Contracts Flashcards
Describe & example unilateral contract / bilateral contract?
Bilateral contract—arises from a promise that requests acceptance by an
return promise of the promisee: I give you 100 if you promise to paint my carpet.
Unilateral contract: acceptance by action: 100 if you take the action of painting my carpet.
Rules Common Law vs UCC on acceptance on slightly different terms?
common law = acceptance has to be mirror image to make a deal, UCC = 2, 207 In some cases, a purported acceptance that does not match the terms of the offer exactly can
still count as a legal acceptance. But, do not assume that all terms in the purported acceptance will govern the contract.
2, 207 (1) what are the requirements for the UCC to count as acceptance?
-definite and timely expression of acceptance
-even though it
states terms additional to or different
-unless acceptance is
expressly made conditional upon assent to the additional or different terms
2, 207 (2) UCC: requirements for new terms to be part of contract?
1) Both parties are merchants;
2) The new term does not materially alter the deal;
3) The initial offer did not expressly limit acceptance to its terms; and
4) The offeror does not object/abject within a reasonable time to the new term.
Varia: (1) what is the knock out rule, (2) what governs if parties fail to make a contract but still act as though there is an agreement (207(3)), (3) what happens if parties have a contract (usually by verbal agreement) and one party sends a
confirming memo with additional terms?
- Arises when the acceptance has a different term from the initial offer (as opposed to just an
additional term): “Knock out” both of the different terms; neither term will govern and the general
gap-filling provisions of the UCC will apply. (Minority—When the different term does not govern under § 2-207(2), the initial offer
controls the terms.) - Under UCC § 2-207(3), only the terms that parties did agree on become part of the contract, with all other terms supplied by the UCC default
rules. - If you see this fact pattern (early agreement + written
confirmation with new terms), work through the same steps as above for § 2-
207(2). But recognize that the new terms will very rarely come in.
Is there bargained for consideration?
Exam Tip 3: The bar examiners like to test situations in which bargained-for
consideration is missing. Ask the following questions:
1. Who is making the promise that needs to be supported by
law? (That person is the promisor; the other party is the promisee.)
2. Is there a
benefit to the promisor or a detriment
to the promisee? (You just need one, not both.)
3. Was this bargained for? (In other words, did the
parties think that they were making a deal when they exchanged promises?)
(Not doing something that you are legally entitled to do is a legal detriment.)
Rules regarding Consideration - general - both Common & UCC
- Adequacy of consideration (nominal consideration) (one dollar not enough, must be subjective enough value)
- Illusory promise is not enough “if I feel like it” “when the economy gets better”
- Satisfaction contracts are not illusory; they are real contracts with
consideration “as much as I need” - Output and requirements contracts are not illusory promises “as much as I produce”
- Past consideration is not consideration.
- Promising not to sue is consideration, if there is a good faith believe the claim is real & no uncertain law surrounding it.
Modification of contract, Common Law?
Follows the preexisting duty rule—a promise to do something that you are already legally
obligated to do is not consideration.
Exceptions:
1) A change in performance
2) A third party promising to pay; or
3) Unforeseen difficulties that would excuse performance.
Promising partial payment for release from a debt obligation—ask whether the debt is
currently due and undisputed. If so, the modification is not binding!
UCC rule on modification of a contract?
Ask whether the modification is made in good faith. If so, it is
binding even without new consideration.
Promissory Estoppel /reliance? A theory next to Consideration, if there is no consideration, reliance can be there.
Three key elements for a claim under reliance:
1) A promise is made that would be reasonably expected
to induce reliance;
2) The promisee does indeed take detrimental action in reliance on the promise; and
3) injustice can only be avoided by enforcement of the promise.
Note 13: Charities do not need to prove detrimental reliance (the second
element) when pursuing a reliance theory to collect on a charitable-gift
promise.
Note 14: Remember that reliance was discussed earlier with respect to
irrevocable offers (a type of caterpillar “power shield”).
Quasi-Contract
* Sometimes called a “contract implied-in-law.”, Arises when you would have made a contract if you could have, but you could not, or when one
party conferred a benefit on another party, and it would be fair to pay for that benefit, elements?
1) The plaintiff confers a benefit
on the defendant;
2) The plaintiff reasonably expected to get paid; and
3) It would be unfair to let the defendant keep the benefit without
paying.
* Look for an opportunity to decline or a good reason why there was no opportunity
to decline.
Note 15: When you see a situation that does not satisfy the normal
requirements for a contract but still strikes you as unfair, ask whether quasi-
contract might apply.
Moral Obligation Plus Subsequent Promise (the “Half Theory”). Normally, this would be past consideration and thus not binding.
Also, the seal? makes it legally binding?
Only in a few jurisdictions, so only if exam says “jurisdiction subscribes to this rule”. Can mean that if someone saves you from sharks, you have to pay back the note ride, even though no bargained consideration.
Seal. No, dead letter law today.
Defenses to Contract Formation—The “D” in “All Contracts Don’t Stink.”?
1) Misunderstanding
2) Incapacity
3) Mistake
4) Fraud/Misrepresentation/Nondisclosure
5) Duress
6) Illegality
7) Unconscionability
Misunderstanding
o Arises when each party attaches a different meaning to the same words
o For this defense, you must show that?
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 confusion.
Incapacity
o Who lacks the capacity to make a contract?
1) Minors (under the age of 18)
2) People who are mentally ill—two standards:
* The person cannot understand the nature and consequences of his actions; or
* The person cannot act in a reasonable manner
in relation to the transaction (if the other side knows or has reason to know this).
3) Very intoxicated persons (if the other side knows or has reason to know this)
What happens if you make a contract with a person who lacks capacity?
The contract is voidable—the incapacitated party can
disaffirm.
Contract for necessities—the party without capacity must still pay
fair value (not necessarily the contract price)
* Necessity— something you really need to live (e.g., food, clothing, or shelter)
A party without capacity can ratify the deal by keeping the benefits of the contract after
capacity is obtained.
Mistake
o A mistake is a belief that is not in accord with a present fact.
Which categories and elements?
a. Mutual mistake (affecting both parties)
Allows the adversely affected party to rescind if:
a) There is a mistake of fact, existing at the time that the deal is made;
b) The mistake relates to a basic assumption of the contract and has a
material impact on the deal; and
c) The impacted party did not bear the risk of
mistake.
(both mistake stone for diamond)
b.Unilateral mistake (one party)
Allows the adversely affected party to rescind if:
a) She can prove all of the elements of mutual mistake; and
b) Either:
i) The mistake would make the contract unconscionable; or
ii) The other side knew of, had reason to know of, or caused the mistake.
(one party tries to get a deal that seems to good to be true)
Misrepresentation—a statement at the time of contracting that is untrue.
Can be intentional (fraudulent) or accidental
o To assert this defense, the party must show?
1) A misrepresentation of a present fact (not opinion, like “great car”);
2) That is material (not cigarette lighter in car) OR fraudulent (intentional); and
3) That is made under circumstances in which it is justifiable to rely on the
misrepresentation.
Fraud in the Execution?
Nondisclosure?
—you trick someone into signing something that they do not even
know is a contract
—the other 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.
Except: A special (fiduciary) relationship or active concealment
Duress?
Undue influence?
o An improper threat that deprives a party from making a meaningful choice to contract (gun to the head)
o economic duress—arises when one party makes threats to
induce another party to contract (or modify a contract)
—arises when a party puts very intense sales pressure on another party,
who often seems weak-minded or susceptible to high-pressure sales tactics.