Contracts Flashcards
Master contracts for the California bar.
Offer - terms required
- Real estate: land and price
- Goods: quantity OR output/requirements K
- Services: nature of work
Offer - terms required - how offer can fail
- Missing price in real estate contract
- Material terms that are vague or ambiguous (appropriate, fair, reasonable)
Offer - means of termination
- Lapse of time (stated or reasonable)
- Death of a party prior to acceptance, unless irrevocable
- Revocation through unambiguous words or conduct of offeror, when offeree receives/becomes aware
- Rejection through words or conduct of the offeree
Offer - irrevocable offers
- Options supported by consideration; not revocable for time stated
- Merchants’ firm offer (signed writing); not revocable for time stated or reasonable time, up to three months
- Detrimental reliance if actual and foreseeable; not revocable for reasonable time
- Start of performance pursuant to unilateral K offer makes offer irrevocable for reasonable time to complete performance
- Distinguish mere preparations to perform
Offer - means of rejection
- Counteroffer
- Conditional acceptance
- Additional terms for common law K, but not for UCC K (battle of forms)
Offer - acceptance - who can accept
- Person who knows about the offer at the time she accepts
- Person to whom it was made.
Offers can not be assigned; options can be assigned unless the option otherwise provides.
Offers - acceptance - mailbox rules
- All communications other than acceptance are effective only when received
- Acceptance is generally effective when mailed (i.e., the “mailbox rule”)
- If a rejection is mailed before an acceptance is mailed, then neither is effective until received
- If an acceptance is mailed and then a rejection, the acceptance is effective unless rejection received first and offeror detrimentally relies
- Cannot use the mailbox rule to meet an option deadline
Offers - acceptance - by shipping nonconforming goods
- General rule: acceptance and breach
- Accommodation (i.e., explanation) exception: counteroffer and no breach
Note: if seller accepts and then ships nonconforming goods as “accommodation,” still breach
Offers - acceptance - by starting performance
General rule: start of performance is acceptance.
- Exception: Start of performance is not acceptance of unilateral contract offers; completion of performance required
Consideration - past consideration
General rule: not consideration
- Exception: expressly requested by promisor and expectation of payment by promisee AND (modernly) act in response to emergency; subsequent promise to pay enforceable
- Exception: new promise or part performance of existing obligation
Consideration - preexisting duty
Under common law, generally not consideration; Art 2 needs no new consideration if modification of K is in good faith
Exceptions to common law rule:
- addition to or change in performance (e.g., early payment of debt)
- unforeseen difficulty so severe as to excuse performance
- honest dispute as to duty (e.g., whether debt owed)
- ratification of voidable obligation (e.g., K w/ minor)
- third-party promise to pay
Consideration - consideration substitutes - promissory estoppel (detrimental reliance)
- Promise
- Reliance that is reasonable, detrimental, and foreseeable
- Enforcement necessary to avoid injustice.
Defenses - overview
Simian dump Statute of Frauds Incapacity Misrepresentation Illegality Ambiguity Non-Disclosure Duress Unconscionability Mistake Public policy
Defenses - incapacity
- Lack of capacity:
1. Infants: those under 18
2. Mental incompetents: those who lack ability to understand agreement, or
3. Intoxicated persons: if other party has reason to know - Consequences of incapacity:
1. Right to disaffirm by person without capacity
2. Implied affirmation by retaining benefits after gaining capacity
3. Quasi-contract liability for necessaries
Defenses - statute of frauds
MY LEGS!
- Marriage (provide a dowry or child support)
- Cannot be performed w/in 1yr (not: life; task)
- Interest in Land (except lease of 1yr or less)
- Executor (promise to pay w/ own funds)
- Sale of goods over $500
- Surety (promise to pay if another does not; exception if “main purpose” benefits guarantor)
Defenses - statute of frauds - satisfying
- Performance
- Writing
- Judicial admission
- Estoppel
Defenses - statute of frauds - satisfying - performance
- Real estate: 2 of 3 - pay, improve, possess
- Services: full performance
- Goods:
1. Ordinary goods - extent of performance; delivered but no payment, paid but no delivery
2. Special goods - seller makes “substantial beginning”
Defenses - statute of frauds - satisfying - writing
- Common law: all material terms, signed by party to be bound
- Art 2: writing that there is K w/ quantity; merchant’s confirmatory memo (recipient has reason to know of contents; doesn’t object w/in 10 days)
Defenses - illegality
- Subject matter is illegal: not enforceable.
2. Subject matter is legal: enforceable if P did not have reason to know of D’s illegal purpose.
Defenses - ambiguity
No contract if:
- parties use a material term that is open to at least two reasonable interpretations
- each party attaches different meaning
- neither party knows or has reason to know term open to at least two reasonable interpretations
If 1 party knows of ambiguity and other does not, term enforced as understood by unknowing party
Defenses - duress; unconscionability; public policy
- Duress: econ/physical. Need [i] improper threat (usu. to breach); [ii] vulnerable party (usu. no reasonable alternative)
- Unconscionability: unfair surprise (procedural) OR oppressive terms (substantive); tested by court as of time agreement was made
- Public policy: exculpation from intentional or reckless conduct; covenant not to compete w/o r’ble need or r’ble time and place limits
Defenses - misrepresentation; non-disclosure
- Misrepresentation: [i] statement of “fact” before K; [ii] by party or agent; [iii] that is false; and [iv] induces K. No wrongdoing req if material.
