Contracts Flashcards
Contract Equation
K = MA(O + A) + C - D
Quick definitions of express conduct, implied in fact, and quasi-contract
Express conduct: Formed by words
Implied in-fact: Formed by conducts
Quasi-contract = constructed by courts for restitution, last resort
Bi-lateral Contract
both parties promisor and promisee
Unilateral Contract
One promisor and promisee. Offeror asks for performance. Pays upon completion of performance.
“My offer can be accepted only by [action]”
Reward for public
Common Law vs UCC
UCC applies to sales of good
Special artificial rules
Goods: Anything movable when identified to the contract
Tangible, personal property
Covered by Article 2 of the UCC
Common law covers contracts for services
Merchant
One who regularly deals in goods of kind sold, or
Holds themselves out as having special knowledge or skills as to practices or goods involved
Note: UCC can still apply, but special rules for merchants
What if contract for both sale of goods and services?
Depends on whether goods or service portion are predominant.
Ie. sale of car with driving lessons thrown in
If even split, then Article 2 applies to sales portion and common law to services
Mutual Assent
Offer + Acceptance
Offers
Offer: manifestation of an intention to be bound
Creates power of acceptance in offerree
Creates liability for offeror
Must be objective intent to enter into a contract,
Determined by what a reasonable person would see
A bid is an offer
Advertisements as Offers
Advertisements are invitations to deal, not offers
Exception:
Advertisement contains a promise
Certain/definite terms
Quantity, amount, etc
Offerree identified
Offers Usually Must Include
Offeree’s name
Offer’s subject matter
Price
Offers Usually Must Include: Land Sale Offers
Also need:
Price
Description of land
—With some particularity, but deed description not required
—Most courts will not supply a missing price term, therefore deal is not valid
Offers Usually Must Include: Sale of Goods
Only quantity term is valid
Court can fill in price term usually
Requirements Contract
In a requirements contract, a buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer.
Output Contract
In an output contract, a seller promises to sell to a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller.
Watch out for unreasonable increase in demand
Percent or two is okay, but huge leap then seller is not liable
Offers Usually Must Include: Employment Contracts
If duration not specified, contract created is terminable at will for either party
For other services, the nature of the work to be performed must be included in the offer
Terminating Offers: Lapse of time
Offeree’s failure to accept within stated time, or not accepted in reasonable time with no deadline
Read dates carefully
Raise issue if over month
Depends on goods too
Terminating Offers: Rejection
Offer terminates when offeree rejects it
Express Rejection
An express rejection is a statement by the offeree that they do not intend to accept the offer. Such a rejection will terminate the offer
Counteroffer as Rejection
A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in its terms (for example, “I’ll take the house at that price, but only if you paint it first”).
Mere bargaining does not kill off initial offer
Mere Inquiry
May not terminate offer if aligned with initial goals
Tip: Watch for punctuation at end of offerees response because often:
Period = counteroffer
Question mark = bargaining
Conditional Acceptance as Rejection
When an acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer.
The conditional acceptance is essentially a new offer, and the original offeror may form a contract by expressly assenting to the new terms.
However, the offer that results from a conditional acceptance cannot be accepted by performance.
If the parties ship or accept goods after a conditional acceptance, a contract is formed by their conduct, and the new terms are not included.
Revocation
Offeror’s retraction of offer
Can be revoked anytime before acceptance
NO mail box rule, revocations effective upon receipt
Direct revocation
Offeror makes it explicit the offer is revoked
Indirect revocation
Offer revoked indirectly if:
Offeree receives incorrect information
From reliable source
Of Offeror’s acts indicating revocation to reasonable person
Essentially, offeror does conduct that shows they changed mind and offeror must be aware
Four exceptions that limit ability to revoke
Option Contract
Merchant Firm Offer Rule
Foreseeable Detrimental Reliance
Starting to Perform Under a Unilateral Contract
Death
Limits on Ability to Revoke: Option Contract
Offeree gives consideration for offeror to not revoke offer for period of time
Limits on Ability to Revoke: Merchant Firm Offer Rule
Merchant promises:
In signed writing
—Anything that looks authenticated will work (ie. merchant’s own stationary)
To keep offer open for time stated or reasonable time
—Enforceable for up to 3 months
Limits on Ability to Revoke: Foreseeable Detrimental Reliance
When the offeror could reasonably expect that the offeree would rely to their detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time.
