Contracts and Sales from lecture Flashcards
Seven General Issues
- Applicable law; 2. Formation of contracts (1/3 of questions on bar exam); 3. Terms of contract; 4. Performance; 5. Remedies for unexcused nonperformance; 6. Excuse of nonperformance; 7. Third-party problems.
Mneumonic for 7 general issues
Armadillos from Texas play rap, eating tacos.
Unilateral contracts definition:
results from AN OFFER that expressly requires performance AS THE ONLY POSSIBLE METHOD OF ACCEPTANCE.
Bilateral contract definition:
All other (other than unilateral) offers. Usually offer is silent as to the method of acceptance.
A contract is a bilateral contract unless:
- reward, prize, contest; 2. offer expressly requires PERFORMANCE FOR ACCEPTANCE.
Quasi contract is what?
An equitable remedy–not a contract at all.
First step on exam is to ask yourself what?
What law do I apply: Applicable Law
What are the choices of applicable law on a contracts question?
- Common law; 2. Article 2 of the UCC
What does Article 2 apply to?
Applies to contracts that are primarily for sale of goods.
What are the factors that determine whether Article 2 applies?
- type of transaction (sale); and 2. subject matter of transaction (goods, i.e., tangible, personal property.)
What is not included in the term goods for purposes of Article 2?
real estate and service contracts.
What sale of goods does Article 2 cover?
All sale of goods, regardless of the amount of money involved and whether the buyer and seller are merchants.
What law is applicable to a mixed deal where you have one agreement but it covers both goods and services?
General rule: all or nothing. We pick one body of law to apply to the entire deal (both goods and services). We choose the most important part of the deal (goods or services) to determine what body of law applies.
What is the exception to the all or nothing rule regarding what law is applicable?
If contract DIVIDES PAYMENT, then apply UCC to sale of goods part and common law to the rest.
On the bar exam, there is no responsibility for what?
- revised article 2–no state has adopted it; 2. Article 2A of UCC (if your state does cover it it will be in state materials provided by barbri)
Contract definition:
A contract is an AGREEMENT that is LEGALLY ENFORCEABLE.
On the bar exam, when looking for an agreement, watch for information in the question about:
- the initial communication (offer) and 2. what happens after the initial communication (termination of the offer) and 3. who responds and how she responds (acceptance).
Steps in analyzing the Formation of a Contract:
- Is the communication an offer; 2. Was the offer terminated?; 3. Acceptance of an offer; 4. Legally enforceable.
What test do we use to deterimine if the initial communication is an offer for the purpose of forming a contract?
General test: Manifestation of commitment
What is the manifestation of commitment test?
An offer is a manifestation of intention of one person to contract–words or conduct showing commitment by one person. The basic test is whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract.
An offer creates what?
A legal obligation on the part of the offeror. The offeree does not have an obligation, but has an opportunity.
Specific problems regarding offer that comes up on the bar exam include issues concerning:
- Content; 2. Context
Content issues that affect whether or not an offer has been made:
- Missing price term in a sales contract; 2. Vague or ambiguous MATERIAL terms; 3. Requirement contracts/output contracts.
What is the effect of a missing price term in a sales contract?
Sale of real estate (common law) requires a price and description to be an offer. 2. Sale of goods (Article 2) has no price requirement.
What is the rule about vague or ambiguous MATERIAL terms in a sales contract?
Not an offer under either common law or UCC.
What are examples of vague or ambiguous material terms?
Appropriate, fair, reasonable.
What is a requirements/output contract?
A contract for the sale of goods can state the quantity of goods to be delivered under the contract in terms of the buyer’s requirements or seller’s output. Requirement/output contracts are not vague or ambiguous and are valid.
What words would you look for in a requirements/output contract?
all, only, exclusively, solely
When is an increase in a requirements/output contract allowable?
Buyer can increase requirements so long as the increase is in line with prior demands. No unnecessarily disproportionate limitation on increases.
What is the general rule regarding context of an offer?
An advertisement or price quotation is NOT an offer.
What are the exceptions to the rule that advertisements and price quotations are not offers?
- An advertisement can be a unilateral offer if it is in the nature of a reward (Carbolic Smoke Ball Company promises 100 pound reward to anyone who catches the flu after using its smoke ball as directed; 2. An advertisement can be an offer if it specifies quantity and expressly indicates who can accept (Lefkowitz Department Store advertises “1 fur coat $10–first come, first served”; 3. Price quotation can be an offer if sent in response to an inquiry.
What are the 4 methods of terminating an offer?
- Lapse of time (time stated or reasonable time); 2. Death or incapacity of either party PRIOR TO acceptance (exception: irrevocable offers); 3. Words of conduct of offeror, i.e., revocation of an offer; 4. Words or conduct of the offeree: rejection.
