Contracts Flashcards
What is a contract?
Generally:
A legally enforceable agreement
What is the Applicable Law for:
- For goods,
- For Services
- For Real Property
I) Applicable Law (armadillos)
A) UCC Article 2: governs the sale of goods (ie:
moveable, personal property)
B) Common Law- applies to all other contracts
C) Leases of Goods subject to UCC Article 3
- What is a Quasi Contract?
Quasi-Contract: is an equitable remedy that applies whenever the application of contract yields an unfair or inequitable result.
- Protects against unjust enrichment.
- Party gets reasonable value of benefit conferred, but NOT their original contract price
What is a unilateral contract
Bilateral vs Unilateral Contracts
A) Unilateral - contracts that state that acceptance of offer may only be made by performance.
• Once performance begins, a unilateral K cannot be withdrawn.
What is a bi-lateral contract
All non-Unilateral Contracts are bi-later:
Freely bargained for exchange of consideration, often in the form of promises, legally enforced
Formation of Contract:
What is a contract (how is it formed)
What are the elements of a contract: O A C
A Contract is a legally enforced exchange of consideration, usually represented in the form of promises.
B) Elements of a Contract:
1) Offer + Acceptance + Consideration
Formation of Contract:
What is an Offer: M I C, C W C
What is the Basic Test for an Offer : WRPaOBACC
1) OFFER = A manifestation of an intention to contract, created by words or conduct.
2) Basic Test: Would a reasonable person as offeree believe her assent creates a contract?
Note: if first communication used a vague or ambiguous term then it is not an offer.
Formation of Contract:
Offer - Material Terms:
Price and Quantity
General Rule:** ** Not required for a Contract to conatin all material terms.
- *A) Quantity**
1) Exception - Requirements/Output contracts
a) where transaction does not use quantity–but instead uses exclusivetyi) Requirements K = Buyer offers to buy ALL /ONLY / EXCLUSIVELY / SOLELY ii) Output K = Seller offers to sell ALL/ONLY/EXCLUSIVELY/SOLELY..
B) Price
1) CL Ks (CL Contracts = Services, Real Estate)
2) Exception: UCC Sale of Goods - Price is Not
Required
Methods by which a contract can be terminated
- Lapse of Time
- Death/Incapacity
- Words or Conduct
- Rejection by Offeree
Termination by Lapse of Time
A) Lapse of Time- if offer states date of acceptance, anything beyond that is invalid due to expiration of the offer.
B) If no deadline specified, offer will last only for a reasonable amount of time
Offeror’s Revocation
Words or Conduct:
What are the types?
Words or Conduct: Offeror’s Revocation
1) Direct Revocation 2) Indirect Revocation
CF 2.4.3
What (describe) is Direct Revocation of an offer
1) Direct Revocation- a statement by the offeror to the offeree indication unambiguously that the offeror has changed her mind.
What (describe) is Indirect Revocation of an offer
Indirect Revocation - conduct by the offeror unambiguously indicating a change of mind that the offeree is or becomes aware of.
When can a Revocation of an offer occur?
3) Revocation is only effective if it is received by offeree, BEFORE their acceptance.
Can an offer be revoked after it has been accepted?
4)
Once an offer is accepted, it cannot be revoked (even if received by mail the next day) because an agreeement (legally enforceable) exists at the moment of acceptance.
Termination of an Offer by the Offeree’s Rejection:
- What are four methods in which an Offeree may reject an offer?
(CO + CA + A/DT + DEPbA)
1) Counter Offer
2) Conditional Acceptance - operates as a rejection and terminates an offer.
3) Additional or Different Terms
4) The Death of Either Party before Acceptance.
How does a counter offer operate as a termination of an offer?
A COUNTEROFFER operates as a rejection, but bargaining does not.
Termination of Offer / by Offeree’s Rejection.
What is the distinction between a rejection and bargaining?
A COUNTEROFFER operates as a rejection, but bargaining does not.
If offeree merely asks a question- “will you take 45 k instead?”- its bargaining, & offer stil open.
If offeree claims “I will only pay 45k”, then it’s a counteroffer, & rejection of orignl offer.
How does conditional acceptance operate to terminate an offer?
Conditional Acceptance- operates as a rejection and terminates an offer.
- I will accept so long as/provided that/only if I can get top billing.
This terminates original offer and is like saying no.
How do an offeree’s additional or different terms function to terminate an offer (for CL, for UCC) ?
