Contracts Flashcards
General Definition of Contract
A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty.
Common Law vs. Article 2 Sale of Goods
Generally, the common law governs contracts. However, for contracts involving the sale of goods, Article 2 of the Uniform Commercial Code applies. Article 2 has adopted much of the common law of contracts, but when the common law and Article 2 differ, Article 2 prevails in a contract for the sale of goods.
Goods Defined
Goods are all things movable at the time they are identified as the goods to be sold under the contract. Thus, Article 2 applies to sales of most tangible things, but does not apply to the sale of real estate, services, or intangibles.
Merchants vs. Nonmerchants
Article 2 generally defines merchant as one who regularly deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or good involved. For Article 2 provisions dealing with general business practices, almost anyone in business can be deemed a merchant. But remember that some Article 2 provisions are narrower and require a person to be a merchant with respect to goods of the kind involved in the subject transaction.
Express Contract
Express contracts are formed by language, oral or written
Implied in Fact Contract
Implied contracts are formed by manifestations of assent other than oral or written language, i.e., by conduct
Quasi-Contract or Implied in Law Contract
Quasi-contracts are not contracts at all. They are constructed by courts to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover the amount of the benefit conferred on the defendant.
Bilateral Contracts
Exchange of mutual promises. The traditional bilateral contract is one consisting of the exchange of mutual promises.
Unilateral Contracts
Acceptance by performance. The traditional unilateral contract is one in which the offeror requests performance rather than a promise. Here, the offeror-promisor promises to pay upon the completion of the requested act by the promisee. Once the act is completed, a contract is formed. In such contracts, there is one promisor and one promisee.
Modern View
Most contracts are bilateral. Under Article 2 and the Second Restatement, a traditional unilateral contract occurs only in two situations: (i) when the offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance; and (ii) where there is an offer to the public, such as a reward offer.
Void Contract
A void contract is one that is totally without any legal effect from the beginning. It cannot be enforced by either party.
Voidable Contract
A voidable contract is one that one or both parties may elect to avoid.
Unenforceable Contract
An unenforceable contract is an agreement that is otherwise valid but which may not be enforceable due to a defense extraneous to contract formation, such as the statute of limitations or Statute of Frauds.
Contract Creation Generally
When a suit is brought in which one party seeks to enforce a contract or to obtain damages for breach of contract, a court must first decide whether there was in fact a contract. In making this determination, a court will ask the following three basic questions: (1) Was there mutual assent? (2) Was there consideration or some substitute for consideration? (3) Are there any defenses to creation of the contract?
Mutual Assent Generally
For an agreement to be enforced as a contract, there must be mutual assent. In other words, one party must accept the other_s offer. Whether mutual assent is present will be determined by an objective standard; i.e., did words or conduct manifest a present intention to enter into a contract?
The Offer
An offer creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror. For a communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms. In determining whether a reasonable expectation is created: (i) Was there an expression of a promise, undertaking, o commitment to enter into a contract? (ii) Were there certainty and definiteness in the essential terms? (iii) Was there communication of the above to the offeree?
Promise, Undertaking, or Commitment
For a communication to be an offer, it must contain a promise, undertaking, or commitment to enter into a contract, rather than a mere initiation to begin preliminary negotiations; i.e., there must be an intent to enter into a contract.
Advertisements
Advertisements, catalogs, circular letters, and the like containing price quotations are usually construed as mere invitations for offers.
Definite and Certain Terms Generally
An offer must be definite and certain in its terms. The basic inquiry is whether enough of the essential terms have been provided so that a contract including them would be capable of being enforced.
Identification of the Offeree
To be considered an offer, a statement must sufficiently identify the offeree or a class to which she belongs to justify the inference that the offeror intended to create a power of acceptance.
Definiteness of Subject Matter
The subject matter of the deal must be certain, because a court can enforce a promise only if it can tell with reasonable accuracy what the promise is.
Real Estate Transactions
An offer involving realty must identify the land and the price terms. The land must be identified with some particularity but a deed description is not required. Most courts will not supply a missing price term for realty.
Sale of Goods
In a contract for the sale of goods, the quantity being offered must be certain or capable of being made certain.
Requirements and Output Contracts
In a requirements contract, a buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer. In an output contract, a seller promises to sell to a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller. It is assumed that the parties will act in good faith; hence, there may not be a tender of or a demand for a quantity unreasonably disproportionate to (i) any stated estimate, or (ii) any normal or otherwise comparable prior output or requirements in the absence of a stated estimate.
Services
The nature of the work to be performed is required in an offer for services.
Missing Terms
The fact that one or more terms are left open does not prevent the formation of a contract if it appears that the parties intended to make a contract and there is a reasonably certain basis for giving a remedy. In such a case, the majority of jurisdictions and Article 2 hold that the court can supply reasonable terms for those that are missing. Note that if a contract for the sale of goods is missing a price term, Article 2 provides that the price will be a reasonable price at the time of delivery.
