Contract Law Flashcards
Definition of Contract
A contract is an agreement for which the law gives a remedy for breach.
Types of Contracts
Express & Implied
Implied Contract
Implied in Fact: presumed from surrounding circumstances
Implied in Law: law creates the binding obligation
Express Contract
Can be either oral, written, or combination of both.
Governing Law
Common Law or UCC
Common Law v. UCC
UCC: Tangible Objects-cars, clothes, animals, crops, books, etc.
Common Law: Non Tangible Objects- services like real estate, employment,
Merchant Defined:
person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction.
Statue of Parties
UCC Differentiates between Merchants and Non-Merchants and hold Merchants to a higher standard.
Non-Merchant Defined:
All parties that are not merchants.
Valid Contract
A valid contract consists of offer, acceptance, consideration and lack of formation defenses.
Offer Defined:
An offer is a manifestation of present contractual intent, communicated to an identified offeree, containing definitive and certain terms.
Present Contractual Intent ( In an Offer)
- Judged Objectively, not Subjectively
- Would a reasonable person under the circumstances believe that the offeror is willing to be bound by a contract?
Advertisements, catalogues and quotes:
Not offers but invitations to deal, negotiate, receive offers, etc.
Communicated to an Identified Offeree ( In an Offer)
- Essential to be communicated to an identified offeree.
- Exception: not addressed to any particular offeree, someone knows off offer.
Containing Definite & Certain Terms- Majority Rule (In an offer)
Majority Rule: offer need only state the subject matter of the contract with definite and certainty. Where contract is silent, all other terms can be implied using reasonable terms.
Containing Definite and Certain Terms- Common Law (In an offer)
Offer must state all material facts of the contract. Follow Q-TIPS.
Q-TIPS
Q: Quanity
T: Time for performance
I: Interested parties
P: Price and;
S: Subject Matter
Subject Matter in Q Tips
Real Estate: Requires description of real property with adequate certainty to identify land and price.
Sale of Goods:
(a) Subject Matter & Quantity
(b) a contract under UCC will not fail for because a term is left unopened. (can be time, place, or price)
Requirement Contracts
-Requirement contracts are agreement by one party to supply all that is required by pother party.
- Always raise issue of definitive and certain terms dealing with quantity
Output Contracts
-Agreement by one party to buy all that the other party produces
- Always raise issue of definitive and certain terms dealing with quantity
Personal Services (Employment Contract)
Duration of employment and pay is required. If no duration, treat contract as one for employment at will.
Termination of an Offer
General Rule: all offers are freely revocable
Irrevocable Offers
- Option Contract
- Merchant’s Firm offer
- Detrimental Reliance
- Unilateral Contracts
Option Contract (irrevocable offers)
(a) Offer supported by consideration
(b) if option does not specify a time, option will remain open for reasonable time
Merchant’s Firm offer (Irrevocable Offers)
(a) Writing signed by a merchant which gives assurance that the offer will be held open is not revocable, for lack of consideration, during stated time.
(b) If no time stated, then for a reasonable time- not to exceed three months. (UCC 2-205)
Detrimental Reliance
(Irrevocable Offers)
(a) If the offeree relies on the offer;
(b) And the reliance is detrimental, reasonable, substantial, and foreseeable then,
(c) The offer must stay open for a reasonable amount of time.
Unilateral Contracts (Irrevocable Offers)
(a) An offer for a unilateral contract is irrevocable once performance has begun
(b) preparation for performance is not performance
(c) The offeror must allow the offeree a reasonable amount of time to complete performance once performance has begun.
Offeror- Revocation of Offer
(1) Offeror communicates to the offeree that they no longer want to be bound by that offer, then offer is terminated.
Offeror- Indirect Revocation
(a) Occurs if an offeree receives correct information
(b) From a reliable source
(c) That the offeror no longer wants to be bound to the offer
(d) Offers to third parties are insufficient.
(e) Rumors are insufficient.
Revocation of Offer to the Public
May only be revoked by notification to the public by the same means in which the offer was communicated if reasonably available.
Counter Offer (Revocation of offer)
Acts as a rejection
Conditional Acceptance (Revocation of an offer)
Always a counteroffer under Common Law
Operation of Law (In an Offer)
(1) Offer will lapse after a reasonable amount of time
(2) Time Determined by: market conditions, nature of subject matter and trade and custom usage.
(3) Face-to-face Negotiations: unless words are to the contrary, offer will terminate when the parties leave each other’s presence
(4) Death/Incapacity:
Death terminates the offer at the time of death, incapacity terminated offer at the time the other party learns of incapacity. Only exception is irrevocable offers are not terminated by death or incapacity of either party.
