Contracts Flashcards
Two primary sources of law for contracts
(1) Article 2 of UCC: contracts for sales of goods, i.e. anything movable when identified to the contract. Applies even for sums under $500! SOF req. only kicks at 500 or more.
(2) Common law: everything else, like contracts for services, real estate, land, employment contracts, etc.
An ad may be an offer if…
(1) There is a promise.
(2) Certain/definite terms (subject matter, quantity, price)
(3) Offeree clearly identified.
Otherwise, an ad is not a valid offer - just an invitation to negotiate.
Offers usually must include…
(1) Offeree’s name
(2) Offer’s subject matter
(3) The price to be paid
Land sale offers must include price and description of land. For sale of goods, only quantity term is required (price can be determined elsewhere).
Can measure quantity by buyer’s needs (requirements contract) - i.e. “I will buy all the batteries I need from you for $5 each for the next five years.” Must be reasonable.
Methods of termination
(1) Lapse of time: offer terminated if not accepted within the declared deadline or, otherwise, reasonable timeframe. Anything more than a month may be unreasonable, but it depends on situation.
(2) Rejection: counteroffers operate as rejections (they kill off the original offers), but mere bargaining does not (usually posed as a question); conditional acceptances = rejection + new offer.
(3) Revocation: retraction of an offer by offeror, which can happen any time before acceptance. Offeree must know/have notice of the revocation! Revocations are only effective upon receipt, not when merely sent.
(4) Death: if either party dies before acceptance, offer dies with them.
Offers cannot be revoked if 1 of 4 scenarios applies:
(1) Option contract - offeree gives consideration for offeror to not revoke offer for period of time.
(2) Merchant’s firm offer rule (UCC only) - merchant promises in signed writing to keep offer open for time stated or reasonable time (even w/o consideration, for up to 3 months). Even if assures offer will remain open for longer than 3 months, only 3 will be enforced.
-In addition, if the term of the offer assuring that the offer will be held open is on a form supplied by the offeree, that term must be separately signed by the offeror to be enforced as a firm offer.
(3) Foreseeable reliance: offeree relies on offer such that the offeror can no longer revoke. E.g. subcontractor bids on project and general contractor submits and wins larger bid. Sub can’t revoke.
(4) Starting to perform under a unilateral contract offer: e.g. you hire a painter to paint your house and you start painting - now irrevocable offer because start performance of unilateral contract offer. But just buying paints doesn’t amount to start of performance (but see foreseeable reliance).
For the exercise of options, acceptance is effective when…
Received by the offeror (i.e. NO mailbox rule).
For unilateral contracts, acceptance occurs only when…
You complete performance. Just starting performance does not constitute acceptance. So offeror can no longer revoke once started / has to give offeree chance to finish, but offeree does not HAVE to finish.
But shipping the wrong goods = acceptance AND breach.
Accommodation = “I don’t have exactly what you’re looking for, so here’s a different product.” Not a breach or acceptance, but basically a counteroffer.
Is silence considered acceptance?
No.
Exception: duty to speak where the previous customs b/w the parties indicate that silent acceptance was reasonable.
Acceptance (common law)
Acceptance must mirror offer terms exactly. Changing/adding terms = rejection + counteroffer.
Acceptance (UCC)
“Battle of the forms.” No mirror image rule under Article 2. Easier to form contracts because you can add terms in reply and it could still constitute acceptance. But if the offeree makes acceptance conditional upon assent to an additional term, then you have a rejection and counteroffer.
But offeree’s additional term not part of contract unless:
-Both parties are merchants
-Change not material (material change = a change to an offer that affects money, liability, or remedies for breach). Industry custom =/ material change.
-Offeror doesn’t object within reasonable time
Mailbox rule
Acceptance effective when sent/dispatched. Doesn’t matter if it takes another few days to reach offeror.
Exceptions:
-Offer states otherwise.
-Offer is irrevocable (e.g. acceptance under an option contract). Once you have option contract, offeror can no longer revoke under the terms, so mailbox rule not needed to protect offeree.
-Rejection sent first, then acceptance. In such a case, whichever is received first controls.
A written revocation of an offer is effective when…
It is received by the offeree. At common law, a written communication is considered to have been “received” as soon as it comes into the physical possession of the person addressed (or of someone authorized by him to receive it) or when it is deposited in some place authorized as the place for this or similar communications to be deposited.
Consideration for modifications (common law)
Pre-existing legal duty: need new consideration to modify common law contract. Can’t just revise terms in your favor and then do only what you already promised to do.
-But if the duty is altered in any way (e.g. acceleration of a due date), there is sufficient consideration.
-Also, there IS consideration if the scope of that duty is disputed in good faith. E.g. a creditor can promise to settle an honestly disputed debt for a lesser amount than billed. If the debtor then pays that lesser amount, the creditor’s promise becomes binding and the creditor cannot sue for the remainder of the billed amount even if it was actually owed.
-Third party exception: if someone comes in and offers you extra money for that service you contracted to do with original party, not a violation of original contract. E.g. if baseball player already owes preexisting duty to his club to exert his best efforts to hit home runs, if a fan comes and offers $5k to player to hit home run in next game, as long as the promise to perform duty was bargained for, the player can recover the money (if he hits home run).
Consideration for modifications (UCC)
No consideration needed to modify sale of goods contract. Just need to show good faith.
