contracts Flashcards
what are the three foundational qs of contract law?
- has an enforceable contract been formed?
- has the contract been performed (or, has performance been excused)?
- what are the remedies for breach?
define contract
a contract is a legally enforceable agreement
agreement + bargained-for exchange (consideration)
what universe are you in if the contract has elements of both services and goods?
- all-or-nothing rule
- predominant purpose
exception: divisible contracts
formation
what should you evaluate to determine if an enforceable contract has been formed?
- Agreement (offer + acceptance)
- Consideration (and substitutes)
- Defenses to formation
- Statute of Frauds
formation
define offer
an offer is a manifestation of a willingness to enter into an agreement (by the offeror) that creates a power of acceptance (in the offeree)
formation
are offer and acceptance governed by the objective or subjective test?
what does that mean?
objective
means that the key question is whether the offeror displays an objectively serious intent to be bound
formation
towards whom must an offer be directed?
an offer must usually be directed to a specific offeree. you cannot accept an offer unless it is directed at you
exception: rewards, contest offers that promise something to anyone who accomplishes a task
formation
what terms should a contract contain to be enforceable?
common law: all essential terms. this means parties, subject, price, and quantity
UCC: only essential term is quantity (UCC will gap-fill)
formation
what is a requirements contract?
B promises to buy 100% of whatever amount is needed from this individual S (often for a given time period)
specific enough under UCC: no quantity term but formula for calculation of such term
formation
what is an output contract?
S offers to sell 100% of whatever amount is produced to an individual B
specific enough under UCC: no quantity term but formula for calculation of such term
formation
why is an invitation to deal not a valid offer?
it does not convey the power of acceptance to the other side. it reserves the final right of approval (acceptance) with the original speaker
formation
is an advertisement an offer? why or why not?
no. usually understood as an invitation to deal
exceptions: reward ads; ads that are very specific and leave nothing open to negotiation, including how acceptance can occur
termination and revocability
how many ways to revoke an offer? what are they?
- express communication to offeree
- constructive revocation (offeree learns that offeror has taken an action inconsistent with a continuing ability to contract)
- rejection by offeree
- counteroffer by offeree
- offeror dies before K is formed
- reasonable amt of time passes
termination and revocability
what are the four kinds of irrevocable offers?
- option contract –remember that the option needs consideration for the offer to be irrevocable for that period of time
- firm offer –UCC only; offeror must be a merchant (any businessperson when transaction is commercial in nature)
- unilateral K after offeree has started performance –bc unilateral contract can only be accepted by performance. but remember that offeree is not required to complete performance
- detrimental reliance –offeree reasonably and detrimentally relies on the offer in a foreseeable manner
acceptance
define acceptance
acceptance is a manifestation of a willingness to enter into the agreement by the offeree
acceptance
how must the offeree accept the offer?
the offeror is the master of the offer, and therefore dictates its terms.
the offeree must accept the offer according to the rules of the offer
acceptance
what if B says “please ship me 500 blue beads by next week for $5 each.”
S sends 500 green beads the next day, instead.
is there a contract?
yes – a court would treat this as both acceptance and breach by S
acceptance
in the case of an open-to-all offer (e.g. reward) what is required of the person who performs in order for the offeror to be bound?
the person who performs must have known about the offer prior to their performance (intent to enter into agreement) in order to “accept” it.
without that prior knowledge, there is no K
acceptance
acceptance must be X to the other party in order for it to become effective
communicated
acceptance
when is an acceptance normally effective?
mailbox rule: usually effective at the moment it is sent by the offeree
acceptance
what are the exceptions to the mailbox rule?
mailbox rule does not apply:
1. if offeree sends something else first (rejection, counteroffer) and then changes their mind and sends an acceptance. then whichever reaches the offeror first will prevail
2. to other types of communications (revocations, rejections, etc.)
3. to option contracts
unclear to what degree this applies to other media like fax or email
acceptance
when is acceptance by silence allowed?
- unilateral reward offers or contests
- unilateral offers in which parties are so geographically close that the offeror will see that performance has occurred
- past history of silence serving as acceptance (such that offeree should reasonably notify offeror if they do NOT accept the offer; e.g. when parties have a regular business relationship)
- offer says acceptance must come by silence AND the offeree intends to accept the offer by silence
acceptance
what is an implied-in-fact contract?
this is when an action is communicated by gestures or actions (without writing or speaking)
counteroffers and UCC §2-207
what common-law rule is implicated when the terms of an acceptance do not exactly match the terms of the offer?
mirror-image rule
in this case the “acceptance” is a counteroffer
counteroffers and UCC §2-207
what is a conditional acceptance?
a conditional acceptance is an acceptance that is based on the occurrence of a specified event. e.g. I accept IF …
a conditional acceptance is another form of counteroffer
counteroffers and UCC §2-207
what is UCC §2-207
replaces the mirror-image rule
a purported acceptance that does not match the terms of the offer exactly can still count as a legal acceptance (maybe not all of its terms, though)
counteroffers and UCC §2-207
what is the text of UCC §2-207(1)
“a definite and seasonable expression of acceptance [or a written confirmation] which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional upon assent to the additional or different terms”
counteroffers and UCC §2-207
when can an additional term in an acceptance control?
under which provision of the UCC?