Additional or Different Terms is an acceptance that changes or adds terms - thus terminates the original offer.
a) CL- “Mirror Image Rule”- acceptance must mirror the offer, otherwise it equates rejection.
b) UCC Article 2- additional/different terms are permissible, and operates as acceptance (want to facilitate K formation).
HOWEVER, offeree’s additional terms rarely get into the contract, UNLESS:
i) BOTH parties are merchants,
ii) The term is not a “material”change (likely to cause hardship or surprise to the offeror) &
iii) The Offeror does not object within a reasonable period of time.
**How does Death by a party to the contract operate to terminate an offer? **
What if the offer is an option contract?
the Death of Either Party functions as the termination of an offer if the death occurs before Acceptance.
1) NOTE: Death does NOT terminate an Option K, b/c it was paid for w/ consideration.
Formation of Contract - Offer:
What form of Contracts Precluding Revocation AT ANY TIME?
(hint: one each for CL [Common Law] and UCC)
1) Option: a promise to keep an offer open that’s paid for (w/ consideration).
2) UCC art 2 - Firm Offer
Under the UCC, what is a Firm Offer?
2) UCC art 2 - Firm Offer:
Under UCC Art. 2- a signed, written promise by a merchant to keep an offer open. (no consideration necessary, b/c the *written* signed offer substitutes it)
How does a Firm Offer operate under Article 2 of the UCC?
How is a firm offer created?
(Hint: 3 ==\> FO + DR + PP)
What is the duration of a Firm Offer?
_a) A Firm Offe_r requires express language specifically offering to sell and not to revoke.
c) Detrimental Reliance that is Reasonable & Foreseeable: if an offeror makes a promise, and the offeree relies on that promise and acts reasonably in relying on that contract, and it was foreseeable conduct, then cannot revoke promise.
c) Part Performance of an offer to enter a Unilateral Contract- if offeror states that acceptance of her offer is by performance, then once begun, cannot revoke. (Note: mere preparation is insufficient. BUT, if reasonable and foreseeable, then O is precluded from revoking offer)
d) Duration: 3 month cap, therefore if writing states that offer is open for 6 months, it will be scaled back to 3. (if no time stated, then a reasonable time not to exceed 3 months)
Formation of a Contract - Acceptance
Methods of/How is Acceptance effectuated?
(Bilateral K, Unilateral K).
A) Start of Performance as Acceptance- in a bilateral contract that doesn’t specify the manner of acceptance, the offeree can begin performance as a sign of their acceptance (intent to be bound)
1) Example: O offer P 5k to paint her house. P doesn’t respond, but starts painting O’s house. An agreement has been formed and P accepted when he started painting.
2) NOTE: If Unilateral K, (specifying performance as manner of acceptance), an offer can only be accepted by completion of that performance. (starting doesn’t equate acceptance) HOWEVER, O is precluded from revoking offer, and P must complete performance.
Formation of Contract - Acceptance:
What is the effect of Improper Performance on acceptance?
(What is the Accomodation Exception?)
(What is the effect of silence as Acceptance)
Improper Performance as Acceptance:
1) Serves as acceptance as well as breach of contract.
Example: O offers P 5k to paint her house white. P paints house yellow. P has accepted, but breached oral contract.
2) Accommodation Exception (UCC Art. 2)- if Seller lets Buyer know why they are sending the wrong goods, then there’s no true acceptance by Seller and thus, no breach.
i. Silence as Acceptance ==> INVALID
Formation of Contract - Acceptance:
The Mail Box Rule: - When is acceptance effective?
(What is the Mail Box Rule?)
- When Acceptance is Effective:*
- A) MAILBOX RULE**- acceptance is effective *_when_ MAILED. (protects an offeree who can rely on a contract formation once he mails his acceptance) NOTE: burden of loss is on the Offeror.
Formation of Contract - Acceptance:
The Mail Box Rule -
What are the exceptions to the Mailbox Rule?:
- *B) EXCEPTIONS to the Mailbox Rule:**
1) If the Offer provides otherwise - “your acceptance MUST be received by Jan. 9”2) **Irrevocable Offer**- If offeree pays consideration to Offeror to hold offer open to Jan. 9, and doesn’t send their acceptance till the 9th, and is received by offeror on 11th, then NO CONTRACT. 3) **A_cceptance, *then* Rejection Mailed_** - **MAILBOX RULE APPLIES** **if acceptance _sent *FIRST*_**, (effective), *followed by rejection* and *_rejection gets to offeror first_*, *followed by the acceptance*. Then _**acceptance will still be effective since it was mailed *FIRST***_, *as long as Offeror* ***_does not RELY_***on the *_rejection_*. 4) **_*Rejection*, then Acceptance Mailed_**- **NO MAILBOX RULE**.If offeree mails rejection ***_first,_*** it doesn’t matter. *Acceptance is _ONLY_ effective once received.*
Contract Formation: Consideration
What is Consideration?
