Contracts Flashcards
Seven General Areas
- Applicable Law
- Formation of Contracts
- Terms of Contract
- Performance
- Remedies for unexcused nonperformance
- Excuse of nonperformance
- Third-party problems
Armadillos From Texas Play Rap Eating Tacos
Unilateral Contract
Results from an offer that expressly requires performance as the only possible method of acceptance
Acceptance is at the time the performance is done.
Bilateral Contract
All other offers. (will be on exam)
Usually offer is silent as to method of acceptance.
Bilateral Unless what?
- Reward, prize, contest
2. offer expressly requires performance for acceptance
Quasi Contract
Equitable Remedy
**When contract law amounts to unfairness.
What parts of the law are we responsible for?
- Common law
2. UCC articles 1 and 2
Common Law
General Rules Only
Articles 1 and 2
Article 1, common law contracts applies to sale of goods UNLESS displaced by particular provisions.
Article 2 applies to contracts that are primarily for sale of goods.
What to look for?
- type of transaction
- subject matter of transaction (goods, tangible, personal property)
**No revised article 2
Applicable Law Review on Topics
- Real estate - Common Law
- Services Contract - Common Law
- Sale of Goods - UCC 2
What about mixed deals? What is the test?
General Rule: All of nothing/ depends on the more important part.
Exception: if contract divides payment, then apply UCC to sale of goods party and common law to the rest.
Article 2A of the UCC
Applies to leases of goods.
Not leases of land.
NOT ON EXAM PROBABLY.
Definition of A contract
An agreement that is legally enforceable.
Two possible questions?
Look first for an agreement.
Second, determine whether the agreement is legally enforceable.
Overview of Agreement Process on Bar
In looking for an agreement, what for:
- The initial communication (offer)
- What happens after the initial communication (termination of the offer?)
- Who responds and how she responds (acceptance)
**The question will ask about one of these time stages.
Offer
One person’s (offeror) MANIFESTATION of willingness to contract.
Focus on what was understood. Not what was intended.
**look for words of commitment by that person.
Problems to look for an Offer
- Content
2. Context
Problems in Content for an Offer
- Missing price terms in sales contract.
- Sale of real estate - price and description required
- Sale of goods - no price requirement
- Vague or ambiguous material terms not an offer under either common law or UCC
- Appropriate, fair, reasonable (LOOK FOR THESE WORDS) THEY ARE VAGUE - Requirement Contracts/ Output Contracts:
- A contract for the sale of goods can state the quantity of goods to be delivered under the contract in terms of the buyer’s requirements or seller’s output.
Requirement or Output contracts
Not vague or ambiguous and are valid.
Requirement: Buyer commits to buying to X
Output: Seller commits to selling to X
What about increase of requirements?
Buyer can increase requirements so long as the increase is in line with prior demands.
TEST:
No “unreasonable disproportionate” limitation on increases.
Unreasonable disproportionate - 3x as much. Just compare.
Problems in Context for an Offer
General Rule: An advertisement or price quotation is NOT on offer.
Exceptions to the General Rule of Context.
- An advertisement can be a unilateral offer if it is in the nature of a reward.
- An advertisement can be an offer if it specifies quantity and expressly indicates who can accept.
- Price quotation can be an offer if sent in response to an inquiry.
Second Possible Agreement Issue: Was the offer terminated? Methods of Termination
- Lapse of time
- Death of a party prior to acceptance
- Words or conduct of offeror - revocation
- Words or conduct of the offeree - rejection. (indirect rejects
Lapse of Time
Time is state or reasonable time has lapsed.
Look for the facts of dates. Going to be about a lapse of an offer.
Death of a Party Prior to Acceptance
General Rule: Death or incapacity of either party after the offer, but before acceptance, terminates offer.
Exception: Irrevocable offers
Offeror Revocation
Two ways:
1. Later unambiguous statement by offeror to offeree of unwillingness or inability to contract.
OR
- Later unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of.
- *This is a two party case. There must be both parties present.
- *Unambiguous change of mind by the offeror.
What offers are irrevocable?
