Contracts Flashcards
What is the general flow of contract formation?
Offer, Acceptance, Consideration, No Defenses to Formation = Contract
Contract + Conditions Satisfied/Waived and Performance not Excused =Absolute Duty to Perform
What are Defenses to formation of a contract?
Misunderstanding/Mutual Mistake Capacity Illegality SoF Duress/Undue Influence Fraudulent Misrep Material Misrep Unconscionability
If conditions are not satisfied, failure to perform is _____
If there is a valid contract and conditions are met, there is an _______ but no performance is required if there is an _______
justified
absolute duty to perform - excuse to non performance
What is the result of a failure of a promise?
What is the result of a failure of a condition?
Failure of promise = breach
Failure of condition = no obligation to perform
What is the most important implied condition?
One performance is conditional on the other.
If simultaneous perf is possible, concurrent conditions.
If one perf takes longer than another, condition precedent
When does substantial performance satisfy a condition such that the other party still has to perform?
Under common law…
Substantial performance of an implied condition satisfies the condition but substantial performance of an express condition does not satisfy the condition
Under UCC,
Substantial performance is not good enough
What are some ways to satisfy the absolute duty to perform?
Performance Occurrence of condition subsequent Subsequent illegality Impossibility/Impracticability/Frustration of Purpose Rescission (mutual or unilateral) Cancellation Release Modification Accord + Satisfaction Novation Discharge by account stated Lapse Death or incapacity of a person necessary for performance
If a contract fails and the result seems harsh, think _____
restitution
What are the three types of contract (characterized by the method of formation)?
Express Contract (formed by language) Implied Contract (formed by conduct) Quasi Contract (not contract but restitution remedy)
What are the two types of contract (characterized by the method of acceptance)?
Bilateral Contract (promise for a promise) Unilateral Contract (promise for performance)
Offers are presumed to be for a bilateral contract
How can you accept an offer for a bilateral contract?
by promise or performance
How can you accept an offer for a unilateral contract?
By COMPLETING performance
What are the two ways to make an offer for a unilateral contract?
1) an offer to the public (e.g. reward offer)
2) Clearly indicate that the completion of performance is the only method for acceptance
What are the three statuses of validity?
1) Void Contract (w/o legal effect - enforceable by no one)
2) Voidable Contract (one or both parties can elect to avoid the contract - when a defense is available)
3) Unenforcable Contract (is valid but for a defense)
What is a “good” under Article 2?
Goods are all things movable at the time they are identified as the items to be sold under the contract
Not realty, services, intangibles, or construction contracts
Who is a “merchant” under Article 2?
Merchant is one who regularly deals in goods of the kind sold or who otherwise by their profession holds themselves out as having special knowledge or skills as to the practices or goods involved
But for general purposes, anyone in business can be deemed a merchant as long as acting in their mercantile capacity
A contract involves goods and non-goods does the UCC apply?
Determine if the goods or non-goods aspect is dominant unless the contract divides the payment between goods and services, then both UCC and CL can apply
What is the UCC definition of “good faith”?
honesty in fact and the observance of reasonable commercial standards
What is the common law duty of good faith and fair dealing?
cannot exercise discretion in a way that deprives the other party for the fruits of the contract
What is the definition of an offer?
a (1) communication of (2) promise, undertaking or commitment objectively perceived as indicating intent to form a contract to (3) with definite and certain terms communicate to the offer
When is a price quote an offer?
Generally not, but probably offer if given in response to an inquiry with a quantity term
What is considered in determining if there is an offer
Must create a reasonable expectation of intent to contract in the offeree (surrounding circumstances and prior relationship considered)
Is an ad an offer?
Ads (and other broadly distributed communications) are generally solicitations for offers
What is the standard for a communication containing sufficiently “definite” terms to be an offer?
must contain enough essential terms such that a contract including them is capable of being enforced
2 Basic requirements:
1) Sufficiently identify the offeree or the class of people that can accept
2) Definiteness of the subject matter
What “material” terms are required for a communication to be sufficiently definite to be an offer in the following contexts? Can the parties agree to agree later on a material term?
