MBE--Contracts(Outline) Flashcards
CONTRACTS AND SALES OUTLINE
I. WHAT IS A CONTRACT II. MUTUAL ASSENT--OFFER AND ACCEPTANCE III. CONSIDERATION IV. REQUIREMENT THAT NO DEFENSES EXIST V. DETERMINING THE TERMS OF K VI. PERFORMANCE AND EXCUSE OF NONPERFORMANCE VII. BREACH VIII. REMEDIES IX. RIGHTS AND DUTIES OF THIRD PARTIES TO THE CONTRACT
I. WHAT IS A CONTRACT: A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty.
as to formation:
THEORIES OF CONTRACT LIABILITY
EXPRESS; implied; quasi
EXPRESS
Description:
Promises are communicated by language.
Example:
X promises to paintY’s car in
return forY’s promise to pay X
$100.
I. WHAT IS A CONTRACT: A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty.
as to formation:
THEORIES OF CONTRACT LIABILITY
express; IMPLIED; quasi
IMPLIED
Description:
Parties’ conduct indicates that they assented to be bound.
Example:
(i) X fills her car with gas at Y’s gas station. There is a contract for purchase and sale of the gas.
(ii) X watches Y paint X’s house, knowing that Y mistakenly thought they had an agreement for Y to be paid for it.
I. WHAT IS A CONTRACT: A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty.
as to formation:
THEORIES OF CONTRACT LIABILITY
express; impled; QUASI
QUASI
Description:
One party is unjustly enriched at the expense of the other party, so that the enriched party must pay restitution to the other party equal to the unjust enrichment.
Example:
X contracts with Y to build a house for Y. X becomes ill and is unable to continue after completing a third of the work. X cannot sue on the contract, but may recover the benefit conferred on Y.
I. WHAT IS A CONTRACT: A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty.
as to acceptance:
Bilateral; Unilateral; Modern View
a. Bilateral Contracts—Exchange of Mutual Promises
The traditional bilateral contract is one consisting of the exchange of mutual promises, i.e., a promise for a promise, in which each party is both a promisor and a promisee.
b. Unilateral Contracts—Acceptance by Performance
The traditional unilateral contract is one in which the offeror requests performance rather than a promise. Here, the offeror-promisor promises to pay upon the completion of the requested act by the promisee. Once the act is completed, a contract is formed. In such contracts, there is one promisor and one promisee.
c. Modern View—Most Contracts Are Bilateral
Under Article 2 and the Second Restatement, a traditional unilateral contract (i.e., a contract that can be formed only by full performance) occurs in only two situations: (i) when the offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance; and (ii) where there is an offer to the public, such as a reward offer.
I. WHAT IS A CONTRACT: A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty.
as to validity:
void; voidable; unenforceable
a. Void Contract
A void contract is one that is totally without any legal effect from the beginning (e.g., an agreement to commit a crime). It cannot be enforced by either party.
b. Voidable Contract
A voidable contract is one that one or both parties may elect to avoid (e.g., by raising a defense that makes it voidable, such as infancy or mental illness).
c. Unenforceable Contract
An unenforceable contract is an agreement that is otherwise valid but which may not be enforceable due to a defense extraneous to contract formation, such as the statute of limitations or Statute of Frauds.
Tip: The distinction between void and voidable contracts is sometimes important to an exam question. The key thing to remember is that void contracts cannot be enforced, but an aggrieved party may elect to enforce a voidable contract.
I. WHAT IS A CONTRACT: A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty.
D. Creation of a contract:
court will ask 3 questions:
When a suit is brought in which one party seeks to enforce a contract or to obtain damages for breach of contract, a court must first decide whether there was in fact a contract. In making this determination, a court will ask the following three basic questions:
- Was there MUTUAL ASSENT?
- Was there CONSIDERATION or some substitute for consideration?
- Are there any DEFENSES to creation of the contract?
Exam Tip: Contract formation is a major topic on the exam. For any contract question, be sure that there really is an enforceable contract; i.e., all three of the above elements must be present.
Fact patterns sometimes greatly emphasize some elements (e.g., offer and acceptance) to try to fool you into thinking that a contract has been formed, but on closer examination, you might find that another element (e.g., consideration) is missing. Remember to check carefully for all three elements. (Of course, if the facts state that one or more of the elements is present—or that a valid contract has been formed—don’t waste your time analyzing elements already given to you.)
II. MUTUAL ASSENT–OFFER AND ACCEPTANCE
IS THERE AN ENFORCEABLE K?
LOOK TO three elements (Mutual Assent; Consideration; No defense)
Mutual Assent
–> OFFER (promise, undertaking, or commitment with definite and certain terms communicated to offeree); AND
–> ACCEPTANCE before termination by revocation, rejection, or operation of law.
