Contracts Law Flashcards
Valid Contract Requirements
1) Offer and acceptance, 2) Consideration or substitute, 3) Legal capacity of parties, and 4) a legal objective
Implied-in-Fact Ks
Consensual agreements that fail to express the agreement of the parties in its entirety. An example would be to pay “reasonable value” of services rendered or of goods delivered where price is not discussed by the parties in advance.
Implied-in-Law Ks
1) There is an equitable imposition of a would-be K (one P bestows benefit on another).
2) Also called quasi-K or restitutionary obligation.
3) P conferring benefit entitled to fair value of services rendered.
4) If necessary services are rendered when person lacks mental capacity to request (medical services) there is an implied-in-law contract for services.
Making Offer
Requirements:
1) Party makes outward manifestation
2) Signals that acceptance will conclude the deal
(Auctions w/o reserve are making offers; w/ reserve are inviting offers)
Terminating Power of Acceptance
1) Lapse of time
2) Death/incapacity of either party
3) Revocation by offeror, and
4) Counteroffer by offeree.
Revocation by Offeror
Free to revoke outstanding offer at any time for any reason, as long as:
a) before acceptance, AND
b) effectively communicated (by same means of offer is okay; FUNCTIONAL EQUIVALENTS RULE)
Preventing Revocation
Two ways:
1) Options contract:
(A) offer
(B) subsidiary promise to keep offer open, AND
(i) NC requires express promise/agreement to keep open for specific period of time
(C) consideration to keep offer open.
2) Firm Offer: Under UCC, offer made by merchant expressly stating it will remain open doesn’t need consideration.
Construction Ks and Offer/Acceptance
MAJ: if GC relies on SC bid to form his own, implied K through promissory estoppel.
O&A of Unilateral Ks
1) Offer seeking performance in return is unilateral.
2) Offeror bound only when offeree completes performance.
3) Modern rule (not followed by NC), once offeree begins performance, option contract and offeror may not revoke.
Acceptance (non-UCC)
Three general reqs:
1) Offeree knows of the offer,
2) Acceptance mirrors terms of offer (any changes = counteroffer), AND
3) Acceptance communicated to offeror
SILENCE: not acceptance, but 3 exceptions:
1) offeree takes benefit of services w/ R chance to reject and w/ reason to know of offeror’s intention,
2) offeror says silence=acceptance, and offeree is silent w/ intent to accept, AND
3) prior dealings/circs make it R to require offeree to notify of intent not to accept.
Acceptance (UCC)
No mirror-image rule; nonconforming acceptance creates a contract. Outcome of different terms depends on parties’ identities.
Merchant-consumer:
Additional/different terms are mere proposals for addition to K, which other party may accept or reject.
Merchant-merchant –> Additional v. different:
1) Additional terms:
(A) Address issue/topic not in orig K
(B) Become part of K unless:
(i) offer expressly limits acceptance to terms of offer
(ii) offeror objects to the add’l terms w/in R time (10 days?) after notice, OR
(iii) additional terms materially alter K
2) Different terms:
(A) MAJ –> “knockout” rule; omit both original and different terms from resulting K.
(B) MIN –> mere proposal, offeror can accept or reject.
Consideration
Two tests:
1) Legal detriment (NC), and
2) Bargained-for exchange.
NC: a seal raises rebuttable presumption of consideration (attack w/ C&C evid). No defense to equitable action or under UCC.
Illusory promise
A promise to perform that leaves performance to the discretion of the promising party is an illusory promise and won’t constitute consideration.
Condition on gratuitous promise
Condition = promisee must do it in order to receive gift; doesn’t count as consideration.
Promissory Estoppel
Elements:
1) Promise
2) Foreseeable reliance
3) Actual reliance
4) Injustice w/o enforcement
NC doesn’t allow to use affirmatively, but sometimes allowed as defense (e.g., to recover damages under unenforceable SoF K).
Requirements of SoF
1) Writing(s) evidencing agreement
2) Signed by party to be bound (no mutuality of obligation, except UCC)
3) Identity of parties
4) Nature and subject of K
5) Essential terms of contract (e.g., price and date)
Composite Document Rule
Tacking together multiple documents to satisfy SoF.