How is an offer revoked (2 ways):
- Later UNAMBIGUOUS statement by offeror to OFFEREE of unwillingness or inability to contract, or 2. Later UNAMBIGUOUS conduct by offeror indicating an unwillingness or inability to contract that OFFEREE is aware of.
Revocation does not include:
Making multiple offers–an offeror can make the same offer to multiple people, but the offer remains open to each person until the offer is actually revoked.
Which offers are irrevocable?
- Option; 2. UCC Firm Offer Rule; 3. Reliance; 4. Unilateral contract;
What is the difference between irrevocable, revocable, and revoked?
irrevocable=no possibility, revocable=possibility, revoked=actuality
What is an option?
Has two components: An offer cannot be revoked if the offeror has not only made an offer but also (1) promised to not revoke (promised to keep the offer open) AND (2) the promise is supported by payment or other consideration (“option”)
After the time period of an option expires, is the offer revoked?
No, it just becomes revocable.
UCC Firm Offer Rule:
An offer cannot be revoked for up to 3 months if 1. offer to buy or sell goods, 2. signed, written promise to keep the offer open, and 3. party is a merchant (business person on the bar exam).
What is the difference between an option and a UCC Firm Offer?
No payment of consideration.
When does reliance make an offer irrevocable?
If there has been 1. reliance that is 2. reasonably foreseeable and 3. detrimental.
When does a unilateral contract become irrevocable?
The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance. (cannot be mere preparation for performance-unless there is detrimental reliance–paint can’t be returned)
Indirect methods of rejection:
- counteroffer; 2. conditional acceptance; 3. additional terms to a common law contract
What are the rules regarding counteroffers terminating the offer?
Counteroffer generally terminates the offer and creates a new offer. Counteroffers need to be distinguished from bargaining. Bargaining does not terminate the offer. Counteroffers do not terminate options.
What should one look for with regard to a conditional acceptance?
A response to an offer with the word “accept” followed by one of these words or phrases: if, only if, provided, so long as, but, or on condition that
How do you tell bargaining from counteroffer?
“Will you take $9000?” is bargaining. The critical difference is the form of a question.
What is the difference between common law and UCC regarding a conditional acceptance?
Common law: rejects and becomes counteroffer; UCC: rejects
Mirror Image Rule:
Under common law, a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance.
What is the rule regarding additional or different terms under UCC Article 2?
Not rejection.
What is required for a “seasonable expression of acceptance” under UCC?
Under the UCC, a response to an offer that adds additional or different terms, but does not make the new terms a condition of acceptance, is generally treated as an acceptance (seasonable expression of acceptance). It does not matter if the parties are merchants or not.
Under the UCC, is the additional term a part of the contract?
The additional term is a part of the contract only if 1. both parties are merchants AND 2. additional term is not “material” (fact question) AND 3. the additional term is not objected to by original offeror.
What are the rules regarding method of acceptance?
- The offeror can control the method of acceptance (e.g., offer states that it can only be accepted by performance), the time that a distance acceptance is effective (e.g., offer states that its acceptance is effective only when it has been received at offeror’s Richmond office), or whether the offeree must give notice that it has accepted by performance (e.g., acceptance by performance will not be effective until offeror has been so notified.
When is start of performance an acceptance for a contract?
Start of performance is an acceptance of a bilateral contract but not a unilateral contract. A unilateral contract is only accepted upon completion of the performance. In a unilateral contract, start of performance does not obligate the offeree to continue. However, the offeror cannot retract because of detrimental reliance by the offeree.
Rules regarding distance and delay in communications:
- All communications OTHER THAN ACCEPTANCE are effective only WHEN RECEIVED; 2. Acceptance is GENERALLY effective WHEN MAILED (mailbox rule); 3. If a rejection is mailed before an acceptance is mailed, then neither is effective until received; 4. You cannot use the mailbox rule to meet an option deadline.
What is the rule when a seller of goods sends the “wrong” goods:
General rule: there is a contract because there was acceptance even though there was a breach of the contract.
What is the accomodation exception?
When you send wrong goods with an explanation there is no contract and therefore no breach.
Generally, an offer can be accepted only by what?
(1) a person who knows about the offer at the time she accepts (2) who is the person to whom it was made.
To accept a reward offer, what must be present?
The person must know of the offer. (I offer $500 reward to the person who finds my lost dog. You find the dog and return it, not knowing of the reward. Do I have to give you the reward? No. No contract.
What is the rule regarding assignability of offers?
Offer are not assignable, unless they are options.
Legal reasons for not enforcing an agreement include:
- lack of consideration or a consideration substitute for the promise at issue; 2. lack of capacity of the person who made that promise; 3. Statue 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 agreement.