- Option
- UCC “Firm Offer Rule”
- Reliance
- Unilateral Contract
Irrevocable Option
An offer cannot be revoked if the offeror has not only made an offer but also:
1. promised not to revoke or keep open
AND
2. This promise is supported by payment or other consideration (option).
- *An option is an offer + 2
- *No ceiling of time
Common Law Rule
Irrevocable Firm Offer Rule (bar certainty)
An offer cannot be revoked for up to three months IF:
1. Offer to buy or sell goods
2. Signed, written promise to keep the offer open
AND
3. Promising Party is a merchant.
- *Only for sale of goods
- *Maximum time of 3 months
Merchant
A person in business.
Exception: COME BACK TO THIS
Irrevocable Reliance
An offer cannot be revoked if there has been: 1. Reliance that is 2. Reasonably foreseeable AND 3. Detrimental
- *Usually a construction problem.
- *When you see BID, you can almost take it as a given as an OFFER.
- *When the supplies cannot be returned.
Irrevocable Unilateral Contract
The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete perfomance.
- Unilateral/Performance - starting makes irrevocable
- Unilateral/Mere Preparation - does not make irrevocable. ANY DOUBT GO WITH THIS ONE.
- *Red Flag - “O’s offer states that it can be accepted only by performance”
- Offer -> Only By
Irrevocable Words or Conduct of the Offeree Indirect Rejection
Three ways
- Counter offer
- Conditional Acceptance
- Additional terms to a common law contract.
Indirect Rejection by Offeree Counter Offer
Generally terminates the offer and creates a new offer.
Where a counteroffer has been made there is no express contract unless that counteroffer has itself been accepted.
Counteroffers need to be distinguished from bargaining.
Bargaining does not terminate the offer. (Will you accept?) (if a question response)
Counteroffers do not terminate options.
Indirect Rejection by Offeree by Conditional Acceptance
A conditional acceptance terminate the offer.
Common Law: rejects and becomes a counteroffer that can be accepted by conduct.
UCC: Reject
Look for:
"I accept \_\_\_\_\_\_\_"
- if
- only if
- provided
- so long as
- but
- on condition that.
Indirect Rejection by Offeree by Addition Terms to a Common Law Contract (Mirror Image Rule)
Rule: Can’t add or change anything. Mirror Image
Under a Common Law: a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance.
UCC Article 2 (No Mirror Image Rule): Seasonal expression of acceptance: A fact pattern in which terms is:
1. Offer to buy or sell goods
AND
2. A response with additional or different terms.
Two Questions Raised Under UCC Article 2 Addition Terms
- Is there a contract?
2. Is the additional term a part of the contract?
UCC Article 2 Additional Terms: Is there a contract?
A response to an offer that adds additional or different terms, but does not make the new terms a condition of acceptance, is generally treated as an acceptance.
Seasonal expression of acceptance.
**Whether or not merchants does not matter here.
UCC Article 2 Additional Terms: Is the additional term a part of the contract?
The additional term is not a part of the contract UNLESS both parties are merchants.
EVEN IF, the additional term is not a party of the contract if the additional term is “material” or if the additional term is objected to by original offeror.
Third Possible Agreement Issue: Acceptance of an offer
Look at the offer for information about how the offer was accepted and who accepted.
- Method of Acceptance
- Accepting Party
Method of Acceptance
Offeror can control:
1. the method of acceptance.
OR
2. the time that a distance acceptance is effective
OR
3. Whether the offeree must give notice that it has been accepted by performance.
Bar Exam Three Fact Patterns of Acceptance
- The offeree starts to perform.
- Distance and delay in communications (Mailbox Rule)
- The seller of goods sends the “wrong” goods.
Bar Exam Three Fact Patterns of Acceptance: The offeree starts to perform.
Three characteristics. First, verbal offer, Second, no words in response, and Third, start of performance.
General Rule: The start of performance is acceptance. Implied promise to perform and so there is a bilateral contract.
Exception: Start of performance is not acceptance of unilateral contract offers. Completion of performance is required and that is the only way to accept
Bar Exam Three Fact Patterns of Acceptance: Distance and Delay in Communications
Four Rules:
- All communications OTHER THAN ACCEPTANCE are effective only when received.
- revocation, etc.
- Acceptance is generally effective when mailed (mailbox rule)
- If a rejection is mailed before an acceptance is mailed, then neither is effective until received.
