Contracts Flashcards
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 is simply a legally enforceable agreement.
For a contract, we need to have an ___ plus ____
agreement; something more that makes it legally enforceable. Typically, that’s going to be consideration or a substitute for consideration
TYPES OF CONTRACTS
- Express contracts are formed by language, oral or written.
- Implied contracts are formed by conduct.
- Quasi-contracts (which are not contracts at all)
Quasi-Contracts
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.
A bilateral contract is one consisting of ___
the exchange of mutual promises; that is, a promise for a promise.
A bilateral contract offer can be accepted in ___
any reasonable way.
Implied Contract
Parties’ conduct indicates that they assented to be bound.
Express Contract
Promises are communicated by language.
A unilateral contract is one in which the offeror requests ____
performance rather than a promise.
A unilateral contract, which requires full performance, occurs in only two 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.
A void contract is one that is ___
totally without any legal effect from the beginning (for example, an agreement to commit a crime). It cannot be enforced by either party.
A voidable contract is one that ____
one or both parties may elect to avoid, such as by raising a defense that makes it voidable, like infancy or mental illness.
An unenforceable contract is ___
otherwise valid but isn’t enforceable due to a defense, such as the statute of limitations or Statute of Frauds.
For contracts involving the sale of goods, ___ applies.
Article 2 of the Uniform Commercial Code (“UCC”)
“Goods” are ____
all things movable at the time they are identified as the items to be sold under the contract
A number of the rules in Article 2 depend on whether the seller and/or buyer are ___
merchants.
Article 2 generally defines “merchant” as 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.
For Article 2 provisions dealing with general business practices (for example, Statute of Frauds, confirmatory memos, firm offers, modification),
_____. But remember that some Article 2 provisions (for example, the implied warranty of merchantability) are _____.
almost anyone in business can be deemed a merchant; narrower and require a person to be a merchant with respect to goods of the kind involved in the subject transaction.
If a sale involves both goods and services, you will _____; However, if the contract divides payment between goods and services, then ____
determine which aspect is dominant and apply the law governing that aspect to the whole contract; Article 2 will apply to the sale portion and the common law will apply to the services portion.
Every contract within the UCC imposes an obligation of ____
good faith in its performance and enforcement.
The common law also imposes a duty of ____
good faith and fair dealing.
“Good faith” is ____
honesty in fact and the observance of reasonable commercial standards
For an agreement to be enforced as a contract, there must first be ____
mutual assent
Whether mutual assent is present will be determined by an ____
objective standard
When a suit is brought in which one party seeks to enforce a contract or to obtain damages for breach of contract, a court must first decide whether there was in fact a contract. In making this determination court will ask the following three basic questions:
- Was there mutual assent?
- Was there consideration or some substitute for consideration?
- Are there any defenses to creation of the contract?
For a communication to be an offer, it 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.
In deciding whether a communication creates this reasonable expectation (and thus an offer), ask:
- Was there an expression of a promise, undertaking, or commitment to enter into a contract?
- Were there certainty and definiteness in the essential terms?
- Was there communication of the above to the offeree?
For a communication to be an offer, it must contain a promise, undertaking, or commitment to enter into a contract, rather than ____; that is, there must be an
intent to enter into a contract.
a mere invitation to begin preliminary negotiations
What is considered by a court in determining if an offer exists:
- Language
- Surrounding circumstances
- Prior practice and relationship of the parties
- Method of communications
The broader the communicating media (for example, publications), the more likely it is that the courts will ____
view the communication as merely the solicitation of an offer.
Advertisements, catalogs, circular letters, and the like containing price quotations are usually construed as ____
mere invitations for offers.
An offer must be definite and certain in its terms. The basic inquiry is whether ____
enough of the essential terms have been provided so that a contract including them is capable of being enforced.
What terms need to be in an all offers such that they are capable of being enforced?
- Identification of the Offeree
- Definiteness of Subject Matter
Requirements for Specific Types of Contracts to be enforceable: Real Estate Transactions
An offer involving realty must identify the (1) land and (2) the price terms.
-> The land must be identified with some particularity but a deed description isn’t required
Requirements for Specific Types of Contracts to be enforceable: Sale of goods
In a contract for the sale of goods, the quantity being offered
must be certain or capable of being made certain
Requirements for Specific Types of Contracts to be enforceable: Employment Contracts
In contracts for employment, if the duration of the employment is not specified, the offer, if accepted, is construed as creating a contract terminable at the will of either party.
Requirements for Specific Types of Contracts to be enforceable: Other Services
The nature of the work to be performed must be
included in the offer.
Do requirements/output contracts violate the definite and certain terms requirement?
No! It is assumed that the parties will act in good faith; so, they MAY be enforced
In a ____, 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. In an ___, 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.
requirements contract; output contract
For requirements/output contracts there can’t be a tender of or a demand for a quantity ____
unreasonably disproportionate to (1) any stated estimate, or (2) (in the absence of a stated estimate) any normal or otherwise comparable prior output or requirements.
