Contracts (DONE?) Flashcards
Foreseeable Reliance before Acceptance
If the offeree acted in foreseeable reasonable reliance of the offer, the offer can
Starting to Perform a Unilateral K
If a K requires acceptance only by performance, beginning the performance makes the offer irrevocable.
Exceptions to Revocation of Offer
Option, Firm offer, Foreseeable Reliance before Acceptance, and Starting to Perform a Unilateral K
Timing of Revocation
A revocation is effective ON RECEIPT
- no mailbox rule
Rejection of Offer
Any inappropriate response from offeree will constitute a rejection
- counteroffer (but not bargaining/question)
- offeree attaches conditions (rejection/counteroffer)
- acceptance varying offer (Battle of the Forms)
Battle of the Forms/Acceptance Varying Offer
Common Law: Acceptance must MIRROR offer (Mirror Image Rule)
Article 2: No Mirror Image Rule, terms of the acceptance don’t have to match the terms set out in the offer. Adding or changing a term does not prevent acceptance under Article 2, but the new term is included only if both parties are MERCHANTS, there’s no MATERIAL CHANGE, and only if the offeror does NOT REJECT withing a reasonable time.
- The offeree’s term sometimes DOES NOT make it into the contract.
Material Change of Terms
One that is likely to cause hardship or surprise for the offeror
Death before acceptance
Terminates only a REVOCABLE offer.
Death before acceptance
Terminates only a REVOCABLE offer.
Acceptance - Starting Performance (Bilateral/Unilateral)
Bilateral - Starting performance is acceptance and carries with it an implied promise to finish the job.
Unilateral - Starting performance is NOT acceptance, only completing performance is. However, offeror CANNOT REVOKE once performance begins.
Acceptance - Improper Performance
Improper performance constitutes simultaneous acceptance and breach of contract.
- Accommodation = NOT acceptance, and therefore no breach
Acceptance - SIlence
Silence is NOT acceptance. Offeror cannot single handedly turn the offeree’s silence into acceptance.
Acceptance - Mailbox Rule
Generally, acceptance is effective when MAILED.
- protects the offeree against revocation once he has mailed acceptance.
Mailbox Rule EXCEPTIONS
- Offer specifies that mailbox rule does not apply (“Acceptance must be received by _____”)
- Does not apply to IRREVOCABLE OFFERS
- Does not apply if REJECTION is sent FIRST
Defenses against formation
- ## Lack of capacity (under 18, intoxicated, mentally incompetent)
Defenses against formation
- Lack of capacity (under 18, intoxicated, mentally incompetent)
- Ambiguity / Misunderstanding
- Mutual Mistake (NOT unilateral mistake)
- Lack of Consideration
- LOC/K modification
- LOC/Partial Payment of a Debt that is Due and Undisputed
Formation Defense - Lack of capacity
No K is formed for purposes of enforcement against minors, intoxication, mentally incompetent
- Exception for necessaries, but can only be charged the reasonable price, not the K price
Formation Defense - Implied Affirmation
Continuing to comply with the contract after becoming competent again is implied affirmation to be bound.
Formation Defense - Ambiguity / Misunderstanding
No K is formed unless one of them knew or had reason to know of the other’s party’s meaning. If S knew but didn’t clarify, S is bound to B’s term.
Formation Defense - Mutual Mistake
No K is formed if there is a “mutual mistake about a material fact”
- both parties share a mistaken belief
Mistake as to VALUE is NOT considered material, so a K is considered to be formed. (Buyer should have had the goods appraised)
Formation Defense - Unilateral Mistake
Unilateral mistakes are not a fatal flaw unless one party knew or had reason to know the other party had a mistaken belief.
Formation Defense - Lack of Consideration
Consideration = “Bargained-for legal detriment/benefit”
- can bargain for a promise, performance, or forbearance.
NOTES:
- “Past consideration” is not consideration. You cannot bargain for something that’s already been done.
- Adequacy of Consideration is Irrelevant. As long as there’s a bargain, the consideration offered compared to the value of the bargain is not relevant.
Formation Defense - Lack of Consideration / Contract Modification (Common law vs. Article 2)
Common law - New consideration is required to modify a K. Performing a preexisting duty is not enough (“Preexisting Duty Rule”)
- EXCEPTION: If the modification is fair in light of unanticipated change in circumstances.
- NOTE: A third party cannot use the preexisting duty rule as a defense against formation.
Article 2 - New consideration is not required to modify a K for the sale of goods, but you must have a GOOD FAITH reason. (Policy: facilitate K modification in same way they want to facilitate K formation)
Formation Defense - Lack of Consideration / Partial Payment of a Debt that is Due and Undisputed
If a debt is “due and undisputed”, and there’s an agreement to pay partially in return for forgiveness of the rest of the debt, then there is NO CONSIDERATION, and the company can still come after you to recover the full amount.
