Contracts Flashcards
Revocation
Generally, Offers are revocable prior to acceptance
4 types of irrevocable offers:
1) Options contract (requires separate fee/$)
2) Merchant’s firm offer (has to be in writing - cannot extend >3 months)
3) Performance begun following offer for unilateral contract
4) Detrimental reliance
Merchant’s confirmatory memorandum
- 2 merchants
- written confirmation of oral agreement
- Recipient must object within 10 days or they are bound
- In no objection, statute of frauds is satisfied
(i.e. party can be bound without signing)
Mailbox Rule
In a bilateral contract, acceptance is effective upon dispatch
Exceptions:
- Acceptance under an option contract
- Unilateral offers
- Offer stipulates acceptance valid upon receipt
Acceptance under UCC
1) Promising to ship goods
2) Promptly shipping goods
- acceptance and simultaneously breach if nonconforming goods sent
- Counteroffer if nonconforming goods sent + an accommodation
Frustration of Purpose
Central purpose of the contract has become valueless by virtue of intervening event
Q: Krell rents a loft for Thanksgiving Day because of its great view of the upcoming Thanksgiving Day parade. The parade is cancelled unexpectedly just before Thanksgiving. Does Krell have to go through with the deal to rent the loft?
A: No
Commercial impracticability
Unforeseen circumstances that make performance extremely and unreasonably difficult or expensive
Can a non-breaching party sue whenever anticipatory repudiation happens?
yes
implied warranty of merchantability
In contracts for the sale of goods, a definite expression of acceptance operates as an acceptance even if it states additional terms. Between merchants, additional terms proposed by the offeree in an acceptance automatically become part of the contract unless:
(i) they *materially alter the original terms of the offer (e.g., they change a party’s risk or the remedies available);
(ii) the offer expressly limits acceptance to the terms of the offer; or
(iii) the offeror objects to the additional terms within a reasonable time.
(from a question example)
A disclaimer of warranties is a material alteration because such a clause affects the remedies that the parties can pursue. Hence, the acceptance is effective to create a contract but the disclaimer clause would not become part of the contract.
specially manufactured goods exception
Under the UCC’s Statute of Frauds, a contract for the sale of goods for a price of $500 or more generally must be evidenced by a signed writing to be enforceable. However, under the specially manufactured goods exception, an oral contract is enforceable if all three of the following elements are established:
(i) the goods must be specially manufactured for the buyer,
(ii) the seller must have substantially begun work on the goods or else entered into a commitment to purchase them from someone else, and
(iii) the goods must not be sellable in the seller’s ordinary course of business.
UCC: Battle of the Forms Provision
1) An acceptance that contains additional or different terms is effective as an acceptance UNLESS the acceptance is expressly made conditional on assent to the additional terms
2) Where both parties are merchant, the additional terms become part of the contract UNLESS:
- They materially alter the terms
- Offer expressly limits acceptance
- Offeror rejects within a reasonable time
Statute of Frauds
1) Requires certain types of contracts to be in writing to be enforceable
2) Contracts for the sale of goods $500 or more are included
3) Specially manufactured goods that cannot be resold in the ordinary course of business are excepted
Specially manufactured goods requirements:
- Goods must be specially manufactured for buyer
- The seller must have made a substantial beginning on their manufacture or made commitments for their purchase
- Goods must not be suitable for sale in the ordinary course of business
What Law Applies?
First step is for you to distinguish two kinds of contract law:
Common law of contracts vs. Article 2 of the Uniform Commercial Code (UCC).
Q: Which one applies?
Article 2: Applies to a sale of goods
Common Law: Applies to any other contract [services, construction, land sale, etc.]
Formation of Contract: Vocabulary
~Contract~
A legally-enforceable agreement.
An express contract is created by the parties’ words
(oral or written).
An implied-in-fact contract is created by their conduct.
~Vs. Restitution (Quasi-Contract)~
Protects against unjust enrichment whenever contract law yields an unfair result.
Restitution is the remedy of last resort.
~Bilateral Contract~
An offer can be accepted in any reasonable way; i.e., offer is OPEN as to the method of acceptance.
~Vs. Unilateral Contract~
An offer can be accepted only by performing.
Formation of Contract: OFFER—FIRST STEP OF AGREEMENT FORMATION PROCESS
- Definition of Offer
A manifestation of an intention to be bound (as judged by a “Reasonable Person”/Objective standard). - Advertisements
An ad is not an offer unless there’s a quantity.