The fact that one or more terms are left open does not prevent the formation of a contract if ____
it appears that the parties intended to make a contract and there is a reasonably certain basis for giving a remedy. In such a case, the majority of jurisdictions and Article 2 hold that the court can supply reasonable terms for those that are missing.
If a contract for the sale of goods is missing a price
term, Article 2 provides ____
that the price will be a reasonable price at the time of delivery.
Except in contracts for ___, the failure to state the
___ doesn’t prevent the formation of a contract if the parties intended to form a contract without the price being settled.
real property; price
If an agreement doesn’t specify the time in which an act is to be performed, the law ____
implies that it is to be performed within a reasonable time.
The presumption that the parties’ intent was to include a reasonable term goes to supplying ___.
missing terms.
The presumption to include reasonable terms cannot be made if the parties have ____. However, this can be cured by ____
included a term that make the contract too vague to be enforced; part performance that clarifies the vague term or by acceptance of full performance.
If a material term is vague or ambiguous, it is ____
not an offer at common law or under the UCC
Often, an offer will state that some term is to be agreed on at a future date. If the term is ___, the offer is too uncertain.
a material term
To have the power to accept, the offeree must have ____ of the offer. Therefore, ___
knowledge; the proposal must be communicated to them.
An offer can’t be accepted after it has been ____. This may occur by ___
terminated; an act of either party or by operation of law.
Termination by Acts of Parties
- Termination by Offeree
- Termination by Offeror—Revocation
Termination by Offeree
- Lapse of Time
- Rejection
The offeree must accept the offer within ____
the time specified or, if no time period is specified, within a reasonable time (A reasonable amount of time is a question of fact that depends on all the circumstances at the time the offer and attempted acceptance are made, such as the nature of the contact, the parties’ purposes, or their course of dealing.)
Ways an offer can be rejected
- Express Rejection
- Lapse of time
- Counteroffer (distinguish mere inquiry)
- Conditional Acceptance
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.
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
A counteroffer is both a ____
rejection and a new offer. It terminates the original offer and reverses the roles of the parties
Distinguish between a counteroffer (which constitutes a rejection) and a mere inquiry. An inquiry won’t terminate the offer when ____
it is consistent with the idea that the offeree is still keeping the original proposal under consideration
–> The test is whether a reasonable person would believe that the original offer had been rejected.
When an acceptance is made expressly conditional on the acceptance of new terms, it is a ____ of the offer.
rejection
The offer that results from a conditional acceptance ___. If the parties ship or accept goods after a conditional acceptance, a contract is ___.
cannot be accepted by performance; formed by their conduct, and the new terms are not included.
A rejection is effective when ____
received by the offeror.
Because an option is a contract to keep an offer open, a rejection of or a counteroffer to an option ___ a termination of the offer. The offeree is ___
does not constitute; still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree’s rejection.
A ____ is the retraction of an offer by the offeror
revocation
An offeror may revoke by directly ____
communicating the revocation to the offeree
An offer made by publication can be directly revoked only by ____
publication through comparable means
An offer may also be revoked indirectly if the offeree receives:
(1) correct information, (2) from a reliable source, (3) of acts of the offeror that would indicate to a reasonable person that the offeror no longer
wishes to make the offer
–> For example, after the offeror offers to sell their car to the offeree, the offeree is told by a reliable third party that the offeror just sold the car to someone else.
A revocation is generally effective when ____. Where revocation is by publication, it is effective when ___
received by the offeree; published.
A written communication is “received” when it is delivered to a place of business through which the contract was made or another location authorized to receive this type of communication. It does not matter whether the recipient ___
actually reads the communication.
Offers can be revoked at will by the offeror, even if he has promised not to revoke for a certain period, except in the following circumstances
- Options
- Merchant’s Firm offer under Article 2
- Detrimental Reliance
- Beginning Performance in Response to True Unilateral Contract Offer
- Beginning Performance—Offer Indifferent as to Manner of Acceptance
An option is a distinct contract in which ____
the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer
Merchant’s Firm Offer Under Article 2
Under Article 2: (1) if a merchant, (2) offers to buy or sell goods in a signed writing (includes letter head), and (3) the writing gives assurances that it will be held open
–> the offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed 3 months).
In no event may a merchant’s firm offer exceed ___
3 months (if you want longer = pay!)
Detrimental Reliance on an offer
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.
An offer for a true unilateral contract becomes irrevocable once ____.
- The offeror must ____
- The offeree is ___
performance has begun;
- give the offeree a reasonable time to complete performance.
- not bound to complete performance
Substantial preparations to perform (as opposed to the beginning of performance) do not ____ but may constitute ___
make the offer irrevocable; detrimental reliance sufficient to make the offeror’s promise binding to the extent of the detrimental reliance.
Most offers are indifferent as to the manner
of acceptance, and thus, a bilateral contract may be formed ____; Therefore, once the offeree ___
upon the start of performance by the offeree; begins performance, the contract is complete and
revocation becomes impossible. (But note: Notification of the start of performance may be necessary.)
