to the preliminary agreement.
UCC 2-306- Output, Requirements and Exclusive Dealings- terms for output or requirements mean such
actual output or requirements as may occur in good faith, except no quantity unreasonably
disproportionately large to any stated estimates or otherwise comparable prior quantity. Output or
requirements can go down to zero as long as there is good faith. Exclusive dealing contracts impose a good
faith "reasonable efforts" duty.
204 - Omitted Essential Terms- if a sufficiently defined contract exists, but omits an essential term, the
court shall supply a term which is reasonable in the circumstances. (if goods, then probably a UCC gapfiller.)
UCC 2-305 – Open Price Term – if parties do not specify a price, or the price is left to be agreed and they
do not agree, or the price is to be fixed by a 3rd party benchmark and is not set, and they do not make the
agreement conditional on determination of the price, the court shall insert a reasonable price. When one
party has the right to fix the price, they must do so in good faith. When failure to agree is the fault of one of
the parties, the other may fix a reasonable price or cancel the contract.
UCC 2-308 – Absence of Specified Place for Delivery – if not specified, place of delivery shall be seller’s
place of business (or his residence), but if the goods are identified and both parties know they are in some
other place, that place shall be the place for delivery.
UCC 2-309 – Absence of Time Provisions – if not specified, times for shipment shall be a reasonable time;
duration of successive performances shall be reasonable and may be terminated at any time.
WARRANTY
UCC 2-314 – Implied Warranty of Merchantability – warranty that goods will conform to expectations in
the trade, are of average quality, are fit for their ordinary purpose, etc. Can be excluded only by a
conspicuous disclaimer that discusses merchantability (not the word).
UCC 2-312 – Warranty of Title – good title shall be conveyed to buyer free of all liens, etc. that are
rightful, unless excluded by language specifically disclaiming title.
UCC 2-315 – Implied Warranty of Fitness for a Particular Purpose – if seller knows the purpose the
buyer intends and buyer is relying upon seller’s judgment to provide suitable goods, there is a warranty that
the goods will be fit for that purpose. Can be excluded by general disclaimers (“as is”).
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UCC 2-313 – Express Warranty by Affirmation or Promise – if seller makes an affirmation of fact or a
promise (not merely an opinion) regarding the goods, that shall create an express warranty that the goods
shall conform to the affirmation or promise. Cannot be excluded by general disclaimers.
MODIFICATION, ETC.
89- Modification of Executory Contract- a promise modifying a duty under a contract not fully performed
on either side is binding without consideration if the modification is fair in view of circumstances not
anticipated when the contract was made, or to the extent that justice requires enforcement based on reliance.
UCC 2-209- Modification, Rescission and Waiver- an agreement to modify does not require consideration;
contracts can require no oral modification; statute of frauds can operate here; attempt to modify which fails
the above can operate as a waiver, but party making the waiver can retract it by reasonable notification,
unless there has been reliance. Keep in mind good faith.
84- Promise to Perform a Duty in Spite of Nonoccurrence of a Condition- such promise (waiver) is
binding unless condition was material and promisee was under no duty to bring about the condition, or the
promisor assumed the risk of the uncertainty of the occurrence; promisor can reinstate the condition if there
is still reasonable time for promisee to cause the condition to occur, there has been no reliance, and the
promise is otherwise unenforceable (i.e. no consideration).
THINGS THAT MAKE A CONTRACT VOIDABLE/UNENFORCEABLE
Statute of Frauds – Contracts must be in writing and signed by the party asserted against if they are (a) for
the sale of land, (b) are a surety or guaranty, (c) cannot be performed in the space of a year.
UCC 2-201 – Statute of Frauds for Goods – Contracts for the sale of goods over $500 must have a written
memorandum signed (or if merchants, no objection in 10 days to other’s letter) by the party asserted against
unless: substantial expenditure on unsalable special goods has been made; party admits of oral contract;
payment made or goods accepted.
175, 176- Duress by Threat Makes a Contract Voidable - if assent is induced by an improper threat such
that the victim has no reasonable alternative the contract is voidable; improper threats include: crime or tort,
criminal prosecution, bad faith lawsuit, illegitimate use of power, breach of good faith duty under an
existing contract, etc.
