Contracts Flashcards
Requirements to form a valid K
(1) Mutual Assent i.e. a meeting of the minds
- offer
- valid acceptance
- objective manifestations of assent
(2) Consideration
- a bargained-for exchange of legal value
(3) No defenses
- valid defense to enforcement or formation leads to either:
(a) Void (i.e. never legal effect);
(b) Voidable (i.e. either party can elect to void); or
(c) Unenforceable (i.e. otherwise valid K where defense bars enforcement)
Bilateral K
Exchange of mutual promises where each party is both a promisor and a promise
e.g. A offers to sell his car to B for 5000 and B promises to purchase A’s car for that price
Unilateral K
offer requires performance as the manner of acceptance
Offeror-promisor agrees to pay upon completion of the act requested by the promise; once act is completed, K is formed.
e.g. A promises to pay B 100 if B paints A’s fence; B is not obligated to paint A’s fence, but if B does, K is formed and A must pay B $100
Quasi-K
not a K, but rather a restitution remedy designed to prevent unjust enrichment
an implied in law K arises when there is an unenforceable or non-existent agreement but one side has realized a benefit
Look for
(1) P has conferred a benefit to D;
(2) P reasonable expects payment:
(3) D knowingly accepted the benefit; and
(4) D will be unjustly enriched if P is not compensated
Common Law of K
Applies to most K EXCEPT for the Sale of Goods
UCC Article 2
Governs the sale of goods
If both parties to a K are merchants, the UCC has additional special rules (e.g. acceptance with additional terms)
Mixed K Applicable Law
predominant purpose of K dictates applicable law
EXCEPT - If K terms divide payment between the goods and the services, apply UCC to goods portion and common law to remainder.
Duty of Good Faith
obligation on the performance and enforcement of a K (applies to both UCC and Common Law)
Offer
An objective manifestation of a present intent to contract.
This can be demonstrated by
(1) a promise, undertaking, or commitment;
(2) definite and certain terms; and
(3) communication to an offeree
Objective Manifestation of Intent
offer must give offeree a reasonable expectation that offeror is willing to enter into a K
reasonable person standard
Definite and Certain Terms
Terms included must be sufficient to allow a court to enforce the K (e.g. quantity, time for performance, price, etc)
Communication to an identified offeree
Offeree must know of the offer and have the power to accept it.
Advertisements are generally not offers unless unless highly specific as to quantify and clearly indicate who may accept.
UCC Offers
Quantity must be certain or capable of being made certain.
Missing terms OK, particularly price, if parties clearly intended to make a K and there is a reasonable certain basis for giving a remedy.
Requirements / Outputs K
no unreasonable disproportionate increase in quantity allowed
Termination of Offer
An offer may be terminated by an act of a party or by operation of law
Act of parties:
(1) Revocation by offeror
(2) Rejection by offeree
(3) Lapse of time
- Offeror can set a time limit for acceptance
Operation of law:
(1) Death or insanity of either party
(2) Destruction of proposed K’s subject matter
(3) Supervening illegality
Revoking Offers
An offeror may revoke her offer, which effectively terminates the offer and the offeree’s power of acceptance
Methods:
(1) Unambiguous statement by the offeror to the offeree
(2) Offeree becomes aware of offeror’s unambiguous conduct or statement indicating an unwillingness or inability to contract
Limitations on Revocation of OFfers
(1) Revocations are only effective upon receipt by offeree
(2) Offer cannot be revoked once it has been accepted
(3) In the case of a Unilateral K start of performance makes the offer irrevocable for a reasonable time to complete performance.
- start of performance must go beyond mere preparation
Irrevocable Offers
An offer is irrevocable if:
(1) Option K - promise to keep the offer open
- consideration required at CL and for UCC when firm offer does not apply
(2) UCC Firm Offers - a merchant’s offer made in a signed writing that assures the offer will be held open is irrevocable from the time stated (no consideration required)
(3) Detrimental reliance by offeree - reliance must be reasonable
Rejection of Offer
Rejection by offeree terminates the offer and the offeree’s power of acceptance
Methods
(1) Express - effective when received
(2) Counteroffer - becomes a new offer thereby terminating the original
(3) Conditional acceptance - effectively a counteroffer
- exception for when the condition would be included anyways
(4) Acceptance w/ additional terms
- Common law says acceptance must mirror the offer otherwise its a counter offer
- UCC depends on whether both parties are merchans.
- If non-merchant the K is formed but additional terms are excluded and are considered proposals for additional terms
- if merchants additional terms become a part of the K
Acceptance
Acceptance arises upon offeree’s clear expression of assent to the terms of the offer
Offeror can dictate the manner by which the offer is to be accepted
Mirror Image rule
At common law acceptance must mirror the offer’s terms; it cannot add, omit or change a single term of the offer
UCC Acceptance w/ Additional Terms
Ask - are both parties merchants?
(1) If YES - K is formed w/ the additional terms UNLESS:
(a) they materially change the offer
(b) offer expressly limited acceptance to the offer’s terms, or
(c) offeror objects w/in a reasonable time
(2) if NO - K is formed but without the additional terms
UCC Acceptance by Shipment
a merchant may accept an offer to buy goods by either:
(1) providing a promise to ship goods (usually written), or
(2) Promptly shipping conforming goods
Shipment of non-conforming goods acts as an acceptance but may give rise to breach
Mailbox Rule
Offers and acceptances transmitted via mail become effective upon either dispatch or receipt
Offers, Counteroffers, Rejections, and Revocations are effective upon receipt.
