Contracts Flashcards
What is the basic contract formula?
K = MA (O+A) + C - D
A contract is formed when there is mutual assent (made up of an offer and acceptance) and consideration, along with an absence of valid defenses.
What is a contract?
A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty. (it’s a legally-enforceable agreement)
What are the different kinds of contracts that parties can have?
- Express: Express contracts are formed by language, oral or written.
- Implied: Implied contracts are formed by conduct.
- Quasi-Contracts: Quasi-contracts are NOT contracts.
— This name is given to an agreement when an unenforceable contract results in unjust enrichment.
— Courts permit a plaintiff to bring an action in RESTITUTION to recover the amount of the benefit conferred on the defendant (usually preventing unjust enrichment, but may be based on the detriment suffered by the plaintiff–the reasonable value of the work performed).
What is a bilateral contract? How can it be accepted?
A bilateral contract consists of the exchange of mutual promises (it’s a promise for a promise).
- Can be accepted in ANY REASONABLE WAY.
What is a unilateral contract? How is it made and accepted?
A unilateral contract is one in which the offeror requests performance rather than a promise.
- The offeror-promisor promises to pay upon the completion of the requested act by the promisee.
- When the promisee performs the requested act, a contract is formed.
What are the two situations in which a unilateral contract can occur?
(1) The offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance.
(2) Where there is an offer to the public (EX: a reward offer).
What are “goods” under the UCC?
Goods are all things movable at the time they are identified as the items to be sold under the contract.
What law applies to the sale of goods? What law applies to everything else?
The UCC (Art. 2) applies to the sale of goods. Common law applies to all other contracts (EX: services; real estate; intangibles).
Who is a “merchant”?
A merchant is one who regularly deals in goods of the kind sold OR who holds themselves out as having special knowledge or skills as to the practices or goods involved.
Is the UCC or common law used when both goods and services are part of a contract?
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.
- If the contract DIVIDES PAYMENT between goods and services, then Article 2 will apply to the sale portion and the common law will apply to the services portion.
What is mutual assent?
One party must accept the other’s offer.
What is an offer? What does it create?
A communication indicating a reasonable expectation of willingness to contract.
- An offer is a manifestation of an intention to be bound.
- Creates a POWER OF ACCEPTANCE in the offeree and a CORRESPONDING LIABILITY on the part of the offeror.
What is an acceptance?
A manifestation of assent to the terms of the offer.
What is consideration?
A bargained-for exchange.
What does a communication need to create in order to be an offer?
The communication must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms.
- Needs to contain a promise or commitment (not just a mere invitation to enter into communications).
What standard is used regarding an offeror’s intent to determine the validity of an offer?
How a reasonable person would understand a promise.
- Subjective intent is irrelevant.
- Judged by a reasonable/objective person standard.
Are advertisements generally offers?
No, they are invitations to deal.
- EXCEPTION: an advertisement (1) contains a promise (2) in which the terms are certain/definite (enough of the essential terms provided so that a contract including them is capable of being enforced) and (3) the offeree is clearly identified (to be considered an offer, a statement must sufficiently identify the offeree or a class to which they belong to justify the inference that the offeror intended to create a power of acceptance).
Are price quotations offers?
Price quotations are generally not offers, but they can be if given in response to an inquiry that contains a quantity term.
What is the basic inquiry regarding whether an offer is sufficiently definite and certain in its terms?
Have enough essential terms been provided so that a contract providing them is capable of being enforced?
- Usually: Offeree’s name; offer’s subject matter; price to be paid
What information must an offer regarding realty provide in that offer? Will a court provide a price term for realty if it’s needed?
Must identify the land and the price terms.
- The land description needs some particularity, but a deed description is not required.
- Most courts will not supply a missing price term for realty.
Is it possible to fill in a missing price term? If so, what for?
Yes, for the sale of goods. DOES NOT apply under the common law.
- The general rule is that the price is a “reasonable price” at the time of delivery.
What is a term that cannot be filled by the UCC?
Quantity. Note however that you can have output contracts (how much the seller can produce) and requirements contracts (measured by the buyer’s good faith need).
In a requirement contract, what orders does the supplier not need to fulfill?
Disproportionate orders (EX: increasing an enormous amount out of nowhere because of new publicity).
Under the UCC, can a buyer define its quantity of goods requirements based on the buyer’s needs?