(5) Destruction of Subject Matter or Supervening illegality will terminate an offer.
Acceptance
An unequivocal assent to terms of an offer.
Common Law- Acceptance
(a) Acceptance must be a “Mirror Image” of the offer.
(b) Additional, Different, or Missing terms would result in a reject and a counteroffer
Common Law- Acceptance-Last Shot Rule
(a) The last expression before performance controls.
(b) One party does not return rejection/counteroffer but performs.
(c) Court finds an implied acceptance by performance controls.
Acceptance with Different Terms- UCC 2-207(2)
Definition: Additional terms are terms that are first mentioned in the acceptance.
UCC 2-207- Acceptance
(a) UCC 2-207(1): An acceptance with additional or different terms is still a valid acceptance.
(b) Even under the UCC a conditional acceptance is rejection/counteroffer.
Acceptance with Different Terms- UCC 2-207(2): As Between merchant
(a) Offer limits acceptance to terms of the offer;
(b) Offeror objects within a reasonable time or
(c) Terms materially alter the contract (any term resulting in hardship, economic risks, benefits, etc.)
(d) If one party is a non-merchant, the additional terms will be ignored and not become a part of the contract.
(e) If term does not become apart of contract, then the terms results in proposal for the additional term that requires express assent.
Acceptance with Different Terms- Definition
Different terms are terms that are mentioned in the offer and are again mentioned in the acceptance, only differently.
Because 2-207(2) only refers to “additional terms” the majority of courts believe that UCC 2-207(2) does not apply to different terms.
Acceptance with Different Terms-Majority Rule v. Minority Rule
Majority Rule: different terms get “knocked out” and one applies gap fillers, custom, and usage, and course of dealing or performance.
Minority Rile: different terms in acceptance are ignored and the terms of the offer control.
*CA treats different terms the same as additional terms”
UCC 2-207 (3)
(a) Parties exhcange rejections/counteroffers
(b) One party does not return rejection/counteroffer but performs
(c) UCC Does not imply an acceptance by performance. (Last Shot Rule)
(d) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale
Modes of Acceptance
(1) Bilateral Contract
(2) Unilateral Contract
(3) UCC 2-206
*If ambiguous as to whether it is unilateral or bilateral, most courts consider it to be bilateral. *
Mode of Acceptance- Bilateral contract
Return promise to perform.
Mode of Acceptance- Unilateral Contract
Complete performance plus notice.
UCC 2-206
(1) Acceptance by promise to ship
(2) Acceptance by shipment of conforming goods
(3) Acceptance by shipment of non-conforming goods.
3(a): If seller reasonably notifies buyer the shipment if offered only as an accommodation, the shipment of non-conforming goods does not constitute an acceptance but a counteroffer.
3(b) If there is no letter of accommodation, then shipment of non-confirming goods will be acceptance and breach.
Manner of Acceptance
Manner is required by offer.
Manner of Acceptance- If no Particular Manner is Required or Stated then:
(1) Any reasonable manner
(2) Usually means which is fast or faster than used by the offeror.
(3) Manner in which sent is always reasonable
(4) UCC 2-206 states; Any manner by any medium reasonable under the circumstances.
Silence as Acceptance
General rule: Silence is not acceptance
(a) Offeror is not master over this area of offer.
Silence as Acceptance- Exceptions:
a) Implied in fact contracts where the conduct of the offeree manifest assents to the offer.
b) Whet offeree takes the benefit of services or goods that are given with the exception of payment.
c.) Past Dealing Among Parties
Crossing Offers
(1) Crossing offers that contain identical info do not result in mutual assent and no contract is formed.
(2) The offered must be aware of the offer in order to accept the offer and to form a contract.
(3) When parties are in the presence of each other, communication acceptances are effective upon receipt.
Mailbox rule
(a) When parties are not dealing face-to-face
(b) Acceptance is effective when acceptance is put out of the possession of offeree.
(c) Properly addressed, proper postage, correct manner.
Limits on Mailbox Rule
(1) offeror, can contract out of the mailbox rule and make acceptance effective upon receipt
(2) Not send in required manner, no acceptance.
(3) Sent in an unreasonable manner, there may be acceptance, but not effective upon receipt.
(4) Improper Postage-same as above
(5) Improper address- same as above
(6) Option Contracts
Post Acceptance Rejection (Mailbox rule)
(1) Acceptance is sent first, then rejection
(2) Rejection is received first.