But recall Mink Stole and Carbolic Smokeball exceptions. - Indefiniteness
See if any of the terms are too indefinite to be en- forced. Watch for:
Open Price Term in Sales K—UCC vs. Common Law
Court will read in a “reasonable” price for sale of goods but not in common law. Requirements Contracts (Article 2)
Q: Tesla offers to buy all its requirements of batteries from Solar City for six years for $10,000/battery. Is that a valid offer?
-YES; Article 2 lets all the quantity be measured by the buyer’s needs
(2) Solar City accepts Tesla’s offer. For the last three years, Tesla has ordered 100,000 batteries a year. Can Tesla require Solar City to deliver 1 million batteries this year?
- NO; can increase demands but have to be in line with previous years. can’t be that big of a jump
Formation of Contract: TERMINATION—SECOND STEP OF AGREEMENT FORMATION PROCESS
4 Methods of Termination:
1) Lapse of Time
2) Revocation
3) Rejection
4) Death
- Lapse of Time
An offer lapses after a stated term or after a reason- able time has passed. - Revocation
An offer terminates when the offeror revokes the offer.
General Rule
An offer can be revoked any time before acceptance.
Direct Revocation
The offeror indicates directly to the offeree that he has changed his mind about entering the deal.
Vs. Indirect Revocation***
The offeror engages in conduct that indicates she’s changed her mind and the offeree is aware of the conduct.
Four Exceptions Where an Offer Cannot Be Revoked:
1) Option:
A promise to keep the offer open that is paid for.
2) Firm Offer (Article 2):
In a sale of goods, if a merchant promises in a signed writing to keep an offer open, then the offer is irrevocable. [cannot be more than 3 months; if no timeline specified, court will fix a ‘reasonable time period’ but not more than 3 months]
Note: Under Article 2, the terms “merchant” and “signed” are broadly defined.
3) Foreseeable Reliance Before vs. After Acceptance
Very rare!
4) Starting to Perform a Unilateral Contract
Q: Meg Ryan offers me $10,000 to paint her house. Her offer states that it can be accepted only by painting the house. I start painting the house. Can Meg still revoke? A: NO!
Q: (2) What if I had ordered paint, but not yet started painting the house? Could Meg still revoke? A: Yes; this is considered ‘mere preparation’
Timing of Revocation:
A revocation is effective on receipt [no Mailbox Rule].
- Rejection of Offers
An offer terminates when the offeree rejects it (an “inappropriate response”).
a. Counteroffer
Operates as a rejection, but “mere bargaining” does not.
b. Conditional Acceptance
Operates as a rejection and counteroffer.
c. Acceptance Adding Terms/Varying Offer***
Common law differs from Article 2.
- Common Law
Acceptance must mirror the offer (“Mirror Image Rule”);
if the offeree adds terms, it is a rejection! - Vs. Sale of Goods (Article 2) No Mirror Image Rule***
The offeree’s adding or changing a term does not pre- vent acceptance under Article 2. However….
Offeree’s Term Is Included Only If:
• Both parties are merchants
• Not a material change and
• No objection to it within a reasonable time.
- Death Operates to Terminate an Offer
Death of either party before acceptance terminates a revocable offer.
(But Warning: death doesn’t automatically terminate a contract, nor an irrevocable offer)
Formation of Contract: ACCEPTANCE—THIRD STAGE OF AGREEMENT FORMATION PROCESS
*Language of the offer controls the manner of acceptance
Starting Performance as Acceptance: Need to Distinguish Bilateral vs. Unilateral K Offers
-Bilateral Contract
Starting performance is acceptance and carries with it an implied promise to finish the job.
-Vs. Unilateral Contract
Starting performance is not acceptance; only completing performance is acceptance.
-Improper Performance as Acceptance
Simultaneous acceptance and breach.
BUT: if you see an “accommodation” it is regarded as a counter offer.
-Offeree’s Silence as Acceptance?
General rule: Silence is NOT acceptance.
But recall the “custom creates duty to speak” exception (eel skins case).
-Timing of an Acceptance
General Rule
Acceptance is effective when mailed (“Mailbox Rule”). [Policy: Protects the offeree against revocation once she has mailed an acceptance.]