Starting to Perform Under a Unilateral Contract
Look for magic words, “offer only by” for unilateral
Start of performance of unilateral contract offer = irrevocable offer.
“Just one step, just one brush of paint”
Mere preparation to perform does not equal a start to perform
Death
Death of either party before acceptance occurs will terminate a revocable offer
Death does not automatically terminate a contract or an irrevocable offer
Estate can be liable
Acceptance
Language of offer controls manner of acceptance
Performance as potential acceptance
Bi-lateral contracts: Open as method of acceptance, then offeree has options. If they start to perform then it is an implied acceptance
Unilateral: Must complete performance for acceptance, but does take away ability to revoke
Acceptance under Article 2: Shipment of Nonconforming Goods
The shipment of nonconforming goods is an acceptance creating a bilateral contract as well as a breach of the contract
unless the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation.
—COUNTER OFFER
The buyer is not required to accept accommodation goods and may reject them. If the buyer rejects, the shipper isn’t in breach and may reclaim the accommodation goods, because the tender does not constitute an acceptance of the buyer’s original offer
Acceptance: Silence
Silence is not an effective acceptance
Custom exception:
Silent acceptance reasonable if done customarily before
Acceptance: Common-law
Purported acceptance must mirror offer terms at common law
Acceptance: UCC
No mirror image rule under Article 2, offeree must “make a seasonable expression of acceptance”
Additional terms won’t defeat acceptance
Offeree’s additional term not part of contract unless:
BOTH are merchants
It’s not material, and
Offeror doesn’t object
Note: disclaimers are a material change, delivery date maybe not
Acceptance: UCC: Material change
A term that would cause hardship or surprise to offeror
If MBE notes something is a custom the industry, likely not a material change
Acceptance: Timing: Mail box rule
Acceptance effective when sent (upon dispatch, once put in mailbox)
Irrelevant if acceptance letter never arrives (may have problem proving it but still acceptance)
Exceptions to Mailbox rule
Offer states otherwise
Offer is irrevocable
Rejection is sent before acceptance
If rejection arrives first, kills offer
If acceptance arrives first, still contract but effective and formed at confirmation of receipt
Consideration
Makes agreement legally enforceable
Look for bargained-for-exchange
Only needs to be valuable to the party (promises for promises is valid)
Forbearance can constitute consideration
Irrelevant whether activities would have been avoided anyways
Past Consideration is not consideration
Courts do not look into the adequacy of consideration
Contract modification
Show consideration or an exception
Pre-existing legal duty rule: Common law, need new consideration to modify contract
Pre-existing legal duty rule Exceptions
Exceptions:
New or different consideration is promised;
The promise is to ratify a voidable obligation (for example, a promise to ratify a minor’s contract after reaching majority or a promise to go through with a contract despite the other party’s fraud);
The preexisting duty is owed to a third person rather than to the promisor;
There is an honest dispute as to the duty; OR
There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the modern view, if the modification is fair and equitable in view of circumstances not anticipated when the contract was made.
UCC Modification
Just good faith needed, no extra consideration
Watch out for undisputed debts
Promissory Estoppel
Promise plus performance. No consideration but…
Foreseeable detrimental reliance in the form of some sort of performance can make the promisor’s promise enforceable without initial consideration
Justice requires enforcement of the promise
Elements:
Promise made
The promisor should reasonably expect to induce action or forbearance, and
Such action or forbearance is in fact induced.