UCC 2-302, R 208- Unconscionable Contract or Clause Unenforceable- if contract or clause is
unconscionable at the time it was made, court may refuse to enforce the contract or limit the application with
respect to the unconscionable clause.
211(3) – Unconscionability in Standardized Agreements – clauses in standardized agreements where one
party has reason to believe the other would not assent to it were it brought to his attention are not enforced.
Reason to believe may be inferred from bizarre or oppressive terms, evisceration of dickered terms or
frustration of the purpose of the contract—strengthened inference by no opportunity to view the term,
illegible or hidden from view.
20 – Misunderstanding- there is no contract if the parties attached materially different meanings to their
manifestations and their levels of knowledge (as to the other party's meaning) matched (3 levels- know,
reason to know, completely ignorant)
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152, 154 – Mutual Mistake – where both parties make a mistake of fact that goes to a basic assumption of
the contract that has a material effect on performance, the contract is voidable by the adversely affected
party, unless he bears the risk because: allocation of risk in the agreement, awareness of his limited
knowledge of the facts but treats it as sufficient, it is reasonable for the court to allocate the risk on him.
153, 154 – Unilateral Mistake – when one party has made a mistake of fact that goes to a basic assumption
of the contract that has a material effect on performance and he has been adversely affected, the contract is
voidable by that party if enforcement would be unconscionable or the other party was at fault for or knew of
the mistake; unless the mistaken party bears the risk because: allocation of risk in the agreement, awareness
of his limited knowledge of the facts but treats it as sufficient, it is reasonable for the court to allocate the
risk on him.
164 – Misrepresentation – when a party’s assent is induced by a fraudulent or material misrepresentation
(see §162) by the other party upon which the first party was justified in relying, the contract is voidable by
the first party. Misrepresentation by 3rd parties can make a contract voidable unless the second party in good
faith does not have reason to know of the misrepresentation and relies on the transaction.
162 – When a Misrepresentation is Fraudulent or Material – fraudulent when the party making the
assertion knows or believes it is not in accordance with the facts, does not have the confidence he implies in
the truth of his statement, knows that he does not have the basis he implies for the assertion; material when it
would be likely to induce a reasonable person to assent, or if the maker knows it would be likely to make the
recipient assent.
161 – Non-Disclosure as Misrepresentation – when he knows disclosure is necessary to prevent some
previous assertion from being a misrepresentation or from being fraudulent or material; when he knows
disclosure would correct the other party’s basic mistake and failure to notify amounts to a failure to act in
good faith; when he knows disclosure would correct the other party’s mistake as to the contents of a writing;
where there is a fiduciary relationship.
155 – Scrivener’s Error – when the writing fails to embody the true agreement between the parties because
of a mistake of both as to its contents, the court may reform the contract, unless 3rd party BFP’s will be
unfairly affected.
261 – Impracticability – if a contingency, the non-occurrence of which was a basic assumption of the
contract, occurs without the fault of the party and renders the party’s performance impracticable, his duty
under the contract is discharged, unless the language or the circumstances indicate the contrary. Often,
failure of a source of supply will only make a contract impracticable if that source was specified. See UCC
2-614,615,616.
265 – Frustration of Purpose – if a contingency, the non-occurrence of which was a basic assumption of
the contract, occurs without the fault of the party and thereby substantially frustrates the principal purpose of
the party in making the contract; his duty under the contract is discharged, unless the language or the
circumstances indicate the contrary.
UCC 2-613 – Casualty to Identified Goods – if identified goods suffer loss without fault of either party
before the risk passes to the buyer, the contract is avoided if the loss is total, or if not, the buyer may inspect
the goods and take a reduction in price or avoid the contract (with no further recourse against the seller).
UCC 2-509,510 – Who Bears the Risk of Loss – usually the party in control of the goods.
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364- Effect of Unfairness on Equitable Relief- specific performance or injunction will be refused if the
contract was induced by mistake or by unfair practices, relief would cause unreasonable hardship, or the
terms the contract are "grossly unfair." Cf. subsec. (2).
