Contracts Flashcards
General Issues
Armadillos From Texas Play Tennis Riding Elephants
A - Applicable law F - Formation of contracts T - Terms of contract P - Performance T - Third-party problems R - Remedies for unexcused nonperformance E - Excuse of nonperformance
Unilateral Contract
A unilateral contract results from an offer that expressly requires performance as the only possible method of acceptance
Bilateral Contract
A bilateral contract results from all other offers. Usually offer is silent as to the method of acceptance.
Not a bilateral contract if: (1) Reward, prize, contest; (2) Offer expressly requires performance for acceptance
Quasi Contract
A quasi contract is an equitable remedy
(a) Not governed by contract law
(b) If contract rules create unfair outcome, look to quasi contract for equitable remedy
Applicable Law: Common Law
Majority rule
Applies to service provider contracts and real property
It does not apply to sale of goods
Applicable Law: UCC Articles 1 and 2
Art. 1: common law contracts applies to sale of goods unless displaced by particular provisions of Art. 2
Art. 2: applies to contracts that are primarily sales of goods
Art. 2 application determined by: (a) Type of transaction (sale) and (b) subject matter of transaction (good, e.g. tangible, personal property)
Applicable Law: Mixed Deals
General rule: all or nothing/more important part – the applicable law is that which governs the more important part of the contract
Exception: If contract expressly divides payment, the apply UCC to sale of goods part and common law to the rest
Formation: Definition of contract
A contract is an agreement that is legally enforceable – need offer and acceptance
Formation: Offer
General test: An offer is one person’s manifestation of willingness to contract; look for words or conduct showing commitment by that person. Basic test: whether a reasonable person in offeree’s position would believe his assent makes a contract.
Formation: Offer - Specific Problems
(1) Content
(2) Context
Formation: Offer - Specific Problems - Content
(1) Missing price term in sales contact:
(a) Sale of real estate: at common law, no offer if price and land description absent
(b) Sale of goods: UCC, no price requirement; intent of parties test used where no price term
(2) Vague or ambiguous material terms - not an offer under common law or UCC
(3) Requirements contracts/output contracts: contact for sale of goods can state the quantity of goods to be delivered in terms of buyer’s requirements or seller’s output (all, only, exclusively, solely)
(a) Increase in requirements: buyer can increase so long as in line with prior demands
Formation: Offer - Specific Problems - Context
An advertisement or price quotation is not an offer
Exceptions:
(1) Advertisement can be a unilateral offer if it is in the nature of a reward
(2) Advertisement can be an offer if it specifies quantity and expressly indicates who can accept
(3) Price quotation can be an offer if sent in response to an inquiry
Formation: Offer Termination - Methods
(1) Lapse of time
(2) Death of a party prior to acceptance
(3) Revocation of offer
(4) Rejection
Formation: Offer Termination - Lapse of Time
An offer is terminated if the time stated or reasonable amount of time lapses
Formation: Offer Termination - Death of a party prior to acceptance
General rule: Death or incapacity of either party after the offer, but before acceptance terminates the offer
Exception: irrevocable offers
Formation: Offer Termination - Revocation
How to revoke:
(a) Later unambiguous STATEMENT by offeror to offeree of unwillingness or inability to contract
(b) Later unambiguous CONDUCT by offeror indicating an unwillingness or inability to contract that offeree is aware of
Formation: Offer Termination - Irrevocable Offers
Generally offers can be revoked, by 4 situations in which cannot be revoked:
(1) Option: offer cannot be revoked if offeror has (a) made an offer, (b) promised not to revoke/promised to keep open, and (c) promise is supported by payment or other consideration
(2) UCC “Firm Offer Rule”: Offer cannot be revoked for up to 3 months if (a) offer to buy/sell goods, (b) signed written promise to keep offer open, and (c) party is a merchant.
(3) Reliance: An offer cannot be revoked if there has been (a) reliance that is (b) reasonably foreseeable and (c) detrimental.
(4) Unilateral contract: The start of performance pursuant to an offer to enter a unilateral contract makes that offer irrevocable for a reasonable time to complete the performance. Mere preparation is not enough to make the offer irrevocable.