Lack of consideration or a consideration substitute results in what?
An agreement being legally unenforceable.
What is consideration?
bargained for legal detriment
In dealing with consideration questions on the bar exam, go through the following 3 steps:
- Identify the promise breaker, i.e., the person who is not doing what she promised to do. 2. Ask whether that person asked for something in return for her promise, i.e., bargained for something. 3. Look at the person who is trying to enforce the promise and ask what legal detriment that person sustained.
A legal detriment does not have to be what?
An actual detriment–just means you refrained from doing something you were legally allowed to do.
What is the rule regarding promise as consideration?
A promise can be consideration for another promise.
What is the illusory promise exception?
An exception to the rule that a promise can be consideration in exchange for a promise. An illusory promise has a condition like if i want to. Never see this on a bar exam because too hard to hide. So if the answer has illusory promise in it, don’t pick it.
What is the rule regarding adequacy of consideration?
Not relevant in contract law. Mere peppercorn of consideration is enough.
What are the most likely consideration issues?
- Past consideration; 2. Pre-existing contractual or statutory duty rule; 3. Part payment as consideration for release, i.e., promise to forgive balance of debt.
What is the rule regarding past consideration?
General rule: not consideration. Can’t bargain for somebody to do something they have already done.
What is the common law rule for a promise to be consideration where there is a pre-existing contractual or statutory duty?
Doing what you are already doing legally obligated to do is not new consideration for a new promise to pay you more to do merely that. Under common law new consideration is required for contract modification.
What are the exceptions to the common law rule regarding a promise being consideration where there is pre-existing contractual or statutory duties?
- Promise to pay more for additional or change in performance; 2. Unforeseen difficulty so severe as to excuse performance will cause a promise to pay more be legally enforceable; 3. third party promise to pay is the same as the original offeror making the promise with regard to enforceability
Instead of consideration, what does the UCC require for a legally enforceable contract?
Article 2 does not have a pre-existing legal duty rule. New consideration is not required to modify a sale of good contract. Good faith is the test for changes to an existing sale of good contract.
What is the key to part payment as consideration for release, i.e., promise to forgive balance of debt:
Key is whether debt is due and undisputed. If debt is due and undisputed, then part payment is NOT consideration for release.
What are consideration substitutes?
- A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration (example: collection of debt is barred by statute of limitations, but if the debtor promises to pay, the promise is enforceable even though there is not consideration, as long as it is a written promise.); 2. Promissory estoppel; Seals (not on MBE, may be on state exam.
What is another name for promissory estoppel?
detrimental reliance
What are the elements of promissory estoppel?
- Promise; 2. Reliance that is reasonable, detrimental, and foreseeable, and 3. enforcement necessary to avoid injustice.
Who lacks capacity to contract?
- Infant (under 18); 2. Mental incompetents; 3. Intoxicated persons if other party has reason to know.
Consequences of incapacity:
Person who lacks capacity has the right to disaffirm the contract. But the person without capacity can enforce the contract. Contract voidable not void.
What is the rule of ratification regarding incapacity?
Implied affirmation by retaining benefits after gaining capacity.
What is the rule regarding necessaries?
Quasi-contract liability: A person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care or shelter, but that liability is based on quasi-contract law, not contract law.
What is the most important thing that we will cover in BARBRI contracts?
Statue of Frauds: more heavily tested than anything else.
What is The Statute of Fraud?
A statute designed to prevent fraudulent claims of the existence of contract. Makes it harder to make such a false or fraudulent claim by requiring the claimant to have proof other than just testimony that a contract exists before the claimant gets its day in court.
What is the proof required to satisfy the Statute of Frauds?
- performance; 2. a writing signed by the person who is asserting that there was no such agreement.
What are the four contracts WITHIN the Statute of Frauds:
- Promises to answer for the debts of another (suretyship); 2. Service contract not “capable” of being performed within a year from the time of the contract (i.e., more than one year); 3. Transfers of interest in real estate (with exception for leases of 1 year or less); 4. Sale of goods for more than $500 ore more.
Courts have interpreted the phrase “answer for the debts of another” with what?
Guarantees.
What is the main purpose exception for the Statute of Frauds regarding suretyship?
If the “main purpose” of the obligation allegedly guarantee was to benefit the guarantor, then not even that guarantee is within the Statute of Frauds.
With regard to the time requirement on Statute of Frauds what should you look out for?
Refers to performance, not time allowed for termination or other.
Trick to pay attention to on Statute of Fraud with regard to the time element?
Capable means being able to be performed within a year where you have unlimited resources, even if the actual parties don’t have unlimited resources. Also, does not apply to life.