An offeree generally cannot reject if they ____
already accepted
The following events will terminate an offer by operation of law:
- Death or insanity of either party (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
the other party - Destruction of the proposed contract’s subject matter OR
- Supervening illegality
An acceptance is a ____
manifestation of assent to the terms of an offer.
Only____ has the power of acceptance. A member of a class ____ also has the power to accept.
the person to whom an offer is addressed; to which an offer has been directed
Generally, an offeree’s power of acceptance ____ be assigned. But, if the offeree ____, the right to accept is transferable
cannot; paid consideration to keep the offer open (an option contract)
The offeree must ____ in order to accept it, and this is true whether the offer is for a bilateral or unilateral contract.
know of the offer
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
Unless the offer provides otherwise, acceptance of an offer to enter into a bilateral contract must be ____
communicated to the offeror.
Silence as Acceptance - General Rule
Generally, an offeree can’t be forced to speak or have their silence treated as acceptance.
Silence as Acceptance - Exceptions
A court may find silence works as an acceptance if:
- Because of prior dealings or trade practices, it would be commercially reasonable for the offeror to consider silence an acceptance.
- The recipient of services knows or should have known that the services were being rendered with the expectation of compensation and, by a word, could have prevented the mistake, the recipient may be held to have accepted the offer if they fail to speak.
Unless otherwise provided, an offer is construed as inviting acceptance in ____. Any ____ of the offeree’s counterpromise is usually sufficient.
any reasonable manner and by any medium reasonable under the circumstances; objective manifestation
Under Article 2, an offer to buy goods for current or prompt shipment is construed as inviting acceptance either by ____
a promise to ship or by current or prompt shipment of conforming or nonconforming goods.
Re acceptance, traditional contract law insists on an ____
absolute and unequivocal acceptance of each and every term of the offer (the “mirror image rule”).
At common law, ANY different or additional terms in the acceptance make the response a ____
rejection and counteroffer.
A unilateral contract is not accepted until performance is ____
completed
- Recall that the beginning of performance may create an option so that the offer is irrevocable.
- However, the offeree is not obligated to complete performance merely because they have begun performance, as only complete performance constitutes an acceptance of the offer.
To accept a unilaterial contract, generally, the offeree is not required to ____ but is required to ____.
- give the offeror notice that he has begun the requested performance
- notify the offeror within a reasonable time after performance has been completed.
No notice is required of the completion of of performance pursuant to a unilaterla contract if
(1) the offeror waived notice; or (2) the offeree’s performance would normally come to the offeror’s attention within a reasonable time.
The shipment of nonconforming goods is an ____ as well as a ____ unless ____.
- acceptance creating a bilateral contract
- breach of the contract; the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation
Where a seller sends nonconforming goods, the buyer is ____.
not required to accept accommodation goods and may reject them
If the buyer rejects nonconforming goods that the buyer sent as an accommodation and 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 (it is a counter offer!)
The accommodation shipment rule applies only when ____
shipment is used as a form of acceptance. If a party accepts verbally and then ships non-conforming goods = breach!
Article 2 has ___ the mirror image rule, providing instead that the inclusion of additional or different terms by the offeree in a definite and timely acceptance does not constitute a rejection and counteroffer, but rather is ____
abandoned; effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms.
Whether additional or different terms in an acceptance become part of the contract under the UCC depends on ____
whether or not both parties are merchants.
Under the UCC if ___ to the contract is not a merchant, the additional or different terms in an acceptance are considered to be ____
any party; mere proposals to modify the contract that do not become part of the contract unless the offeror expressly agrees.
Under the UCC if ___ parties to the contract are merchants, ADDITIONAL terms in the acceptance ___ unless:
both; will be included in the contract
- They materially alter the original terms of the offer, such as by changing a party’s risk or the remedies available (If “customary” in the industry = generally not material, disclaiming warranties is a material change)
- The offer expressly limits acceptance to the terms of the offer
OR
- The offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received
Under the UCC there is a ____ over whether terms in the acceptance that are ___
split of authority; different from (as opposed to in addition to) the terms in the offer will become part of the contract.
Approaches under the UCC where different terms are included in teh “acceptance”
- Some courts treat different terms like additional terms (go through the typical test)
- Other courts follow the “knockout rule,” which states that conflicting terms in the offer and acceptance are knocked out of the contract, because each party is assumed to object to the inclusion of such terms in the contract.
But note = even though a response with different
terms can constitute an acceptance under Article 2, there still must be a meeting of the minds or there is no contract. Watch for differences in the price, quantity, or quality terms— they likely indicate that there isn’t sufficient meeting of the minds to constitute a contract.
A merchant’s memo confirming an oral agreement that contains different or additional terms is also subject to ____
the battle of the forms provisions. (Additional terms are put through the material alteration test).