SoF Application - MBE
MYLEGS
Remember “main purpose” rule for guarantees
SoF Application - NC
Main ones:
S - Sale of goods $500+
L - Leases 3+ years
R - real property
Others:
1) Contracts to pay debts of another (not original suretyship agreement
2) non-compete contracts
3) reaffirmation of debt after SoL/BR
4) commerc loans $50K+ by bank
5) excessive interest rates
6) sale of securities
7) SH voting trusts
8) sale of business opportunity
9) entertainment Ks if prepaid
10) guarantees from HC providers
11) acceptance by employer for assigning employee’s wages
No writing needed:
1) Trusts in land (unless for benefit of Grantor)
2) Real estate brokerage Ks
3) Consideration of marriage
4) Year+ Ks
K Interp - Missing Terms
Default for missing price: R price at time of delivery.
K Interp - Output/Reqs Ks
Open quantity term –> duty of good faith
K Interp - Ambigs
Extrinsic evid of trade usage or course of dealings allowed to interpret. Also
K Interp - Parol Evidence Rule
When written K is intended to be full agreement, no evidence admissible to vary, contradict, add to, or subtract from the obligations as stated in writing.
Exceptions:
1) Fraud
2) Mistake
3) Illegality
4) Duress
5) Partial integration
6) Conditions precedent (if both parties discharged by its failure)
K Interp - PER and Subsequent Agreements
PER usually doesn’t bar evidence of subsequent agreements.
If K says, “No oral modifications,” that is enforceable.
Under UCC, “no oral modificatons” clause valid, but may be undermined by party’s reliance or by parties performing in accordance with it.
RoL under UCC
Non-carrier: Seller must tender delivery
Carrier = shipment contract: Seller must give goods to carrier and send to buyer.
Destination K: seller tenders goods at particular destination.
FOB: FOB point is the delivery point.
RoL:
Shifts when seller has tendered delivery to carrier or at location, except non-carrier w/ merchant seller (then seller bears risk until buyer takes possession).
Breach and RoL
If seller breaches, RoL stays on Seller from beginning until cured.
If buyer breaches before RoL passes, seller may treat RoL as passing to buyer for commercially reasonable time (to extent of deficiency in insurance coverage).
Preexisting Duty Rule
Promisor cannot provide consideration where that consideration is a duty the promisor is already obligated to perform.
Modification (non-UCC)
Consideration required to support modification.
Promise to increase compensation is enforceable if both Ps agree to different performance.
NC: Modification is a new K, so all essential elements of K must be present.
Modification (UCC)
No preexisting duty rule.
No consideration necessary to be binding.
Must be in good faith, though.
Mistake
def: P(s) made faulty assumption about the present circumstances.
Unilateral: only one party mistaken. Does not excuse performance unless other P knew or had reason to know of the mistake (or clerical error).
Bilateral: voidable by disadvantaged party if disadvantaged party doesn’t bear risk of mistake under K.
Impossibility
Excuses both Ps from obligs under K if perf rendered impossible by events after K formed.
Impracticability
Promisor may be excused where unforeseen difficulties made perf prohib expensive/burdensome.
UCC impracticability excuses when:
1) goods destroyed
2) perf becomes illegal
3) perf prevented by nonforeseeable event K assumed would not occur.
Frustration of Purpose
Three conditions to discharge party’s obligs:
1) Party’s principal purpose of K frustrated,
2) Frustration substantial, AND
3) Nonoccurrence of precipitating event was basic assumption of K.
Accord & Satisfaction
Accord: K under which obligee promises to accept substituted perf in satisfaction of existing duty.
Satisfaction: Perf of accord, which discharges duty.
Material Breach v. Substantial Performance
Material breach: aggrieved P can walk away AND sue for damages.
Subst perf: aggrieved P must perform, but may still sue for damages.
Conditions under UCC
Perfect tender rule: K for sale of goods enforced exactly. Every term is express condition.
If S doesn’t make perfect tender, B 3 options:
1) Reject goods
2) Accept goods,
3) Reject some and accept others.
If S makes non-conforming delivery but had reasonable grounds to believe that delivery would be acceptable to buyer, then he may substitute a conforming delivery if seller gives buyer reasonable notice of intent to substitute and makes conforming delivery in reasonable time.
Installment Contracts (UCC)
Breach w/ respect to one installment is breach of entire contract only if nonconformity substantially impairs value of entire K.
If non-conforming tender subst impairs value of the installment but not the entire contract, buyer can reject the installment.
Defenses - Incapacity
MBE: Minors may void Ks for non-necessaries.
NC:
1) Married/emancipated minors have legal capacity.
2) Minor athletes/actors/artists –> Can get court preapproval, and then Ks enforceable.
Remedies - Expectation Interest
Default rule for proper damages in breach K suit.
Put aggrieved party in position as if K fulfilled.
If ExpecDams too uncertain, can seek reliance dams (amount expended to perform K).