Consideration is bargained for legal detriment or benefit. (not always $)
How to (steps to ) analyse Consideration in an exam question.
What are the steps for analysing an exam question for a consideration issue
Consideration is bargained for legal detriment or benefit. (not always $) - so:
1) Steps:
a) Find your promise breaker?
b) Ask whether someone asked for something in
return for their promise?
c) What requested legal detriment did P sustain?
Contract Formation - Consideration
What are the Forms of Consideration?
Consideration- bargained for legal detriment or benefit. (not always $)
- *Forms of Consideration**
- *a)** Performance – Doing something not legally obligated to do
- b)** Forebearance – *Not doing something legally entitled to do
- *c)** Promise to Perform
- *d)** Promise to Forbear
Contract Formation:
- Consideration: Substitutes for Consideration
Substitutes for Consideration
A) Seals: NOT consideration for majority of states
B) A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration.
Example: D owes C $1,000. Legal action to collect this debt is barred by the statue of limitations. D writes C: “I know that I owe you $1000, I will pay you $600.” Is there new consideration for D’s new promise? NO.
Contract Formation:
- Consideration: Substitutes for Consideration
Promissory Estoppel.
Req: P, DR, (DR)RF
Promissory Estoppel as a Substitute for Consideration:
A) Requires Promise
B) Detrimental reasonable Reliance on the Promise
C) Reliance was Foreseeable
Ex: L leases bldg to T. L sends T a letter promising to renew the lease without a rent increase. T paints the building. Notwithstanding her promise and T’s painting the house, L increases the rent. T sues L for breach of contract? Is T’s painting the building “consideration”?
Failed contract Formation:
- Lack of Consideration/ Consideration Issues.
Consideration Issue: Lack of Consideration or a Substitute for It-
A) “Bargained For”
B) Promise as Consideration- There was an agreement btw S & B for sale of her stereo. S agrees to sell her stereo to B for $100. B now refuses to pay. S’s promise to sell her stereo was consideration for B’s promise to pay
C) Adequacy of Consideration
1) Not relevant in contract law – mere peppercorn is enough.
2) **“Past” Consideration** is ***_NOT_*** **valid consideration**- ***_you cannot bargain for something that has already been done_***.
a) ***_Example:_*** Ap save’s Lisa’s life. Homer is so grateful that he promises to pay Apu $3000. Homer changes his mind. Is there consideration for Homer’s promise so it is legally enforceable? NO
b) **_Exception:_** Expressly requested by promisor and expectation of payment by promissee
i) Homer sees Lisa in danger and askes Apu to save her, ***_knowing_*** that Apu _would expect to be paid_. After Apu saves Lisa, Homer promises to pay Apu $3000 – Is this promise legally binding? YES.
Failed contract Formation:
- Lack of Consideration/ Pre-Existing Duty rule.
What is the general rule?:
“Pre-Existing Duty Rule” applies to Contract Modifications:
The General Rule: Doing what you are already legally obligate to do is not new consideration for a new promise to pay you more to do merely that existing duty. Under common law new consideration is required for contract formation
Explanation of Rule: You need new consideration to modify a K. If a person already agrees to a price for their services, then demands additional $, but doesn’t give anything extra for it, then no consideration, and other party is not obligated to pay extra. (only applies to original contracting parties)
NOTE: New consideration can be an ever so slight change of terms.
Failed contract Formation:
- Lack of Consideration/ Pre-Existing Duty rule.
Under the Pre-Existing Duty rule, how may a contract be modified?
Under the Pre-Existing Duty rule...
You need new consideration to modify a K.
If a person already agrees to a price for their services, then demands additional $, but doesn’t give anything extra for it, then no consideration, and other party is not obligated to pay extra. (only applies to original contracting parties)
New consideration can be very slight.
Failed contract Formation:
- Lack of Consideration/ Pre-Existing Duty rule.
