Critical Pass - Contracts Flashcards
Equation for Contracts
K = MA (O + A) + C - D
First question to ask for every contracts Q
What law applies?
UCC = contracts for sale of goods
Common law - contracts for services
How to accept a unilateral K
completion of performance
Quasi Contracts - what is it
not a contract, a restitution remedy to prevent unjust enrichment (typically P conferred a benefit to D and D will be unjustly enriched if P is not compensated)
Unilateral contracts can occur in what 2 situations
(1) when the offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance; and
(2) where there is an offer to the public, such as a reward offer.
For mixed K (for goods and services) what law applies
predominant purpose of the K unless the K divides payment between goods and services (then apply UCC to goods portion, and CL to remainder)
UCC/Article 2 applies to goods. What is not included tho?
- sale of real estate,
- services (such as a health
club membership or employment), or - intangibles (such as a patent), or
- construction contracts.
who is a “merchant”
one who regularly deals in goods of the kind sold or who otherwise by their profession holds themselves out as having special knowledge or skills as to the practices or goods involved.
Mutual assent is the same as…
offer and acceptance
for a communication to be an offer, it must create ..
a reasonable expectation/objective manifestation of intent that the offeror is willing to enter into a K on the basis of the offered terms.
In deciding whether a communication creates an offer, ask: (3)
- was there a promise to enter into the K?
- was there certainty or definiteness in the terms?
- was there communication of the above to offeree?
Advertisements are or are not offers?
typically not offers, they are usually construed as mere invitations for offers.
when can ads be an offer?
highly specific as to quantity and clearly indicate who may accept
For real estate transactions, what terms must be included in the offer
- the land (just some specificity is ok)
- price terms
What must be included in an offer under the UCC/sales of goods?
the quantity being offered must be certain or capable of being certain
What is a requirement/”output” contract?
a buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer. (output K is when the seller promises to sell all there stuff to a certain buyer)
For offers in employment contract situations, what must be specified? What happens if THIS THING is not specified?
Duration must be specified. If not, the offer is construed as creating a contract terminable at will.
Requirement/output K offers under the UCC require that
there was no unreasonable disproportionate increase in quantity allowed.
under the UCC, if the offer is missing terms..what happens (missing price term)
it is ok so long as the parties clearly intended to make a K and there is a reasonably certain basis for giving a remedy
Under common law, an offer could have issues of vagueness. For these issues, think of where what could apply?
The presumption that the parties intent was to include reasonable terms, which helps supply missing terms.
But when can the presumption for vague terms not apply?
Presumption cannot apply if the parties have included a term that makes the K too vague to be enforced (“I agree to split profits on a ‘liberal basis’”)
What if an offer state states that terms will be agreed upon later?
This is typically fine unless the term is a material term, in which case the offer is too uncertain.
3 ways that an offer can be terminated by the acts of parties?
- lapse of time,
- rejection
- revocation by offeror
What does it mean for an offer to terminate through lapse of time?
Offeree must accept the offer within the time specified, or if no time is specified, within a reasonable time. If neither, offer is terminated.
4 potential ways an offeree can reject an offer and terminate their power of acceptance
- express rejection (offeree’s statement that they do not intend to accept the offer)
- counteroffer
- conditional acceptance
- acceptance with new additional terms (UCC and common law differ here)
A counteroffer under the common law is both a
rejection and a new offer (terminates the OG offer and reverses the role of the parties)
Under common law, a counteroffer is simply a
rejection of the contract, and terminates the offer
When you see a counteroffer, make sure to distinguish between counteroffer and a …
mere inquiry which does not terminate the offer (
would you consider lowering the price?)
a condition offer will constitute a rejection of the offer if
the acceptance is made expressly conditioned on acceptance of new terms.
ex. offer to mow lawn, offeree says “I accept if you also trim the hedges.” New offer, and original offerree is now the offeror.
conditional acceptance is not a rejection to an offer if
the condition would be included anyway (does not terminate original offer)
a rejection is effective, when?
when received by the offeror
a rejection of or a counter offer of an option in an option K is not.. (IMPORTANT, confused)
a termination of an offer. The offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree’s rejection.
in the option K situation, what two things are NOT a termination of the offer
- counteroffer to an option
- rejection
Methods of offeror revocation (2)
- directly
- indirectly by offeree becoming aware through 1. reliable info, 2. from a reliable source, 3, of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make an offer.
when is revocation effective?
when received by offeree
an offer CANNOT be revoked once..
it has been accepted
for unilateral Ks, when can the offer become irrevocable
when the start of the performance has occurred (not just mere preparation)
4 situations where offer is Irrevocable
- Option K
- UCC Firm offer
- Detrimental Reliance by offeree
- Beginning performance for unilateral K
What are the requirements for an Option K under Common law, what about UCC?
CL: consideration required in exchange for option
UCC: firm offer rule cant apply and consideration needed
3 elements of a UCC firm offer:
- offeror is a merchant
- writing gives assurances that offer will be held open
- writing is signed and in writing.
only
ass
wiggles
When does detrimental reliance make an offer irrevocable?