Formation: Offer Termination - Rejection
(1) Direct rejection
Indirect Rejection
(2) Counteroffer: generally terminates the offer and creates a new offer. Distinguishable from bargaining.
(3) Conditional Acceptance: look for response with the word accept followed by “if,” “only if,” “provided,” “so long as,” “but,” or “on condition that”; (a) common law: rejects and becomes counteroffer; (b) UCC: rejects
(4) Mirror Image rule: Additional terms added to a common law contract; a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance
Formation: Offer - Additional Terms
(1) Common law: a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance
(2) UCC: (a) If additional terms are not made a condition of acceptance, generally treated as an acceptance (“seasonable expression of acceptance”); (b) additional terms are not a part of the contract, unless both parties are merchants and the additional term is not material or the original offeror does not object.
Formation: Acceptance - Methods
Offeror can control the method of acceptance, the time that a distance acceptance is effective, or whether the offeree must give notice that is has accepted by performance – or, can be silent
Common Acceptance Patterns
(1) Offeree starts to perform: generally, start of performance is acceptance.
Exception: start of performance is not acceptance for unilateral contract – must complete performance
(2) Distance and delay in communications: (a) All communications OTHER THAN acceptance are effective only when received; (b) Acceptance is GENERALLY effective when mailed (“mailbox rule”); (c) if rejection mailed before acceptance mailed, neither effective until received; (d) Mailbox rule does NOT apply to an offer
(3) Seller of goods sends wrong goods: general rule is acceptance and breach
Exception: accommodation – counteroffer and no breach (seller acknowledges selling wrong stuff, buyer can choose to accept or reject)
Formation: Acceptance - Who
An offer can generally be accepted by (a) a person who knows about the offer at the time she accepts (b) who is the person to whom it was made
Offers cannot be assigned
Options can be assigned, unless option otherwise provides
Formation: Acceptance - Effect
When an offer has been accepted, it is no longer possible for the offeror to revoke or for offeree to reject
Formation: Legal reasons for not enforcing a contract
(1) Lack of consideration or a consideration substitute for the promise at issue
(2) Lack of capacity of the person who made that promise
(3) Statute of frauds
(4) Existing laws that prohibit the performance of the agreement
(5) Public policy
(6) Misrepresentations
(7) Nondisclosure
(8) Duress
(9) Unconscionability
(10) Ambiguity in words of agreement
(11) Mistakes at the time of the agreement as to the material facts affecting the the agreement
Formation: Legal Reason Not to Enforce - Lack of Consideration or Consideration Substitute
Steps: (1) ID promise breaker, (2) ask whether that person asked for something in return for her promise (bargained for), (3) did the person trying to enforce sustain legal detriment
Bargained for: asked for by promisor in exchange for her promise
-Mere promise can be consideration – except, illusory promise exception: cannot reserve right to terminate without notice because then no legal detriment
Formation: Legal Reason Not to Enforce - Lack of Consideration or Consideration Substitute - Past Consideration
Past consideration is not consideration
Exception:
(a) Past obligation unenforceable because of techincal defense (e.g. SOL) – obligation will be enforceable if new promise is in writing or partially performed
(b) Promisor expressly requests past consideration, and expectation of payment by promisee
(c) MODERN TREND: If a past act benefited the promise 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
Formation: Legal Reason Not to Enforce - Lack of Consideration or Consideration Substitute - Pre-Existing Contractual or Statutory Duty Rule
(1) Common Law
(a) 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
(b) Exceptions: (i) addition to or change in performance, (ii) unforeseen difficulty so severe as to excuse performance, (iii) third-party promise to pay
(2) UCC Article 2: No 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.