———————————————————–
Consideration
–>BARGAINED-FOR EXCHANGE of something of legal value; OR
–>SUBSTITUTE for consideration, like promissory estoppel, detrimental reliance, or good faith modification under UCC
————————————————————-
No Defenses
–> MISTAKE (mutual or, under certain circ’s, unilateral); OR
–>LACK OF CAPACITY (makes K void or voidable); OR
–> ILLEGALITY (usually renders K void); OR
–> STATUTE OF FRAUDS
TIP: most offers are easy to spot. Watch out for language that sounds like an offer but is really an invitation to deal. Ex: adverts sound like offers but are really invitations. The more definite the language, the more likely it’s an offer.
TIP: If there has been a series of communications between the parties, pay attention to the legal significance, if any, of each statement. For example, if you determine that A’s first statement to B is not an offer but rather is merely an invitation to deal, then B’s response cannot be an acceptance (because there was nothing to accept). You must then consider whether B’s response is another invitation to deal or an offer. Keep checking until you find an offer and an acceptance.
II. MUTUAL ASSENT–OFFER AND ACCEPTANCE
c. Termination of Offer: An offer cannot be accepted after it has been terminated. An offer may be terminated by an act of either party or by operation of law.
WAYS TO REVOKE and LIMITATIONS
Termination by Offeror:
An offer may also be revoked indirectly if the offeree receives: (i) correct information, (ii) from a reliable source, (iii) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer (e.g., after offeror offers to sell his car to offeree, offeree is told by a reliable third party that offeror just sold his car to someone else).
Effective When Received: A revocation is generally effective when received by the offeree.
Exam Tip: Remember that generally a written communication is “received” when it is delivered to a place of business through which the contract was made
or another location authorized to receive this type of communication. It does not matter whether the recipient actually reads the communication.
—————————–
LIMITS on power to revoke:
Merchant’s Firm Offer Under Art. 2:
Under Article 2: (i) if a merchant; (ii) offers to buy or sell goods in a signed writing and (iii) the writing gives assurances that it will be held open (e.g., “this offer will be held open for 10 days,”“this offer is firm for 10 days,”“I shall not revoke this offer for 10 days”), the offer is not revocable for lack of consideration during the time stated, or if no time is stated, or if not timestated, for a reasonable time (but in no event may such period exceed three months).
Exam Tip: If a merchant-offeror states that an offer will stay open for a period beyond the UCC’s three-month limit on irrevocability, he will be bound only for three months. Remember that the 3-month limitation applies only to offers not supported by consideration. Watch for an offer that looks like a merchant’s firm offer but includes some consideration. This is an option contract, and the offer can be held open for as long as the parties specify.
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Termination by Offeree (Counteroffer as rejection):
Exam Tip: Remember that a counteroffer is both a rejection and a new offer It terminates the original offer and reverses the roles of the parties The offeree giving a counteroffer becomes the offeror of a new offer, which the other party may accept or reject. Thus, if A offers to sell his property, Blackacre, to B for $100,000, and B says, “I’ll buy it for $90,000,” what has happened? A’s offer has been rejected and B has made an offer for $90,000, which A may accept or reject. B cannot later say to A, “All right, I’ll take Blackacre for 100,000,” and accept A’s offer. It no longer exists because it was rejected. (Of course, A could accept B’s new offer to buy it for $100,000.)
c. TERMINATION OF OFFER
Revocation by OFFEROR
Rejection by OFFEREE
Termination by OPERATION OF LAW
When Effective; Methods; limitations of power to terminate?
Revocation by Offeror
When Effective:
Effective when received
Methods:
Express revocation or implied (e.g., offeree discovers offeror sold subject matter to someone else)
Limitations on Power to terminate:
Option contract, merchant’s firm offer, detrimental reliance, beginning performance
on unilateral contract
—————————————–
Revocation by Offeree
When Effective:
Effective when received
Methods:
Express rejection, counteroffer, or lapse of
reasonable time
Limitations on Power to terminate:
Generally cannot reject it already accepted
————————————–
Termination by Operation of Law
When Effective:
Effective when the death or insanity of either party, the destruction of the subject matter, or the supervening illegality occurs
Methods:
Death or insanity of either party, destruction of subject matter, or supervening illegality
Limitations on Power to terminate:
N/A
d. THE ACCEPTANCE
Acceptance of Offer for Unilateral Contract:
If an offer provides that it may be accepted only by performance (i.e., an offer for a unilateral contract), note the following particular rules.
- Completion of Performance; and
- Notice
=Completion of Performance:
Most courts hold that an offer to form a unilateral contract is not accepted until performance is completed. The beginning of performance may create an option so that the offer is irrevocable. (See C.i.a.2)d), supra.) However, the offeree is not obligated to complete performance merely because he has begun performance, as only complete performance constitutes an acceptance of the offer.
Exam Tip: Keep in mind that like all offerees, the offeree of a unilateral contract MUST KNOW OF THE OFFER to accept it. If the “offeree” acts without knowledge and learns of the offer later, his acts were not an acceptance. Thus, if A finds 0’s watch and returns it to O without knowledge of 0’s reward offer, A has no contractual right to the reward.