Vague Terms
The presumption that the parties_ intent was to include a reasonable term goes to supplying missing terms. The presumption cannot be made if the parties have included a term that makes the contract too vague to be enforced. However, uncertainty can be cured by part performance that clarifies the vague term or by acceptance of full performance.
Terms to Be Agreed on Later
Often an offer will state that some term is to be agreed on at a future date. If the term is a material term, the offer is too uncertain.
Communication to Offeree
To have the power to accept, the offeree must have knowledge of the offer.
Termination by Offeror _ Revocation
A revocation is the retraction of an offer by the offeror. An offeror may revoke by directly communicating the revocation to the offeree. An offer made by publication can be directly revoked only by publication through comparable means. An offer may also be revoked indirectly if the offeree receives: (i) correct information, (ii) from a reliable source, (iii) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer.
Effective Date of Revocation
A revocation is generally effective when received by the offeree. Where revocation is by publication, it is effective when published. [Remember that generally a written communication is received when it is delivered do a place of business through which the contract was made or another location authorized to receive this type of communication. It does not matter whether the recipient actually reads the communication.]
Options
An option is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer.
Merchant_s Firm Offer Under Article 2
Under Article 2: (i) if a merchant; (ii) offers to sell goods in a signed writing; and (iii) the writing gives assurances that it will be held open, the offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed three months). [If a merchant-offeror states that an offer will stay open for a period beyond the UCC_s three-month limit on irrevocability, he will be bound only for three months. Remember that the three-month limitations applies only to offers not supported by consideration.]
Detrimental Reliance
When the offeror could reasonably expect that the offeree would rely on her detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time. At the very least, the offeree would be entitled to relief measured by the extent of any detrimental reliance.
Part Performance of a Unilateral Contract
(1) Implied Contract for Reasonable Time. An offer for a true unilateral contract becomes irrevocable once performance has begun. The offeror must give the offeree a reasonable time to complete performance. Note that the offeree is not bound to complete performance _ she may withdraw at any time prior to completion of performance, and there is no acceptance until performance is complete. (2) Distinguish. Substantial preparations to perform do not make the offer irrevocable but may constitute detrimental reliance sufficient to make the offeror_s promise binding to the extent of the detrimental reliance.
Express Rejection
An express rejection is a statement by the offeree that she does not intend to accept the offer. Such a rejection will terminate the offer.
Counteroffer as Rejection
A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in its terms. [Remember that a counteroffer is both a rejection and a new offer. It terminates the original offer and reverses the roles of the parties: the offeree giving a counteroffer becomes the offeror of a new offer, which the other party may accept or reject.] However, an inquiry will not terminate the offer when it is consistent with the idea that the offeree is still keeping the original proposal under consideration. The test is whether a reasonable person would believe that the original offer had been rejected.
Effective Date of Rejection
A rejection is effective when received by the offeror.
Rejection of Option
Because an option is a contract to keep an offer open, a rejection of or a counteroffer to an option does not constitute a termination of the offer. The offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree_s rejection.
Termination by Lapse of Time
An offer may be terminated by the offeree_s failure to accept within the time specified by the offer or, if no deadline was specified, within a reasonable period.
Termination by Operation of Law
The following events will terminate an offer by operation of law: (i) Death or insanity of either party (unless the offer is of a kind the offeror could not terminate). Death or insanity need not be communicated to the other party. (ii) Destruction of the proposed contract_s subject matter; or (iii) Supervening illegality.
Acceptance Generally
An acceptance is a manifestation of assent to the terms of an offer.
Who May Accept
Generally, only the person to whom an offer is addressed has the power of acceptance. One may also have the power of acceptance if she is a member of a class to which an offer has been directed. Generally, an offeree_s power of acceptance cannot be assigned. However, if the offeree has paid consideration to keep the offer open, the right to accept is transferable.
Offeree Must Know of Offer
The offeree must know of the offer in order to accept it, and this is true whether the offer is for a bilateral or unilateral contract.
Acceptance of Offer for Unilateral Contract
If an offer provides that it may be accepted only by performance, the notice requirement is mitigated and such contract must be performed before it is considered accepted.
Completion of Performance
Most courts hold that an offer to form a unilateral contract is not accepted until performance is completed. The beginning of performance may create an option so that the offer is irrevocable. However, the offeree is not obligated to complete performance merely because he has begun performance, as only complete performance constitutes acceptance.
Notice
Generally, the offeree is not required to give the offeror notice that he has begun the requested performance, but is required to notify the offeror within a reasonable time after performance has been completed. However, no notice is required if: (i) the offeror waived notice; or (ii) the offeree_s performance would normally come to the offeror_s attention within a reasonable time.