What are the exceptions to the General Pre-Existing Duty rule?:
Exceptions:
1) Addition to or change in performance = new consideration
2) Unforseen Difficulty: If the promise to pay more comes after the discovery of previously not foreseen difficulty/impediment = new consideration
3) Third Party Promise to Pay = new consideration.
Failed contract Formation:
- Lack of Consideration/ Pre-Existing Duty rule.
What is the Rule under the Article 2 of the UCC for modification of existing contracts?
UCC Art. 2 (sale of goods) - only need GOOD FAITH to modify contract.
Example: S contracts to sell grits to B for $1000. Subsequently, s tells B that it cannot deliver the grits for less than $1,300. B promises to pay the extra $300. S delivers the grits. Is there new consideration for B’s promise to pay $300? YES; Is that new promise nonetheless legally enforceable? YES – If made in Good Faith.
Failed contract Formation:
Issue of consideration:
• Are Promises to pay a debt barred by Statute of Limitation enforceable?
Promise to pay debt barred by Statute of Limitation
Promises IN WRITING to pay a debt that is barred by SOL is enforceable.
Example: A owes VISA $2500, however, legal action to recover debt from A is barred by SOL. Nonetheless, A writes VISA saying “I owe you $2500. I will pay you $2000.” A’s promise to pay VISA is legally enforceable since it was in writing.
Failed contract Formation:
When does a Contract fail for lack of copacity to contract?
Defendants lack of capacity to contract:
<18, I, MI
Reaffirmining K by implication.
Defendant’s Lack of Capacity to Contract:
• Minor (under 18)
- intoxicated,
- mentally incompetent
Failed contract Formation:
What is the result of incapacity to contract?
What are the exceptions?
- An incapacitated D has the right to disaffirm (avoid) the K.
- Exception: HOWEVER, an incapacitated D can impliedy reaffirm a K by retaining the benefit of the contract without complaint after gaining capacity.
Implied Affirmation has 3 Requirements:
1) D lacked capacity at time of agreement
2) D later gains capacity
3) D retained benefit of K without complaint.
a) An incapacitated D is liable for necessaries (food, shelter, clothing, or medical care), but only on a quasi-contract basis. (reasonable value of service, not K price)
Failed contract Formation:
What is an Implied Affirmation?
What are the requriements of Implied Affirmation?
(hint: lCaTA + LGC + RBoK)
An incapacitated D can impliedy reaffirm a K by retaining the benefit of the contract without complaint after gaining capacity.
Implied Affirmation has 3 Requirements:
1) D lacked capacity at time of agreement
2) D later gains capacity
3) D retained benefit of K without complaint.
a) **NOTE**: An incapacitated D is liable for necessaries (food, shelter, clothing, or medical care), but only on a quasi-contract basis. (reasonable value of service, not K price)
Failed contract Formation:
Duress:
What is the effect of a contract made under duress?
A contract fails if made under duress:
A) Duress - cannot threaten physical harm, no K formation.
- *B)** “Economic Duress”- cannot threaten someone to buy extra goods if they only want what they ordered from you.
1) Someone threatens to breach an existing K unless he gets a better deal.
2) The buyer makes a new agreement b/c he desperately needs to get the first deal done.
3) There is no alternative source for product.
Failed Contract:
Misrepresentation:
**What is Misrepresentation? **
What is the effect of misrepresentation on a contract?
Misrepresentation -
if seller includes a “material” mispresentation which induced buyer to act, even if made honestly & innocently, no valid K.
Failed contract Formation:
**- What is a Bilateral Mistake of Fact **
- What is the effect of a Bilateral Mistake of Fact at the time of agreement on the K?
Bilateral Mistake of Fact in Existence at Time of Agreement
A) Mistake must concern a “material” portion of the K (the heart).
B) Mistake as to market value of a product is NOT considered material.
A bilateral mistake of fact in existence at the time of the agreement voids a contract.
Failed contract Formation:
- What is a Unilateral Mistake of Fact
- What is the effect of a Unilateral Mistake of Fact at the time of agreement on the K?
Unilateral Mistake of Fact
If Buyer is mistaken and believes painting is a Warhol, but Seller does NOT believe it, and is NOT aware that Buyer does, then the agreement is enforceable.
However, if seller is aware of Buyer’s mistaken belief, or has reason to be aware of Buyer’s mistaken belief, then the agreement is NOT enforceable.