Real estate
Sale of Goods
Services
Real Estate: identify the land and price
Sale of Goods: Quantity (or requirements/output)
Services: the nature of the work to be performed (but not for a contract for employment)
No -cannot agree to agree later on a material term
An employment contract does not specify duration - what is presumed?
Employment at will - terminable by either party
What price does Article 2 imply if none is provided?
What timeline does Art 2 imply if none is provided?
Reasonable price at the time of delivery
Within a reasonable time
Can the court use gap fillers to supplement vague terms?
No -instead the court can use course of performance, course of dealing, and usage in trade
What are the ways to reject a contract?
Lapse of time, Rejection (express or counteroffer)
What are the common law rules for conditional acceptance or adding terms in and acceptance?
Rejection and a counteroffer that cannot be accepted by performance.
If the counteroffer is accepted by performance, then a contract is formed without the new terms by the parties conduct. Terms include any agreed terms plus gap fillers
What is the effect of a rejection of an offer under an option contract during the period of the option?
Rejection or counteroffer under an option does not terminate the offer UNLESS the offeror has detrimentally relied on the offeree’s rejection
How can an offer be indirectly revoked?
If the offeree receives (1) correct information (2) from a reliable source (3) of the acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
What are the 4 circumstances when an offeror cannot revoke an offer?
1) Option
2) Merchant’s firm offer
3) Foreseeable Detrimental Reliance (offer held open as an option contract for a reasonable length of time - esp gen/sub contractor bids)
4) Beginning performance (not just prep) under a unilateral contract offer (right but not obligation to finish within a reasonable time)
What is the difference in beginning performance under a unilateral contract offer and a bilateral contract offer?
Beginning performance under a bilateral contract offer serves as a binding acceptance and creates an obligation to finish
Starting performance (not just prep) under a unilateral contract offer creates the option but not obligation to finish within a reasonable time. Acceptance only comes upon completion of performance
What are the requirements for Merchant’s firm offer?
1) Offeror is a merchant
2) offer is in a signed writing
3) writing gives assurances it will be held open
* Remember the 3 month limit absent consideration/option contract
What are the circumstances where an offer is terminated by operation of law?
Death or insanity of either party (regardless if the offeree knew about the death)
Destruction of the proposed contract’s subject matter
Supervening illegality
Can a power of acceptance be assigned?
No unless there’s an option contract
How can an offer be accepted if there is no method of acceptance specified?
Any reasonable manner
But if method of acceptance is specified, must use that method
When accepting an offer for unilateral contract, does the offeree have to give notice?
No notice required when performance has begun, but notice required within a reasonable time after completion unless offeror waived notice or the performance would normally come to the offeror’s attention within a reasonable time
When can a seller ship nonconforming goods as an accommodation? What is the effect of an accommodation?
When accepting by performance (cannot use accommodation if accepted by promise)
Effect is a counteroffer and buyer can accept all/part.
What is the UCC battle of the forms provision?
Unless an acceptance is expressly made conditional on the acceptance of new/different terms, an acceptance with different terms forms a contract (regardless if parties are merchants)
If BOTH parties are merchants, the contract contains the new terms unless prior objection, objection within 10 days, material alteration, or offer limited acceptance to its terms
If any party is a non-merchant, then contract formed without the new terms unless the offeror expressly agrees
What is the knockout rule?
In a batte of the forms situation between two merchants, if the acceptance contains DIFFERENT (not additional) terms, then some courts resolve the contradiction by knocking out the conflicting terms and providing a gap filler (but some courts allow the terms of the acceptance to govern)
What is a key limitation on the battle of the forms?
If there is a difference as to price, quantity, or quality, then there might not be sufficient meeting of the minds to be a contract
Merchants agree to a contract orally and then one sends a merchant’s confirmatory memo with slightly different/additional terms - what is the analysis?