Exceptions to Mailbox Acceptance Rule
• Offer States Otherwise
• Irrevocable Offer—NO Mailbox Protection
Q: Elon Musk offers to sell his Tesla Roadster to Mark Zuckerberg for $1 million. Zuckerberg pays Musk $3,000 to hold the offer open until July 9 [= option K]. On July 9, Zuckerberg mails an acceptance. On July 11, Musk receives it. Is Zuckerberg’s acceptance effective? A: NO
• Rejection Sent First, then Acceptance [whatever gets there first controls]
Formation of Contract: CONSIDERATION—MAKES THE AGREEMENT THAT WAS FORMED LEGALLY ENFORCEABLE
-Definition of Consideration
“Bargained-for legal detriment/benefit.”
Can be a promise in exchange for a promise (the usual case), performance or even forbearance.
•“Past Consideration” Is a Misnomer ≠ Consideration
• Adequacy of Consideration Is Irrelevant
•Contract Modification*** Issue: Is There Consideration to Enforce the Modification?
Common law rule differs from Article 2.
Common Law
New consideration is required to modify a contract. Performing a preexisting duty is not enough
[“Preexisting Duty Rule”].
exception: if the modification is fair in light of an unanticipated change in circumstances. OR 3rd party exception: where 3rd party offers the extra money/consideration.
Vs. Sale of Goods (Article 2) Modifications—Need NO Consideration
Consideration is NOT required to modify a contract for the sale of goods, but you must have Good Faith.
•Partial Payment of a Debt that Is Due and Undisputed = No Consideration
•Time-Barred Debt as an Exception to the Consideration Rule
A written promise to pay a debt, collection of which is barred by statute of limitations, is enforce- able even without consideration.
•Promissory Estoppel as a Substitute for Consideration
Foreseeable reliance may make a promise en- forceable, even without consideration!
Defenses: Lack of Capacity
Categories
a) Minors (under 18); b) intoxicated; c) mentally incompetent.
General Rule
An incapacitated defendant has the right to disaffirm the contract (she does not have to disaffirm, but she can if she wants to avoid the contract).
Note: watch out for minor enforcing K against adult. remember, they have the option to not go through with the K but can enforce if they want to
-Implied Affirmation after Gaining Capacity
Minor who turns 18 and keeps driving your car around after you sold it to them -> yes this is going to be an enforceable K
•Exception to Incapacity Defense
An incapacitated party is liable for necessaries (i.e., food, shelter, clothing, or medical care), but only for their reasonable value, not the contract price.
Defenses: AMBIGUITY/MISUNDERSTANDING
B and S contract for the delivery of cotton on the ship “Peerless.” B means the ship sailing in October. S means the ship sailing in December. Is there a contract?
A: No - no meeting of the minds. both were reasonable in their misinterpretation.
Defenses: MISTAKE
a) Mutual Mistake About a Material Fact
- if its a mistake about the existence of a subject matter then there will be a valid defense. If it is just over the value of a good/service then there is no defense
Q: Alex Rodriguez agrees to sell Serena Williams a baseball bat for $100,000. Neither was aware the baseball bat had been destroyed two days earlier. Does Serena still have to buy the bat?
A: No
Q: (2) A-Rod agrees to sell Serena a baseball bat for $100,000. Both believe it was used by Babe Ruth. After the agreement, they learn that it was not. Does Serena still have to buy the bat?
A: No
Vs. b) Unilateral Mistake
- Case is a little tougher here – look for “assumption of risk” fact patterns
Note: Where only one of the parties is mistaken about facts relating to the agreement, the mistake usually will not prevent formation of the contract. However, if the nonmistaken party is aware of the mistake made by the other party, he will not be permitted to snap up the offer; i.e., the mistaken party will have the right to rescind the agreement.
Q: At the time of their agreement, Serena believed Babe Ruth was the original owner of the baseball bat, but A-Rod did not. Later, Serena learns she was wrong. Does she still have to buy the bat?
A: Yes
Defenses: UNCONSCIONABILITY
This doctrine, originally applicable only to sales of goods but (1) now a part of contracts law generally (2) empowers a court to refuse to enforce all or part of an agreement. The two basic tests, (3) unfair surprise and oppressive terms, are (4) tested AS OF THE TIME THE AGREEMENT WAS MADE (5) by the court.