Defenses: Lack of capacity
Defendants without capacity can disaffirm the contract
Minors
Generally doesn’t matter if other party thinks they’re of age
Mental Incapacity
Intoxicated (even voluntary if taken advantage of)
Defenses: Lack of capacity: Exceptions
Benefits after gaining capacity = implied affirmation
Only reasonable time to disaffirm, ie. minors get a month after turning 18
Necessities are necessary
Incapacitated party is still liable for necessities, only liable for reasonable value of the necessity
Note: Not contract price but FMV in restitution
Defenses: Duress
Look for two guys, one threatens to not honor side of contract without X, Y, or Z.
Other guy is vulnerable with no other options
Economic duress
Elements:
(1) undue susceptibility to pressure by one party, and
(2) excessive pressure by the other party.
Undue influence concerns often arise when the dominant party is in a confidential or caregiver relationship with the influenced party.
Defenses: Misunderstanding—Ambiguous Contract Language
If the contract includes a term with at least two possible meanings, the result depends on the parties’ awareness of the ambiguity:
a. Neither party aware—no contract unless both parties intended the same meaning;
b. Both parties aware—no contract unless both parties intended the same meaning; or
c. One party aware—binding contract based on what the ignorant party reasonably believed to be the meaning of ambiguous words.
Material ambiguity = no contract
Unless one person should have known or did know, then hold against that party
Look to see if subject matter existed:
If just a mistake of value, that’s typically an enforceable contract
Defenses: Unilateral mistake
Slightly more reluctant to grant relief
Look for assumption of risk
Be aware of fraud
No relief unless obvious mistake
(ex. Construction bidding, massive reduction of average, palpable unilateral mistake)
Defenses: Unconscionability
Elements:
Unfair surprise and
Oppressive terms,
Tested when contract formed
Statute of Frauds
Always require a writing
When is oral contract not good enough?
When subject matter within SoF
SoF Covers (My Legs):
Marriage
Year
Land Sales
Executors
Goods for $500+
Sureties
SoF: Marriage
Contracts where marriage is consideration
Not just a promise to marry
SoF: Year
Contracts impossible to complete in 1 year
—Look for tasks, always assume superman doing job
Time of actual performance doesn’t matter
—Don’t fall for trick, it’s about contract language and impossibility
Lifetime deals not subject to this restriction
—Must see terms that force contract beyond a year
Ie. three-year contract can’t be completed in one year but lifetime contracts can
Ie. note performance that will take place a year later
SoF: Land Sales
Transfer of an interest in real property
Even leases for more than a year are subject (and easements)
Construction contracts are not necessarily within SoF
SoF: Land Sales: Equal Dignity Rule
Authorization to enter into a contract for someone else must be in writing only if underlying deal would be subject to SoF.
SoF: Executors
Promise by executor to pay estates debts from other source of funds is within SoF
SoF: Goods for $500+
UCC
$500 or more
Don’t confuse applicability of SoF with applicability of Article 2
SoF: Sureties
A person guaranteeing the debts of another person
Often will try to trick you into thinking this is what’s happening
Exceptions to SoF: Modifications
Must be in writing only if modified contract within statute
Unless oral modification prohibited
Parties can write SoF into Article 2 contracts
Under common law, clauses that prohibit oral modifications are typically unenforceable (assumed)
Exceptions to SoF: Leases of <1 year
Lease of exactly one year or less can be oral
Exceptions to SoF: Part Performance of Real Estate Contracts
Payment, possession, improvement
Need 2 of 3
Exceptions to SoF: Exception for Service contracts
Full performance contract satisfies SoF
But partial does not satisfy SoF
Remember restitution though at FMV
Exceptions to SoF: Exception for sales of goods
No SoF Defense if:
Goods accepted
Goods paid for
Substantial beginning on custom goods
Special goods that can’t be commonly resold
Applies only for the goods accepted
But if item not fungible, then applies even for deposit
Exceptions to SoF: Judicial Admissions Exception
Agreement admitted to under oath enforceable without writing