- both parties are merchants
- new term does not materially alter the deal
- intial offer did not expressly limit acceptance to its terms **AND **
- the offeror did not reject or object within a reasonable time to the new term
counteroffers and UCC §2-207
what are the majority and minority rules for acceptances with different terms from the initial offer?
majority: KNOCK-OUT RULE. “Knocks out” both the different terms from the contract. Neither will govern and instead, the general gap-filling provisions of the UCC will apply
minority: when different term does not govern under UCC §2-207(2) (i.e. when it is not an “additional” term), the initial offer controls the term
counteroffers and UCC §2-207
what is an acceptance based on conduct?
to what provision of the UCC does it correspond?
when parties fail to make a K but still act as though there is an agreement, then under UCC §2-207(3) only the terms that both writings agree on become part of the contract, with all other terms supplied by the UCC default rules
counteroffers and UCC §2-207
what is a confirming memo?
when parties have a K (usually oral agreement) and one party sends a confirming memo with additional terms.
UCC §2-207(1): “…a written confirmation which is sent within a reasonable time operates as an acceptance…”
consideration
what is consideration?
a bargained-for deal in which the parties exchange promises involving a legal detriment or benefit
consideration
what is an example of something that does not count as consideration?
gifts
also look out for conditional gifts – are they really bargaining for the person to accept?
consideration
when is consideration adequate (rather than nominal)?
as long as there is subjective value to the person receiving it, consideration will be adequate
consideration
what is an illusory proimse?
promisor does not clearly commit to the deal –there must be a way for them to breach
in this case there is no consideration and therefore this is an illusory promise.
e.g. “I can sell you my jeep for $5000.” “Ok, i will buy the jeep for $5000 if i feel like it”
consideration
what are some examples of real contracts that could be mistaken for illusory contracts?
satisfaction contracts. these are still real contracts with consideration.
* the usual standard of satisfaction for these Ks is objective (“would a reasonable person be satisfied?”)
* for Ks involving aesthetic satisfaction (art, tutoring services), use a subjective standard of satisfaction
output & requirements contracts –there is still a way for the parties to breach here
consideration
when is settling a legal claim / promising not to sue sufficent consideration?
- P has good faith belief in the validity of the claim OR
- there is reason to doubt the validity of the claim due to uncertain law
consideration
preexisting duty rule
(common law)
a promise to do something you are already legally obligated to do is not consideration
this is why contract modifications need new consideration
consideration
exceptions to the rule that contract modification needs new consideration
- change in performance (e.g. renewing lease for an additional year, at lower rent)
- third party promising to pay OR
- unforeseen difficulties that would excuse performance
consideration
what is the general rule at common law with respect to modifying contracts?
need new consideration
consideration
if a creditor promises to release a debtor from a debt obligation if they render partial payment, is this modification binding?
if the debt is currently due and undisputed, then the modification is NOT binding
but if the debtor is paying part of their debt early in order to be released from the debt obligation, or the debt is disputed, then the modification is likely binding
modification
what standard governs when there is a modification under the UCC?
good faith
if the modification is made in good faith, then it is binding even without new consideration
hold-ups, for example, are not binding bc they are not modifications made in good faith
promissory estoppel (PE)
when might promissory estoppel arise?
when one party makes a promise, and the othe party relies on that promise to take some action
PE
what are the elements for a claim under PE / reliance?
- promise made that would be reasonably expected to induce reliance
- promisee does indeed take detrimental action in reliance on that promise AND
- injustice can only be avoided by enforcement of the promise
PE
when does a quasi-contract arise?
what is it also known as?
arises when party would have made K if they could have, but could not
OR
when one party has conferred a benefit on another party and it would be fair to pay for that benefit
also known as a contract “implied-in-law”
PE
what are the elements of a quasi-contract?
- P confers measurable benefit on D
- P reasonably expected to get paid AND
- it would be unfair to let D keep the benefit without paying
*REMEMBER TO ASK: did P give D an opportunity to decline? If not, is there a good reason why there was no opportunity to decline (e.g. emergency)?