In situations in which it cannot be determined with certainty which specific communication was the offer and which the acceptance but the parties act as though there is a contract, the UCC considers this a
____
binding contract even though the moment of its making is uncertain
Acceptance by mail or similar means is effective at ___, provided that the mail is properly addressed and stamped, unless one of these exceptions applies.
the moment of dispatch (mail box rule)
Exceptions to the mail box rule
- The offer stipulates that acceptance is not effective until received.
- An option contract is involved (an acceptance under an option contract is effective only upon receipt).
- The offeree sends a rejection and then sends an acceptance, in which case whichever arrives first is effective.
- The offeree sends an acceptance and then a rejection, in which case the acceptance is effective (that is, the mailbox rule applies) unless the rejection arrives first and the offeror detrimentally relies on it.
Where an offeree sends a rejection and then sends an acceptance, ___ is effective.
whichever arrives first
Where an offeree sends an acceptance and then a rejection, the ____ is effective (that is, the mailbox rule applies) unless ____
acceptance; the rejection arrives first and the offeror detrimentally relies on it.
The mailbox rule applies only to ____
acceptance. It does not apply to other events in the contract setting, such as rejection or revocation.
For option contracts, acceptance of the underling offer is effective when ___
received (mail box rule doesn’t apply)
An acceptance transmitted by unauthorized means or improperly transmitted by authorized means may _____
still be effective if it is actually received by the offeror while the offer is still in existence.
If a contract is not formed by the parties’ communications, but they begin to perform as if they formed a contract, a contract is ___
formed.
The UCC provides that a sale by auction is complete when ___
the auctioneer so announces by the fall of the hammer or in another customary manner
An auction sale is ___ unless the goods are explicitly put up without reserve.
with reserve (means the auctioneer may withdraw the goods at any time until he announces completion of the sale)
Two elements are necessary to constitute consideration:
(1) a bargained-for exchange between the parties; and (2) legal value, meaning that which is bargained for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit to the promisor or a detriment to the promisee.
Bargained-For Exchange requires that:
the promise induce the detriment and the detriment induce the promise. There is no bargain involved (meaning, no consideration) when one party gives a gift to another.
An act or forbearance by the promisee (or a promise to act or forbear) is sufficient consideration to form a contract if ____
it benefits the promisor. (The benefit, however, need not be economic)
A promise given in exchange for something already done ___ satisfy the bargain requirement.
does not
Exceptions to past consideration rule
- Where a past obligation is unenforceable because of a technical defense (for example, the statute of limitations), that obligation will be enforceable if a new promise is made in writing or is partially performed.
- Also, under the modern trend, if a past act benefited the 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 will be enforceable.
In general, courts do not inquire into ____.
the adequacy or fairness of consideration
- Note that if there is a possibility of value in the thing bargained for, consideration will be found even if the value never comes into existence.
Exceptions to the adequacy of consideration rule:
- If something is entirely devoid of value
(token consideration), it is insufficient. - Sham consideration (insignificant sum recited in the contract) is also insufficient if not paid.
Legal detriment results if the promisee ___.
does something they are not legally obligated to do or refrains from doing something they have
a legal right to do. A legal benefit is the reverse.
Traditionally, performing or promising to perform an existing legal duty is ___
insufficient consideration.
Exceptions to the pre-exisiting duty (non-consideration) rule
- 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.
A good faith agreement modifying a contract subject to the UCC needs ____ to be binding.
no consideration
Payment of a smaller sum than due on an
existing debt is generally ____ for a promise by the creditor to discharge the debt
not sufficient consideration
- BUT check the facts for new or different consideration given (for example, payment earlier than required or payment in stock
instead of cash)
Under general/traditional contract law, a contract can’t be modified unless the modification is ___. The modern view, however, permits modification without consideration if:
supported by new consideration.
- (1) the modification is due to circumstances that were unanticipated by the parties
when the contract was made and (2) it is fair and equitable. (assume MBE is using this rule = majoirty)
For a modification of a contract under the
UCC, consideration ____
isn’t necessary to modify; all the parties need are good faith promises of new and different terms.
A debtor’s offer to make a partial payment on an existing debt will suffice for an accord and satisfaction if ____
there is some “bona fide dispute” as to the underlying claim or there is otherwise some alteration, even if slight, in the debtor’s consideration.
A promise to refrain from suing on a claim constitutes consideration if ____
the claim is valid or the claimant in good faith believed the claim was valid.
MUTUAL AND ILLUSORY PROMISES—REQUIREMENT
OF MUTUALITY
Consideration must exist on both sides of a contract (although the benefit of the consideration generally need not flow to all parties)
If only one party is bound to perform, the promise is ___ and ___
illusory; will not be enforced.
-> Courts often supply implied promises (for example, a party must use their best efforts) to infer mutuality.
