Contracts - Formation and Defenses to Formation/Enforceability Flashcards
Armadillos From Texas Play Rap, Eating Tacos
Applicable law; Formation; Terms; Performance; Excuse of nonperformance;; Remedies; Third-party problems.
A quasi-contract/restitution exists in equity if
(1) P conferred a benefit on D;
(2) P reasonably expected to be paid; and
(3) D is unjustly enriched if P not paid
**This is NOT a contract. Recovery is through restitution. Focus on the value of the benefit conferred.
A unilateral contract exists where the offer
expressly requires PERFORMANCE as the only possible method of acceptance. Generally acceptance requires FULL performance. Once performance has started, the offer becomes irrevocable. If substantial preparations, look for quasi-contract/promissory estoppel.
On the bar, assume that all contracts are _____ unless _______ or _______.
bilateral (a contract that is open as to the method of acceptance);
(1) reward, prize, or contest
(2) offer expressly requires performance for acceptance
Article 2 of the UCC applies to contracts for
primarily (1) sales of (2) goods.
**Even for private parties. Article 2 has additional special provisions that apply if (1) one or both parties are merchants and (2) if the seller is a merchant “with respect to the goods”
Under the UCC, “goods” are
tangible, movable, personal property.
The UCC does not apply to contracts for
(1) services
(2) real estate
(3) employment
(4) construction
(5) anything else that is not the sale of goods
If a contract is for mixed subject matter (sale of goods plus something else), the general rule is
the “all or nothing rule” based on the contract’s “predominant purpose.”
Apply either all UCC or all common law depending on whether the “predominant purpose” is for a sale of goods or for something else.
Some factors to consider when determining the “predominant purpose” of a contract are
(1) purchase price allocation to goods versus the other subject matter (“SM”)
(2) the amount of time spent on the other SM
(3) the sophistication of the service or other SM
(4) words in the K typical to a sale of goods
Under a mixed deal, if the contract itself divides payment between the sale of goods and the other subject matter, apply
UCC to the sale of goods and common law to the other subject matter.
Contract formation requires
(1) offer; (2) acceptance; (3) consideration
The test for whether an offer has occurred is whether
whether a reasonable person in the position of the offers would believe that his or her assent creates a contract
An offer is a
manifestation of an intention to contract, words or conduct showing commitment.
Under common law, an offer that is missing price and/or description of real estate (if for land)
is not a definite offer under common law. Absence of price is fatal.
Under the UCC, an offer that is missing the price
can still be a legally sufficient offer.
Under the UCC, if an offer is missing the price, the default is
(1) a reasonable price
(2) the parties’ subsequently agreed to price
If there is a vague or ambiguous material term in an offer, the offer is
is NOT a legally sufficient offer under either the UCC or common law.
Look for terms like appropriate, fair, or reasonable on the bar. These make an offer invalid.
If a sale of goods contract is missing the quantity term, it is
generally invalid under the UCC.
If a contract for a sale of goods that states the quantity in terms of the buyer’s requirements or the seller’s output, it is
valid requirements/output contract under the UCC.
**Look for words like “all”, “only source”, “sole source”, “required”, “produced”.
With respect to a change in the quantity of goods required under a valid requirements/output contract, a buyer cannot
make an unreasonably disproportionate increase in demands.
Generally, an advertisement is not an offer unless
it is in the nature of a reward or is specific as to quantity and expressly indicates who can accept.
The four ways to terminate an offer are
(1) lapse of time
(2) revocation by words or conduct of offeror of which offeree is aware
(3) rejection by offeree
(4) death
An offeror can revoke an offer through words or conduct through
(1) making an unambiguous statement to the offeree
(2) unambiguous conduct indicating an unwillingness or inability to contract OF WHICH THE OFFEREE IS AWARE**
**If offeree learns of conduct through a “reliable source” it can be sufficient to terminate.
An offer can be terminated due to lapse of time if
the time is stated in the K or, if unstated, a reasonable time.
**Look for dates in the fact pattern, if more than 30 days pass between offer and acceptance, raise the issue.
Revocation of an offer sent through the mail is effective when
received by the offeree. Need not show that the offeree actually received it, sufficient to show that it arrived at offeree’s place of business or home address if private party.
An offer cannot be revoked after
it has been accepted.
Generally, an offer can be revoked any time
prior to acceptance
The four situations in which an offer cannot be revoked are
(1) option contracts
(2) Merchant Firm Offer Rule
(3) Reasonably foreseeable detrimental reliance
(4) Start of performance pursuant to an offer of a unilateral contract
An option contract occurs when there is
(1) a promise to keep an offer open
(2) the promise is supported by consideration, even nominal
Under the UCC’s Merchant Firm Offer Rule, an offer cannot be revoked for ______ if it is a/an
three months;
(1) offer to buy or sell goods;
(2) signed, written promise to keep the offer open; and
(3) the seller is a merchant (any person in any business for bar exam purposes)
For UCC’s Merchant Firm Offer Rule, a merchant is
any person that is in business
The UCC’s Merchant Firm Offer rule ________ apply to oral offers
does not
The Merchant Firm Offer rule has a maximum time limit of
three months. This is a hard and fast limitation even if the offer states a longer time frame.
