Contracts Flashcards
Bilateral Contract
- One consisting of the exchange of mutual promises; a promise for a promise
- Can be accepted in any reasonable way
Unilateral Contract
Offeror requests performance rather than a promise
Offeror promises to pay upon the completion of the requested act by the promisee
A unilateral contract, which requires full performance, occurs in only 2 situations:
(1) when the offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance; and
(2) where there is an offer to the public, such as a reward offer
Sale of Goods
Article 2 of UCC
Goods -> Anything movable when identified in a contract
Common Law
Service contracts
Construction, real estate, land use, employment contracts etc.
Who is a Merchant
One who regularly deals in goods of kind sold, or
Holds themselves out as having special knowledge or skill as to practices or goods involved
**ALL SALES OF GOODS = ARTICLE 2 OF UCC (whether merchants or not)
Predominant Purpose Test
If a sale involves both goods and services, you will determine which aspect is dominant and apply the law governing that aspect to the whole contract!!
The Offer
Creates a reasonable expectation to enter into a contract on the basis of the offered terms
Objective reasonable person standard is used when determining if it was an offer or not
**ADVERTISEMENTS ARE NOT OFFERS
Acceptance
Assent to the terms of the offer
Consideration
Bargained-for exchange of legal value
Land Sale Offer Requirements
Price and description of the land
Requirements Contract
Buyer promises to buy from Seller all goods Buyer requires
Output Contract
Seller promises to sell to buyer all goods seller produces
It is assumed that parties will act in good faith; so, there cannot be a tender or a demand for a quantity unreasonably disproportionate to (1) any stated estimate, or (2) (in the absence of a stated estimated) any normal or otherwise comparable prior output or requirements
Termination of Offer - Lapse of Time
Offer terminated if not accepted within reasonable time or within time period specified
Reasonable time to accept offer = 1 month generally
Counter Offer
Counteroffer = Rejection
Counteroffer is an offer made by the offeree to the offeror that contains the same subject matter but differs in its terms
**Mere Bargaining ≠ Rejection
Conditional Acceptance as Rejection
Conditional Acceptance = rejection + new offer!
- Also true under article 2 UCC!
Acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer
Revocation
Generally, offers can be revoked at will by the offeror, even if she has promised not to revoke for a certain period of time
Offeror may revoke by directly communicating the revocation to the offeree
Ex. -> “I revoke my offer of May 25”
Indirect Revocation
An offer may also be revoked indirectly if the offeree receives:
1. Correct information
2. From a reliable source
3. Of offeror’s acts indicating revocation
Ex. -> After the offeror offers to sell their car to the offeree, the offeree is told by a reliable 3rd party that the offeror just sold the car to someone else!
* If offeree does not know about the sale, it is NOT an effective revocation!
Timing of Revocations
Revocations are effective upon RECEIPT
* NO MAILBOX RULE FOR REVOCATION!*****
Option Contract
Offeree gives consideration (money) for offeror to not revoke offer for period of time
* Option contracts are irrevocable for the time period stated
o Even the offeree cannot validly revoke!
* The mailbox rule does NOT apply to the exercise of options
- Acceptance must arrive at the offeror for it to be valid!
Merchant Firm Offer under Article 2 (sale of goods must be present)
- Merchant promises (only offeror has to be merchant) without consideration
- In signed writing
- Assurance/promise to keep offer open for time stated or reasonable time
o Enforceable up to 3 months
o A firm offer that states a period longer than 3 months is still firm for the first 3 months -> but will be unenforceable after the first 3 months
Foreseeable 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
However, this usually is limited to those situations in which the offeror would reasonably contemplate reliance by the offeree in using the offer before it is accepted
* Ex. when a general contractor uses a subcontractor’s bid in making its own offer
Beginning Performance in Response to True Unilateral Contract Offer
Start performance of unilateral contract offer = irrevocable offer!
* The offeror must give the offeree a reasonable time to complete performance
**Mere preparation to perform ≠ start of performance
Death
Death or insanity of either party will terminate an offer -> (unless the offer is of a kind the offeror could not terminate, such as, an option supported by consideration).