PE
how are quasi-contract damages measured?
limited as justice required to the fair value of the benefit conferred
PE
what is the “half theory”?
half theory = moral obligation + subsequent promise to pay
some jxdns have case law suggesting that a moral obligation plus a subsequent promise to pay can be binding
but usually this would be past consideration and is thus not binding
defenses
what are the defenses to K formation?
- misunderstanding
- incapacity
- mistake
- fraud (incl. misrepresentation or nondisclosure)
- duress
- illegality (+ contracts against public policy)
- unconscionability
defenses
misunderstanding defense:
when does this arise?
what must the party show?
arises when each party attaches a different meaning to the same words
must show:
1. the parties use a material term that is open to two or more reasonable interpretations (the objective test cannot apply)
2. each side attaches a different meaning to the term, AND
3. neither party knows, or should know, of the ocnfusion
defenses
incapacity defense: who lacks the capacity to make a K?
- infants (minors)
- people who are mentally ill either (A) the person cannot understand the nature and consequences of their axns OR **(B) **the person cannot act in a reasonable manner in relation to the transaction AND the other side knows or has a reason to know this
- very intoxicated persons (if the other side knows or has reason to know this)
defenses
incapacity defense: what happens to a K if it is made w someone who lacks capacity?
it is VOIDABLE
the incapacitated party can disaffirm
exceptions:
* in a K for necessities (food, clothing, shelter) the party without capacity must still pay
* party w/o capacity might stil ratify the deal by keeping the benefits of the K after capacity is obtained. e.g. this is why the minor cannot disaffirm after reaching the age of majority
defenses
mistake defense: what is a “mistake” in this context?
a mistake is a belief that is not in accord with a present fact
defenses
mistake defense: when there is a mutual mistake, when may the adversely affected party rescind?
when there’s a mutual mistake, the adversely affected party may rescind if:
1. there is a mistake of fact that existed at the time the deal was made;
2. the mistake relates to a basic assumption of the K and has a material impact on the deal; AND
3. the impacted party did not bear the risk of mistake
defenses
mistake defense: when there is a unilateral mistake, when may the adversely affected party rescind?
when there’s a unilateral mistake, the adversely affected party may rescind if:
1. they can prove all the elements of mutual mistake AND
2. either: (A) the mistake would make the K unconscionable OR (B) the other side knew of, or had reason to know of, or caused, the mistake
defenses
what is misrepresentation?
what must a party show to assert misrepresentation?
an intentional (fraudulent) or accidental statement at the time of contracting that is not true
- misrepresentation of a present fact (not opinion)
- that is material or fraudulent (intentional) AND
- that is made under circumstances in which it is justifiable to rely on the misrepresentation
defenses
what is fraud in the factum?
intentional misrepresentation of a present fact
defenses
what is fraud in the execution?
one party tricks the other into signing something that they do not even know is a K
defenses
what is nondisclosure?
one party does not learn the truth about something but now you just remain quiet*
*normally, you do not need to tell the other side about all material facts related to the deal
*LOOK FOR a special (fiduciary) relationship between the parties OR active concealment
defenses
what is duress?
relatedly, describe undue influence
duress: an improper threat that deprives a party from making a meaningful choice to contract
* economic duress: arises when one party makes threats to induce another party to contract (or modify a contract)
undue influence: arises when one party puts very intense sales pressure on another party, who often seems weak-minded or susceptible to high-pressure sales tactics
defenses
which of the defenses are defenses to contract formation?
- misunderstanding
- incapacity
- mistake
- fraud (incl. misrepresentation & nondisclosure)
- duress
defenses
which of the defenses are defenses to contract enforcement? (i.e. won’t prevent formation of a contract, but cannot be enforced by one party against the other)
why are these not defenses to K formation?
- illegality (including Ks against public policy)
- unconscionability
these are not defenses to K formation bc they don’t impact the requirement that the contracting parties have a “meeting of the minds.”
defenses
when is a K containing elements of illegality be unenforceable?
an illegal K is unenforceable
but a contract entered in furtherance of an illegal act (that is not in itself illegal) will still be enforced
e.g. Party A hires Party B, a cab driver, to drive him to the place where Party A is planning to commit a crime. Party A cannot assert the illegality defense to avoid paying the cab driver
defenses
what is a contract against public policy?
a contracting situation that is not formally illegal but present some other policy concern (e.g. a broad exculpatory agreement)
defenses
unconscionability
shocks the conscience of a reasonable person
two kinds:
* procedural unconscionability: defect in the bargaining process itself (hidden term; absence of meaningful choice)
* substantive unconscionability: rip-off
defenses
how do jxdns handle unconscionability defenses? what must the party asserting the defense show?
depends on the jxdn. in some jxdns, both procedural AND substantive unconscionability must be present for the deal to be struck down. in other jxdns, only one variety need be present