Defenses: DURESS
Elements of Economic Duress
• “Bad guy”—makes an improper threat
• “Vulnerable guy”—no reasonable alternative
Q:D has a contract to supply 1,000 radar sets to P in 2020. D refuses to perform this contract until P agrees to buy 4,000 erector sets in 2021. P has no other source of radar sets and so agrees. D delivers the radar sets in 2020. Can P get out of the agreement to buy 4,000 erector sets in 2021?
A: Yes due to economic duress
Defenses: STATUTE OF FRAUDS (SOF)***—MOST COMMONLY TESTED TOPIC
WHEN IS A WRITING REQUIRED?
Most oral contracts are enforceable.
Only certain kinds of contracts need a writing to be
enforced (i.e., the ones that fall “within the SOF”).
6 Major SOF Categories: “MYLEGS” • 1) Marriage • 2) Year • 3) Land Sale • 4) Executor • 5) Goods $500+ • 6) Surety
- Marriage
Contracts in consideration of marriage are subject to SOF, but NOT a promise to marry! - Year
Contracts which cannot possibly be competed in 1 year or less are subject to SOF—look at dates!
Q: Edward Scissorhands alleges that on February 1, 2020, W orally agreed to have Edward cut down all the trees on his ranch. Is this agreement within the SOF?
A: No, could still finish within a year. nothing about the contract prevents the possibility of finishing in a year.
- Land Sale/Transfer of an Interest in Real Property
- Executor
Promises by Executor of an estate to pay the estate’s debts from some other source of funds/out of his own pockets are within the SOF [not likely to be tested]. - Sale of Goods for $500 or More (Article 2)
- Suretyship
A promise to “answer for” (i.e., guarantee) the debt of another person.
But watch out: not a mere promise to pay $$
-Contract Modification & Interaction with SOF
The modification must be in writing only if the contract as modified (not the original contract) is within the Statute of Frauds.
~WHAT IS AN ADEQUATE WRITING TO SATISFY THE SOF?
Depends on the nature of the contract.
-Sale of Goods (Article 2)
Must contain a quantity and be signed by party to be charged with breach [i.e., the defendant].
-Vs. Common Law Contracts:
Writing must have all material terms and be signed by the defendant.
~EXCEPTIONS to SOF (i.e., where you don’t need a Writing)
Carved out where there is less chance of fraud
1) Land Sale/Real Property Exceptions to SOF
a. Leases of One Year or Less
Legislative exception to protect tenants
b. “Part Performance” of Real Estate Sale K
Need 2 out of 3: 1) some payment, 2) possession, and/ or 3) improvements
2) Full Performance of Service K Satisfies the SOF, but Part Performance Does Not
3) Sale of Goods for $500 or More (Article 2 SOF)
a. Goods Accepted or Paid for by Buyer
b. Custom-Made Goods
Need to show a “Substantial beginning” to satisfy SOF—i.e., that the goods are custom-made/not suit- able for sale to others.
c. Judicial Admission—Satisfies SOF
If a defendant admits under oath that she had a deal, then she will lose her SOF defense.
d. Merchants’ Confirmatory Memo***
One party can use its own signed writing to satisfy the SOF against the other party if:
• Both parties are merchants;
• Writing claims agreement & has quantity; and
• There’s no written objection within 10 days.
4) Suretyship: the “Main Purpose” Exception Takes Us Outside of SOF
Q: I buy paint on credit from Home Depot to paint Bill Gates’s house. Gates orally promises to pay Home Depot if I don’t pay [= suretyship]. Can Home Depot enforce Gates’s oral promise against him?
A: Yes
[Note: I omitted other defenses like Illegality, Fraud, Misrepresentation because they are not frequently tested, and if they are, they should be relatively ob- vious to issue spot. You can check the long outline if you have questions about those defenses.]
Equal dignity rule with agent:
Q:(4) Lil Nas X authorizes an agent to sell a ranch. Must the agent’s authorization be in writing?
A: Yes – because the underlying sale is covered by SOF. If the underlying sale was not covered by SOF then no authorization in writing required
- apparently the full conveyance of land is also something that is an execution to the SOF
Terms: Words of the parties
-Parol Evidence Rule (P.E.R.)
Keeps out evidence of a prior or contemporaneous agreement (either oral or written) that contradicts a later writing.