(3) Mailbox rule applies (Contract is formed)
(4) Exception: If the offeror changes his position based on rejection-offeree cannot enforce contract.
Post Rejection Acceptance (Mailbox rule)
(1) Rejection is sent first, then acceptance.
(2) Mailbox rule does not apply.
(3) whichever gets to the offeror first.
Consideration
Definition: legally sufficient bargained-for-exchange, which induces current performance, detriment to promise, and a binding obligation to both parties.
Gratuitous Promises:
to make a future gift are generally not enforceable
Legally Sufficient (In Consideration)
(a) Legal adequacy is not considered
(b) Not a token amount-considered a gift in disguise
(c) Not a sham-considered gift in disguise
(d) Possibility of value is sufficient even if never realized.
Bargained for Exchange (In Consideration)
(a) Both parties give something to induce exchange
(b) This Eliminates Gifts
Induces Current Performance (In Consideration)
a. Past consideration is no consideration.
(1) Exception: when you do something at someone’s request and that person afterwards promises something for doing that requested act, the promise is enforceable.
(2) Minority view finds consideration even if not requested but performed in an emergency situation and promisor is benefited.
Moral Consideration is no Consideration
(1) Usually also falls under past consideration
(2) Exception:
(a) Debts that are barred by technical defense such as statue of limitations, statue of frauds, incapacity, and bankruptcy will be enforceable if reaffirmance is in writing.
(b) Only for amount reaffirmed
Pre-Existing Duty Rule:
(1) A promise to perform an existing legal duty is not sufficient consideration.
(2) Applies to Common Law Contracts
(3) Exception: When pre-existing duty is owed to a third party.
Detriment to the promisee- Majority Rule
Doing something that someone is not legally obligated to do, or refraining from doing something that one has the legal right to do.
Detriment to the promisee-Minority View
Minority Rule: Benefit is to the promisor is considered detriment to the process.
*Forbearance to sue is detriment as long as the promise had a good faith belief there was a valid claim at the time of the forbearance. *
Binding Obligation on both parties
(a) Both parties need to be bound to the terms of the agreement
(c) conditional
Conditional Promises
(1) Those entirely in control of the promisor are illusory
(2) Satisfaction conditions are not illusory because the promisor must act in good faith.
Requirements of Output Contracts (UCC 3-206)
(1) Appears to be illusory and raise the issue binding obligation on both parties.
(2) However, they are binding because parties must either require or perform in good faith.
Cancellation Clauses:
Are not illusory as long as there is some restriction on the time before cancellation.
Consideration Substitutes
(1) Seals-UCC 2-203- and statuary rules have eliminated seals as consideration substitutes.
Promissory Estoppel
(1) Requires reasonable, foreseeable and substantial reliance.
(2) Charitable subscriptions and marriage settlements are enforceable without proof of forbearance.
(3) Enforcement is limited to amount that would prevent an unjust result, not the contract amount
(4) Not a consideration substitute
(5) Does not create a contract, only an enforceable agreement
Defenses to Formation (Si, I’m Dumm)
Void, Voidable and Unenforceable Contracts
Void Contract
Contract without any legal effect from the beginning.
Voidable Contract
A contract that a party may elect to void or ratify.
Unenforceable Contract:
One otherwise valid but for which some defense exists extraneous to formation.
Statue of Frauds (Defenses to formation)
(a) Under statue of frauds, certain contracts must be evidenced by writing to be enforceable.
(b) Contracts for (MYLEGS) are governed by the statue of frauds.
M (MY LEGS)
M= Marriage
(1) Promise to induce marriage by offering something of value
(2) Does not include a return promise to marry
Y (MY LEGS)
Y= Year
(a) Year cannot be performed within:
(1) time runs from time of formation until the end of the performance
(2) Can be taken out of the statue of frauds if there is any possibility that performance will be completed within one year.
(3) Applies even to contracts lasting over one year.
Y (MY LEGS) -Cancellation Clauses
(1) Cancellation clauses produced excusable non-performance.
(2) Majority Rule: Excusable non-performance does not equal performance.
(3) Therefore, cancellation clauses will not take a contract out of the Statue of Frauds.
L (MY LEGS)
L= Land
(a) Interest in land include:
(1) Sale of land, leases for easments for more than one year
(2) minerals or the like (oil & gas) or structure or its materials to be removed from realty if they are to be served by the buyer
(3) and mortgages.
