Contracts

Question 1

What different kinds of contracts exist?

Answer 1

Express contracts, implied in fact contracts, applied in law contracts (quasi-contracts), bilateral contracts, unilateral contracts, and sales of goods.

Express contract: offer and acceptance are manifested by oral or written words

Implied-in-fact contract: agreement is manifested by conduct, rather than oral or written words

Implied-in-law contract (quasi): equitable remedy for some unenforceable agreements. Law implies a promise to pay for valuable goods or services received to avoid unjust enrichment.

Bilateral contract: a contract that results from an offer that is open to the manner of acceptance. (assume all contracts are bilateral contacts unless it looks told otherwise)

Unilateral contract: a contract that results from an offer that may only be accepted through performance. Acceptance is upon complete performance, but becomes irrevocable upon partial performance.

Sale of goods: when a contract involves the sale of goods, the UCC applies.

Question 2

What law applies?

Answer 2

The UCC governs all contracts for the sale of goods (and employs specific rules when those contracts are between merchants-those in the business of selling goods). The common law governs all other contracts.

Question 3

What is required to form a contract?

Answer 3

A contract is a legally enforceable agreement consisting of mutual assent and consideration. Mutual assent requires offer and acceptance. Thus, a contract requires offer, acceptance, and consideration.

Question 4

What constitutes an offer?

Answer 4

An offer is a manifestation of a (1) present intent to contract that is (2) communicated to the offeree and (3) includes essential terms.

1. Present intent to contract: look objectively at actions and circumstances.
2. Essential terms: the contract must include essential terms such as price, payment terms, duration, parties, quantity, etc.
   - indefiniteness: if the contract is lacking essential terms
   - -common-law: a contract will fail for indefiniteness-lack of essential terms (For example, an agreement to agree on a future date will fail for indefiniteness).
   - -the UCC: fills in gaps with reasonable terms where necessary. (For example an agreement to agree on a future date is permissible). Gap fillers-place of delivery: seller’s place of business; time of payment: upon delivery; quantity: none (a contract will fail if there is no quantity unless the contract says something similar to “as many as the other party needs”).
   - vagueness: a contract will fail for Vegas. Look for the words “appropriate,” or “fair price,” or “reasonable,” etc.

Question 5

In what ways may an offer be terminated?

Answer 5

And offer may be terminated by lapse of time, operation of law, rejection, and revocation.

Lots of time: an offer expires if not accept it with instead set specified expiration date, or if none, with reasonable time under the circumstances.

Operation of law: the offer expires by to alteration a lot (1) either party dies or becomes incompetent; (2) the subject matter is destroyed; or (3) the contract is declared illegal.

Rejection: when the offeree rejects an offer through words or conduct. Rejection is effective upon receipt.

• counter offers: a counter offer is a rejection of the original offer and a creation of a new offer. (an attempt to bargain is not a rejection/counter offer)
• mirror image rule: under the common-law, a proposed acceptance that varies from the offer is a rejection of the original offer and a creation of a new offer.

Revocation: when the offeror revokes the offer through words or conduct known by the offeree. Revocation effective when received.
-an offer becomes irrevocable upon creation of an option contract (a contract to keep an offer open for a specified length of time), a merchant’s firm offer to buy or sell goods (a written promise to keep an offer open for a reasonable time, i.e., not to exceed 3 months), detrimental reliance (an offer that foreseeably induces reliance), or part performance of a unilateral contract (but not mere preparation).

Question 6

Who may accept an offer and when is an offer accepted?

Answer 6

Only (1) an intended offeree (2) who knows of the offer may accept the offer.

An acceptance that changes the terms of a contract governed by the common-law will result in non-formation of the contract. But under the UCC, a contract will be formed unless the it lacks a term that evinces a quantity of goods.

Communication of acceptance to the offer or corn

1. Mailbox rule: acceptance effective when dispatched unless: (1) sent by unreliable means; (2) offer requires receipt/notice of acceptance; (3) option contracts;(4) rejection is sent first; (5) rejection is received first and offeror detrimentally relies. (If mailbox will does not apply acceptance is effective upon receipt)

Silence as acceptance: an offeror may not force acceptance by silence unless prior dealings have rendered permissible acceptance by silence or the terms of the contract specify acceptance by silence.

Unilateral contracts: offeree accepts by complete performance and knowledge of the offer. Notice to the offeror is required only if performing party has reason to know that the offeror will not otherwise learn of the performance.

Seller sends nonconforming goods: if the seller sends the wrong goods in response to an offer, there is an acceptance, and also a breach of that contract (because it is not a perfect tender)

Question 7

What is consideration?

Answer 7

A bargained-for exchange of legal detriment

Bargained for: The promise at least partially induces the legal detriment, and the legal detriment at least partially induces the promise.

Legal detriment: a choice to oblige oneself to affirmatively act, or refrain from acting, that would not otherwise be required.