The Merchant Firm Offer Rule does not apply unless there is a signed, written promise to
keep the offer open
(note: this is an examiner favorite. don’t be tricked by a fact pattern that involves a written offer for a sale of goods by a merchant but that does NOT include an express promise to hold the offer open)
Under the UCC’s Merchant Firm Offer Rule, if the offer does not state a time period, the rule is that the offer is open
for a reasonable time and the seller cannot revoke for that reasonable time (as determined by the court)
An offer cannot be revoked if there has been detrimental reliance by the offeree that is
reasonably foreseeable.
On the bar exam, “bids” should be treated as
offers.
The start of performance pursuant to an offer of a unilateral contract makes the offer irrevocable for
a reasonable amount of time to complete performance.
Mere preparation pursuant to an offer of a unilateral contract (does/does not) make the offer irrevocable.
does NOT. But check out the reasonably foreseeable detrimental reliance rule.
The three methods of indirect rejection popular on the bar exam are
(1) counteroffers
(2) conditional acceptance
(3) additional terms (common law only)
A counteroffer _______ the original offer and becomes a ______.
terminates; new offer.
Counteroffers are not “bargaining,” bargaining does not
terminate the offer.
A “mere inquiry” (does/does not) kill an offer.
does not.
**Be careful with the language used. A declarative sentence is a counteroffer. A question counts as “mere bargaining”
A conditional acceptance (does/does not) kill an offer.
does.
**Look for words like if, but, provided, so long as, on the condition that.
Under common law, an “acceptance” that adds new terms is treated like a
counteroffer, not an acceptance. Adding new terms violates the “mirror image rule.” Acceptance must mirror the terms of the offer exactly.
Under UCC Article 2, a response to an offer that adds new terms is generally treated
as an acceptance. This is a “seasonable expression of acceptance. The response cannot make the new terms a condition of acceptance.
Under UCC Article 2, the general rule is that additional terms included in a response to an offer (are/are not) part of the contract
are
Under UCC Article 2, additional terms in a response to an offer are not part of the contract if
(1) one of the parties is not a merchant; or
(2) the term materially changes the offer; or
(2) the original offeror objects to the change
Under UCC Article 2, if additional terms are included in a response to an offer and one of the parties is NOT a merchant, the additional term is treated like
a mere proposal that is to be separately accepted or rejected. It is NOT automatically a part of the deal.
If a party dies prior to acceptance, the offer is
terminated. The other party need not be aware of the death so long as it happens before the acceptance is effective.
The two exceptions for the termination of an offer at death are
(1) options contracts
(2) part performance of an offer to enter into a unilateral contract
An offer can be accepted only by a person who
(1) knows about the offer and (2) is the person to whom it was made.
Offers (can/cannot) be assigned, unless it an an offer for
cannot; an options contract.
An offeror can always control the method of acceptance, but if the offer does not specify, the six general fact patterns for accepting an offer are
(1) the offeree fully performs
(2) the offeree starts to perform for bilateral contracts (full performance required to accept a unilateral contract)
(3) the offeree promises to perform
(4) the mailbox rule
(5) seller of goods ships nonconforming goods
(6) silence by offeree
Full performance constitutes an acceptance of an offer unless
notice of performance was required. Look at
(1) the terms of the offer
(2) whether the offeree has reason to believe the offeror will not learn of acceptance
A promise to perform is a valid acceptance of an offer unless the offer
expressly requires performance for acceptance.
The three general rules to remember for the mailbox rule are
(1) generally, communications are effective when received
(2) generally, ACCEPTANCE is effective when sent (the mailbox rule)
(3) if a rejection is sent first, ignore Rule (2).
If a seller of goods accepts an offer by shipping nonconforming goods, the general rule is that this constitutes
acceptance then breach.
If a seller of goods accepts an offer by shipping nonconforming goods but offers an explanation/accomdation for the nonconformance, this constitutes
a counteroffer and no breach. Buyer can refuse the goods.
An offeree’s silence is not acceptance, unless
(1) custom indicates silent acceptance is reasonable; or
(2) the offeree by words or conduct agrees that silence is acceptance (“if you don’t hear from me before Friday we have a deal”)
The nine reasons for not enforcing a contract are
(1) lack of consideration or consideration substitute
(2) lack of capacity
(3) statute of frauds
(4) existing laws that prohibit performance
(5) misrepresentations
(6) duress
(7) unconscionability
(8) ambiguity in the words of the agreement
(9) mistakes at the time of the agreement as to material facts
The definition of “consideration” is a
bargained for legal detriment.