When the offeror could reasonably expect that the offeree would rely to their detriment on the offer.
3 situations where an offer can be terminated by operation of law?
- death or insanity of either party
- destruction of the proposed contract’s subject matter; or
- Supervening illegality
Acceptance is (generally)
manifestation of assent to the terms of the offer
for an acceptance with additional terms, how is this treated under common law and the UCC?
common law: mirror image rule - rejection and counteroffer
UCC: depends on whether merchants or not
unless provided otherwise in the K, an offer is construed as inviting acceptance in…
any reasonable manner and by an medium reasonable under the circumstances
Under UCC Art. 2, offers to buy goods for current or prompt shipment invite acceptance by either:
- promise to ship; or
- by current or prompt shipment of conforming or nonconforming goods
Under the UCC, for acceptance with additional terms, what happens when both parties are merchants? what about if there is a non-merchant?
Merchants: Additional terms become part of the K unless certain exceptions apply (TAMMY LIVES OBESE)
Nonmerchant: Terms of offer govern, Additional terms excluded and are mere proposals to modify the K
The beginning of performance in a unilateral K may create…
an option so that the offer is irrevocable. but the offeree is not obligated to complete performance merely because they have begun performance.
In all Ks, offeree must know of the offer to accept it. If A finds O’s watch and returns it to O without knowledge of O’s reward offer, what happens?
A has no contractual right to the reward. they didnt know.
when does an offer die with the offeror
if they died before the offeree accepted
when the offeror could reasonably expect that the offeree would deny to their detriment on the offer, what happens
the offer will be held irrevocable as an option contract for a reasonable length of time.
bilateral contracts can be accepted by either:
1) promise to perform
2) beginning of performance
What is a conditional offer
“If X happens, I will buy it for Y.”
What needs to happen for a conditional offer to be valid
Condition precedent needs to be satisfied
If acceptance letter is sent, then rejection is sent, what controls
acceptance usually
if rejection letter is sent, then acceptance sent, what usually controls
whichever arrives first, mailbox rule usually does not apply
Under the UCC, if both parties are merchants, acceptance with additional terms is TYPICALLY fine and includes the terms unless…. (what doctrine)
Battle of the forms
K is formed with the additional terms unless:
1. term materially alters the K
2. offer limits acceptance to terms of the offer; OR
3. offeror has already objected to the additional terms
SAYING: Tammy, lives, obese
If the battle of forms applies to the additional terms in acceptance, what happens
contract is still formed, without the additional terms tho
Mailbox rule does NOT apply to…
- offers that stipulate acceptance is not effective until received
- option Ks
- all irrevocable offers (rejection sent, then acceptance)
Remember that for different terms in the acceptance, there is a split of authority. Some courts will… while others will..
- Some courts will follow the tests for additional terms/battle of forms
- others will apply the knockout rule
What is the knockout rule
conflicting terms in the offers and acceptance are knocked out of the K. Gaps leftover are filled by the UCC.
IMPORTANT: a merchant’s confirmatory memo is still subject to…
battle of the forms analysis
what is a merchant’s confirmatory memo
confirms an oral agreement that may contain different or additional terms
Typically silence is not acceptance unless
Silence indicates acceptance by:
1. prior dealings or trade practices
2. it would be commercially reasonable for the offeror to consider silence as acceptance
3. if the recipient of the services knew or should have known that the services were being rendered with the expectation of compensation
2 ways merchants can accept an offer to buy goods by shipment (IMPORTANT) UCC
a) Providing a promise to ship goods (usually by written confirmation), or
b) Promptly shipping conforming or nonconforming goods
A unilateral K cannot be accepted until…
performance is completed.
bilateral is beginning of performance.
a sale by auction is complete when the auctioneer…
announces by “fall of the hammer” or in another customary manner.
is a shipment of nonconforming goods still an acceptance?
yes , creates bilateral K. but it is also a breach unless the seller seasonably notifies the buyer that a shipment of the nonconforming goods is offered only as an accommodation.
If the buyer required to accept accommodation goods?
No, they may reject. If they reject, shipper is NOT in breach and may reclaim the goods.
Consideration general rule
bargained-for exchange of legal value between parties; there must be a benefit to promisor or detriment to promisee
What two things are invalid consideration
- gifts
- illusory promises
- PAST CONSIDERATION
- Promise to perform a pre-existing legal duty
For consideration the promise must..
induce the detriment and the detriment must induce the promise.
a promise given in exchange for something already done does not typically satisfy consideration unless…
the past obligation is unenforceable because of a defense (like SOL) and that obligation is made in writing or partially performed
If a past act benefited the promisor and was performed by the promisee at the promisor’s request or in response to an emergency….
a subsequent promise to pay for THAT SPECIFIC act will be enforceable
A promise to perform a preexisting legal duty is typically not valid consideration, but what are the exceptions
a) New or different consideration is promised;
b) The promise is to ratify a voidable obligation (for example, a promise to ratify a minor’s contract after reaching majority or a promise to go through with a contract despite the other party’s fraud);
c) The preexisting duty is owed to a third person rather than to the promisor;
d) There is an honest dispute as to the duty; OR
e) There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the modern view, if the modification is fair and equitable in view of circumstances not
anticipated when the contract was made.