Run through the battle of the forms analysis
When does the mailbox rule NOT apply to communicating an acceptance?
1) offer stipulates acceptance is effective when received
2) option contract is involved
3) offeree sends a rejection before the acceptance
4) offeree sends an acceptance and then a rejection but the rejection gets there first and offeror detrimentally relies on it
Does acceptance by an unauthorized method still work to create a contract?
Maybe if it is actually received by the offeror while the offer is still in existence
When is a sale by auction complete?
What is the default rule for withdrawing an item from auction?
Fall of the hammer or other customary manner
Default is that an auction sale is “with reserve” and can be withdrawn at any time until he announces completion of the sale
What are the two elements of consideration?
1) bargained for exchange
2) legal value (benefit to the promisor or a detriment to the promisee)
When does past consideration count?
Reviving an Unenforceable Promise: If a past obligation is unenforceable because of a technical defense, the obligation will be enforceable if a new promise is made IN WRITING OR IS PARTIALLY PERFORMED.
Route 2: If past act benefitted promisor and was performed by the promisee at the promisor’s request or in response to an emergency a subsequent promise to pay for that act is enforcable
A preexisting legal duty is not consideration, but what are the exceptions?
What is important to remember about an accord and satisfaction to discharge a debt?
1) any new consideration or slight modification in consideration such as paying early or in a different form
2) ratification of a voidable obligation
3) Preexisting duty is owed to a third person other than the promisor
4) There is an honest dispute as to the preexisting duty
5) the modification is fair an equitable in light of circumstances not anticipated [modern view]
Need to meet one of the above for accord and satisfaction because the accord requires new consideration
What is the UCC rule regarding the consideration needed to modify an agreement?
If the modification is in good faith then no consideration is required
What is the common law rule regarding the consideration needed to modify an agreement?
Contract can’t be modified unless the modification is supported by new consideration BUT modern view allows modification without new consideration IF modification is in light of unanticipated circumstances and fair and equitable
When is a right to choose among alternatives not an illusory promise?
IF every alternative involves legal detriment
IF at least one alternative involves legal detriment and power to choose rests with a third party or the promisee
If a valuable alternative is actually selected
What is the rule for promissory estoppel
Consideration is not required and a promise can be enforced through promissory estoppel TO THE EXTENT NECESSARY TO PREVENT INJUSTICE if:
1) reliance is foreseeable
2) reliance was actually made
What is the remedy under promissory estoppel?
Some jurisdictions will give regular expectation damages but courts following Restatement 2nd will limit “as justice requires” which usually means reliance damages (whatever the promisee spent in reliance on the promise
What is the rule for a minor seeking to disaffirm a contract?
Can do so during minority or reasonable time after. Must affirm/disaffirm the entire contract. Must return anything that remains at the time of disaffirmance
Makes no difference if a minor lies about their age - voidable
What is the limitation on minors seeking to dodge their contractual obligations?
Still liable for restitution for necessities
When does a person lacking mental capacity have no ability to contract?
if a guardian has been appointed- any attempted contracts by an incapacitated person under guardianship are void (not voidable)
What is the standard for incapacity of an intoxicated person?
What’s the key limitation on the ability to dodge obligations for intoxication?
Must be so intoxicated they don’t understand the nature and significance of their promise
Still liable for restitution for necessities
What are the elements of economic duress
(1) Party threatens to commit a wrongful act that would seriously threaten the contracting party’s property or finances
(2) there are no adequate means available to prevent threatened loss
What are the elements of undue influence
(1) Undue susceptibility to pressure by one party
(2) excessive pressure by the other party
Usually in a caregiver or confidential relationship
What is the result of an ambiguous contract (misunderstanding)
If neither party is aware of the misunderstanding there’s no contract unless both parties intended the same meaning
If both parties are aware there’s no contract unless both parties intent of the same meaning
If one party is aware there’s a binding contract based on the ignorant parties understanding
subjective Intent matters
What elements must be present for a contract to be voidable based on mutual mistake
(1) mistake concerns a basic assumption of the contract
(2) the mistake has a material effect on the agreed-upon exchange and
(3) party seeking avoidance did not assume the risk of the mistake
Mistake as to existence of subject matter then rescind but if mistake as to value then enforce
When is a contract voidable to unilateral mistake?