L (MY LEGS) - A principal agent agreement giving agent authority to execute a contract for an interest in land:
1) Must be in writing
2) Failure to comply will relieve the principal of liability
3) Known as the “equal dignity rule”
L (MYLEGS)- Can be taken out of the statue of frauds by past performance if any of the following are present:
1) Make a payment
2) Move on the land
3) Make Improvements
E (MYLEGS)
E= Executor’s Promise to personally pay for the debt of the estate.
G (MY LEGS) - A
G= Goods of $500 or more (UCC 2-201)
(A) Can be taken out of Statue of Frauds if:
1) Specifically manufactured goods. (Goods not suitable for sale to others in ordinary course)
2.) Part or full performance or acceptance or payment or;
3) admission under oath or pleading
G (MY LEGS) - B
(b) The contract is enforceable only for the quantity of goods admitted and/or payment has been made and accepted, and/or which have been received and accepted, or in the case of specially manufactured goods, to the extent produced or procurement of material.
G- (MY LEGS)- C
(c) UCC 1-206:
Statue of frauds for kinds of personal property not otherwise covered
(1) Except in cases described in subsection (2) of this section a contract for the sale of personal property is not an enforceable way of action or defense 5k beyond s dollars in the amount or value or remedy unless there is some writing indicating a contract for sale has been made between the parties.
S (MY LEGS) Surety
S = Surety
Definition: A surety is one who guaranteed the payment of the debt of another.
1) Must be a collateral promise
2) Main purpose doctrine: Can be taken out of the statue of frauds if the main purpose of the promise was to financially benefit the promisor, rather than the debtor.
S ( MY LEGS ) Satisfaction
S = Satification
1) The statue of frauds can be satisfied by a writing that evidences the existence of a contract.
2) Never requires all parties’ signatures
3) Only requires signature of the party to be charged (Party which whom enforcement is sought)
(MY LEGS)
m= marriage
y= year
L= Land
E= executor’s promise
G= Goods of $500 or more
S= Surety and Satisfaction
Incapacity- Minors (SI IM DUMM)
(1) Contracts with minors are voidable at the option of the minor unless:
(a) Contract is affirmed after reaching majority age, either implied, or express.
(b) Contract is not disaffirmed within a reasonable time after reaching the age of majority. Usually 30 days, can be disaffirmed before reaching age of majority.
Incapacity-Minors- Contracts with Minors for providing of necessities are voidable.
1) necessities are determined by the person’s station in life.
2.) Only for necessities not provided by someone else.
3.) However, reasonable value of necessities provided may be recovered.
Statutory Exceptions: school loans, etc.
Incapacity- Mental (SI IM DUMM)
1) Contracts with people who are adjudicated insane are void.
2) adjudicated insane-declared by the court to be mentally insane for all purposes.
Incapacity- Mental- Voidable ( SI IM DUMM)
Contracts with people who have deficient mental capacity are voidable.
Mental Capacity (Incapacity)
1) The mental capacity must be so bad the person doesn’t understand nature or consequence of a contract.
2) Person is unable to act in a reasonable manner in relation to the contract & the other party has reason to know of the mental incapacity
3) Contract is voidable only at the option of the mental incapacity person
4) If person has lucid moment and they affirm the contract then the contract is enforceable.
Intoxication (SI IM DUMM)
1) Alcohol & Drugs both iilegal and legal
Contracts with people who are intoxicated:
1) Are voidable: (Only at option of intoxicated person)
a) The person must be so intoxicated as to not understand the nature or consequence of the contract.
b) Person is unable to act in a reasonable manner in relation to the contract.
c) Other party has reason to know of the intoxication.
Contracts with Intoxicated Persons:
If person recovers and affirms the contract, then the contract is enforceable.
Misrepresentation/Fraud (SI IM DUMM)
A misrepresentation of a material fact that causes reasonable and actual reliance by the plaintiff. (Misrepresented by the truth)
Misrepresentation/Fraud (SI IM DUMM)- Must Contain a misrepresentation of material fact:
1) Must look to see if its fact or opinion
2) Future events vs. future intentions
3) Non-Disclosure
A.) General Rule:
1) no duty to disclose nor liability for non-disclosure
B.) Exceptions:
1) Half truths
2) Genuine Belief that the statement was true when made.
3) Active Concealment
Misrepresentation/Fraud- “Fault”
1) Misrepresentation includes innocent misrepresentation and negligent misrepresentation
2) Fraud (intentional misrepresentation) requires scienter, knowledge that the statement was false or reckless disregard as to its truth
Misrepresentation/Fraud- “Reliance”:
1) Innocent & Negligent misrepresentation requires justifiable and actual reliance.
2) Intentional Misrepresentation (fraud) requires only actual reliance.