DAMAGES
347- Measure of Damages in General, Expectation- damages = lost value of performance +
incidental/consequential loss - costs avoided. See Hawkins v. McGee
§348 - Dimunition vs. Cost of Performance - dimunition in value will be used when cost of completion is
grossly and unfairly out of proportion to the good to be attained. See Peevyhouse v. Garland Coal
§348 - Reliance Damages- when expectation damages are uncertain, or when the promise is being enforced
by §90, court will award damages for reimbursement of the expenditures incurred in contemplation of
performance, subject to limitations.
359-360- Adequacy of Damages, Specific Performance- specific performance can be ordered based on
these factors: uncertainty of damages, money will not procure a suitable substitute performance, possible
insolvency. See Buyer's Remedies, #3, this outline.
370-371- Restitution, Quantum Meruit- when a party has conferred a benefit on the other he is entitled to
damages measured by either: reasonable value of cost to other party to obtain benefit, or increase in value of
other party's interests. Choice of measure depends on which party breached. In quantum meruit, party is
entitled to restitution as above, undiminished by any loss he would have incurred by complete performance;
contract price is evidence of reasonable value. On buyer's restitution after his own breach, see UCC 2-718
(2-3).
350- Limitation on Damages, Duty to Mitigate- damages are not recoverable for loss that the injured party
could have avoided without undue risk, burden, or humiliation, unless party made reasonable but
unsuccessful efforts to avoid loss.
Employee's Duty to Mitigate- must use reasonable efforts, but has the right to reject different or inferior
work. See Shirley MacLaine Parker v. Twentieth Century-Fox, p. 266.
351- Limitation on Damages, Foreseeability- damages that the party in breach in did not have reason to
foresee at the time the contract was made are not recoverable; loss is foreseeable if it follows in the ordinary
course of events, or special circumstances give party a reason to know.
352- Limitation on Damage, Certainty- damages are not recoverable beyond an amount that evidence
permits to be established with reasonable certainty.
353, 355- Emotional Distress and Punitive Damages- emotional distress not recoverable unless bodily
harm resulted from the breach; punitive damages not recoverable unless the breach was also a tort for which
punitive damages are recoverable.
356- Liquidated Damages- parties can fix the amount of damages if damages are not readily ascertainable
when the contract is made, but only at an amount that is reasonable in light of the anticipated or actual loss;
unreasonably large liquidated damages are unenforceable on public policy grounds as a penalty. UCC 2718.
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Buyer's Remedies under the UCC
for Repudiation or Failure to Perform
1. "Cover" and recover the difference between the cost of cover in the contract price + foreseeable
incidental/consequential damages - expenses saved. (2-712)
2. Recover the difference between market price (at the time and place for tender) and the contract
price + foreseeable incidental/consequential damages - expenses saved. (2-713)
3. When goods are unique, specific performance can be granted; right of replevin when buyer is
unable to effect cover. (2-716)
for Non-conforming Goods
1. Accept the goods, notify under 2-607, recover damages (expectation and foreseeable
incidental/consequential) for breach of warranty. (2-714)
2. Notify the seller, and deduct damages from the price still due. (2-717)
Seller's Remedies Under the UCC for Repudiation or Insolvency
If goods not completed:
1. Complete and proceed below, or salvage. Decision must be guided by reasonable commercial
judgment. (2-704)
2. If salvage is chosen, can recover damages for difference between salvage price and contract price
+ incidental damages - expenses saved. (2-706)
If goods completed:
1. Withhold or stop delivery (2-705), resell, and recover the difference between resale price (if in
good faith) and contract price + incidental damages - expenses saved. (2-706)
2. Withhold or stop delivery (2-705), hold on to the goods (esp. if can't resell), and recover the
difference between the market price (at time and place of tender) and contract price + incidental damages expenses saved. (2-708)
If goods completed and delivered:
2-709- bring an action for the price.
GOOD FAITH
Three definitions:
The absence of bad faith
Forgone opportunity analysis
Implied terms in a contract
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