Acceptance is effective upon dispatch.
Unless otherwise provided, offers invite acceptance in any reasonable manner given the circumstances.
Limitations:
(1) If the offer stipulates acceptance is not effective until received the offer controls
(2) If both a rejection and acceptance are sent then first to arrive controls
(3) In the case of Option Ks acceptance is effective upon receipt
Acceptance by Performance
Unless acceptance is limited by terms of the offer, offeree may accept by partial performance (for bilateral K) or complete performance (for unilateral K)
Note that an offer requiring acceptance by promise can still be accepted by performance IF:
(1) Offeree begins to perform; and
(2) Offeror knows offeree has begun and acquiesces
Acceptance by Performance (Unilateral)
Complete performance is required
(1) Offeree is not obligated to start or complete performance
(2) Failure to perform does not give rise to breach b/c no K is formed absent complete performance
(3) Offer may be irrevocable upon the start of performance until completion
(4) Offeree is not required to give notice upon start of performance but must notify offeror within a reasonable time upon completion
Acceptance by Performance (bilateral K)
Partial performance gives rise to acceptance.
Offeree must make offeror aware of acceptance.
Consideration
Consideration is a bargained-for-exchange of legal value between parties;
there must be a benefit to promisor or detriment to promisee.
Bargained-for-exchange
the promsie must induce the detriment and the detriment must induce the promise
Detriment = an obligation to do or refrain from doing something one would otherwise not be obligated to do or refrain from doing
A promise to perform a pre-existing duty or obligation generally is not consideration
Invalid Consideration
Promises of gifts or conditional gifts
Illusory promises - a promise where there is no obligation to perform (e.g. A promises to do B’s chores if he has time)
Promissory Estoppel
courts may enforce a promise if:
(1) Promisor reasonable expects reliance by promises;
(2) Promise acts or refrains from acting in detrimental reliance; and
(3) Injustice will occur without enforcement of the promise
Defenses to K formation
If established a court may choose not to enforce an otherwise valid K or it may be void/voidable by parties.
(1) Incapacity
(2) Statues of Frauds
(3) Illegality
(4) Misrepresentation / Fraud
(5) Duress
(6) Unconscionability
(7) Misunderstanding
(8) Mistake
Incapacity
Infants and mentally incompetent persons lack the capacity to contract. (Intoxicated IF other party has reasons to know they are intoxicated)
Right to disaffirm - person who lacks capacity to contract may disaffirm which renders it void.
Infancy Exceptions (Incapacity)
Ks involving minors may be enforced or otherwise recognized where:
(1) Implied Affirmation:
(a) Agreement entered before capacity
(b) Capacity since gained; and
(c) Benefits retained
(2) Infant liability for necessities - infants are legally obligated to pay for necessities (food/clothing/medical)
- quasi-K so infant cannot be sued for breach
Statute of Frauds
Contracts subject to the Statute of Frauds (“SoF”) require special proof of their existence
1) Signed writing—a writing containing the signature of the party to be charged (i.e., the party asserting the SoF defense)
UCC exception—signed writing not required if:
i. Both parties are merchants; and ii. The party asserting SoF defense received a signed writing memorializing the agreement and its essential terms and failed to respond within 10 days of receipt
2) Performance—may satisfy SoF
Service K—only full performance satisfies SoF
Sale of goods K—delivery and acceptance of goods satisfies SoF to extent of goods delivered and accepted
Custom-made goods—SoF satisfied once seller makes a substantial beginning toward performance
Real Estate K (SoF)
Part Performance by the buyer satisfies SoF if buyer has done two of the follow three:
(1) Full or part payment
(2) Possession of property
(3) Improvements to property
Contracts within SoF
If a contract is within the SoF it must satisfy the SoF requirements to be valid
(1) Marriage K - promises made in consideration of marriage
(2) Service Ks incapable of being performed within 1 year (does not apply to lifelong deals that say nothing about time for performance because can technically be done tmrw)
(3) Land-related K (includes leases >1 year)
(4) Executor promises - promises by executors/administrators to personally answer for the debts of the decedant’s estate
(5) Guarantees - promises to pay debt of another (SURETY)
(6) Sales of Goods >=500
Illegality Defense
Illegal subject matter and/or purpose for K makes K unenforceable.
If the subject matter is LEGAL but made for an ILLEGAL PURPOSE then the party who was unaware of the illegal purpose can enforce.
Based on law at time of formation.
To avoid frustrating public policy, a K may be enforced if its terms violate a policy intended to benefit a party seeking relief
Fraud/Misrepresentation Defense
False assertions, concealment, or misstatements about a material fact before K formation or performance
K is VOIDABLE if a party detrimentally relies on the misrep.
Undue Influence Defense
K entered into under excessive pressure by someone unduly susceptible to pressure is voidable.
Duress Defense
wrongful act or threat that overcomes a party’s free will
Physical = void
Non-physical = voidable by coerced party
Unconscionability Defense
Courts may refuse to enforce all or part of a K that is unfair or oppressive to one party based on bargaining or terms
Adhesion Ks, exculpatory clauses for intentional acts, etc.
Look for the absence of meaningful choice by the disadvantaged party.
Misunderstanding
ambiguity concerning terms of the K
(1) If neither party is aware of the ambiguity - no K is formed unless both parties intended the same meaning
(2) If one party is aware of the ambiguity - K is formed and enforced according to intention of the unaware party
(3) Both aware of the ambiguity - no K is formed unless both intended the same meaning