Generally Acceptance Must Be Communicated
Generally, acceptance of an offer to enter into a bilateral contract must be communicated to the offeror, unless the offer provides that acceptance need not be communicated.
Method of Acceptance
Unless otherwise provided, an offer is construed as inviting acceptance in any reasonable manner and by any medium reasonable under the circumstances. Any objective manifestation of the offeree_s counterpromise is usually sufficient.
Offers to Buy Goods for Current or Prompt Shipment
Under Article 2, an offer to buy goods for current or prompt shipment is construed as inviting acceptance either by a promise to ship or by current or prompt shipment of conforming or nonconforming goods.
Shipment of Nonconforming Goods
The shipment of nonconforming goods is an acceptance creating a bilateral contract as well as a breach of the contract unless the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation. The buyer is not required to accept the accommodation goods and may reject them. If he does, the shipper is not in breach and may reclaim the accommodation goods, because her tender does not constitute an acceptance of the buyer_s original offer.
Common Law Rule
At common law, any different or additional terms in the acceptance make the response a rejection and counteroffer.
Article 2 Rule _ Battle of the Forms Provision
Article 2 has abandoned the mirror image rule, providing instead that the proposal of additional or different terms by the offeree in a definite and timely acceptance does not constitute a rejection and counteroffer, but rather is effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms. Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants.
Conditional Acceptance
When an acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer. It can be considered a counteroffer only to the extent that the original offeror may expressly assent to the new terms and thus form a contract. It is not considered a counteroffer that may be accepted by performance. If the parties ship or accept goods after a conditional acceptance, a contract is formed by their conduct and the new terms are not included.
Bilateral Contracts Formed by Performance
If a contract is not formed by the parties_ communications, but they begin to perform as if they formed a contract, a contract is formed.
The Mailbox Rule
Acceptance by mail or similar means creates a contract at the moment of dispatch, provided that the mail is properly addressed and stamped, unless: (1) The offer stipulates that acceptance is not effective until received; or (2) An option contract is involved (an acceptance under an option contract is effective only upon receipt); (3) If the offeree sends a rejection and then sends an acceptance, whichever arrives first is effective; (4) If the offeree sends an acceptance and then a rejection, the acceptance is effective unless the rejection arrives first and the offeror detrimentally relies on it.
Acceptance by Unauthorized Means
An acceptance transmitted by unauthorized means or improperly transmitted by authorized means may still be effective if it is actually received by the offeror while the offer is still in existence.
Auction Contracts
A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in another customary manner. An auction sale is with reserve unless the goods are explicitly put up without reserve. With reserve means the auctioneer may withdraw the goods at any time until he announces completion of the sale.
Elements of Consideration
Basically, two elements are necessary to constitute consideration: (i) there must be a bargained-for exchange between the parties; and (ii) that which is bargained for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit to the promisor or a detriment to the promisee.
Bargained-for Exchange
This element of consideration request that the promise induce the detriment and the detriment induce the promise. There is no bargain involved when one party gives a gift to another.
Act or Forbearance by Promisee Must Be of Benefit to Promisor
An act of forbearance by the promisee (or a promise to act or forbear) is sufficient consideration to form a contract if it benefits the promisor. The benefit, however, need not be economic (e.g., the gratification of influencing the mind of another is sufficient).
Past or Moral Consideration
A promise given in exchange for something already done does not satisfy the bargain requirement. Where a past obligation is unenforceable because of a technical defense, that obligation will be enforceable if a new promise is made in writing or is partially performed. Also, under the modern trend, if a past act benefited the promisor and was performed by the promisee at the promisor_s request or in response to an emergency, a subsequent promise to pay for that act will be enforceable.
Adequacy of Consideration
In general, courts do not inquire into the adequacy or fairness of consideration. However, if something is entirely devoid of value (token consideration), it is insufficient. Sham consideration (insignificant sum recited in the contract) is also insufficient if not paid. But note that if there is a possibility of value in the thing bargained for, consideration will be found even if the value never comes into existence.
Legal Benefit and Legal Detriment Theories
The majority of courts require that a party incur detriment (by doing something he is not legally obligated to do or by refraining from doing something he has a legal right to do) to satisfy the legal value element. Under the minority rule, conferring a benefit on the other party is also sufficient.
Preexisting Legal Duty Not Consideration
Traditionally, performing or promising to perform an existing legal duty is insufficient consideration. Exceptions: (i) New or different consideration is promised; (ii) The promise is to ratify a voidable obligation; (iii) The preexisting duty is owed to a third person rather than the promisor; (iv) There is an honest dispute as to the duty; or (v) There are unforeseen circumstances sufficient to discharge a party. Also, a good faith agreement modifying a contract subject to the UCC needs no consideration to be binding.
Forbearance to Sue
A promise to refrain from suing on a claim may constitute consideration if the claim is valid or the claimant in good faith believed the claim was valid.