- You cannot use the mailbox rule to meet an option deadline.
Facts to look for:
1. People dealing from different cities.
2. They are not up to date on technology (Mail)
3. Differing Communications
- when effective (Apply four rules)
4.
Bar Exam Three Fact Patterns of Acceptance: The Seller of Goods sends the “wrong” goods (OFTEN TESTED)
General Rule: Acceptance and breach
Exception: Accommodation (i.e., explanation), counter off and no breach.
- “Will this do”
Who can accept contracts?
- A person who knows about the offer at the time she accepts.
- Who is the person to whom it was made.
Exception: Options being assigned.
Can offers be assigned?
NO
Can options be assinged
Yes unless otherwise provided in the option.
Formation of Contracts: Legal Reason for Not Enforcing Agreement
- Lack of consideration or a consideration substitute for the promise at issue
- Lack of capacity of the person who made that promise;
- Statute of Frauds;
- Existing laws that prohibit the performance of the agreement;
- Public Policy
- Misrepresentations
- Nondisclosure;
- Duress;
- Unconscionability;
- Ambiguity of words of agreement;
- Mistakes at the time of the agreement.
Legal Reason for Not Enforcing Agreement: Lack of Consideration or a Consideration Substitute
Legal Reason for Not Enforcing Agreement: Lack of Consideration or a Consideration Substitute
Consideration is the terms of the agreement
Bar Exam Strategy:
- Identify the promise breaker.
- Ask whether that person asked for something in return for her promise.
- No consideration if not in exchange for something.
- Look at the person who is trying to enforce the promise and ask what requested legal detriment that person sustained.
What are possible consideration issues?
- Bargain for
- Legal Detriment
- Promise as consideration
- Adequacy of Conseration
Most Likely:
- Past Consideration
- Pre-existing contractual or statutory duty rule (Common Law)
- Part Payment as consideration for release, i.e., promise to forgive balance of debt.
“Bargained For”
Asked for by the promisor IN EXCHANGE for her promises.
Consideration fact patterns have people doing stuff that they were asked to do.
“Legal Detriment”
Did the person have legal detriment.. Relied on money
Promise as Consideration
Promise for Promise
General Rule: Promise can be consideration for another Promise
Exception: Illusory Promise - you reserve the right to terminate without commitment. LOOK UP THIS SHIT - almost always the wrong answer. Any kind of detriment it is not illusory.
Adequacy of Consideration
Not relevant in contract law
Past Consideration
General Rule: NOT consideration
Exception: Expressly requested by promisor and exception of payment by promisee.
Pre-Existing Contractual or Statutory Duty Rule
- Common Law Approach
2. UCC Approach
Pre-Existing Contractual or Statutory Duty Rule: Common Law Approach
General Rule: Doing what you are already legally obligated to do is not new consideration for a new promise to pay you more to do merely that.
The new consideration is required for contract modification.
Exceptions:
- Addition to or change in performance
- Unforeseen difficulty so severe as to excuse performance.
- Third Party Promise to pay.
Pre-Existing Contractual or Statutory Duty Rule: Common Law Approach: UCC Art. 2
Does not have a pre-existing legal duty rule.
New consideration is not required to modify a sale of goods contract.
Good faith is the test for changes to an existing sale of goods contract.
Part Payment as Consideration for Release, i.e., Promise to forgive balance of debt.
Key is whether debt is due and undisputed.
If debt is due and undisputed, then part payment is NOT consideration for release.
Due and Undisputed
Due - time to pay or past time to pay
Undisputed - no disagreement to the terms.
What are Consideration Substitutes?
A promise is legally enforceable even though there is no consideration if there is one of the following consideration substitutes:
- A written promise to satisfy an obligation for which there is a legal defense (SoL) is enforceable without consideration.
- Promissory Estoppel (detrimental reliance)
- Seals
Promissory Estoppel
Elements:
1. Promise
2. Reliance that is reasonable, detrimental, and foreseeable,
AND
3. Enforcement necessary to avoid injustice.
Consideration vs. Promissory Estoppel
Consideration is where they were expressly requested to or not to do.
Promissory Estoppel are about people doing stuff they were not asked to do.