• past consideration: an obligation that existed prior to positing it as the legal detriment of consideration–i.e., past consideration does not constitution adequate consideration
• pre-existing duty: similar to past consideration, an already existing duty cannot constitute consideration because it existed prior to any bargaining. (e.g., contract modification: if a contract already exists, any modification will require additional consideration if the common-law governs the contract; however, the UCC does not require additional consideration).
• Illusory promise: a feigned obligation does not constitute consideration (e.g., I’ll pay X amount on day Y if I feel like it).

Question 8

What forms of substitution adequately substitute in place of consideration?

Answer 8

promissory estoppel and moral consideration.

• Promissory estoppel exists where one party makes an unenforceable promise to another party that foreseeably and detrimentally relies on the promise. (reliance damages are proper).
• Moral consideration typically does not constitute consideration (e.g., a person takes care of a sick person & after receiving care the person promises a payment); however, when the obligation involves payment of a debt that became unenforceable, if the obligee makes a written promise to pay all or part of the debt, the promise to pay the new debt (new amount) becomes enforceable.

Question 9

What are the defenses to formation?

Answer 9

incapacity, illegality, public policy, ambiguity, mistake, duress, undue influence, misrepresentation/fraud, unconscionability, and the statute of frauds

Question 10

What are the forms of incapacity and when do they serve as a defense to contractual formation?

Answer 10

incapacity consists of either a contract with a minor, mental incapacity, or intoxication.

• Minor enter into voidable contracts. In other words, a minor can disaffirm satisfying the terms of a contract that the other party has completely performed (even if the minor misrepresented his age).
¢In the case that a minor decides to void a contract, restitution requires the minor to return any goods (but not services), and nothing more (minor need not pay for damage to goods). EXCEPTION: a minor must pay for necessaries not returned in original condition (quasi-contract).
¢ A contract entered into by a minor who has since reached the age of adulthood can ratify the contract expressly or impliedly.

• Mental capacity: a person mentally capable at the time of the contract, but who has since become mentally incapable, has the option to void the contract. (restitution may be required).
• Intoxication: A person who enters into a contract while intoxicated may void the contract IF THE OTHER PARTY HAS REASON TO KNOW OF THE INTOXICATION.

Question 11

What is illegality and how does it prevent formation of a contract?

Answer 11

Illegality occurs when the subject matter of a contract is illegal. In such an instance, the contract is (or becomes) void.

Question 12

How does public policy prevent formation of contracts?

Answer 12

Public policy prevents the formation of unreasonable non-compete contracts to prevent an individual from pursuing a means and, on a larger scale, prevent competition between businesses.

Public policy also prevents unreasonable exculpatory clauses–clauses that preclude liability for gross negligence or intentionally tortious acts (negligence generally permissible).

Question 13

What is an ambiguity and how can it prevent formation of a contract?

Answer 13

An ambiguity exists if the parties could give multiple, conflicting interpretations to a term or provision in a contract. An ambiguity becomes an actionable problem if it goes to an essential term of the contract and each party has, in fact, attached a different meaning.
•Equal fault: If both parties share equal responsibility for the ambiguity, then no contract exists. It does not matter whether the ambiguity is patent or latent: in the former both parties share equal blame, and in the latter, both parties are equally blameless.
•Unequal fault: a contract exists If one party knows of the ambiguity. The ambiguous word receives the meaning attached by the blameless or unaware party.
•The UCC: the UCC determines the reasonableness of any alleged ambiguity by looking to (1) prior dealings between the parties; (2) trade customs; (3) course of dealing.

Question 14

How can mistakes made by a party, or parties, at formation affect a contract?

Answer 14

A mistake can be either mutual or unilateral.
• A mutual mistake occurs when both parties make a mistake about the nature of the contract, it provides a defense to formation if:
¢ the mistake goes to a basic assumption on which the contract was made
¢ the mistake would have a materially adverse impact on the agree-upon exchange;
¢ it was not an assumed risk of the contract
• A unilateral mistake occurs when only one party makes a mistake about the nature of the contract. A unilateral mistake serves as a defense to formation only if the other party knew or had a reason to know of the mistake.

Question 15

What is duress and how can it affect formation of a contract?

Answer 15

Duress exists in two forms: physical and economic.
• Physical duress is an improper threat or act that induces a party to enter into a contract. in such an instance, the induced party has the option of voiding the contract.
• Economic duress becomes unacceptable when it forces a party to breach its other contractual obligations. Voidable.

Question 16

When does undue influence prevent formation?

Answer 16

Where the judgment of a contracting party is overcome by over persuasive bargaining strategies, the contract becomes voidable.

Question 17

What are the forms of fraud/misrepresentation and how do they affect formation of a contract?

Answer 17

fraud in the inducement, fraud in factum, or fraud in the execution.
•Fraud in the inducement: where the contract is based on false/misrepresented information provided by the one of the parties (even unintentionally). Makes the contract voidable.
¢ A plaintiff that sues on a theory of contract can obtain avoidance as a remedy; however, a plaintiff that sues on a theory of tort can obtain damages.
•Fraud in factum: one party unknowingly enters into a contract because of the deceptiveness employed by another. VOID.
• Fraud in the execution: The parties have contemplated a contract, but one party alters the terms of the contract without the other party’s knowledge, and the unknowing party entered into the altered contract. VOID.