=Notice:
Generally, the offeree is not required to give the offeror notice that he has begun the requested performance, but is required to notify the offeror within a reasonable time after performance has been completed. However, no notice is required if: (i) the offeror waived notice; or (ii) the offeree’s performance would normally come to the offeror’s attention within a reasonable time.
d. THE ACCEPTANCE
Acceptance Under Article 2:
a. Offers to Buy Goods for Current or Prompt Shipment
1) Shipment of Nonconforming Goods:
b. Battle of the Forms Provision
1) Mirror Image Not Required:
Acceptance Under Article 2
a. Offers to Buy Goods for Current or Prompt Shipment
As noted above, an offer to buy goods for current or prompt shipment may be accepted by either a promise to ship or by a shipment of conforming or nonconforming goods.
1) Shipment of Nonconforming Goods:
The shipment of nonconforming goods is an ACCEPTANCE creating a bilateral contract AS WELL AS BRECH of the contract UNLESS seller reasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation. The buyer is not required to accept accommodation goods and may reject them. If he does, the shipper is not in breach and may reclaim the accommodation goods, because her tender does not constitute an acceptance of the buyer’s original offer.
Exam Tip: Remember that the accommodation shipment rule applies only when shipment is used as a form of acceptance. Watch out for a fact pattern in which a party accepts an order by promising to ship. He then discovers he lacks the specified goods and ships nonconforming goods as an “accommodation.” This is a breach, not an accommodation. There was a contract at the promise to ship. The shipment was not the acceptance; thus, accommodation is not possible.
b. Battle of the Forms Provision
1) Mirror Image Not Required:
Article 2 has abandoned the mirror image rule, providing instead proposal of additional or different terms by the offeree in a definite and timely acceptance does not constitute a rejection and counteroffer but rather is effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms. Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants.
Exam Tip: Article 2 changes the common law rule. Thus, for an offer for the purchase or sale of goods, an acceptance with additional terms is still an acceptance and a contract is formed (with or without the new terms). If the offer is for something other than the sale of goods (e.g., land), an acceptance proposing additional or different terms is a rejection and a counteroffer; no contract is formed.
d. THE ACCEPTANCE
Acceptance Under Article 2:
a. Offers to Buy Goods for Current or Prompt Shipment
1) Shipment of Nonconforming Goods:
b. Battle of the Forms Provision
1) Mirror Image Not Required:
a) Contracts Involving a Nonmerchant—Terms of Offer Govern
b) Contracts Between Merchants—Additional Terms Usually Included
a) Contracts Involving a Nonmerchant—Terms of Offer Govern.
If any party to the contract is not a merchant, the additional or different terms are considered to be mere proposals to modify the contract that do not become part of the contract unless the offeror expressly agrees.
b) Contracts Between Merchants—Additional Terms Usually Included.
If both parties to the contract are merchants, additional terms in the acceptance will be included in the contract unless:
a) They materially alter the original terms of the offer (e.g., they change a party’s risk or the remedies available); b) The offer expressly limits acceptance to the terms of the offer; or c) The offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received. (1) Note—Different Terms May or May Not Be Included There is a split of authority over whether terms in the acceptance that are different from (as opposed to in addition to) the terms in the offer will become part of the contract. Some courts treat different terms like additional terms, and follow the test set out above in determining whether the terms should be part of the contract. Other courts follow the “knockout rule,” which states that conflicting terms in the offer and acceptance are knocked out of the contract, because each party is assumed to object to the inclusion of such terms in the contract. Under the knockout rule, gaps left by knocked out terms are filled by the U.C.C.
d. THE ACCEPTANCE
When Effective—The Mailbox Rule
Acceptance by mail or similar means creates a contract at the MOMENT OF DISPATCH, provided that the mail is properly addressed and stamped, UNLESS:
(i) The offer stipulates that acceptance is not effective until received; or
(ii) An OPTION CONTRACT is involved (an acceptance under an option contract is effective only upon receipt).
(iii) If the offeree sends a REJECTION and then sends an ACCEPTANCE, whichever arrives first is effective.
(iv) If the offeree sends an acceptance and then a rejection, the acceptance is effective (i.e., the mailbox rule applies) unless the rejection arrives first and the offeror DETRIMENTALLY RELIES on it.
Tip: Remember that the mailbox rule (“effective upon dispatch”) applies only to acceptance. It does not apply to other events in the contract setting, such as rejection or revocation.
III. CONSIDERATION
ELEMENTS
ELEMENTS OF CONSIDERATION
Basically, two elements are necessary to constitute consideration:
(i) there must be a bargained-for exchange between the parties and
(ii) that which is bargained for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit to the promisor or a detriment to the promisee.
Value Element:
Exam Tip: Although payment of a smaller sum than due on an existing debt is
generally not sufficient consideration for a promise by the creditor to discharge
the debt, courts will attempt to avoid this result by applying the above exceptions. Thus, see if there is new or different consideration given in the facts (e.g., payment earlier than required or payment in stock instead of cash); this change in performance could make the payment of a smaller amount sufficient consideration.
Forbearance to Sue
A promise to refrain from suing on a claim may constitute consideration if the claim is valid or the claimant in good faith believed the claim was valid.