If the non-mistaken party knew or had a reason to know of the mistake
(and the mistake had a material effect on the exchange and the mistaken party did not bear the risk of mistake)
What is the effect of a mistake by an intermediary
The prevailing view is that the message as transmitted is operative unless the other party knew or should have known of the mistake
What are the elements of fraudulent misrepresentation or fraud in the inducement?
1 a party induces another to enter a contract using a fraudulent misrepresentation
2 the party actually and justifiably relied on the fraudulent misrepresentation
What are the elements of material misrepresentation
1 the innocent party JUSTIFIABLY RELIED on the misrepresentation
2 the misrepresentation was MATERIAL [subjectively or objectively] (would induce a reasonable person to agree or the maker knows that for some reason it was likely to induce this particular person to agree)
Does not have to be fraudulent
What can be a fraudulent misrepresentation?
When is nondisclosure a misstep?
Spoken or written words, concealing a fact, frustrating investigation of a fact, falsely denying knowledge of a fact
Nondisclosure is a misrepresentation only when it is material or fraudulent
What is the remedy for fraudulent misrepresentation or material misrepresentation?
The innocent party may resend and sue for breach and recover damages
If the __ of a contract is illegal, the contract is void
If the _____ of a contract is illegal, the contract is voidable
subject matter or consideration
Purpose
IF the consideration or subject matter of a contract is illegal, then the contract is void, what are the exceptions to this rule?
1) the plaintiff is unaware of the legality while the defendant knows of the illegality
2) one party is not as culpable as the other
3) illegality is a failure to obtain a license and license is for revenue raising purposes rather than public protection
If only the purpose of the contract was illegal, the contract is voidable by a party if that party…
(1) Was unaware of the purpose or
(2) was aware of the purpose but did not facilitate it and the crime does not involve serious moral turpitude
What is the only type of unconscionability recognized on the bar exam?
Procedural unconscionability
Unconscionability is seldom a good defense on the MBE
When is an unconscionability defense triggered
There is unfairness in the bargaining process
Unfairness in price alone is not a ground for unconscionability
Need UNFAIR SURPRISE AND OPPRESSIVE TERMS or a huge difference in bargaining power
What are the 4 common instances of procedural unconscionability
Inconspicuous risk shifting provisions (especially if inconspicuous and incomprehensible)
Contracts of adhesion (signer is unable to obtain necessary goods of the kind without agreeing)
Exculpatory clauses (for intentional wrongful acts generally unconscionable) (for negligence maybe unconscionable if inconspicuous but likely enforceable esp if activity hazardous)
Limitations on remedies
When does a limitation remedies become unconscionable?
Limiting liability for damages to property will not be unconscionable unless it is inconspicuous (but a contract that limits remedies to such an extent that the remedy “fails its essential purpose” is unconscionable)
When is unconscionability determined as of?
The time of formation of the contract
What are the court’s three options if it finds a contract clause unconscionable when made?
(1) Refused to enforce the contract
(2) Enforce the remainder of the contract without the unconscionable clause
(3) Limit the application of any clause to render it conscionable
Whom does the writing have to be signed by to be enforceable under the statute of frauds?
The writing must be signed by the parties sought to be bound
What agreements are covered by the statute of frauds?
MY LEGS
Marriage
Contracts not performable within one year of the date of the contract
Interests in land
Executor promises to personally pay estate debts
Goods of $500 or more
Suretyship promises
What is the equal dignity rule?
Authority to enter into a contract on behalf of someone else only has to be in writing if the underlying deal would be subject to statute of frauds
What interests in land are subject to the statute of frauds?