Mutuality Required
Consideration must exist on both sides of a contract (although the benefit of consideration generally need not flow to all parties). If only one party is bound to perform, the promise is illusory and will not be enforced. Courts often supply implied promises (e.g. a party must use her best efforts) to infer mutuality.
Right to Choose Alternative Courses
A promise to choose one of several alternative means of performance is illusory unless every alternative involves legal detriment to the promisor. The promise will not be found illusory if: (i) at least one alternative involves legal detriment and the power to choose rests with the promisee or a third party, or (ii) a valuable alternative (i.e. one involving legal detriment) is actually selected.
Promissory Estoppel or Detrimental Reliance
Consideration is not necessary if the facts indicate the promisor should be estopped from not performing. Under section 90 of the First Restatement, a promise is enforceable if necessary to prevent injustice if: (i) The promisor should reasonably expect to induce action or forbearance; (ii) Of a definite or substantial character; and (iii) such action or forbearance is in fact induced. [A valid contract is better than an agreement that can be enforced only by promissory estoppel because some states limit recovery under promissory estoppel to that which justice requires].
Requirement Generally
Even if an agreement is supported by valuable consideration or a recognized substitute, contract rights may still be unenforceable because there is a defense to formation of the contract, because there is a defect in capacity (making the obligations voidable by one of the parties), or because a defense to enforcement of certain terms exists.
Mutual Mistake as to Existing Facts
If both parties entering into a contract are mistaken about existing facts (not future happenings) relating to the agreement, the contract may be voidable by the adversely affected party if: (i) The mistake concerns a basic assumption on which the contract is made; (ii) The mistake has a material effect on the agreed-upon exchange; and (iii) The party seeking avoidance did not assume the risk of the mistake.
Assumption of Risk
Mutual mistake is not a defense if the adversely affected party bore the risk that the assumption was mistaken. This commonly occurs when one party is in a position to better know the risks than the other party or where the parties knew that their assumption was doubtful. However, mistake in value is generally not a defense.
Unilateral Mistake
If only one of the parties is mistaken about facts relating to the agreement, the mistake will not prevent formation of a contract. However, if the nonmistaken party knew or had reason to know of the mistake made by the other party, the contract is voidable by the mistaken party.
Mistake by the Intermediary (Transmission)
When there is a mistake in the transmission of an offer or acceptance by an intermediary, the prevailing view is that the message as transmitted is operative unless the other party knew or should have known of the mistake.
Ambiguous Contract Language
If the contract includes a term with at least two possible meanings, the result depends on the parties_ awareness of the ambiguity: (i) Neither party aware _ no contract unless both parties intended the same meaning; (ii) Both parties aware _ no contract unless both parties intended the same meaning; (iii) One party aware _ binding contract based on what the ignorant party reasonably believed to e the meaning of ambiguous words. Ambiguity is one area where subjective intent is taken into account.
Fraudulent Misrepresentation (Fraud in the Inducement)
If a party induces another to enter into a contract by using fraudulent misrepresentation (i.e. by asserting information she knows is untrue), the contract is voidable by the innocent party if she justifiably relied on the fraudulent misrepresentation. This is fraud in the inducement. [Keep in mind that a fraudulent misrepresentation need not be spoken or written; it can be inferred from conduct. Concealing a fact, frustrating investigation of a fact, or falsely denying knowledge of a fact is the same as asserting the fact does not exist. Nondisclosure of a fact is not misrepresentation unless it is material and fraudulent.]
Nonfraudulent Misrepresentation
Even if a misrepresentation is not fraudulent, the contract is voidable by the innocent party if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material. A misrepresentation is material if either: (i) the information asserted would induce a reasonable person to agree; or (ii) the maker of the misrepresentation knew the information asserted would cause a particular person to agree. [Remember that just because a misrepresentation could have been revealed by the exercise of reasonable care does not mean that reliance was unjustified. Failure to read a contract or use care in reading it does not necessarily preclude a party from avoiding a contract for misrepresentation.]
Innocent Party May Rescind Agreement and Recover Damages
Note that the innocent party need not wait until she is sued on the contract but may take affirmative action in equity to rescind the agreement. In addition, she may pursue all remedies available for breach of contract.
Absence of Consideration
If the promises exchanged at the formation stage lack the elements of bargain or legal detriment, no contract exists. In this situation, one of the promises is always illusory.
Public Policy Defenses to Contract Formation _ Illegality
If the consideration or subject matter of a contract is illegal, the contract is void. Exceptions: (i) the plaintiff is unaware of the illegality while the defendant knows of the illegality; (ii) the parties are not in pari delicto (i.e. one party is not as culpable as the other); or (iii) the illegality is the failure to obtain a license when the license is for revenue-raising purposes, rather than for protection of the public. If only the purpose behind the contract is illegal, the contract is voidable by a party who was (i) unaware of the purpose; or (ii) aware but did not facilitate the purpose and the purpose does not involve serious moral turpitude.