Formation: Legal Reason Not to Enforce - Lack of Consideration or Consideration Substitute - Part Payment as Consideration for Release
Promise to forgive balance of debt - key issue is whether debt is due and undisputed
(a) If debt is due and undisputed, part payment is NOT consideration for release
(b) If consideration is not yet due or disputed, promise to forgive an be a substitute
Formation: Legal Reason Not to Enforce - Lack of Consideration or Consideration Substitute - Substitutes
Promise is legally enforceable even though there is no consideration if have one of the following:
(1) A written promise to satisfy an obligation for which there is a legal defense
(2) Promissory estoppel: (a) promisor should have expected promisee to change his position in reliance on the promsie; (b) promisee did change his position; (c) change was to promisee’s detriment; (d) enforcement is necessary to avoid injustice
Formation: Legal Reason Not to Enforce - Defendant Promisor’s Lack of Capacity - Who
Promisor lacks capacity if:
(a) Infant: under 18
(b) Mental incompetents: lack ability to understand agreement
(c) Intoxicated persons: if other party has reason to know
Formation: Legal Reason Not to Enforce - Defendant Promisor’s Lack of Capacity - Consequences
(1) Right to disaffirm by person without capacity (but, that person w/ incapacity can enforce)
(2) Implied affirmation by retaining benefits after gaining capability (ratification)
(3) Quasi-contract liability for necessaries person without capacity is nonetheless obligated to pay for things that are necessary, such as food, clothing, medical care, shelter – but on quasi contract law (equity) not contract law
Formation: Legal Reason Not to Enforce - Statute of Frauds
To satisfy statute of frauds, generally can use proof of: (1) performance or (2) a writing signed by the defendant
Formation: Legal Reason Not to Enforce - Statute of Frauds - Contracts within S/F
Within statute of frauds: contract requires objective proof
(1) Promises to answer for the debts of another (suretyship)
(a) but, very narrow; answer for means promise to pay another person’s debts only if that person does not herself pay.
(b) Main purpose exception: S/F n/a if main purpose of the obligation allegedly guaranteed was to benefit the guarantor, then not in S/F.
(2) Service contract not “capable” of being performed within a year from time time of contract
(a) Specific time period more than a year, S/F applies
(b) Specific time, more than a year from date of contract, S/F applies
(c) Task (no mention of time), S/F does not apply
(d) Life contract, S/F does not apply
(3) Transfers of interests in real estate (with exception for leases of 1 year or less)
(4) Sale of goods for $500 or more
Formation: Legal Reason Not to Enforce - Statute of Frauds - Satisfying S/F, Performance
Performance: rules vary depending on whether contract is real estate, services, or sale of goods
(a) Performance and transfer of real estate: part performance satisfies S/F; do 2/3: (i) improvements to land, (ii) payment, or (iii) possession
(b) Performance and services contracts: (i) Full performance by either party satisfies S/F; (ii) Part performance does not satisfy
(c) Part performance and sale of goods contracts: (i) Seller’s part performance of ordinary goods satisfies S/F; (ii) Seller’s part performance of specifically manufactured goods: S/F satisfied as soon as seller makes a “substantial beginning”
Formation: Legal Reason Not to Enforce - Statute of Frauds - Satisfying S/F, Writing
Not every writing satisfies S/F (and S/F can be satisfied without writing)
(1) S/F other than UCC Art. 2: Looks at contents of the writing(s) and use all material terms test - satisfies S/F (no S/F defense) if writing has been signed by defendant
(2) Art. 2 Statute of Frauds: Look at contents of writing and who signed; writing must simply indicate that there is a contract for sale of goods and contain the quantity term (how many); generally, must be signed by defendant, w/ limited exception for two merchants where there is a delay in responding
(3) Delay in responding: Merchant-to-merchant delay in responding exception; idea is that a responsible merchant would respond and say there wasn’t a deal if that was the case
(4) Judicial admission: if D asserting S/F defense admits during pleading or testimony that there was an agreement, S/F satisfied (no S/F defense)
(5) Estoppel: some cases hold that the plaintiff’s reliance on D’s oral promise to put the agreement in writing can estop the defendant from asserting S/F defense
Use of Statute of Frauds other than S/F Defense not to Enforce Agreement
(1) Written proof of authorization to enter into contract for someone else is required when it is an S/F contract
(2) Written proof of contract modification: will be required if the deal with the alleged modification would be in the statute of frauds
(3) Contract provisions requiring written modification: (a) Under common law, contract provisions requiring all modifications be in writing are not effective; (b) Under UCC, contract provisions requiring written modifications are effective unless waived.