Yes.
When buyers define their quantity of goods based on the buyer’s requirements, are there any restrictions on how much they can increase the enforceable amount of provided goods from the seller?
Yes, a buyer can increase their requirements, but only as long as their increase is in line with their prior demands.
In an employment contract, if the duration of the contract is not specified, how is it construed?
If the duration of the employment contract is not specified, then the offer, if accepted, is construed as creating a contract terminable at will by either party.
What are the methods of terminating an offer?
- Lapse of Time: The offer may be terminated by the offeree’s failure to accept within the time specified by the offer, or, if no deadline was specified, within a REASONABLE period.
— Could argue that anything over a month is unreasonable. Also pay attention to the type of goods. - Revocation: An offeror may retract their offer any time before acceptance unless there is an option contract, a Merchant’s Firm Offer, Detrimental Reliance, or the beginning of performance under a unilateral contract offer. An offer may be revoked INDIRECTLY if (1) the offeree receives correct information (2) from a reliable source (3) of an offeror’s acts indicating revocation (EX: hear from brother-in-law that the motorcycle previously offered has been sold).
— Revocations are effective upon receipt (no mailbox rule). At common law, this was physical possession.
— EXCEPTIONS: (1) Option contract (offeree gives consideration for offeror to not revoke the offer for a period of time); (2) Merchant’s Firm Offer Rule; (3) Reliance; and (4) starting to perform under a unilateral contract offer (NOTE: mere preparation to perform is not performance). - Rejection: An offer terminates when the offeree rejects it (EX: conditional acceptance / counteroffer (not mere bargaining though–look for a question mark for bargaining)) (this applies even with unilateral contract offers).
- Death: Death of either party before acceptance occurs will terminate a revocable offer (though it doesn’t automatically terminate a contract that’s already been formed–goes to the estate of the deceased person).
What effect for a written revocation when the recipient for good cause fails to read the revocation?
It does not matter. A revocation is effective when received, regardless of when it’s actually read.
What is the Merchant’s Firm Offer Rule?
When (1) a merchant promises (2) in signed writing (3) to keep their offer open (for a time stated or reasonable time–neither exceeding 3 months) the merchant’s offer is irrevocable for the time stated (up to 3 months) or for a reasonable time (up to 90 days / 3 months) if no amount of time is stated.
- No consideration is required for this.
In the case of an option contract or a Merchant’s Firm Offer, how can the offeree terminate the offer?
An offeree cannot terminate the offer. It stands open until the period ends.
When is there a valid option contract?
A valid option contract is in place when the offeree gives consideration for the offeror to not revoke the offer for a period of time.
What is an illusory contract?
Consideration is not flowing from both sides. If only one party is bound to perform, the promise is illusory and will not be enforced.
How does detrimental reliance relate to revocation?
When (1) the offeror could reasonably expect that (2) the offeree would rely to their detriment on the offer, and (3) the offeree does so rely, then the offer will be held irrevocable as an option contract for a reasonable length of time.
Can an offer restrict how an acceptance can be made?
The language of the offer controls the manner acceptance.
Can an offeree accept an offer without knowing about the offer (by complying with the offer’s terms)?
No. If the offeree complies with terms of an offer without knowing about the offer, this isn’t an acceptance of the offer–they need to know about the offer first to form a valid contract.
- EX: Turned in lost dog and saw poster with reward later.
How may a bilateral contract be accepted?
A bilateral contract can be accepted in any reasonable manner.
How can a unilateral contract be accepted? When is the offeror unable to revoke?
By completing performance. Once the offeree starts performing, the offeror cannot revoke the offer.
What is the result of an improper shipment in response to an offer?
It would be both acceptance AND breach.
What does sending something (not the thing requested in the offer) as an “accommodation” mean?
This is a counteroffer (not an acceptance and/or breach). The requires that the seller SEASONABLY NOTIFY the buyer that the shipment of non-conforming goods is an accommodation to the buyer.
- EX: Including a note in a shipment that was sent in response to an order that was placed examining the order and that it was sent to accommodate the buyer.
What is the general rule about silence regarding acceptance? What is an exception to the general rule?
Silence is not acceptance.
- A reasonable person would need to be able to look at both people and conclude that an offer has been made.
EXCEPTION: Previous custom.