Contracts of Infants (Minors)
Infants generally lack capacity to enter into a contract binding on themselves. However, contractual promises of an adult made to an infant are binding on the adult. Disaffirmance. An infant may choose to disaffirm a contract any time before (or shortly after) reaching the age of majority. If an infant chooses to disaffirm, she must return anything that she received under the contract that still remains at the time of disaffirmance. Affirmance upon attaining majority. An infant may affirm upon reaching majority. He affirms either expressly or by conduct (e.g. by failing to disaffirm the contract within a reasonable time after reaching majority).
Mental Incapacity
One whose mental capacity is so deficient that he is incapable of understanding the nature and significance of a contract may disaffirm when lucid or by his legal representative. He may likewise affirm during a lucid interval or upon complete recover, even without formal restoration by judicial action. In other words, the contract is voidable. As in the case of infants, mentally incompetent persons are liable in quasi-contract for necessities furnished to them.
Intoxicated Persons
One who is so intoxicated that he does not understand the nature and significance of his promise may be held to have made only a voidable promise if the other party had reason to know of the intoxication. The intoxicated person may affirm the contract upon recovery. Once again, there may be quasi-contractual recovery for necessities furnished during the period of incapacity.
Duress and Undue Influence
Contracts induced by duress or undue influence are voidable and may be rescinded as long as not affirmed. The common type of duress occurs when a party_s assent is procured by an improper threat. Generally, taking advantage of another person_s economic needs is not duress. Elements of undue influence are: (i) undue susceptibility to pressure by one party, and (ii) excessive pressure by the other party. Undue influence concerns often arise when the dominant party is in a confidential or caregiver relationship with the influenced party.
Statue of Frauds
In most instances, an oral contract is valid. However, in certain instances, a contract must be evidenced by a writing signed by the parties sought to be bound. Noncompliance with the Statute of Frauds renders the contract unenforceable at the option of the party to be charged. If the statute is not raised as a defense, it is waived.
Writing Requirements
The Statute of Frauds does not requires that the contract be in writing; it requires only that there be one or more writings signed by the person sought to be held liable on the contract that reflect the material terms of the contract. Thus, a letter (even to a nonparty) or receipt, or even a check indicating a quantity of goods on the memo line could be sufficient. [Remember, to be sufficient under the Statute of Frauds, the writing need not be a full-fledged contract, nor need it even be one piece of paper. Thus, several pieces of correspondence between the parties could be sufficient memoranda of the agreement; a fax or a memo written on a napkin also could suffice. The key is that there be something in writing evidencing the material terms.]
Signature Requirement
The signature requirement is liberally construed by most courts. It need not be handwritten; it can be printed or typed. A party_s initials or letterhead may also be sufficient. An electronic signature is also sufficient. [Note that the memorandum does not need to be signed by both parties to the contract. Only the party to be charged must sign.]
Executor or Administrator Promises Personally to Pay Estate Debts
A promise by an executor or administrator to pay the estate_s debts out of his own funds must be evidenced by a writing.
Promises to Pay Debt of Another (Suretyship Promises)
A promise to answer for the debt or default of another must be evidenced by a writing. However, if the main purpose or leading object of the promisor is to serve a pecuniary interest of his own, the contract is not within the Statue of Frauds even though the effect is still to pay the debt of another.
Promises in Consideration of Marriage
A promise the consideration of which is marriage must be evidenced by a writing. This applies to promises that induce marriage by offering something of value (other than a return promise to marry).
Interests in Land
A promise creating an interest in land must be evidence by a writing. This includes not only agreements for the sale of real property, but also: (i) leases for more than one year; (ii) easements of more than one year; (iii) fixtures; (iv) minerals (or the like) or structures if they are to be severed by the buyer; and (v) mortgages and most other security liens.
Interests in Land Not Within the Statute
Contracts to build a building or find a buyer for the seller do not come within the Statute.
Effect of Performance on Interests in Land
If the seller conveys to the purchaser, the seller can enforce buyer_s oral promise to pay. Similarly, the purchaser may be able to specifically enforce a land contract if the part performance doctrine is applicable.
Part Performance Doctrine
Under the part performance doctrine, conduct that unequivocally indicates that the parties have contracted for the sale of the land will take the contract out of the Statute of Frauds. What constitutes sufficient part performance varies among the jurisdictions. Most require at least two of the following: payment (in whole or in part), possession, and/or valuable improvements. [Watch for a fact pattern where the parties orally agree to an installment land contract. In the absence of other facts, such as a large down payment, possession plus payment does not unequivocally indicate a contract for the sale of land. Those facts are also consistent with a lease; thus the purchaser cannot enforce the contract].