- Non-disclosure: generally must be wrongdoing unless fiduciary relationship
Defenses - mistake
- Mutual: relief if basic assumption, material, party seeking avoidance did not assume risk
- Unilateral: no relief unless palpable
Terms - parol evidence rule - when applicable
- Final written contract
2. Earlier written/oral statement OR simultaneous oral statement of one or both parties
Terms - parol evidence rule - prohibitions and exceptions
- Not allowed: looking at PE to:
1. Change/contradict terms in written deal
2. Add consistent terms to written deal, unless [i] partial integration or [ii] terms would ordinarily be in separate agreement. - Exceptions: looking at PE OK to determine:
1. If mistake in integration (i.e. clerical error)
2. If defenses apply (misrep., fraud, duress, etc.)
3. If condition precedent applies
4. Meaning of term (resolve ambiguity)
Terms - interpretation based on conduct
- Course of performance: same people, same K
- Course of dealing: same people, different but similar K
- Custom and usage: different but similar people, different but similar K
Terms - battle of forms
Applies only to Art 2 Ks
- Both parties are merchants
- Additional term not “material” [fact question]
- Additional term not objected to by original offeror
Terms - gap fillers
Applies only to Art 2 Ks
- Price: reasonable at time of delivery
- Place: seller’s business; if none, home
- Time for shipping/delivery: reasonable
- Time for payment: when buyer receives goods
Terms - delivery obligations for seller w/ common-carrier delivery
- Shipment K: seller’s obligation complete when goods get to carrier; r’ble delivery arrangements made, buyer notified
- Destination K: goods arrive at destination.
- Determining type of K: usually shipment; determine with “FOB” term
- FOB seller/goods city: shipment K
- FOB anywhere else: destination K
Terms - risk of loss
- Agreement: agreement of the parties controls.
- Breach: breaching party liable for any uninsured loss even if breach unrelated
- Common carrier delivery: risk shifts from seller to buyer when seller completes delivery obligation
- Fall-back: risk of loss –
- Shifts from a merchant-seller to the buyer on buyer’s “receipt” of goods
- Shifts from nonmerchant seller when he “tenders” goods
Terms - warranties
- Express: facts, promise, sample/model.
- Implied warranty of merchantability: IF seller is a merchant who deals in goods of that kind, THEN warranty that goods are fit for ordinary purposes.
- Implied warranty of fitness for a particular purpose: IF buyer has particular purpose, relies on seller to select suitable goods, seller has reason to know of purpose and reliance, THEN warranty that goods fit for particular purpose
Terms - warranties - limits
- SOL: 4 yrs from tender of delivery
- Buyer’s inspection: no implied warranties as to obvious defects
- Disclaimer: applies to implied warranties only; must be conspicuous or say “as is”; “w/ all faults”
- Privity: lack of privity not defense
Performance - goods contract - obligations and remedies
- Basic obligation: perfect tender
- If less than perfect tender, buyer has right to keep and sue for damages or reject “all or any commercial unit” and sue for damages
- No right to reject in installment K unless “substantial impairment” - Sometimes seller has right to cure
- Time for performance not yet expired
- Seller had reasonable ground to believe would be acceptable, perhaps with a money allowance
Performance - goods contract - acceptance and consequences
Once accepted, can’t reject
- Payment w/o opportunity to inspect not accept.
- If don’t reject w/in r’ble time, it’s acceptance
- Retention is acceptance
Performance - goods contract - acceptance - revocation
Can revoke acceptance if:
- Nonconformity substantially impairs value
- Excusable ignorance of grounds for revocation or reasonable reliance on seller’s assurance of satisfaction
- Revocation within a reasonable time after discovery of nonconformity
Remedies - reclamation from an insolvent buyer of goods
- Buyer insolvent at time it received goods
- Seller demands return of goods w/in 10 days of receipt (or w/in r’ble time if buyer made express representation of solvency before delivery)
- Buyer still has goods at time of demand
Remedies - replevy from an insolvent seller of goods
Can replevy upon tendering full payment if:
- Part payment by buyer
- For identified goods
- Seller becomes insolvent w/in 10 days of first payment
Excuse - other party’s performance
- Nonperformance
- Anticipatory repudiation: unambiguous statement or conduct before performance due indicating that repudiating party will not perform
- Immediate claim for damages for breach, UNLESS non-repudiating party has completely performed; then must wait until performance due
- Can retract if no material change in position by other party; duty to perform reimposed but can be delayed until adequate assurance provided - If reasonable grounds for insecurity, can make written demand for adequate assurance and if commercially reasonable can stop performance until assurance received
Excuse - breach
- Minor breach: if get substantial benefit of bargain, must perform but get damages
- Material breach: if no substantial performance, no obligation to perform
- Divisible contract exception
Excuse - condition
- Strict compliance required for satisfaction of express condition
- Benefited party can waive
- Benefited party cannot hinder or interfere w/ other party’s ability to satisfy
Excuse - rescission
- Parties may cancel by express agreement
- Ks must be executory on both sides: rescission itself is K & must be supported by consideration; here, giving up right to performance by other party
- Cannot rescind if 3PB rights have vested
Excuse - accord and satisfaction
- Accord: agreement in which party to exist K agrees to accept substitute performance
- Satisfaction: performance of accord
- Breach by debtor: creditor may sue on K or accord
- Breach by creditor (i.e., sues on original K): debtor may raise accord as equitable defense and ask suit to be dismiss OR wait for damages and then sue for breach of accord
Excuse - novation
Agreement between BOTH parties to an existing contract to the substitution of a new party, i.e., same performance, different party.