The following are common examples of contracts that satisfy the mutuality requirement:
- Requirements and output contracts
- Conditional promises, unless the condition is entirely within the promisor’s control
- Contracts where a party has the right to cancel, if that right is somehow restricted (for example, a party must give 60 days’ notice)
- Exclusivity agreements (for example, exclusive marketing agreements) because the court will find an implied promise to use best efforts
- Voidable promises (for example, one made by an infant)
- Unilateral and option contracts, and
- Gratuitous suretyship promises made before or at the same time that consideration flows to the principal debtor
A promise to choose one of several alternative means of performance is illusory unless ___
every alternative involves legal detriment to the promisor.
A promise to choose one of several alternative means of performance will not be found illusory if: ____
(1) at least one alternative involves legal detriment and the power to choose rests with the promisee or a third party, or (2) a valuable alternative (that is, one involving legal detriment) is actually selected.
Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing. A promise is enforceable if:
- It is necessary to prevent injustice
- The promisor should reasonably expect to induce action or forbearance, and
- Such action or forbearance is in fact induced.
If the elements for promissory estoppel are present, some jurisdictions will award ____ (that is, what was promised under the contract), but the Second Restatement provides that the remedy “may be limited as justice requires.”, Thus, these courts might award ___
expectation damages; reliance damages
Even if an agreement is supported by valuable consideration or a recognized substitute, contract rights may still be unenforceable because ___
- there is a defect in capacity (making the obligations
voidable by one of the parties) - there is a defense to formation of the contract,
- or because a defense to enforcement of certain
terms exists.
Legal Incapacity to Contract implicates:
Minors, mental incapacity, intoxication
____ generally lack capacity to enter into a contract binding on themselves. But, contractual promises of an adult made to an infant are binding on ___
Infants/minor (in most jurisdictions, anyone under the age of 18); the adult
An infant (minor) may choose to ___ a contract any time before (or shortly after) reaching the age of majority.
- The contract must be disaffirmed as ___
disaffirm; a whole; it can’t be affirmed in part and disaffirmed in part.
If an infant chooses to disaffirm, they must ____
return anything that they received under the contract that still remains at the time of disaffirmance.
- However, there is no obligation to return any part of the consideration that has been squandered, wasted, or negligently destroyed.
Is being mistaken as two a minors age an exception to the defense of capacity?
NO!
Statutory exceptions to incapacity of minors
student loans, insurance contracts, and agreements not to reveal an employer’s proprietary information.
CL exception to incapacity of minors/mental incapacity/intoxicated persons
“Necessaries” are items necessary for subsistence, health, or education (including food, shelter, clothing, and medical care).
A minor may disaffirm a contract for necessaries but will be liable in ___
restitution for the FM value of benefits received.
An minor may ___, that is, choose to be bound by the contract in whole, upon reaching majority. A minor affirms either ___.
affirm
- expressly or by conduct, such as by failing to disaffirm the contract within a reasonable time after reaching majority.
One whose mental capacity is ___ may disaffirm when lucid or by a later appointed legal representative.
so deficient that they are incapable of understanding the nature and significance of a contract
Someone who had no mental capacity when they entered a contract may affirm during ____
a lucid interval or upon complete recovery, even without formal restoration by judicial action
A mentally incompetent person has no ability to contract once ____Any attempted contracts by an
incapacitated person who is under a guardianship are ___
a guardian has been appointed; void.
One who is so intoxicated that they don’t understand the nature and significance of their promise may be held to have made only a ___ if ____.
voidable promise; the other party had reason to know of the intoxication.
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 needs 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.
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.
Defenses to enforcement/formation
- Lack of capacity
- Absence of Mutual assent
- Absence of Consideration
- Public Policy/illegality
- Unconscionability
- Statute of Frauds
Defenses going to ABSENCE OF MUTUAL ASSENT
- Misunderstanding—Ambiguous Contract Language
- Mutual Mistake as to Existing Facts
- Unilateral Mistake
- Mistake by the Intermediary (Transmission)
- Misrepresentation
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 (two ships peerless);
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.
Ambiguity in the contract is one area where ___ is taken into account.
subjective intent
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:
- The mistake concerns a basic assumption on which the contract is made
- The mistake has a material effect on the agreed-upon exchange
- The party seeking avoidance did not assume the risk of the mistake
Mutual mistake is not a defense if the party asserting mistake as a defense ____
bore the risk that the assumption was mistaken.
-> This commonly occurs when one party is in a position to better know the risks than the other party
If the parties to a contract make assumptions as to the value of the subject matter, mistakes in those assumptions will generally not be remedied—even though the value of the subject matter is generally a basic assumption and the mistake creates a material imbalance—because ____
both parties usually assume the risk that their assumption as to value is wrong.
Generally, If only one of the parties is mistaken about facts relating to the agreement, the mistake will ____
not prevent formation of a contract
(exception to general rule) For a unilateral mistake if the nonmistaken party ____, the contract is voidable by the mistaken party.
knew or had reason to know of the mistake made by the other party
- As with mutual mistake, the mistake must have a material effect on the agreed-upon exchange, and the mistaken party must not have borne the risk of the mistake.