What must acceptance of an offer look like at common law?
Mirror Image Rule: At common law, the acceptance must mirror the terms of the offer.
What must acceptance of an offer look like under the UCC?
Under UCC Article 2’s Battle of the Forms provision, the offeree must make a “seasonable expression of acceptance.” The offerer can include additional terms, but they’re not part of the contract unless (1) both parties are merchants, (2) the additional terms aren’t material changes (terms that would be likely to cause hardship or surprise to the offeror–substantially affecting economic risks or benefits), and (3) the offeror doesn’t object within a reasonable time.
- The offeree can include additional terms, but not different terms!
- 2: It’s not a material change to add a term that is customary in the industry.
- If there’s a material term added, it’s a proposal to modify–doesn’t go in on its own.
- 3: If the offeror objects, they can keep out that additional term and the contract will still be in place.
- Acceptance NOT effective if the acceptance is expressly made conditional on assent to the additional or different terms.
What is a material alteration / material change for purposes of acceptance under the UCC? What is the result if there is a material alteration?
Any material alterations/changes are not included in the contract. A material alteration is any change to an offer that affects money, liability, or remedies for breach of contract.
- If material, it’s out. If not, then the rest of the UCC analysis applies.
What analysis should be applied when merchant parties come to an oral agreement and then one sends a confirmatory memorandum which contains additional or different terms?
Despite the fact that there is already a contract at the time the memo is sent, the memo is put through the battle of the forms provisions as if it were an acceptance.
- Additional terms are put through the material alteration test.
- Depending on the jurisdiction, different terms are treated either the same as additional terms or knocked out.
Under the UCC, if the offeree assents to an offer but adds a new term as a condition to acceptance, what result?
This is a counteroffer.
What is the Mailbox Rule? Can it be overridden?
Acceptance is effective when sent (not received). This doesn’t apply when the offer is irrevocable (with option contracts, offeree needs to make sure the acceptance is received by the end of the deadline) OR when the offer states that the Mailbox Rule doesn’t apply OR if the offeree’s rejection arrives before his acceptance arrives and the offeror detrimentally relies on it.
What are the elements of consideration in a contract?
The elements necessary for valid consideration are present when there is (1) A bargained-for exchange between the parties; and (2) legal value.
- 2: Courts do not measure the value–it only needs to be valuable to the parties (EX: promises for promises, promises for performance, giving up legal right to do something, etc.).
How is past consideration considered for contract purposes?
Past consideration is NOT consideration.
What is required to modify a common law contract?
Preexisting Legal Duty Rule: NEW consideration is needed for modification of an existing contract. Performing on what you’re already required to do is NOT new consideration.
EXCEPTIONS:
- The promise is to ratify a voidable obligation.
- The preexisting duty is owed to a third person rather than to the promisor.
- There is an honest dispute as to the duty.
- There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the MODERN VIEW, if the modification (1) is fair and equitable (2) in view of circumstances not anticipated when the contract was made [examiners have indicated that they have adopted the modern view, but discuss the traditional view as well].
What is required to modify a contract for the sale of goods?
No consideration is needed. Only good faith is needed.
Is modification appropriate when there is a partial payment of a debt?
No. There is no new consideration, so it’s not a validly enforceable new contract.
- This is done all the time in the real world, but it’s actually unenforceable!
What is required for Promissory Estoppel to create an enforceable promise in the absence of consideration?
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: (1) The promisor should reasonably expect to induce action or forbearance, and (2) Such action or forbearance is in fact induced.
- NOTE: this only applies if there is no consideration.
What result for contract defenses when a party lacks capacity?
An incapacitated defendant has the right to disaffirm their contract (EX: drunk, minor, etc.). They don’t HAVE TO, but they CAN.
When a minor comes of age and retains the benefits of a contract after gaining capacity, what effect does this have on the contract?
There is an implied affirmation. There is a reasonable amount of time to disaffirm, but after that, the lack of capacity defense is removed.
How do necessaries affect the incapacity defense in contracts?
A minor may disaffirm a contract for necessaries but will be liable in restitution for the reasonable value of benefits received.
- “Necessaries” are items necessary for subsistence, health, or education (including food, shelter, clothing, and medical care).
What is duress and how does it affect contracts?
Contracts induced by duress or undue influence are voidable and may be rescinded as long as they are not affirmed. The common type of duress occurs when a party’s assent is procured by an improper threat.