3) Fraud in Factum: Contract is void
4) Fraud in the inducement: Contract is voidable at the option of the deceived party
Duress (SI IM DUMM)
There is physical & economic duress
Physical Duress (SI IM DUMM)
(1) When a party enters into a contract or modified an existing contract solely based on physical force or threats of physical force.
(2) Contract is void.
Economic Duress (SI IM DUMM)
(1) When a party enters into a contract or modified an existing contract solely based on wrongful threats:
a. Threat of future crime
b. Threat of Criminal Prosecution
c. Bas faith use of civil process
d. Threat of wrongful breach of existing contract.
(2) Contract is voidable at option of victim.
Unconscionability (SI IM DUMM)
For a contract or clause to be unconscionable, the majority rule requires both:
(1) Procedural unconscionability: absence of meaningful choice; and
(2) Substantive unconscionability: when the terms unreasonably favor one party.
Adhesion Contracts
(unconscionability)
1) Standard form contracts
2) take it or leave it proposition.
3) No real opportunity to scrutinize and often no real means to understand the contract.
Duty to Read Contract (unconscionability)
Common Law: in abscense of fraud, one who signs a written agreement is bound by its terms, whether or not read or understood.
Modernly: courts will not enforce contracts that are difficult to read or understand because of use of legalese, fine print or the words are unintelligible.
Contracts are against public policy when they are considered:
1) To be against public good,
2) to be injurious to the public
3) UCC2-719(3)- exculpatory clauses for consequential injury to person in the case of consumer goods
Remedies (unconscionability)
- Court may refuse enforcement of the entire contract;
-court may eliminate any unconscionable (offending) terms but enforce the rest(blue pencil); and
-Court can limit the application of any unconscionable terms
-UCC 2-302
Undue Influence (SI IM DUMM)
- ) When one party unduly influences another or asserts their will over the will of another;
2.) wrongdoer must be in a position of trust or confidence, or in a position of superior power.
3) There is some type of improper persuasion and victim is susceptible to improper persuasion.
4) Contract is voidable by the victim.
Mistake (SI IM DUMM)
(1) Mutual Mistake
(2) Unilateral Mistake
(3) Ambiguity
(4) Latent Ambiguity
(5) Patent Ambiguity
Mutual Mistake- (Mistake- SI IM DUMM)
(1) Occurs when both parties are mistaken as to a material fact.
(2) Contract is voidable at the option of the adversely affected party.
Unilateral Mistake (Mistake-SI IM DUMM)
(1) Occurs when only one party is mistaken as to a material fact.
(2) No defense unless:
(a) Non-mistaken
party knew or should have known about the mistake.
(b) The mistake is one of computation or omission.
(3) Mistake as to judgment is no defense.
(4) A party held responsible for mistakes by their intermediaries.
Ambiguity (Mistake-SI IM DUMM)
1) When a term is open to various interpretations.
2) Either the term is associated with no one thing or more than one thing.
Patent Ambiguity (Mistake-SI IM DUMM)
1) Term is ambiguous on its face
2) Term is open to interpretation by the court.
Latent Ambiguity (Mistake- SI IM DUMM)
(a) Ambiguity only becomes apparent after further facts are presented.
(b) If neither or both of the parties are aware of the ambiguity- There is no contract unless both parties attach the same meaning to the ambiguity.
(c) If one party is aware of the ambiguity- there is a contract, the meaning is that of the unaware party.
.
Ambiguous Elements
Ambiguous terms are usually interpretated against the drafter
- If the terms refers to multiple meanings, the recipient is only aware of one meaning, and the author is aware that the recipient is only aware of one meaning, then, that is the meaning that is fixed for the term.*
Scrivener’s error:
A court of equity may reform a written contract when the writing, because of mistake, does not reflect the actual agreement of the parties.
Terms of the contract- Parol Evidence Rule
Definition: Prior, written or oral, and contemporaneous oral expressions that contradict, modify, or vary contractual terms are inadmissible if the written contract is intended as a complete and final expression of the parties.
Parol Evidence Rule- Complete and final expression:
1) The presence of a merger clause strengthens the presumption that the written document is final.
2) Test: if parties would have normally included this provision and didnt, then the provision will not become apart of the contract.
Parol Evidence Rule-Elements
1.) Does not apply to subsequent dealing-modifications
2.) Exceptions:
a. Ambiguity
b. Fraud and misrepresentation, duress, mistake, illegality, incapacity
c. A condition precedent to the contract having any legal effect.
d. May be explained or supplemented by course of performance or by course of dealing or usage of trade.