Excuse - destruction of subject matter
- Service K: depends if performance is impossible (K to repaint house; burns down) or just more difficult (K to build house; burns down); only impossible excused
- Goods K: do risk of loss - if risk on buyer, buyer pays; if on seller, buyer does not pay, gets damages if performance still possible (e.g., can procure substitute goods)
Excuse - death or physical incapacity
Does not make K obligations disappear
- EXCEPTION: death of K party who is “special” person excuses performance
Excused - subsequent law or regulation
- If later law makes performance of K illegal, excuse by impossibility
- If later law makes mutually understood purpose of K illegal, excuse by frustration of purpose
Excuse - impossibility and impracticability
- Impossibility: must be objectively impossible; K duties could not be performed by anyone
- Impracticability: extreme and unreasonable difficulty/expense; nonoccurrence was a basic assumption of K parties
Excuse - frustration
- Supervening act or event
- Parties did not reasonably foresee
- Purpose of K (almost) completely destroyed as a result
- Both parties aware of purpose at time of K formation
Third-party beneficiary - types
- Intended vs. incidental: only intended have rights; look if - named in K; receives performance from promisor; has r’ship w/ promisee to indicate intent to benefit
- Creditor vs. donee: creditor if was a creditor of the promisee before K
Third-party beneficiary - vesting
- 3PB manifests assents
- 3PB materially changes positions in justifiable reliance ok K
- 3PB brings suit to enforce K
Third-party beneficiary - who can sue?
- 3PB can recover from promisor, subject to defenses promisor has against promisee
- Promisee can recovery from promisor
- ## Beneficiary cannot recover from promisee, unless creditorPromisor: makes promise that benefits 3PB
Promisee: obtains promise that benefits 3PB
Assignment - definition
X and Y contract; Y assigns rights to X’s performance to Z
- X: obligor
- Y: assignor
- Z: assignee
Assignment - restrictions - in contract
- Prohibition (“rights hereunder not assignable”): assignor is liable for breach, but assignee unaware of prohibition can still enforce assignment
- Invalidation (“all assignments of rights under this K void”): breach by assignor and no rights in assignee
Assignment - restrictions - if contract silent
Common law bars an assignment that substantially changes duties of obligor; typically, this is assignment of right to K performance other than right to payment
Assignment - how to effect
Assignor must manifest intent to immediately and completely transfer rights; writing usually not required
Assignment - revocability
- Assignment for value not revocable
- Gratuitous assignments revocable
- EXCEPTION: obligor has already performed; assignee can show detrimental reliance
Assignment - who can sue?
- Assignee can recover from the obligor, subject to defenses obligor has against assignor
- Assignor for consideration cannot recover from obligor, but can sue for breach of warranties:
- Right assigned actually exists
- Right assigned not subject to any then-existing defenses by obligor
- Assignor will do nothing after assignment to impair the value of assignment
Assignment - successive assignments
- Gratuitous: last assignee generally wins
- For value: first assignee wins
- EXCEPTIONS (“four horsemen” rule): subsequent assignee for value who does not know of earlier assignment prevails if first to obtain ONE of:
[i] payment; [ii] judgment; [iii] novation; [iv] indicia of ownership
Assignment - to whom is performance due?
- Payment by obligor to assignor is effective until obligor knows of assignment
- Modification agreements between obligor and assignor effective if obligor did not know of assignment
Delegation - definition
X and Y contract, with Y promising to perform for X; Y delegates duty to Z
- X: obligee
- Y: obligor/delegator
- Z: delegate
Delegation - restrictions
- Generally, contractual duties are delegable; limitations are very limited
- Delegations permitted unless: (1) contract prohibits delegations OR assignments or (2) “personal services contract” that calls for VERY SPECIAL skills.
Delegation - liability
- Delegator always remains liable.
2. Delegate liable only if receives consideration from delegating party
Consideration - consideration substitutes
- Payment to settle legal claim
- Payment of debt barred by statute of limitations
- Promissory estoppel (detrimental reliance)