Performance Not Within One Year
A promise that by its terms cannot be performed within one year is subject to the Statute of Frauds. Part performance does not satisfy the Statute of Frauds in this case. Effective Date. The date runs from the date of the agreement and not from the date of performance. Lifetime Contracts. A contract measured by a lifetime is not within the Statute because it is capable of performance within a year since a person can die at any time.
Goods Priced at $500 or More
A contract for the sale of goods for a price of $500 or more is within the Statute of Frauds and generally must be evidenced by a signed writing to be enforceable. Note that a writing is sufficient even though it omits or incorrectly states a term, but the contract is not enforceable beyond the quantity of goods shown in the writing.
Specially Manufactured Goods
If goods are to be specially manufactured for the buyer and are not suitable for sale to others by the seller in the ordinary course of his business, the contract is enforceable if the seller has, under circumstances that reasonably indicate that the goods are for the buyer, mad substantial beginning in their manufacture or commitments for their purchase before notice of repudiation is received.
Admissions in Pleadings or Court
If the party against whom enforcement is sought admits in pleadings, testimony, or otherwise in court that the contract for sale was made, the contract is enforceable without a writing (but in such a case the contract is not enforced beyond the quantity of goods admitted).
Payment or Delivery of Goods
If goods are either received and accepted or paid for, the contract is enforceable. However, the contract is not enforceable beyond the quantity of goods accepted or paid for. Thus, if only some of the goods called for in the oral contract are accepted or paid for, the contract is only partially enforceable. If an individual item is partially paid for, most courts hold that the Statute of Frauds is satsifed for the whole item.
Merchants _ Confirmatory Memo Rule
In contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written confirmation of the understanding that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if: (i) he has reason to know of the confirmation_s contents; and (ii) he does not object to it in writing within 10 days of receipt.
Remedies If Contract if Within Statute
If a contract violates the Statute of Frauds, in almost all cases a party can sue for the reasonable value of the services or part performance rendered, or the restitution of any other benefit that has been conferred. If the part performance rendered takes the contract out of the Statute of Frauds, the performing party has the option of suing on the contract for expectation damages, rather than merely in restitution for the value of the benefit conferred.
Agreements Covered by the Statute of Frauds (MY LEGS)
Marriage (Within one) Year Land Executor (or Administrator) Goods (for $500 or more) Surety
Unconscionability
The concept of unconscionability allows a court to refuse to enforce a provision or an entire contract (or to modify the contact) to avoid unfair terms, usually due to some unfairness in the bargaining process (i.e. procedural unconscionability). Unfair price alone is not ground for unconscionability.
Inconspicuous Risk-Shifting Provisions
Standardized printed form contracts often contain a material provision that seeks to shift a risk normally borne by one party to the other party. Typically, such clauses are found in the fine print (boilerplate) in printed form contracts. Courts have invalidated these provisions because they are inconspicuous or incomprehensible to the average person, even if brought to his actual attention.
Contracts of Adhesion
Courts will deem a clause unconscionable and unenforceable if the signer is unable to procure necessary goods, such as an automobile, from any seller without agreeing to a similar provision.
Exculpatory Clauses
An exculpatory clause releasing a contracting party from liability for his own intentional wrongful acts is usually found to be unconscionable because such a clause is against public policy in most states. Exculpatory clauses for negligent acts may be found to be unconscionable if they are inconspicuous, but commonly are upheld if they are in contracts for activities that are known to be hazardous.
Limitations on Remedies
A contractual clause limiting liability for damages to property generally will not be found to be unconscionable unless it is inconspicuous. However, if a contract limits a party to a certain remedy and that remedy fails of its essential purpose, a court may find the limitation unconscionable and ignore it.
Timing
Unconscionability is determined by the circumstances as they existed at the time the contract was formed.
Effect if Court Finds Unconscionable Clause
If a court finds as a matter of law that a contract or any clause of the contract was unconscionable when made, the court may: (i) refuse to enforce the contract; (ii) enforce the remainder of the contract without the unconscionable clause, or (iii) limit the application of any clause so as to avoid an unconscionable result.
General Rules of Contract Construction
(1) Contracts will be construed as a whole; specific clauses will be subordinated to the contract_s general intent; (2) The courts will construe words according to their ordinary meaning unless clearly shown otherwise; (3) If provisions appear to be inconsistent, written or typed provisions will prevail over printed provisions; (4) The courts will generally look to see what custom and usage is in a particular business and particular locale; (5) Courts will generally try to reach a determination that the contract is valid and enforceable; (6) Ambiguities in a contract are generally construed against the party preparing the contract.
Parol Evidence Rule
When the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain (i.e. the writing is an integration), any other expressions _ written or oral _ made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing under the parol evidence rule.
Is the Writing an Integration?
(i) Is the writing intended as a final expression? The more complete the agreement appears to be on its face, the more likely it is that it was intended as an integration. (ii) Is the writing a complete or partial integration? If the agreement contains a merger clause reciting that the agreement is complete on its face, this clause strengthens the presumption that all negotiations were merged into the written document.