Seals
If your state still recognizes seals as a consideration substitute, you state supplement will so state.
Wax emblem, fixed to the parchment. Not on MBE.
Legal Reason for Not Enforcing Agreement: Lack of Promissor’s Lack of Capacity
Legal Reason for Not Enforcing Agreement: Lack of Promissor’s Lack of Capacity
Who lacks capacity to contract?
- Infant
- Mental incompetents (doesn’t understand)
- Intoxicated persons if other party has reason to know.
Consequences of Incapacity
- Right to disaffirm by person without capacity;
- Implied affirmation by retaining benefits after gaining capacity (ratification)
- Quasi-Contract Liability for Necessaries
Consequences of Incapacity: Right to Disaffirm by Person without Capacity
The Defendant who lacks capacity can disaffirm.
The Plaintiff’s capacity is not in question.
Consequences of Incapacity: Ratification after Retaining
Person retains the benefit from the time of infancy into the time of having capacity.
Consequences of Incapacity: Quasi Contract Liability for Necessaries
A person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care or shelter, but that liability is based on quasi-contract law, not contract law.
Quasi-Contract
DEFINE THIS
Legal Reason for Not Enforcing Agreement: Statute of Frauds
COME BACK HERE so heavily tested.
Very objective and you need objective proof
To satisfy you need: 1. Performance OR 2. A writing signed by the defendant. OR 3. Judicial Admission OR 4. Estoppel
Four Contracts Within the Statute of Frauds
- Promises to Answer for the Debts of Another (surety)
- Service Contract not “capable” of being performed within a year from the time of the contract.
- Transfers of Interest in Real Estate (with exception of leases of year or less)
- Sale of goods for $500 or more.
Objective Proof of Statute of Frauds
Proof other than just testimony that a contract exists.
Statute of Frauds: Promises to Answer for the Debts of Another (Surety)
“Answer for” is not merely a promise to pay someone else’s debts, but rather a promise to pay another person’s debts only if that person does not herself pay.
**Look for a GUARANTEE
Exception: “Main Purpose” - if the main purpose of the obligation allegedly guaranteed was to benefit the guarantor, then not even that guarantee is within the Statute of Frauds.
Statute of Frauds: Service Contract Not “Capable” of Being Performed within 1 Year
Statute of Frauds applies to:
- Specific time period, more than a year
- Specific time, more than a year from the date of contract.
Statute of Frauds does not apply to:
- Task (nothing said about time)
- Life (work for rest of life)
**Termination option is irrelevant. Because the test is whether it could be PERFORMED WITHIN A YEAR
“Capable”
Theoretically possible with unlimited resources;
Ignore what actually happens;
Key is what might have happened with unlimited resources
Statute of Frauds: Transfers of Interest in Real Estate (with exception of leases of year or less)
“Transfers of” - must be an transfer of an interest.
Can be an easement, any interest of property.
Lease must be more than 1 year.
Statute of Frauds: Sale of Goods for $500 or More
Only thing you need to look for is $500.
How is the Statue of Frauds Satisfied?
Objective Proof:
1. Performance
AND
2. Writing
Process of a Statute of Frauds Claim
- > An agreement within the Statute of Frauds
- > Defendant files a motion to dismiss or a motion for Summary Judgment based on the Statute of Fraud Defense
- > The Plaintiff can still get her day in court by providing objective evidence to quell the concern of Fraud.
Satisfying Statute of Frauds by Performance Rules (5)
- Part performance satisfies the Statute of Frauds in transfers of real estate.
- Full Performance in service contracts by either party satisfies the Statute of Frauds.
- Part performance of a services contract does not satisfy the Statute of Frauds. **ALWAYS ON BAR
- Seller’s part performance of sales of goods contracts satisfy the Statute of Frauds to the extent of the part performance.
- Seller’s part performance of a contract for specially manufactured goods satisfies the Statute of Frauds as soon as the seller makes a “substantial beginning”
Performance Rule 1: Part Performance Satisfies the Statute of Frauds in Transfers of Real Estate
Requires two of the three:
- Improvements to the land;
- Payment
- Possession
Performance Rule 4: Seller’s Part Performance of a Sale of Goods Contract
Look to see if question is about delivered goods or undelivered goods.