When there is a mistake in the transmission of an offer or acceptance by an intermediary, the prevailing view is that the message ___ is operative unless ____
as transmitted; the other party knew or should have known of the mistake.
Fraud by inducement: If a party induces another to enter into a contract by using fraudulent misrepresentation (that is, by asserting information they know is untrue), the contract is ____
voidable by the innocent party if they justifiably relied on the fraudulent misrepresentation.
Whether or not a misrepresentation is fraudulent, the contract is voidable by the innocent party if the innocent party ____
justifiably relied on the misrepresentation and the misrepresentation was material.
A misrepresentation is material if: ___
(1) it would induce a reasonable person to agree, or (2) the maker knows that for some special reason it is likely to induce the particular person to agree, even if a reasonable person would not.
A fraudulent misrepresentation need
not be spoken or written; it can be ___
inferred from conduct
Concealing a fact, frustrating investigation of a fact, or falsely denying knowledge of a fact is the same as ___.
asserting the fact does not exist;
However, nondisclosure of a fact is not misrepresentation unless ____
it is material or fraudulent
A party is not entitled to relief if the reliance on a misrepresentation was ___. However, just because a misrepresentation could have been revealed by the exercise of reasonable care ____. Failure to read a contract or use care in reading it does not necessarily preclude a party from avoiding a contract for misrepresentation.
unreasonable under the circumstances; does not mean that reliance was unjustified
An innocent party that meet the requirement for misrepresentation doesn’t have to wait until they’re sued on the contract but may ____. In addition, they may ___
take affirmative action in equity to rescind
the agreement; pursue all remedies available for breach of contract
If the promises exchanged at the formation stage lack the elements of bargain or legal detriment, ____
no contract exists. In this situation, one
of the promises is always illusory.
If the consideration or subject matter of a contract is illegal (for example, a contract to commit a murder), the contract is ___
void
Illegaility doesn’t void a contract where:
(1) the plaintiff is unaware of the illegality while the defendant knows of the illegality; (2) the parties are not in pari delicto (that is, one party is not as culpable as the other); or (3) the illegality is the failure to obtain a license when the license is for revenue-raising purposes rather than for protection of the public.
If only the purpose behind the contract is illegal, the contract is voidable by a party who was ____
(1) unaware of the purpose; or (2) aware but did not facilitate the purpose and the purpose does not involve serious moral turpitude.
The concept of unconscionability allows a court to modify or refuse to enforce an entire contract or a provision in order to ____.
avoid “unfair” terms, usually due to some unfairness in the bargaining process (that is,
procedural unconscionability).
Unfair price alone is ___ for unconscionability.
not a ground
Common Instances of Procedural Unconscionability
- Inconspicuous Risk-Shifting Provisions
- Contracts of Adhesion—“Take It or Leave It”
- Exculpatory Clauses
- Limitations on Remedies
Courts have invalidated boilerplate Risk-Shifting Provisions provisions as unconscionable because they are ____
inconspicuous or incomprehensible to the average person, even if brought to their actual attention.
Courts will deem a clause unconscionable and unenforceable if the signer is unable to procure necessary goods, such as an automobile, from ____
any seller without agreeing to a similar provision.
An exculpatory clause releasing a contracting party from liability for their own ____ is usually found to be unconscionable because such a clause is against public policy in most states.
intentional wrongful acts
Exculpatory clauses for negligent acts may be found to be unconscionable if the clauses are ___, but they commonly are upheld if they are in contracts for activities that ___
inconspicuous; are known to be hazardous
A contractual clause limiting liability for damages to property generally will not be found unconscionable unless ____. But, a contract that limits a party to a certain remedy and that remedy fails of its essential purpose (for example, the contract limits remedies to
repair and the item cannot be repaired), the limitation may be___
it is inconspicuous; found unconscionable and courts will ignore it.
Unconscionability is determined by the circumstances as they existed at ___
the time the contract was formed.
If a court finds as a matter of law that a contract or any clause of the contract was unconscionable when made, the court may: ____
(1) refuse to enforce the contract; (2) enforce the remainder of the contract without the unconscionable clause; or (3) limit the application of any clause so as to avoid an unconscionable result.
Statute of frauds covers:
MY LEGS
- Marriage
- > 1 Year
- Land
- Executor
- Goods > $500
- Surety promises
A promise the consideration for which is ___ must be evidenced by a writing.
marriage (e.g., pre-nup), but doesn’t cover mere promise to marry (but no court would enforce)
A promise that by its terms cannot be performed within ____ is subject to the Statute of Frauds. Part performance does not satisfy the Statute of Frauds in this case.
one year (The date runs from the date of the agreement and not from the date of performance.)
Even if the contract can’t be performed within a year, _____ will remove it from the Statute.
full performance by one party
A promise to “employ until I die” or “work until I die” is ___ the Statute because ___
not within; it is capable of performance within a year—a person can die at any time.