• Exceptions to the Parol Evidence Rule [so the evidence gets in]:
1) Correct a Clerical Error (e.g., a typo)
2) Establish a Defense Against Formation
Q: Before J.Lo signed the lease, the manager told her the Grand Ballroom was soundproof. It’s not. J.Lo seeks rescission because of this misrepresentation. Can J.Lo get this evidence in?
A: yes
3) Interpret a Vague or Ambiguous Term—Parol Evidence Is Okay
4) Add to a Partially Integrated Writing—Parol Evidence Is Okay
+Partial integration = A final statement of the terms included, but not a complete statement of all terms agreed to
Note: Later Events***
The Parol Evidence Rule is irrelevant.
Exam Tip :Stuff happens AFTER K = Modification analysis, not P.E.R.—i.e., is there new consideration?
Terms: CONDUCT AS A SOURCE OF TERMS
1st) Course of Performance
How parties performed under previous installments of this contract.
(X: S and B contract for the sale of 100 “chickens” a month for 12 straight months. The first 3 shipments under this contract are broilers, not stewing foul.)
This course of performance under these first 3 installments can help interpret what the word “chicken” means in month 4.
Course of performance is the best evidence of what the parties intended.
2nd) Course of Dealing
What parties did under prior contracts with each oth- er.
(X: S sent stewing chickens to B in last year’s contract.)
That can help determine what the word “chicken” means in the current contract, but is less important than the current course of performance.
3rd) Usage of Trade
What others in the trade do in similar contracts (less important than #1 and #2).
(X: Other people in the chicken industry interpret the word “chicken” to mean chickens up to 6 pounds, including broilers or fryers.)
That trade custom can help determine what “chicken” means in the current contract, but is the least import- ant evidence of what the term means.
Terms: SELLER’S WARRANTIES OF QUALITY IN A SALE OF GOODS (ARTICLE 2)
-Express Warranty
Describe the goods, promise facts about the goods, showing a sample or model, but NOT an “opinion.”
note/example: Seller uses a sample or model [TRICK Q!—don’t say it’s “implied”]
-Implied Warranties in Sale of Goods Cases:
1. Implied Warranty of Merchantability
Definition: The goods are fit for their ordinary purpose.
Key Fact: Seller is a merchant who deals in goods of the kind
- Implied Warranty of Fitness for a Particular Purpose
Definition: The goods are fit for buyer’s particular purpose.
Key Facts: Seller knows buyer has a special purpose and is relying on seller to select suitable goods.
[Note: Seller does not have to be any kind of a mer- chant at all!]
Terms: LIMITATIONS ON WARRANTY LIABILITY IN A SALE OF GOODS
- Disclaimers
A seller can disclaim implied warranties, but not express warranties. - Vs. Limitation of Buyer’s Remedies
General Rule
Seller can limit buyer’s remedies for breach of any warranty (express or implied) as long as the limitation is not unconscionable.
Exception
Limiting buyer’s remedies for personal injury in the case of consumer goods is presumed to be unconscionable.
Terms: RISK OF LOSS IN A SALE OF GOODS
- Issue
When goods are damaged before buyer gets them and neither buyer nor seller is to blame, who bears the Risk of Loss?
If Seller Bears Risk
Seller must provide new goods to buyer for no additional cost, or be liable for breach.
Vs. If Buyer Bears Risk
Buyer must still pay the contract price even though goods are destroyed!
- Hierarchy
Look for the following things in the order listed here:
- Agreement Allocates Risk
The agreement of the parties controls. [Won’t happen on the Bar] - Breach
Breaching party bears risk. - Delivery by Common Carrier (e.g., UPS, Amtrak)***
Risk of Loss shifts to buyer when seller completes its “delivery obligations.” (but, if nonconforming goods sent then there is no risk shift)
1st possibility: Shipment Contract
Seller must get the goods to a common carrier, make delivery arrangements, and notify buyer.
2nd possibility: Destination Contract
Seller must get the goods all the way to a specific destination (usually, where buyer is located).
- Non-Carrier Cases (e.g., buyer picks up or the seller delivers)
Risk of Loss depends on whether the seller is a mer- chant.
Merchant-Seller
Seller bears Risk of Loss until buyer takes possession of the goods.
Vs. Non-Merchant-Seller
Risk of Loss passes sooner: buyer bears Risk of Loss once seller “tenders” the goods (makes them avail- able to buyer).
