Is This A Valid Enforceable Contract?
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Is This A Valid Enforceable Contract?

Is This A Valid Enforceable Contract?

Too often we look at a contract fact pattern and immediately become overwhelmed with the vast possibilities and our brains scream out of control. We immediately begin thinking of all the things we don’t remember and begin to quake at the thought of possible conditions and damages. The Road of 1000 Possibilities Starts With Formation.

Don’t get overwhelmed! Remember every contract analysis has to start somewhere and that somewhere is formation. You must show there is a valid enforceable contract before you can even begin to write about anything else. Formation is one of the heaviest tested and most important part of contract writing.

Governing Law

A valid enforceable contract starts with formation and there is a clear road map given to us that we should follow every time we tackle a contract essay. The basics of that road map are: Offer, Acceptance, Consideration, and Defenses to Enforcement. Sounds simple right? No, way! The basic road map can be very illusory. It looks simple but we all know that there are a million smaller issues, sub-issues, parties issues, etc. that are hidden in those four simple words.

I have seen many different students from many different schools attack formation in various ways and ultimately how you decide to attack formation will be based on what you are taught; but we can all agree to start with Governing Law. Governing Law floats above our formation discussion like a disclaimer. The Governing Law statement is always first,
it is proof to the grader of the essay that you have truly arrived!

The UCC applies to contracts involving the sale of goods and Common law governs contracts for services. Sounds easy enough; but wait there is more. Goods are movable tangible things identified at the time of contracting. We surely must be ready to move to formation now? Nope. Are your parties Merchants? A merchant is a person who deals in goods of the kind or who otherwise holds himself out as having knowledge or skill particular to the practices or goods involved in the transaction.

The Uniform Commercial Code (UCC) governs contracts for the sale of goods and Common Law governs contracts for services.

Remember, just because you have identified that you are dealing with a contract governed by the UCC, you may not necessarily have merchants. The UCC applies to any sale of goods, regardless of whether a merchant is involved.

However, there are special and particular rules pertaining to your essay analysis when merchants are identified. Special provisions of the UCC may apply when one or both parties are merchants.

Can You Find the Offer

An offer will exist when a reasonable person (there is that reasonable person again) would interpret the communication as having been made with the intent to create the power of acceptance in the offeree.  The offer must be communicated to the offeree and must be understood by the offeree.  This means that when you have a statement that sounds wishy washy red flags should show!

Advertisements, ambiguous statements, and offers made as a joke or made in anger are often placed in fact patterns to test the students knowledge and honestly, just to see if they can trick you into calling them an offer.

The offer must include essential terms of the contract; identification of the parties, subject matter, and price; but there is always an exception and there are always special rules.

Under Common Law subject matter and quantity must be included however, modernly, both Common Law and UCC recognize output and requirements contracts, even though these do not specify a quantity.  With output and requirements contracts UCC 2-306 contains an implied covenant of good faith; meaning the production or demand is not disproportionate to stated estimates and that demand is not abnormal compared to prior output requirements.

Price is another exception.  Under the UCC 2-204 a contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct, as long as there is a reasonably certain means of identifying a sufficient remedy and lack of a price term or other terms will not invalidate the offer.  The only specific requirement, output and requirements aside, is the quantity term.

Another hole to avoid in your offer discussion is time for performance.  Courts will generally imply a “reasonable time” when one is not identified.  Under the UCC 2-301 payment is due at the time and place where the buyer is to receive the goods if not otherwise identified. Delivery is also due at a “reasonable time” and will occur at the sellers place of business if not otherwise identified.

Now that we have covered a ton of exceptions; go back and re-read everything again and keep the distinction in your head between UCC requirements and Common Law requirements because once you get into acceptance identification of the terms of the offer are vital!

Termination of the Offer

Once an offer has been made it creates the power of acceptance in the offeree only until the offer terminates.  An offer can terminate for several reasons:  its own terms, as a result of events or other occurances, or by the actions of the other parties.

There are many different scenarios in which an offer will terminate and being able to clearly and quickly identify these scenarios will help you in the FYLSE.

  • Was there the death of a party, destruction of subject matter, or illegality?
  • Was there revocation, either express or by conduct?
  • Was the offer rejected expressly by the offeree
  • Was there an implied rejection hence becoming a counteroffer?

We briefly covered termination of the offer but never forget that there are always special rules and exceptions to everything in law.  One of these exceptions we did not cover are irrevocable offers.  Do not forget to identify if you are working with an options contract or a merchants firm offer!  This will dramatically effect your analysis.

Acceptance

An offer is accepted when the offeree assents to the terms of the offer in the manner in which the offer permits.  But, once again, there are always exceptions, special rules, and rabbit holes that are easy to go down!

Before trying to confuse yourself identify the type of contract.

  • Is this a Bilateral Contract?
  • Is this a Unilateral Contract?
  • Is this governed by the UCC?
  • Is this governed by Common Law?

An offer to a bilateral contract may only be accepted by a promise to perform.  A unilateral contract requests acceptance by the performance rather than a promise to perform.  The UCC has special rules for prompt shipment of goods and nonconforming goods where Common Law requires a mirror image acceptance.

This is just the beginning. Remember, there is still consideration and defenses to enforcement.

Go through the articles we have and continue on with our article on Consideration and Defenses to Enforcement.

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