Generally, a contract cant be modified unless there is NEW consideration. But some courts under common law may permit the modification with this consideration if:
- the modificative is due to circumstances that were unanticipated by the parties when the contract was made; and
- it is fair and equitable.
Under the UCC, what is required for modification of K?
yes, without any new consideration. all the parties need are good faith promises of new and and different terms.
a promise to refrain from suing on a claim can be valid consideration if…
the claim is valid; OR
the claimant in good faith believed the claim was valid.
consideration must be mutual. what does this mean?
Consideration must exist on both sides of a K.
what is an illusory promise
a promise to perform when there is no obligation to perform (A promises to do B’s chores if he has the time)
What is the material benefit theory of consideration (minority view)
Some courts have said that consideration is not needed, and a promise will still be enforced if:
- the promise is based on a material benefit that was previously conferred by the promisee on the promisor
- the promisee did not intend to confer the benefit as a gift.
If you see a lack of consideration in the fact pattern, and detrimental reliance, think of
promissory estoppel
promissory estoppel will enforce a promise if: (4)
1) necessary to avoid injustice
2) promisor should have expected the promisee to change his position in reliance on the promise
3) the promisee acts or refrains from acting in detrimental reliance, and
4) the promisee’s act/failure to act was to the promisee’s detriment.
In a unilateral K when is the offeree required to provide notice
within a reasonable time upon completion of performance
what are the 8 common defenses to K formation
1) Incapacity
2) SOF
3) illegality
4) misrepresentation/fraud
5) Duress
6) Unconscionability
7) Misunderstanding
8) Mutual mistake as to existing facts
3 types of populations who could be found to lack capacity to contract
- infants/minors
- mentally incompetent people
- intoxicated persons
If a minor wants out of a K, what can they do
disaffirm anytime before/shortly after they reach the age of majority (18). If they disaffirm, K is basically void.
What are necessaries? what is relevant about them for minors in incapacity defenses?
Necessarys are items such as food, shelter, clothes, etc.
A minor can disaffirm a K for necessaries but will be liable in restitution for the value of benefits received.
For incapacity defense, what happens to intoxicated people
They may be found to lack capacity to contract if the other party had reason to know of the intoxication, their promise may be voidable
For the duress and undue influence defense, generally look for what in the facts?
2 guys, 1 is the bad guy threatening something, does not need to be physical, and 2nd guy who is the victim
What is the misunderstanding defense?
There is a term in the K with two possible meanings, and there is ambiguity concerning terms of the K (subjective intent considered)
what is the mutual mistake as to existing facts defense?
Both parties are mistaken about existing facts (not future happenings)
For the misunderstanding defense, what are the 3 situations that may arise?
ambiguity concerning terms of the K
1. Neither party aware - no K formed unless both parties intended same meaning
2. One party aware of ambiguity - K formed but to the extent of unaware parties knowledge
3. Both parties aware - no K unless both parties intended the same meaning
What are the elements for the mutual mistake defense to apply?
K is voidable by an adversely effected party if:
1. Both parties are mistaken concerning a basic assumption of fact;
2. Mistake materially affects the agreed upon exchange; and
3. Adversely effected party did not assume risk of the mistake
What is the unilateral mistake defense?
where one party makes a mistake concerning facts of an agreement, but the other does not.
When will a contract be voidable for unilateral mistake defense?
if the non mistaken party knew or had reason to know of the mistake made by the other party, K is voidable
When is a K voidable under fraudulent misrepresentation/fraud?
if the party detrimentally relies on the misrepresentation
Does failure to read a K or use care in reading it preclude a party from avoiding a contract for misrepresentation?
No, just because a misrepresentation could have been revealed by the exercise of reasonable care does NOT mean that reliance was unjustified.
What is the illegality defense
If the consideration or subject matter of the K is illegal, the K is void
What are the two scenarios under the illegality defense? which situations allow the K to be enforceable?
- illegal subject matter? K is not enforceable
- Legal subject matter, illegal purpose - K only enforceable by the one who did not know about its illegal purpose
What is the unconsionability defense
court may refuse to enforce all or part of the K that is unfair or oppressive to one party based on bargaining or terms
what is the timing of when unconscionability is determined
determined by the circumstances as they existed at the time the K was formed
an exculpatory clause releasing a contracting party from liability for their OWN intentional wrongful acts is usually unenforceable because…
it is unconscionable.
A contractual clause limiting liability for damages to property generally will or will not be found unconscionable?
Not unconscionable unless inconspicuous
A signed writing is required for the SOF. But what is the UCC exception?
signed writing not required if:
1. both parties are merchants; and
2. the party asserting the SOF defense received a signed writing memorializing the agreement and its essential terms
3. did not object within 10 days of receipt of agreement
performance can also satisfy the SOF. What are the three scenarios where this arises?
- Service K
- Sale of goods K/custom made goods
- Real estate
for a service K, when is the SOF satisfied
full performance needs to occur