Question 18

How can unconscionability affect contract formation?

Answer 18

An unconscionable contract at the time of formation creates a voidable contract.
•Substantive unconscionability exists when unfairness exists from the provisions of the contract.
•Procedural unconscionability exists where grossly unequal bargaining power existed between the parties. (e.g., contracts of adhesion).

Question 19

What is the statute of frauds, when does is apply, and how can it affect formation?

Answer 19

The statute of frauds requires certain contracts to be made in writing, signed by the party to be bound, and includes the essential terms.

The statute of frauds applies different to contracts, depending on the governing law.
• common law: (1) contracts necessarily longer than one year; (2) purchases of real property; (3) executor/administrator’s promise to pay debt of decedent; (4) guarantee of the debt of another; (5) marriage
• the UCC: sale of goods of at least $500, unless special order goods, delivered goods, and confirmation memos of oral agreements made between merchants.

Question 20

When can one enforce an oral agreement that fell within the statute of frauds?

Answer 20

through judicial admission, full performance of the contract, partial payment and possession of a purchase of real estate, and under the UCC (see question 19).
•Judicial admission: party admits in pleadings, discovery, or testimony that contract existed.
•Full performance of a contract pulls it out of the statute of frauds, but partial performance does not (however, restitutionary/equitable remedies may be available).
•real estate: the statute of frauds does not apply if all or part of the purchase price has been paid, and one party either takes possession or makes substantial improvements.

Question 21

What is the parole evidence rule and when does it apply?

Answer 21

Evidence that tends to modify or contract contractual terms is inadmissible if the written contract is intended as a complete and final expression of the parties.
•A writing intended as the final expression of the parties is an integrated writing. The existence of a merger clause is persuasive evidence of complete integration (a clause that states that the contract is the full and final expression of the parties).
•The parol evidence rule does not apply to:
¢ Formation defects–parol evidence is admissible to prove fraud, duress, mistake, illegality, etc.
¢ mistake in integration–a typo in the terms of the contract
¢ conditions precedent (the existence of the condition)
¢ subsequent agreements/modifications
¢ ambiguous terms
¢ UCC specific–explanation or supplementation of terms by (1) course of dealing; (2) prior dealings b/w the parties; (3) trade customs.

Question 22

what are the types of conditional provisions, and how can they control the creation/dissolution of a contract?

Answer 22

Condition precedent, condition subsequent, express condition, constructive condition, concurrent conditions, and implied-in-fact condition.
•condition precedent: a condition that must be satisfied before the a contractual duty arises.
•condition subsequent: a condition that, if satisfied, extinguishes existing obligations.
•express condition: a condition expressly stated as a contractual provision
•constructive condition: condition that creates a logical order to the performance of the obligations under a contract.
•concurrent condition: condition that requires the parties to perform simultaneously.
•implied-in-fact condition: one party’s performance renders possible performance by the other party.

Whether a party satisfies a condition depends upon whether it is express or constructive. An express condition requires strict adherence, while a constructive condition requires substantial performance.

Question 23

What are the excuses for nonperformance?

Answer 23

impossibility, impracticality, frustration of purpose, insecurity, anticipatory repudiation, mutual recession, accord and satisfaction, novation, and material breach by the other party.

Question 24

When do impossibility, impracticality, or frustration of purpose excuse performance?

Answer 24

When a reasonably unforeseeable event causes performance to become impossible, impractical, or purposeless.
•impossibility: where the requisite means of performance no longer exist (e.g., obligation to perform at club that burnt down prior to show)
•impractical: where performance would create an undue burden. (e.g., X agrees to perform A for $10 at a $1 profit. An intervening invention allows X to perform A for $8 dollars at a $2 profit).
•Frustration of purpose: when the purpose of the contract no longer exists. (e.g., A rents apartment to see parade. Parade is cancelled).

Question 25

When does insecurity excuse performance?

Answer 25

If one party has a reasonable belief that the other party cannot, or will not, perform, the insecure party may suspend performance and request assurances from the other party. (Under the UCC, a party may make the request in writing. Failure to respond within 30 days signifies breach).

Question 26

When does an anticipatory repudiation occur and what remedies are available for it?

Answer 26

If a party evinces a clear refusal to perform, then the other party acquires an immediate right to sue for a material breach.

The injured party may (1) immediately file suit, (2) suspend performance, (3) rescind the contract, and/or (4) urge performance. EXCEPTIONS:
•A non-breaching party that has completed performance cannot sue until payment becomes due.
•The repudiating party retracts before the non-repudiating party has materially changed its position, and the repudiating party provides adequate assurance that it will perform.

Question 27

How does accord and satisfaction excuse performance?

Answer 27

An agreement (accord) and performance (satisfaction) of parties to a contract to accept a different performance in satisfaction of the original obligation will excuse performance of the original obligation (n.b., this occurs when a obligee cannot pay the full amount of a debt).

Question 28

How does novation excuse performance?

Answer 28

if both of the parties to the original agreement agree on a substituted party, the replaced party is excused from performing.