UNLESS there’s an agreement to pay EARLY = consideration
Formation Defense - LOC/Time Barred Debt
A written promise to pay a debt, collection of which is barred by statute of limitations, is enforceable EVEN WITHOUT consideration.
Formation Defense - LOC/Promissory Estoppel as a Substitute for Consideration
Foreseeable reliance on a promise may make a promise enforceable EVEN without consideration.
(Only the right answer if there is NO consideration.)
Statute of Frauds (“SOF”)
If a K is within the SOF, then a writing is required. (Watch out for “ORAL AGREEMENT”, checking if it’s enforceable in the absence of a writing)
SOF Equal Dignities Rule: If the underlying transaction requires a writing, then the agent’s authority regarding the transaction must be in writing as well.
When a writing is required:
- Transfer of an Interest in Real Property (purchase, leases, easements, mortgages)
- Performance cannot be completed within a year (as long as full performance within a year of the K’s formation is theoretically possible, no writing is required by the SOF)
- Sale of goods under Article 2 for $500 or more
- Lease of goods under Article 2A for $1000 or more (TEXAS ONLY)
- Suretyship
- Contract modification
Steps:
1) Do you need a writing at all?
2) Do you have a writing that satisfies SOF against the Defendant?
3) If not, do you fall within the exceptions?
SOF - Equal Dignities Rule
If the underlying transaction requires a writing, then the agent’s authority regarding the transaction must be in writing as well.
SOF under Article 2
Writing required:
- For sale of goods of $500 or more (Article 2)
- For lease of goods of $1000 or more (Article 2A)
SOF - Suretyship
A promise to answer for the debt of another is required to be in writing under the SOF.
SOF - Contract modification
A contract modification must be in writing ONLY IF the contract as modified (not the original K) is within the SOF.
Private SOF - parties are allowed to include a clause that prohibits oral modification.
Under common law, clauses that prohibit oral modification are NOT ENFORCEABLE so you can always modify a K under common law, even if you have agreed not to.
SOF - Satisfactory Writings
Article 2 Satisfactory Writings
1) Must contain a quantity term
2) Be signed by the party to be charged with breach (i.e., defendant, to make sure plaintiff isn’t making it up)
Other Contracts
1) Must have all material terms
2) Signed by defendant (not as broad as A2)
SOF - Exceptions
(Generally carved out where there is less chance of fraud)
Real property - legislative
- Leases of one year or less do not require a writing. This is a legislative exception because the legislature knows many of these leases occur without a writing.
“Part Performance” - judicial
- Requires 2/3 of these: some payment, possession, permanent improvements
One-Year Prong: Full Performance
Sale of Goods for $500 or More (Article 2)————-
- Goods accepted or paid for by Buyer
- Applies only to those goods that Buyer has accepted or paid for.
- Does not apply to the entire K!
Custom goods
- A substantial beginning on custom goods that are not suitable for sale to others.
Judicial Admission
- Admitting in legal proceeding that there was a K
Merchant’s Confirmatory Memo ***
- A party’s own signed writing can satisfy the SOF against the other party if:
1) both parties are merchants
2) writing claims agreement/has quantity, and
3) there’s no written objection within 10 days
Main Purpose Exception
- When the surety’s main purpose of making the promise was to benefit herself.
Parol Evidence Rule (“PER”)
Keeps out evidence of a prior or contemporaneous agreement (either oral or written) that contradicts a later writing.
PER assumes that a later writing is more important than anything that came before.
Distinct from SOF = PER requires a writing ALREADY in existence. SOF involves oral agreements.
LATER EVENTS
- PER is irrelevant when applied to later events after the writing. It has nothing to do with what happens AFTER the writing.
Exceptions to PER
Can always get in parol evidence to
- correct a clerical error
- establish a defense against formation/fatal flaw in agreement process (duress, lack of capacity, no consideration, misrepresentation)
- interpret a vague or ambiguous term; if a term is not vague or ambiguous, the court will give the term its plain and obvious meaning.
- add a partially integrated writing; when a writing is not a complete statement of all terms agreed to (except when there’s a “merger clause”, which indicates the K is complete on its face and cannot be supplemented)
Terms of K - Conduct
Course of Performance [MOST IMPORTANT]:
- refers to how the parties have performed under THIS CONTRACT
- viewed as the best evidence of what the parties intended, because it’s how they performed under that very K.
Course of Dealing:
- what the parties did under prior Ks with one another
- less important than course of performance
Usage of Trade [LEAST IMPORTANT]:
- what others in the trade do in similar Ks
Terms of K - Seller’s Warranties of Quality in a Sale of Goods (Article 2)
Express Warranty:
- created where the seller gives a description/statement of fact of the goods to the buyer
- where the seller makes a promise of goods
- where a seller uses a sample or model
[each of these things is to be distinguished from the seller’s mere expression of the seller’s opinion]
Implied Warranty:
- of Merchantability: the goods are fit for their ordinary purpose. The seller must be a merchant who deals in goods of the kind (has special knowledge about the particular goods being sold)