Death or insanity need not be communicated to other party
Acceptance
An acceptance is a manifestation of assent to the terms of an offer
- Language of offer controls acceptance
Acceptance of Offer for Bilateral Contract
Unless an offer specifically provides that it may be accepted only through performance, it will be construed as an offer to enter into a bilateral contract and may be accepted either by a promise to perform or by the beginning of performance
Acceptance of Offer for Unilateral Contract
If an offer provides that it may be accepted only be performance (that is, an offer for a unilateral contract), note the following particular rules
Completion of Performance
o Unilateral contract is not accepted until performance is completed
Notice
o Generally, the offeree is not required to give the offeror notice that he has begun the requested performance but is required to notify the offeror within a reasonable time after performance has been completed
Acceptance under article 2
An offer to buy goods for current or prompt shipment may be accepted by either a promise to ship or by a shipment of conforming or non-conforming goods
Shipment of non-conforming goods
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
An accommodation is considered a “counteroffer”
Buyer is not required to accept accommodation goods and may reject them
Battle of the Forms -> Additional terms and Article 2
Article 2 of UCC says that an offer for the purchase or sale of goods, an acceptance with additional terms is still an acceptance and a contract is formed
Offeree’s additional term not part of contract unless:
1. Both are merchants
2. It’s not material, and
* Material change causes hardship or surprise
* If the additional terms do material alter the contract, a contract is still formed, the
contract just excludes the materially altering language
Ex. Accepting but adding warranty clauses -> contract is still formed but
without the inclusion of the warranties
* Industry Custom ≠ material change
3. Offeror does not object
Under the knockout rule, conflicting terms are knocked out of the contract and gaps are filled by the UCC gap-filler provisions
Merchant’s Confirmatory Memo
A merchant’s memo confirming an oral agreement that contains different or additional terms is also subject to the battle of forms provisions
Mailbox Rule
Acceptance effective when sent and upon dispatch! Not when received!!
o Upon dispatch is acceptance immediately!!!
Exceptions
- Mailbox rule applies UNLESS:
Offer states otherwise
Offer is irrevocable (like an option contract) -> Acceptance is effective when received by the offeror
Rejection sent first and then acceptance
Consideration
- Bargained-for exchange between the parties; and
- Legal value
A promise given in exchange for something already done does not satisfy the bargain requirement
Past consideration ≠ consideration
Pre-existing Legal Duty Rule
Under the preexisting legal duty rule, the promise to perform or the performance of an existing legal duty will not be sufficient consideration
- Need new consideration to modify common law contract
Exceptions
o New or different consideration is promised
o Unforeseen circumstances sufficient to discharge a party, or if the modification is fair and equitable in view of circumstances not anticipated when the contract was made
o The preexisting duty is owed to a third person rather than to the promisor
***No consideration needed to modify UCC sale of goods contracts
o All you need is good faith!
Discharge of Debts
No consideration for release of extra $$
o When the proposed consideration is in any way new or different (e.g., an alternative method of payment), there is usually sufficient consideration to change a preexisting duty, such as discharging an existing debt.
Ex -> You owe Mastercard $3,000. You and Mastercard orally agree that if you pay $2,000, Mastercard will forgive the rest of the debt. If you pay $2,000, can Mastercard recover the $1,000 balance? -> YES!
Promissory Estoppel
Promissory estoppel refers to the doctrine that a party may recover on the basis of a promise made when the party’s reliance on that promise was reasonable, and the party attempting to recover detrimentally relied on the promise.
= promise + performance
Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing.