Tests to Determine Integration Status
There are two competing tests for determining whether the parties intended the writing to be a complete and final integration: the Corbin test and the Williston test. The Corbin test is followed by most courts. It takes into account the specific circumstances of the transaction and asks whether parties like these, situated as they are, would naturally and normally include in their writing the extrinsic matter that is sought to be introduced. If people like these under circumstances like this would normally include the extrinsic matter in their writing, it will be excluded under the parol evidence rule. Otherwise, the evidence is admissible.
Extrinsic Evidence Outside Scope of Rule
Because the rule prohibits admissibility only of extrinsic evidence that seeks to vary, contradict, or add to an integration, other forms of extrinsic evidence may be admitted if they will not bring about this result.
Attacking Validity
A party to a written contract can attack the agreement_s validity. The party acknowledges (concedes) that the writing reflects the agreement but asserts, most frequently, that the agreement never came into being because of any of the following: (1) Formation defects. Formation defects may be shown by extrinsic evidence. (2) Conditions precedent. If party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred, all evidence of the understanding may be offered and received. This would be a condition precedent to effectiveness.
Interpretation
If there is uncertainty or ambiguity in the written agreement_s terms or a dispute as to the meaning of those terms, parol evidence can be received to aid the fact finder in reaching a correct interpretation of the agreement. However, if the meaning of the agreement is plain, parol evidence is inadmissible.
Showing of True Consideration
The parol evidence rule will not bar extrinsic evidence showing the true consideration paid.
Reformation
If a party to a written agreement alleges facts entitling him to reformation of the agreement, the parol evidence rule is inapplicable.
Collateral Agreements and Naturally Omitted Terms
Parol evidence is often said to be admissible if the alleged parol agreement is collateral to the written obligation and does not conflict with it. The Restatement of Contracts include a similar concept with a more definitive approach: the naturally omitted terms doctrine. The doctrine allows evidence of terms that would naturally be omitted form the written agreement. A term would naturally be omitted if: (i) it does not conflict with the written integration; and (ii) it concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument.
Subsequent Modifications
Parol evidence can be offered to show subsequent modifications of a written contract.
Article 2 Parol Evidence Rule
A party cannot contradict a written contract but he may add consistent additional terms unless: (i) there is a merger clause, or (ii) the courts find from all of the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement.
Parol Evidence for Ambiguous Terms Under Article 2
Article 2 provides that a written contract_s terms may be explained or supplemented by the following, whether or not the writing appears to be ambiguous: (a) The parties_ course of dealing (i.e. the sequence of conduct concerning previous transactions between the parties to a particular transaction that may be regarded as establishing a common basis of their understanding); (b) A usage of trade (i.e. a practice or method of dealing, regularly observed in a particular business setting); (c) The parties_ course of performance (i.e. if a contract involves repeated occasions for performance by either party and the other party has opportunity to object)
Battle of the Forms
Article 2 has specific rules for determining what terms are included in the contract and these rules are dependent on whether both parties to the transaction are merchants.
Contracts Involving a Nonmerchant
If any party to the contract is not a merchant, the additional or different terms are considered to be mere proposals to modify the contract that do not become part of the contract unless the offeror expressly agrees.
Contracts Between Merchants
There is a split of authority over whether terms in the acceptance that are different from (as opposed to in addition to) the terms in the offer will become part of the contract. Some courts treat different terms like additional terms. Other courts follow the knockout rule, which states that conflicting terms in the offer and acceptance are knocked out of the contract, because each party is assumed to object to the inclusion f such terms in the contract. Under the knockout rule, gaps left by knocked out terms are filled by the UCC.
Price
If: (i) nothing has been said as to price, (ii) the price is left open to be agreed upon by the parties and they fail to agree; or (iii) the price is to be fixed in terms of some standard that is set by a third person or agency and it is not set, then the price is a reasonable price at the time for delivery.
Place of Delivery
If the place of delivery is not specified, the place usually is the seller_s place of business, if he has one; otherwise, it is the seller_s home.
Time for Shipment or Delivery
If the time for shipment or delivery is not specified, shipment/delivery is due in a reasonable time.
Time for Payment
If the time for payment is not specified, payment is due at the time and place at which the buyer is to receive the goods.
Assortment
If a contract provides that an assortment of goods is to be delivered and does not specify which party is to choose, the assortment is at the buyer_s option. If the party who has the right to specify the assortment does not do so seasonably, the other party is excused from any resulting delay and may either proceed in any reasonable manner or treat the failure as a breach.
Noncarrier Case
A noncarrier case is a sale in which it appears that the parties did not intend that the goods would be moved by a common carrier. In such a case, if the seller is a merchant, risk of loss passes to the buyer only when she takes physical possession of the goods. If the seller is not a merchant, risk of loss passes to the buyer upon tender of delivery.