The four forms of consideration are
(1) performance (doing something not legally obligated to do)
(2) forbearance (not doing something legally entitled to do)
(3) promise to perform
(4) promise to forbear
In order for consideration to be “bargained for,” it must be
asked for by the promisor in exchange for the promise.
A promise in exchange for a promise (consitutes/does not constitute) consideration.
constitutes.
A promise is “illusory” if the promise is conditioned on
a condition solely within the control of the promisor.
The adequacy of consideration (is/is not) relevant.
is NOT. But look for “sham” transactions.
Past consideration (is/is not) valid consideration
is NOT
Under the one exception to the past consideration rule, past consideration is valid consideration if
(1) performance was expressly requested and promisee expects to be paid; or
(2) material benefit rule: the promisor previously received a direct material benefit (i.e. had HIS life saved)
Under the common law’s pre-existing contractual or statutory duty rule, doing what you are already obligated to do
is not sufficient consideration.
The three exceptions to the preexisting duty rule are
(1) addition to or changes in performance obligations
(2) unforeseen difficulty so severe as to excuse performance
(3) third party promise to pay
Under UCC Article 2, there is no pre-existing duty rule, ____ is the test for changes in an existing sale of goods contract.
good faith
Part payment as consideration for release: Partial payment is not consideration for a debt that is
(1) due; and
(2) undisputed
**Paying a debt off early in exchange for its reduction is sufficient consideration.
The two consideration substitutes are
(1) written promise to satisfy an obligation for which there is a legal defense (look for statute of limitations on debts)
(2) promissory estoppel
If a statute of limitations has expired, but a debtor makes a written promise to pay back some of the debt, the promise is
sufficient consideration, despite the legal defense of the statute of limitations.
Promissory estoppel requires
(1) a promise
(2) reliance that is reasonable, detrimental, foreseeable
(3) enforcement is necessary to prevent injustice
The three persons who lack capacity to contract are
(1) infants (minors, people under 18)
(2) mental incompetents
(3) intoxicated persons if other party has a reason to know
If a party lacked capacity, that party has the right to
disaffirm the contract.
**Note that a minor can enforce a contract AGAINST a party with capacity, but not the other way around.
If a party that lacked capacity retains the Benefit of the contract after gaining capacity, there is an
implied affirmation and the contract is enforceable.
Under the “doctrine of necessaries,” a person who does not have capacity is legally obligated to pay for things that are
necessary like food, clothing, medical care, shelter.
There is no contract liability, but instead “quasi-contract,” so payment is based on the reasonable value of the benefit conferred.
The method for approaching a Statute of Frauds question is
(1) Is the K within the SoF?
(2) If so, is the SoF satisfied?
(3) Is there a SoF defense?
The six Statute of Frauds categories are
(1) promises in consideration of marriage
(2) promises by executor or administrator to pay the obligation of the estate from his own funds
(3) promises to answer for/guarantee the debts of another (surety, must be promise to pay IF someone else does not)
(4) services contract not capable of being performed w/in a year of date of contract
(5) transfer of a real estate interest for more than 1 year
(6) sales of goods for $500 or more
**The first three are frequently tested as the WRONG answer on the exam. The last three are most frequently tested.
The “main purpose exception” to the Statute of Frauds requirement for promises to guarantee the debts of another states that
the promise does NOT fall w/in the Statute of Frauds if the main purpose of the purchase was to benefit the promisor (e.g. house owner O guarantees the sale on credit of paint to painter P who is going to paint O’s house)
Early termination clauses (do/do not) take service contracts out of the Statute of Frauds.
do NOT
If a contract for a task that cannot be possibly be performed w/in a year does not specify a timeframe, the contract (does/does not) fall within the Statute of Frauds.
does NOT. You have to imagine what you can do with unlimited resources.
Lifetime contracts (do/do not) fall within the Statute of Frauds.
do not
A one-year lease (does/does not) fall within the Statute of Frauds.
does NOT. The lease must be for MORE THAN one year. But it might fall w/in SoF if you sign a one-year lease that does starts a month later.
Does a sale of goods for $500 fall within the Statute of Frauds?
Yes. The rule is $500 OR MORE.
The Statute of Frauds can be satisfied through
(1) performance
(2) a writing
(3) judicial admission of a sale of goods agreement
The rules for satisfaction of the Statute of Frauds vary depending on whether the subject matter of the contract is
(1) services
(2) goods
(3) real estate transfer
____ performance by either party satisfies the Statute of Frauds for services contracts.
Full
____ performance of a services contract does NOT satisfy the Statute of Frauds
Part
____ performance of a sale of goods satisfies the Statute of frauds but
Part; but only to the extent of the part performance.