Leases for more than one year Easements for more than one year Mortgages Fixtures Mineral rights
Are contracts to construct a building subject to the statute of frauds?
No
How does performance of a contract affect the statute of frauds?
Service contracts and goods contracts
If it’s a service contract, full performance by one party is required
If it’s a goods contract, if goods have been paid for or accepted, the contract is outside of SOF. If partially paid for or accepted, then enforceable only to the extent of the payment/acceptance. If partial payment on single good, then entire contract is outside of SOF
Is a writing effective to satisfy the statute of frauds for goods if it omits or incorrectly states a term?
Yes but it is not enforceable beyond the quantity of goods shown in the writing.
What is an exception to the rule that the statute of frauds requires the signature of the party to be bound
If both parties are merchants such that are merchant’s confirmatory memo is valid, the confirmatory memo satisfies the statute of frauds even signature of the party sought to be bound
What are the methods to take a contract out of the statute of frauds for goods?
SWAP Specially made goods (if mfg has made a substantial beginning on the mag or commitment for purchase has been made) Merchants confirmatory memo Admission in court Performance
When does the suretyship promise not fall within the statute of frauds?
“Main Purpose Exception” If the main purpose of the promisor is to serve their own financial interest.
To fall within the statute of frauds a surety must make a collateral (not primary) promise to pay the debt of another
What is the effect of noncompliance with the statute of frauds
The party sought to be bound can raise SOF as a formation defense
if SOF not raised, it is waived as a defense
What is a contract removed from the statute of frauds?
(1) If the contract is modified such that it falls outside of the scope of the statute of frauds
(2) performance
(3) specifically manufactured goods
(4) admission in court
(5) merchant’s confirmatory memo
(6) equitable/promissory estoppel
Are clauses prohibiting later oral modifications enforceable?
at common law - no
under the UCC - yes (but if the contract is between a merchant and a non merchant, the non merchant must separately sign by this clause)
What is the effect of a failed oral modification to a contract that requires modifications to be in writing?
Can operate as a waiver whenever the other party is changed position and reliance on the oral modification.
But the waiver can be retracted if there is has been no reliance on it
How does part performance of a land sale contract take the contract out of the statute of frauds?
If the seller conveys the property to the buyer via full performance the seller can force the buyers were promised to pay
If the buyer does at least two of the following they can enforce via specific performance only against the seller:
1) possess
2) pay (in whole or part)
3) improve
What is required to satisfy the writing requirement of the statute of frauds?
1) reasonably identify the subject matter of the contract
2) indicate that the contract has been made between the parties and
3) state with reasonable certainty the essential terms
4) signed by the party to be bound
Can be piecemeal
What is sufficient for the signature requirement of the statute of frauds?
Any mark or symbol made with the intention to authenticate the writing - can be printed or typed
Under the UCC a party’s initials or letterhead works
What is required for a merchant’s confirmatory memo to be valid?
1) an oral deal
2) both parties are merchants
3) one party sends (w/i a reasonable time) a signed writing containing a quantity term
4) No objection within 10 days
When does equitable or promissory estoppel apply to make a contract enforceable despite the statute of frauds?
Equitable estoppel - defendant falsely intentionally tells plaintiff the contract is not within the statute of frauds
Promissory estoppel- if defendant induces plaintive to change position in reliance on an oral agreement
What is an integration?
A riding with the intent to embody the final expression of the bargain
What is the parol evidence rule?
Any prior oral or written expressions and contemporaneous oral expressions are inadmissible to very the terms of the integration
What is the difference in a complete integration and a partial integration?
If complete integration - terms cannot be contradicted or supplemented
If partial integration - writing cannot be contradicted but can be supplemented with additional consistent terms
UCC presumes all writings are partial integrations
What is the effect of a merger clause?
It is strong if not dispositive evidence that the agreement is a complete integration
Dispositive under UCC