A promise creating an interest in land must be evidenced by a writing. This includes:
- agreements for the sale of real property
- Leases for more than one year
- Easements of more than one year
- Mortgages and most other security liens
- Fixtures
- Minerals (or the like) or structures if they are to be severed by the buyer
Items that Do Not Create an Interest in Land
Contracts to build a building or to find a buyer for a seller (for example, a broker’s contract) do not create an interest in land.
Effect of Performance on Land Contracts subject to the SOF
Full performance by the seller will take the contract out of the Statute of Frauds. Part performance by the buyer may also remove the contract from the Statute.
SOF Equal dignity rule
the authorization to enter into a contract on behalf of someone else ONLY IF the underlying deal would be subject to the SOF
A promise by an executor or administrator to pay the estate’s debts out of ___ must be evidenced by a writing.
their own funds
A contract for the sale of goods for a price ____ is within the Statute of Frauds and generally must be evidenced by a signed writing to be enforceable.
of $500 or more
-> Note that a writing is sufficient even though
it omits or incorrectly states a term, but the contract is not enforceable beyond the quantity of goods shown in the writing.
A promise to answer for the debt or default of another must be evidenced by a writing. The promise may arise as a result of a tort or contract, but it must be ____. However, if the main purpose or
leading object of the promisor is ____, the contract is not within the Statute of Frauds even though the effect is still to pay the debt of another
collateral to another person’s promise to pay,
and not a primary promise to pay; to serve a pecuniary interest of his own
Noncompliance with the Statute of Frauds renders the contract ____
unenforceable at the option of the party to be charged.
The party being sued may raise the lack of a sufficient writing (SOF) as an affirmative defense. If the Statute isn’t raised as a defense, it is __
waived
When Contract Is Removed from Statute of Frauds
- Contract modification
- Performance
- Circumstances When Writing Not Required
- Equitable and Promissory Estoppel
- Judicial Admission
A written contract can be modified orally, but the modification must be in writing if ____
the contract as modified falls within the Statute of Frauds.
Provisions Prohibiting Oral Modification - treatment under the CL/UCC
CL = even if a written contract expressly provides that it may be modified only by a writing, the parties can orally modify the contract.
UCC = if a contract explicitly provides that it may
not be modified or rescinded except by a signed writing, that provision is given effect.
-> If the contract is between a merchant and nonmerchant, however, this provision requires the nonmerchant’s separate signature.
If the parties attempt to orally modify a contract that requires written modification (either because of a contract clause or the Statute of Frauds), it is technically ineffective as a modification but can ___
operate as a waiver = A waiver will be found whenever the other party has changed position in reliance on the oral modification.
- However, a party who makes a waiver affecting
an executory (not yet performed) portion of the contract may retract the waiver if they notify the other party that strict performance of the waived terms is required
If a seller ____ (that is, they fully perform), the seller can enforce the buyer’s oral promise to pay.
conveys property to the buyer
A buyer may seek to specifically enforce an oral land sale contract under the doctrine of part performance.
Part performance that unequivocally indicates that the parties have contracted for the sale of land takes the contract out of the Statute of Frauds. Most jurisdictions require ___
at least two of the following: payment (in whole or in part), possession, and/or valuable improvements.
Is an oral installment land contract subject to the 2/3 part performance rule:
No! In the absence of other facts,
such as a large down payment, possession plus payment does not unequivocally indicate a contract for the sale of land.
- Those facts are also consistent with a lease; thus, the purchaser cannot enforce the contract.
An oral contract that cannot be completed
within one year but has been fully performed by one party is ___
enforceable. (if not fully performed = not available, but may get restitution)
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 an oral sales contract is only partially paid for or accepted, the contract is enforceable only ___. But for a single good, partial payment takes ___
to the extent of the partial payment or acceptance (done on a commercial unit basis); full amount out of SOF
If goods are to be specially manufactured for the buyer and ____, the contract is enforceable if the seller has, under circumstances that reasonably indicate that the goods are for the buyer, made a ____
- are not suitable for sale to others by the seller in the ordinary course of their business
- substantial beginning in their manufacture or commitments for their purchase before notice of repudiation is received.
If the party against whom enforcement is sought admits in pleadings, testimony, or otherwise in court that the contract for sale was made, the oral contract is ____
enforceable without a writing
In contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a ____of the understanding that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if:
- written confirmation
- (1) they have reason to know of the confirmation’s contents; and (2) they do not object to it in writing
within 10 days of receipt.
Merchants—Confirmatory Memo Rule gives power to ___ to enforce the contract
both the buyer and the seller (merchant using its own confirmation to satisfy the Statute of Frauds against another merchant)
Statute to defeat a meritorious claim. Examples include situations where ____
the defendant falsely and intentionally tells the plaintiff that the contract is not within the Statute or induces the plaintiff to change
position in reliance on an oral agreement.