**Look to whether the goods have been delivered or not.
Under the specially manufactured goods exception to the Statute of Frauds, the Statute of Frauds is satisfied when
the seller makes a “substantial beginning”** of the making or obtaining the goods.
**Enough has been done to show that these goods are made to order.
___ performance by a buyer of real estate can satisfy the Statute of Frauds.
Part
Part performance by a buyer of real estate is any two of the three
(1) payment (full or close to full)
(2) possession
(3) improvement
Full payment by a buyer of real estate (does/does not) satisfy the Statute of Frauds.
does not
The writing requirement for the Statute of Frauds is evaluated under the
(1) all material terms test: who and what.
2) MUST be signed by the party to be charged (the defendant
Under the UCC, in order to be satisfy the Statute of Frauds, the writing must contain
a quantity term.
**DON’T need a price term
The exception to the UCC’s Statute of Fraud’s requirement is called the _______ and requires _______.
Merchant Confirmatory Memorandum rule;
(1) both parties are merchants
(2) one party sends a signed confirmatory memo to the other
(3) the other party had reason to know of the memo’s contents
(4) the other party fails to respond within 10 days
Under the UCC’s “judicial admissions” exception to the Statute of Frauds, judicial means the statement was _______ and admission means the statement _______.
(1) by the defendant acknowledging the “agreement,” NOT a statement saying they had an enforceable K
(2) appeared in pleadings, testimony, or in response to discover
Under the Equal Dignity Rule for authorization to enter into a contract for someone else, the authorization must
be in writing if the underlying contract must be in writing. If the underlying contract is not subject to the SoF, the authorization need not be in writing.
A contract modification must be in writing if
the new contract with the change in place falls within he SoF. If the new contract with the change does not fall w/in the SoF, the modification need not be in writing.
Under common law, contract provisions that require all modifications be in writing
are ignored.
Under the UCC, contract provisions that require all modifications be in writing are
effective unless waived.
If the subject matter of a contract is illegal, the agreement
is void.
If the subject matter is legal but the purpose is illegal, the agreement
is enforceable only by the person who did not know of the illegal purpose (e.g. hitman purchases a plane ticket to go to the victim’s city, airline can enforce the agreement but the hitman cannot)
There is no requirement of _____ in contract law to assert a misrepresentation claim.
fraud. Even an honest misrepresentation suffices for misrepresentation and recission.
The two types of misrepresentation are
(1) false assertion of fact
(2) concealment of facts
The two types of duress are
(1) physical
(2) economic
Economic duress requires
(1) an improper threat (bad guy); and
2) no reasonably alternative but to agree (vulnerable guy
The doctrine of unconscionability empowers a court to refuse to enforce all or part of an agreement if there is
(1) unfair surprise; or
(2) oppressive terms AT THE TIME OF THE AGREEMENT
**Look out for long term Ks that now look one-sided but were not one-sided at the time of the K.
Under the ambiguity doctrine, there will be no contract if
(1) parties use a material term that is open to at least two reasonable interpretations; and
(2) each party attaches different meaning to the term; and
(3) neither party knows or has reason to know the term is open to at least two reasonable interpretations
Under the ambiguity doctrine, if one party knew of the ambiguity but the other party does not, there (is/is not) a contract _______ under the _________ understanding of the ambiguous term.
is; INNOCENT party’s.
Under mistake of fact existing at the time of contract, there will be no contract if
(1) both parties are mistaken
(2) about a basic assumption of fact
(3) that materially affects the agreed exchange.
Mistake of fact as to value (does/does not) render a contract unenforceable.
does NOT.
If there is a unilateral mistake of fact, generally the mistake (will/will not) prevent formation of the contract.
will not.
The two exceptions to the unilateral mistake rule are
(1) palpable, obvious mistakes
(2) mistakes discovered before significant reliance.
Under unilateral mistake, the contract IS voidable by the mistaken party if the non-mistaken party
knew or had reason to know** of the mistake made by the other party. The mistaken party can enforce the contract under its understanding of the terms.
**Look for palpable, obvious mistakes on the exam. Also, the mistake must be material and the mistaken party must not have borne the risk, just like with mutual mistake.
Under the majority rule, acceptance of an option is effective only when _________ by the _______, the ___________ for acceptance does not apply to options contracts.
received; offeror; mailbox rule.
Under the mailbox rule, if an acceptance is misaddressed, the acceptance becomes effective upon its
receipt.
A contractor’s reasonably reliance on a subcontractor’s bid creates an
unilateral option contract.
In the case of a unilateral options contract, a rescission promise must be supported by
(1) an offer of new consideration; or
(2) elements of promissory estoppel (detrimental reliance); or
(3) the offer’s manifestation of an intent to make a gift of the obligation owed her