Promissory estoppel exception to consideration
Foreseeable, detrimental reliance in the form of some sort of performance can make a promise enforceable even in the absence of consideration.
Charitable subscriptions - i.e. promises to contribute money or property to a charitable institution - are enforceable on promissory estoppel grounds WITHOUT proof of detrimental reliance. All that is needed is proof that the promisor reasonably expected to induce reliance on the promise.
Defenses - incapacity/minors
-Ds without capacity (including minors) can disaffirm contract. Doesn’t matter even if D gives impression that they had capacity (e.g. were adults).
-Retaining benefits after gaining capacity (e.g. turning 18) = implied affirmation
-Still have to pay for necessities but only a reasonable value for what he received
Defenses - economic duress
E.g. D threatens to not follow through on contract unless P does something else (which was not bargained for).
Defenses - ambiguity/misunderstanding
No meeting of the minds such that both parties had different interpretations and the material terms could have gone either way.
But if one of the parties knew or should have known about the ambiguity and did not raise it, the ambiguity is held against that party.
Defenses - mistake
Mutual mistake: e.g. both farmers contracted for sale of cow on the mutual mistake that she was barren, but it turns out she was fertile. Contract must be rescinded. But mistake about value of something - rather than the existence of something - is not enough to strike the contract.
-But no mutual mistake defense if the adversely affected party assumed the risk of the mistake (e.g. by not hiring an inspector to check for certain flaws/impediments in land).
Unilateral mistake: courts more reluctant to grant relief. But assumption of risk plays a big hand here. No relief unless palpable, obvious mistake.
Defenses - unconscionability
-Unfair surprise
-Oppressive terms
-tested [by the court] when contract formed, not in hindsight after circumstances change
Defenses - statute of frauds
Written contract required when subject matter falls within SOF. Company letterhead is sufficient to satisfy signature requirement. Six major categories:
-Marriage: contracts where marriage is consideration (NOT merely promise to marry someone). E.g. prenups.
-Year: contracts which cannot be completed within 1 year are subject SOF. Whether actual contract is performed in 1 year does not matter - as long as it could have theoretically gotten done within a year, as per contract terms, it doesn’t fall within SOF. But lifetime employment contracts are NOT subject to SOF.
-Land sales: transfer of interest in real property (could be a lease, easement, etc.).
-Executors
-Goods for $500 or more. But even if less than 500, Article 2 still applies to ALL sales of goods.
-Sureties: a promise to answer for, i.e. promise to pay someone else’s debts. E.g. a guarantor if original debtor does not pay. “If he doesn’t pay, I will pay.”
Statute of frauds exceptions
-Modifications must be in writing only if the modified contract would fall within SOF. Modifications that fall within and satisfy SOF generally need not be in writing unless they affect the subject matter or the quantity of goods to be sold.
-Clause prohibiting oral modification: unenforceable in common law contracts; enforceable in Article 2 contracts.
-Land sales exceptions: lease of 1 year or less; part performance of real estate contracts (e.g. payment, possession, improvement; need 2 of 3 to satisfy SOF). A seller can enforce an oral land sale contract only if the seller conveys the property to the buyer.
-Exceptions for service contracts: full performance contract satisfies SOF. No part performance exception for service contracts (e.g. Big Bird got fired after 3 months on a 2 year contract).
-Exception for sales of goods >500: if buyer has already accepted goods or paid for them, that part of contract not subject to SOF. If you can’t apportion the purchased item (e.g. 10k paid on a 50k boat under an oral contract), then the whole contract is taken out of SOF; substantial beginning on custom goods that are unsuitable for resale in regular course of business (and contract is FULLY enforceable).
-Judicial admission exceptions: agreement admitted to under oath enforceable without writing. I.e. if the party against whom enforcement is sought admits in pleadings, testimony, or otherwise in court that the contract was made, the contract is enforceable without a writing.
-Merchant’s confirmatory memo: merchants agree to contract + one party signed writing containing quantity terms (email is fine) + no objection by recipient within 10 days. The memo/letter confirming oral deal satisfies SOF even if recipient doesn’t sign.
Adequate writing for SOF (sale of goods $500+)
-Quantity term
-D’s signature (i.e. party to be charged with breach).
Adequate writing for SOF (common law / services)
-All material terms (b/w who and what stuff and at what price)
-D’s signature
Parol evidence rule
Excludes evidence of prior or contemporaneous agreements (either oral or written) if they contradict a final writing. Final writing more reliable evidence.
What triggers the parol evidence analysis/test? A contest b/w the final writing and what came right before the final writing.
Parol evidence can be both oral or written.
Exceptions to parol evidence rule
-Partially integrated writing: final statement of terms included, but not a complete statement as to the entire deal. Can enter into evidence b/c doesn’t contradict the final writing - just adds to it. But if complete integration (e.g. merger clause), not admissible.
-Defense against formation. I.e. evidence being proffered to establish a defense to enforcement, not using it to contradict the writing.
-Explain/interpret vague terms.
-Correct clerical error.
-Conditions precedent: an act or event that must occur first before a party is under a duty to perform. So you’re allowed to introduce evidence of oral condition that failed to occur.
Course of performance
Parties’ conduct under prior installments of current contract.
Course of dealing
Parties’ conduct in prior contracts to help define terms.
A bit less reliable evidence than course of performance.
Trade usage
Industry norms that parties are aware of.