A promise is enforceable if necessary to prevent injustice if:
o 1. The promisor should reasonably expect to induce action or forbearance, and
o 2. Such action or forbearance is in fact induced
Promissory estoppel is only the right answer if there is NO CONSIDERATION
o First go through consideration analysis and layout rules
Bargain for exchange and legal value
o If not there -> then go promissory estoppel
Incapacity - Minors
o Minors generally lack capacity to enter into a contract binding on themselves
o Contractual promises of an adult made to an infant are binding on the adult
Disaffirmance
A minor can choose to disaffirm a contract any time before (or shortly after) reaching the age of majority
If an infant chooses to disaffirm, they must return anything that they received under the contract that still remains at the time of disaffirmance
Retaining benefits after gaining capacity = Implied affirmation
Few months/reasonable time
Exceptions
Necessaries
* Items necessary for subsistence, health, or education
* A minor may disaffirm a contract for necessaries but will be liable in restitution for the value of benefits of received
Incapacity - Mental Incapacity
o One whose mental capacity is so deficient that they are incapable of understanding the nature and significance of a contract may disaffirm when lucid or by a later appointed legal representative
o Contract is voidable
Liable for necessaries like minors
o Any attempted contracts by an incapacitated person who is under a guardianship are void
Incapacity - Intoxication
Intoxication = voidable promise if the other party had reason to know of the intoxication
Intoxicated may affirm the contract upon recovery
There may be recovery for necessaries furnished during the period of incapacity
Duress and Undue Influence
Elements of Undue Influence are:
o (1) undue susceptibility to pressure by one party, and
o (2) excessive pressure by the other party
Contracts induced by duress or undue influence are voidable and may be rescinded as long as they are not affirmed
Generally taking advantage of another person’s economic need is not duress, but withholding something someone wants or needs will constitute economic duress if:
(1) the party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances; and
(2) there are no adequate means available to prevent the threatened loss
Mutual Mistake as to Existing Facts
If parties entering into a contract are mistaken about existing facts relating to the agreement, the contract may be voidable by the adversely affected party if:
o Mistake concerns a basic assumption on which the contract is made
o Mistake has a material effect on the agreed-upon exchange; AND
o Party seeking avoidance did not assume the risk of the mistake
Unilateral Mistake
If only one of the parties is mistaken about facts relating to the agreement, the mistake will not prevent formation of a contract.
But, if the non-mistaken party knew or had reason to know the mistake made by the other party, the contract is voidable by the mistaken party
No relief unless obvious mistake!
o Ex. 10 plumbers submit bid for $10,000 to do plumbing for a new school. 1 plumber submits $1,000 bid. School excepts $1,000 bid. This is clearly a unilateral mistake, and the school cannot do this! Relief for the plumber who made the mistake!
Unconscionability
- Unfair surprise and
- Oppressive terms,
- Test when contract formed
Statute of Frauds - Types of contracts
MY LEGS
- M – Marriage
- Y – Year
- L – Land Sales
- E – Executors
- G – Goods for $500+
- S – Sureties
- Any other oral contracts are perfectly fine and enforceable!!
Marriage
Contracts where marriage is consideration
o Ex. I’ll buy a car if you marry my son!
Does not include promise to marry!
Contracts that cannot be completed in one year
Contracts impossible to complete in 1 year
o The date runs from the date of the agreement and not from the date of performance
o Thus, a contract for one month of service that is to begin 13 months in the future must satisfy the Statute to be enforceable.
Time of actual performance does not matter
o Ex. Project was supposed to be 10 months but actually lasted 14 months -> you’re safe! SoF does not apply
A promise to “employ until I die” or “work until I die” is not within the Statute because it is capable of performance within a year – a person can die at any time
A contract to employ an individual for 3 years is within the SoF and needs to be in writing!
Land Sale Contracts
A promise creating an interest in land must be evidenced by writing.
o The writing must contain all essential terms, and the price is considered an essential term
This includes not only agreement for the sale of real property, but also:
o Leases for more than one year
o Easements of more than one year
o Mortgages and most other security liens
o Fixtures
o Minerals (or the like) or structures if they are to be served by the buyer
Construction Contracts are not necessarily within SoF
o Unless they are impossible to complete in 1 year :p
Equal Dignity Rule
o The authorization to enter into a contract on behalf of somebody else, like for an agent to sell your ranch, it must be in writing only if the underlying deal would have been subject to SoF
Executor Contracts
A promise by an executor or administrator to pay the estate’s debts out of their own funds must be evidenced by a writing
Goods for $500+
A contract for sale of goods for a price $500 or more is within the SoF and generally must be evidenced by a signed writing to be enforceable
o Quantity term AND
o That a contract has been made
- $500 = Writing required
- $501 = Writing required
- $499 or less = No writing necessary
- Article 2 applies to all sales of goods at any price
- Do not confuse applicability of SoF with applicability of Article 2
Exceptions
o SWAP
o S – Specially made goods
o W – Written confirmation by a merchant (merchant confirmatory memo)
o A – Admissions in Court
o P – Performance