Breaching P only liable for general damages, not consequential damages (i.e., unforeseeable dams from particular circs of aggrieved party).
Remedies - Restitutionary Damages
Value of benefits conferred on the breaching party by the aggrieved part during course of contract.
Either/or w/ ExpecDams.
Remedies - Negative Injunctions
Court orders prohibiting breaching P from taking certain actions. Usually to prevent violation of non-compete clauses.
Remedies - Non-Compete Clauses
MBE: Not enforced if
(A) contrary to public health, safety, or welfare;
(B) unreasonable; or
(C) no showing of irreparable harm.
NC analysis:
(1) Founded on valuable consideration?
(a) non-compete clause agreed to after employment begins requires new consideration
(2) Necessary to protect legitimate interests of party enforcing covenant?
(3) Interferes w/ public interest?
Remedies - Liquidated Damages
Unenforceable if penalty; three-prong test:
1) Intended as penalty or LiqDams?
2) Reasonable relation to anticipated harm?
3) Reasonable relation to actual harm?
Remedies - Mental Anguish and Contracts
NC allows damages for mental anguish in contract if K was one:
1) not concerned w/ trade/commerce/profit,
2) benefits other than pecuniary, OR
3) benefits related to dignity, mental concern, solitude, or sensibilities.
Remedies - Anticipatory Repudiation
If P repudiated K, the other can immediately treat as breach.
Establishing anticip repud:
1) Definitive statement that will not perform, or voluntary/affirmative act making party apparently unable to perform.
2) Failure to provide adequate assurances of performance upon demand by other party (if other P has R grounds for insecurity).
(A) UCC requires that such demand be in writing.
Revoking repudiation: Allowed until/unless other P acts in reliance on repudiation, positively accepts repudiation by signifying to breaching P, or brings suit for breach.
Remedies - Seller under UCC
1) Resell goods in GF and commercially R manner, then recover diff b/w sale price and K price.
2) If volume seller, can also recover the profit he would have made on the lost sale.
Remedies - Buyer under UCC
1) SpecPerf/replevin if unique.
2) COVER - buy replacement goods (in GF and w/o unreasonable delay) and seek damages for difference b/w K price and cover price.
3) If doesn’t cover, only entitled to contract-market differential (price difference plus incid/conseq dams).
4) If B can show S know or should have of B’s general/specific requirements and needs at time of K, B can recover consequential damages (subject to B’s duty to mitigate).
3P Beneficiary Contracts
1) Both Ps to K understand and intend that perf rendered by one will go to a 3P.
2) Intended beneficiaries are those the contracting Ps either explicitly or implicitly intended to benefit them.
3) Incidental beneficiaries: will benefit from K, but not intended as such by Ps; no rights to enforce 3P beneficiary K.
3P Beneficiaries - Vesting Rights
1) Ps to K may modify/rescind by mutual consent and w/o 3P beneficiary’s consent unless/until 3P’s rights have vested.
2) Vesting occurs when:
(A) Beneficiary brings suit on the matter,
(B) Beneficiary changes position in justifiable reliance on the K promise,
(C) Beneficiary manifests assent to the K at request of either promisee or promisor, OR
(D) Rights of beneficiary have vested under an express term of the K.
3P Beneficiaries - Enforcement
Promisor’s defenses against promisee all work against 3P.
Assignment
1) Rights under Ks are freely assignable, unless they materially alter risks/obligations of obligor.
2) To make an effective assignment, Assignor must manifest an intention to make a present transfer of the right without further action by the obligor.
Assignments - Rights and Obligations
Assignee gets whatever rights to the K his assignor had, and assignee takes subject to all obligor’s defenses against assignor.
Assignments - Successive Assignees
1) MAJ: If assigned to multiple assignees, first in time wins.
2) Exceptions in some jurisdictions for BFP-assignees:
(A) obtains payment from obligor,
(B) recovers a judgment on a debt,
(C) enters into a new K w/ obligor, OR
(D) receives delivery of a tangible token or writing from assignor, the surrender of which is required by obligor’s K.
Delegation of Duties
1) Delegation does not relieve delegator from his obligations under K, unless there’s a novation.
2) NC requirements for novation:
(A) previous valid obligation,
(B) agreement of all parties to new K,
(C) extinguish old K,
(D) validity of new K.
3) Novation governed by Ps’ intent.
Delegable Duties
1) Generally: all duties can be delegated.
2) Exceptions:
(A) Personal performance, OR
(B) K prohibits delegation.
3) Contracts barring delegation are fully enforceable.