There are three situations in which contracts are enforceable without the writing described above (pursuant to the SOF):
- Specially Manufactured Goods
- Admissions in Pleadings or Court
- Merchants—Confirmatory Memo Rule
- Equitable and Promissory Estoppel
Estoppel may be applied if it would be inequitable - Judicial Admission
The Statute of Frauds requires only one or more writings that:
- (1) reasonably identify the subject matter of the contract
- (2) indicate that a contract has been made between the parties, and
- (3) state with reasonable certainty the essential terms.
General Essential or Material Terms to be included in a writing complying with the SOF
The key is that there be something in writing evidencing the essential terms.
- What is essential depends on the agreement, its context, and the subsequent conduct of the parties, including the dispute that has arisen.
–> There must be enough in the writing to enable a court to enforce the contract
- Examples of essential terms include: identity of the
parties, description of the subject matter, and the terms necessary to make the contract definite.
Specific Essential or Material Terms to be included in a writing complying with the SOF for certain contract types
Land sale contracts = must contain a description
of the land and the price
Employment contracts = must state the length of employment
Sales of goods contracts (UCC) = must indicate
that a contract has been made and specify the quantity term
To use a writing against a party it must be ___ by them
signed! (can lead to disparities in enforceability)
A signature is ____.
any mark or symbol made with the intention to authenticate the writing as that of the signer
- It need not be handwritten; it can be printed or typed.
- Under the UCC, a party’s initials or
letterhead may also be sufficient.
- An electronic signature is also sufficient.
If a contract violates the Statute of Frauds, in almost all cases a party can ____
sue for the reasonable value of the services or part performance rendered, or the restitution of any other benefit that has been conferred.
When the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, the writing is an ____. Any other expressions—written or
oral—made prior to the writing, as well as any oral expressions contemporaneous with the writing, are ____
“integration”; inadmissible to vary the terms of the writing.
There are two components to whether a Writing is an “Integration”?
(1) whether the writing was intended as the final expression of the agreement; and (2) whether the integration was intended to be complete or partial.
-> Evidence is admissible to show the parties’ intent.
If an integration is complete, the writing cannot be ___. If, however, the integration is partial, the writing may ____
contradicted or supplemented; not be contradicted but may be supplemented by proving consistent additional terms.
The UCC presumes all writings are ___ integrations.
partial
A ___ recites that the agreement is the complete agreement between the parties.
merger clause
The presence of a merger clause is usually
determinative in ____. For most contracts, however, the modern trend is to ____
large commercial contracts; consider it as one factor in determining integration.
Because the rule prohibits admissibility only of extrinsic evidence that seeks to vary, contradict, or add to an “integration,” other forms of extrinsic evidence may be admitted if they won’t bring about this result, that is, they will fall outside the scope of the parol evidence rule. Including:
- Validity Issues
- Collateral Agreements and Naturally Omitted Terms
- Interpretation
- Showing of “True Consideration”
- Reformation
- Subsequent Modifications
- Additional Terms Under Article 2
A party to a written contract can attack the agreement’s validity. The party acknowledges (concedes) that the writing reflects the agreement but asserts, most frequently, that the agreement never came into being because of any of the following: (and this doesn’t violate the parol evidence rule)
- Formation Defects
- Conditions Precedent to Effectiveness
If a party asserts that there was an oral agreement that the written contract would ____, all evidence of the understanding may be offered and received without violating the PER.
not become effective until a condition occurred
Parol evidence is often said to be admissible if the alleged parol agreement is ____ to the written obligation (that is, related to the subject matter but not part of the primary promise) and ____
collateral; does not conflict with it.
The Restatements of Contracts allows parol evidence in that would naturally be omitted from the written agreement. A term would naturally be
omitted if:
(1) it does not conflict with the written integration; and (2) it concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument.
If there is ____, parol evidence can be received to aid the fact finder in reaching a correct interpretation of the agreement.
uncertainty or ambiguity in the written agreement’s terms or a dispute as to the meaning of those terms
The parol evidence rule will not bar extrinsic evidence showing the ____ paid
“true consideration” (such as evidence that the consideration stated in the contract was never paid).
If a party to a written agreement alleges facts (for example, mistake) entitling him to ____, the parol evidence rule is inapplicable.
reformation of the agreement
Parol evidence can be offered to show subsequent ____ of a written contract.
modifications
Article 2 generally follows the rules discussed above, providing that a party can’t contradict a written contract but may add consistent additional terms unless:
(1) there is a merger clause, or (2) the courts
find from all of the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement.
Article 2 also provides that a written contract’s terms may be explained or supplemented by evidence of ____—regardless of whether or not the writing appears to be ambiguous
course of performance, course of dealing, and usage of trade
Hierarchy of interpretation
1 - The contract itself
2 - Course of performance (Parties conduct under prior instalment of the CURRENT contract)
3 - Course of dealing (parties conduct in PRIOR contracts)
4 - Trade usage/customer (Industry norms that parties are aware of)
Contracts will be construed as a ____; specific clauses will be subordinated to the contract’s ___
“whole”; general intent.
The courts will construe words according to their ___ meaning unless it is clearly shown that they were meant to be used in a technical sense.
“ordinary”