- Usually, taking advantage of another person’s economic needs is not duress. However, 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.
- Elements of undue influence are: (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.
What is the ambiguity defense to contracts?
If the contract includes a term with at least two possible meanings, the result depends on the parties’ awareness of the ambiguity: (1) Neither party aware—no contract unless both parties intended the same meaning; (2) Both parties aware—no contract unless both parties intended the same meaning; or (3) One party aware—binding contract based on what the ignorant party reasonably believed to be the meaning of ambiguous words.
What is the mistake defense to contracts?
If both parties entering into a contract are mistaken about existing facts (not future happenings) relating to the agreement, the contract may be voidable by the adversely affected party if: (1) The mistake CONCERNS A BASIC ASSUMPTION on which the contract is made (EX: the parties think they are contracting for the sale of a diamond but in reality the stone is a cubic zirconia); (2) The mistake HAS A MATERIAL EFFECT on the agreed-upon exchange (EX: the cubic zirconia is worth only a hundredth of what a diamond is worth); AND (3) The party seeking avoidance DID NOT ASSUME THE RISK of the mistake.
- Mistake about THE THING makes the contract voidable. Mistake about THE VALUE does not void the contract.
When there is a unilateral mistake, is the contract voidable?
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 of the mistake made by the other party, the contract is voidable by the mistaken party.
- No relief unless it’s a palpable/obvious mistake (EX: huge deviation in subcontractor bid from the others).
- When the other party is on notice of the mistake, the parties may reform the contract.
What is the unconscionability defense to contracts?
A court may refuse enforcing a contract when it is unconscionable. There must be (1) unfair surprise (a term or terms that is not within the other party’s expectations) and (2) oppressive terms, tested at the time of formation.
Are oral contracts enforceable?
Yes, unless their subject matter falls within the statute of frauds.
What are the areas covered by the Statute of Frauds?
MYLEGS
Marriage: Contracts in consideration of marriage are subject to the SOF (but not promises to marry–note that encouraging marriage is okay and requires a writing).
Year: Contracts which cannot be completed in one year. Time of actual performance doesn’t matter.
- Lifetime contracts don’t count–could die within the year.
Land Sales: Transfer of an interest in real property.
Executors: A promise by an executor to pay debts from their own pocket instead of the estate is within the SOF.
Goods for $500+: The sale of goods at or exceeding $500 are subject to the SOF.
Sureties: A promise to answer for or guarantee the debts of another person is subject to the SOF.
What is the Equal Dignity Rule?
The authorization to enter into a contract on behalf of someone else must be in writing only if the underlying deal would have been subject to the Statute of Frauds.
How do modifications relate to the Statute of Frauds?
Modifications must be in writing ONLY IF the contract AS MODIFIED would fall within the Statute of Frauds.
How does the common law treat contract clauses prohibiting the oral modification of contracts? What about under the UCC?
Under common law, clauses prohibiting oral modification are unenforceable. Under Art. 2 of the UCC, these clauses are generally enforceable.
What is the Land Sale Exception to the Statute of Frauds?
(1) If there is a lease of one year or less, it can be oral.
(2) A buyer can specifically enforce a seller’s oral promise to sell land if the part performance doctrine applies. Part performance of a real estate contract (payment, possession, and improvement–need 2 of 3) allows for an oral contract despite the SOF. A seller can enforce an oral land sale contract only if the seller conveys the property to the buyer.
- Must unequivocally indicate that there is a contract for the sale of land (EX: if payments are in instalments and it looks too much like rent, it won’t work).
When may part performance provide an exception to the statute of frauds?
When it is for the sale of goods (full performance will work too). Part performance takes a sale of goods contract out of the Statute of Frauds when: (1) the goods have been specially manufactured, or (2) the goods have been either paid for or accepted. If a sales contract is only partially paid for or accepted, the contract is enforceable only to the extent of the partial payment or acceptance.
- It’s also one of the 3 options for land sale contracts (remember that in that one you need 2/3).
What is the Service Contract exception to the Statute of Frauds?
Full performance (NOT partial performance) of a contract for services satisfies the Statute of Frauds.
What is the Judicial Admissions Exception?
This is a Statute of Frauds exception. If an agreement is admitted to under oath, then it’s enforceable without the writing.