Failed contract Formation:
- Public Policy: covenants not to compete
Public Policy:
Covenants not to compete: look to NEED & SCOPE of convenant)
1) Scope includes reasonableness of time limitation and geographic limitation.
- *Example:** Tavern on the Green requires all employees to sign a contract that prohibits them from working at another restaurant in NYC for 90 days.
a) Since employment K, must assess whether there is a reasonable business need.
b) Here, maybe reasonable as to chefs, but not buss boys
Failed contract Formation:
- Exculpatory Clauses.
What is an exculpatory clause (what does it do)?
Effect on contracts?
Exculpatory Clauses - eliminates contract liability)
A) Party may contract away liability for negligence in appropriate circumstances, but CANNOT contract away liability for intentional torts or gross negligence.
B) Example: Builder contracts that he will not be liable for damages caused by negligence of his contractors. This clause is enforceable.
Failed contract Formation:
- Unconscionability.
What is an unconsionablity in contracts?
What are it’s effects of unconsionab ility on contracts?
What is Substantive Unconsionability?
What is Procedural Unconsionability
contract and what
Unconscionability- oppressive terms or unfair surprise at time of agreement.
A) Substantive- where terms themselves in K are unfair
B) Procedural- form contracts, fine print and legalese.
Statute of Frauds:
What is the statute of Frauds?
Statute of Frauds:
• “Within the Statute of Frauds” means the Statute of Frauds (SoF) applies .
Under the Statute of Frauds, a contract must be in writing to be enforceable if it falls into the following criteria: (MYLEGS)
Statute of Frauds:
What is the Pnumonic used for determining (remembering) what kinds of Contracts are subject to the Statute of Frauds?
MY LEGS
Statute of Frauds:
What kind of Contracts are subject to the Statute of Frauds?
(Hint: MY LEGS)
Under the Statute of Frauds, a contract must be in writing to be enforceable if it falls into the following criteria:
(MYLEGS)
1) Marriage,
2) Year
3) Land
4) Executor
5) Guarantee
6) Sale of Goods of $500 or more
STATUTE OF FRAUDS
Lay out the Three Step Analysis for Determining whether or not (or how) the Statute of Frauds applies in a given case:
• Analysis:Is the contract wthin the SOF? –
-
1) 5 kinds of Ks covered…**
* (a) Surety/Guarantee:** “Promises to answer for (guarantee) the Debts of another” (the court is skeptical that one would do this so want’s proof)
* *(b) Contracts by executor** to “answer for personally” (i.e. personally guarantee) the debts of the decedent
* *(c)** Promise in consideration of Marriage
* *(d)** Service K’s with *specific time of performance *greater than a year
* *(e) Xfer of real estate** interest (with the exception for leases of a year or less)
* *(f) Leases of goods for more than $1000 accumulatively** - *2) If so, is the SOF satisfied (with either…)?**
(a) Writing
(b) Proof of Performance - *3) Is there a SOF Defense?**
Statute of Frauds:
- What is the Surety/Guarantee Exception to the Statute of Frauds ?
Surety- (promise to answer for the debt of another if debtor does not pay)- limited to guarantees.
A) NOTE: “Main Purpose” Exception- if the main purpose of the guarantee is to benefit the guarantor, t_hen its NOT w/in SOF_.
Example: Debtor owes Creditor $1000. The debt owed is for paint used to pay Guarantor’s house, thus for his benefit and NOT required to be in writing.
Statute of Frauds:
- How does the Statute of Frauds apply to Executor’s promise.
Statute of frauds: a writing is necessary for…
A) Promise by an executor (estate rep) to use her own funds to pay estate taxes (must be in writing)
Statute of Frauds:
How does the Statute of Frauds apply to matrimony?
Statute of frauds: a writing is necessary for…
A) Promise in consideration of marriage (requires writing)
1) includes pre-nups and post-nups. 2) Oral promise to marry does NOT fall within SOF
Statute of Frauds
How is the Statute of Frauds applied to Service Contracts?
Statute of frauds: a writing is necessary for…
A) Service K incapable/impossible of being fully performed within 1 year from the date of agreement requires writing. (look at what might have happened under terms, ignore what actually happens)
1) **Lifetime Ks- Under CL, don’t need to be in writing since person can die within first year.** 2) Specific Time Periods- if employer orally agreed to hire Tom for the next 3 years, then need writing, since duration is more than 1 year.