Part performance satisfies Statute of Frauds to extent of part performance.
Performance Rule 5: Seller’s Part Performance of a Contract of Specially Manufactured Goods
If the contract is for the sale of goods that are to be specially manufactured, then the Statute of Frauds is satisfied as soon as the seller makes a “substantial beginning”
Substantial Beginning
The seller has done enough work that it is clear that what she is working on is specially manufactured, i.e., custom made or made to order.
Fact Pattern 85 on Page 26
TYPE THAT SHIT
Satisfying Statute of Frauds by Writing
Not every writings count.
Anything other than a Sale of Goods, it must meet the All material term test.
You need to look at who signed the agreement, IT MUST BE SIGNED BY THE DEFENDANT.
Contents of Writing Requirements of Non Sale of Good Contract
All material term test.
The writing must be signed by the defendant with a limited exception for transactions between two merchants where there is a delay in responding
Material Term
- Who the people are?
2. What they have agreed to do?
Contents of Writing Requirement of Sale of Goods Under Article 2
- Indicate that there is a contract for the sale of goods.
- Quantity term.
- In writing.
The writing must be signed by the defendant with a limited exception for transactions between two merchants where there is a delay in responding
Other Use of Statue of Frauds
- Written proof of authorization to enter into contract for someone else;
- Written proof of contract modification;
- Contract Provisions requiring written modification.
Written Proof of Authorization to Enter into Contract for Someone Else under Statute of Frauds
Written authorization is required:
- The Equal Dignity doctrine - Rules of Law require that the authorization must be in writing only if the contract to be signed is within the Statute of Frauds.
- If contract has a legal requirement to be in writing, the authorization must be in writing.
Written Proof of Contract Modification under Statute of Frauds
Two Steps:
1. Look at the agreement with the alleged change
AND
2. Determine whether the deal with the alleged change would be within the Statute of Frauds.
If the deal with the alleged change would be within the Statute of Frauds, then the alleged modification agreement must be in writing.
Contract Provision Requiring Written Modification under Statute of Frauds
Common Law: contract provisions requiring that all modification be in writing are not effective - ignore contract language.
Under UCC: contract provisions requiring written modification are effective unless waived.
Legal Reason for Not Enforcing Agreement: Illegality
If the subject matter is illegal, the agreement is not enforceable.
If the subject matter is legal, the agreement is enforceable if the plaintiff did not have reason to know of the Defendant’s illegal purpose.
Legal Reason for Not Enforcing Agreement: Public Policy
Courts can refuse to enforce because public policy.
Look for an exculpatory agreement that exempts intentional or reckless conduct from liability or a covenant not to compete without a reasonable need or reasonable time and place limits.
Legal Reason for Not Enforcing Agreement: Misrepresentation
Look for:
1. A statement of “fact” before the contract,
2. By one of the contracting parties or her agent;
3. That is false
AND
4. Induces the contract.
No wrongdoing required for material misrepresentations.
Not enforceable
- *Every word matters,
- *you’ll see “innocent or honestly”, don’t let it mislead you these matter.
Legal Reason for Not Enforcing Agreement: Nondisclosure
Generally, a person making a contract has no duty to disclose what she knows.
Wrongdoing requirement for nondisclosure as a defense.
Look for fiduciary-like relationship or concealment.
Legal Reason for Not Enforcing Agreement: Duress or Undue Inluence
- Physical duress
- Economic duress
- Undue influence
Elements of Economic Duress
- “bad guy” - improper threat which is usually threat to breach existing contract;
AND
- “vulnerable guy” - no reasonable alternative.
Most Common Example of an Economic Duress
D has a contract to supply 1000 pounds of kosher grits to P for Chanukah sales in 2013. D refuses to perform this contract until P agrees to buy 4000 pounds of cheese grits in 2014. P has not other source of kosher grits and so agrees. D delivers the kosher grits. Can P get out of the agreement to buy 4000 pounds of cheese grits in 2014?
Yes it is duress
Legal Reason for Not Enforcing Agreement: Unconscionability
To basic tests:
- Unfair surprise and oppressive terms are
- tested as of the time the agreement was made
- by the Court