Carrier Case
A carrier case is a sale in which it appears that the parties intended the goods to be moved by a carrier. There are two types of carrier cases: shipment contracts and destination contracts.
Shipment Contract
If the contract authorizes or requires the seller to ship the goods by carrier but does not require him to deliver them at a particular destination, it is a shipment contract and risk of loss passes to the buyer when the goods are delivered to the carrier. In the absence of a contrary arrangement, Article 2 presumes a contract is a shipment contract.
Destination Contract
If the contract requires the seller to deliver the goods at a particular destination, the risk of loss passes to the buyer when the goods are tendered to the buyer at the destination.
C.I.F. and C. & F.
C.I.F. stands for cost, insurance, and freight and C. & F. stands for cost and freight. These terms mean that the price in the contract includes the price of the goods, the cost of shipping them to the buyer, and in CIF contracts, the cost of purchasing insurance for the benefit of the buyer in case the goods are destroyed in transit. These contracts are always shipment contracts.
F.A.S.
F.A.S. stands for free alongside. The term is generally used only when goods are to be shipped by boat. Risk of loss passes to the buyer once the goods are delivered to the dock.
F.O.B.
F.O.B. stands for free on board. The letters FOB are always followed by a location, and the risk of loss passes to the buyer at the named location. The seller bears the risk and expense of getting the goods to the named location. These contracts can be either shipment contracts or destination contracts, depending on the location named. [All contracts for goods require an address for delivery. Merely indicating an address for shipment does not make a contract a destination contract. A contract that does not contain an F.O.B. term or any other term explicitly allocating the risk of loss is a shipment contract.
Defective Goods
If goods are so defective that the buyer has a right to reject them, the risk of loss does not pass to the buyer until the defects are cured or she accepts the goods in spite of their defects. Note that a buyer generally has the right to reject for any defect.
Revocation of Acceptance
If the buyer rightfully revokes acceptance, the risk of loss is treated as having rested on the seller from the beginning to the extent of any deficiency in the buyer_s insurance coverage.
Sale or Return
For the purpose of determining the risk of loss, a sale or return contract is treated as an ordinary sale and the standard rules apply. If the goods are returned to the sell, the risk remains on the buyer while the goods are in transit.
Sale on Approval
In a sale on approval (i.e. the buyer takes goods for use but may return them even if they conform to the contract), the risk of loss does not pass to the buyer until she accepts.
Insurable Interest and Identification
Generally, a buyer often bears the risk of loss before receiving the goods purchased. In order to aid buyers in this situation, Article 2 gives buyers a special property interest in goods as soon as they are identified as the ones that will be used to satisfy the contract. This special property interest is insurable.
Bilateral Contracts Formed by Performance
Recall that a contract may be formed by the parties_ performance where the mirror image rule is not satisfied and under certain circumstances under Article2_s battle of the forms provision. In such cases, under Article 2, the contract includes all the terms on which the writing of both parties agree. Any necessary missing terms are filled in by the supplemental terms provided for in Article 2. The rule is different in common law contracts. At common law, the contract will include the terms of the last communication sent to the party who performed.
Warranty of Title
Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting. This warranty arises automatically and need not be mentioned in the contract.
Warranty Against Infringement
A merchant seller regularly dealing in goods of the kind sold also automatically warrants that the goods are delivered free of any patent, trademark, copyright or similar claims. But a buyer who furnishes specifications for the goods to the seller must hold the seller harmless against such claims.
Implied Warranty of Merchantability
Implied in every contract for sale by a merchant who deals in goods of the kind sold, there is a warranty that the goods are merchantable. Note that the serving of food or drink for consumption on the premises is a sale of goods subject to the warranty of merchantability. To be merchantable, goods must at least be fit for the ordinary purposes for which such goods are used. It makes no difference that the seller himself did not know of the defect oft that he could not have discovered it. Implied warranties are not based on negligence but rather on absolute liability that is imposed on certain sellers.
Implied Warranty of Fitness for a Particular Purpose
A warranty will also be implied in a contract for the sale of goods whenever (i) any seller, merchant or not, has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller_s skill and judgment to select suitable goods; and (ii) the buyer in fact relies on the seller_s skill or judgment.
Express Warranties
Any affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model creates an express warranty if the statement, description, sample, or model is part of the basis of the bargain. For a statement, description, sample, or model to be part of the basis of the bargain, it need only come at such time that the buyer could have relied on it when she entered into the contract. The buyer does not need to prove that she actually did rely, although the seller may negate the warranty by proving that the buyer as a matter of fact did not rely. It is not necessary that the seller intended the affirmation of fact, description, model or sample to create a warranty.
Warranty of Title
The title warranty can be disclaimed or modified only by specific language or by circumstances that give the buyer notice that the seller does not claim title or that he is selling only such rights as he or a third party may have.
