REG 6 Flashcards
Parole evidence rule
The parole (oral) evidence rule prohibits:
(i) a party in a lawsuit involving a fully integrated written contract;
(ii) from introducing evidence at the trial of
- oral or written statement made prior or oral statements made contemporaneously with the written contract; and
-that seek to vary the terms of the written contract (contradict)
HOWEVER it does permit (admissible);
(i) it does allow the introduction of subsequent oral or written modification
(ii) evidence admissible to explain ambiguous terms
(iii) evidence admissible to show fraud, duress or mistake.
Creation of a legally enforceable contract: 3 requirements
Generally, there are 3 requirements of a legally enforceable contract:
1) an agreement made up of an offer and an acceptance;
2) an exchange of consideration (something of legal value); and
3) lack of defenses
Offer and acceptance (aka Mutual Assent)-meeting of the minds
Offer:
To be an offer, the communication must create a reasonable expectation in the offeree that the offeror intends to make a contract. Three questions should be considered:
(i) was there intent to contract?
(ii) was there definiteness and certainty in the essential terms?
(iii) was there communications of the above to the offeree?
(i) Intent to make a contract: to be valid, offer must be sufficient for a reasonable person to assume that the offer was a serious offer to contract (objective theory-would a reasonable person believe the offer was serious)
(ii) terms much be definite and certain: essential depends on the type of contract involved (sale of goods/UCC need only include quantity). An offer to create a contract under common law (RISE-real estate, insurance, services, and employment)must include:
- identity of offeree, price to be paid, time of performance, quantity involved, and nature of the work to be performed.
(iii) communication to others: to have the power to accept the offer, the offeree must have knowledge of the offer. proposal must be communicated.
Termination of Offer: revoke, reject, and automatic
1) Revocation by Offeror: offeror may generally revoke any time before acceptance by communicating the revocation to the offeree.
(i) may be direct (oral/written) or indirect(conduct-sell to someone else).
(ii) revocation by publication
(iii) exception: Irrevocable offers:
- option contract-buys more time in exchange for consideration
- unilateral contracts: offeror makes an offer to enter into a unilateral contract (i.e. a promise made in exchange for an act rather than a counter promise) and the offeree begins to perform, the offeror cannot revoke
- merchant’s firm offers under UCC sales: certain written offers by merchants are irrevocable
2) Rejection by offeree:
(i) express rejection or counteroffer
(ii) lapse of time: offeree must accept offer within time specified, if not specified within a reasonable time. Silence is generally understood as a rejection of the offer.
3) Termination by law: automatically such as
- termination by death or incompetency of the parties
- termination by destruction of subject matter
- termination by illegality
*offers, rejections, revocations, and counteroffers effective on date received.
Acceptance
Mailbox rule of acceptance: generally effective upon dispatch.
exception: unless, the offeror states in the offer that acceptances must be received to be effective.
Consideration
both sides of the contract must be supported by legally sufficient consideration.
(i) legal value (does not need to fair, adequate, or have monetary value).
:constitutes either a detriment to the promisee or a benefit to the promisor.
-Promisor’s promise is supported by consideration only if the promisee agrees to do something he or she is not already obligated to do ( a detriment) or the promisor will obtain some benefit.
Exception: to make a modification enforceable under common law RISE, give consideration (UCC=good faith)
(ii) bargained for exchange: something is not considered consideration unless it was given in exchange for other consideration (gifts are not enforceable, unless its i.e. donation to charity)
Exception: Detrimental reliance/promissory estoppel-donation to a charity- the promise must be reasonably relied upon and detrimental (i.e. party relying on the promise must have done something substantial, i.e. entered into a contract to buy an MRI machine for a hospital because of the promise)
Defenses-can make a contract unenforceable
Fraud-MAIDS mnemonic
M-Misrepresentation of material fact by the defrauding party
A-Actual and justifiable(reasonable) reliance by the victim on the misrepresentation
I-defrauding party intended to Induce the victim to rely on the misrepresentation
D-Damages
S-Scienter-defrauding knew that the statement was false or that the defrauding party made it with reckless disregard for the truth
in the case of fraud, victim will receive both compensatory and punitive damages
*must be a material fact-opinions (statements of value) do not constitute facts unless made by experts
Defenses-various
1) fraud in execution- did not know he or she was entering into a contract-contract becomes “void”
2) fraud in inducement- defrauded party is aware she was making a contract, but terms are materially misrepresented-contract is voidable
3) innocent misrepresentation- no intent/no scienter or MAID from the MAIDS mnemonic.- no punitive damages
4) duress:
duress under unlawful use of threat of harm- contract is “void”
duress under economic or social threat (black mail), contract is voidable
5) Undue influence: the person (defendant) is in the position of trust or confidence uses to take advantage of the other’s weakness, infirmity, or distress (someone like: spouse, trustee, attorney, etc). Abuse of position of trust or confidence. Since it is not at arm’s length, then fairness is required
6)mutual mistake: both parties are mistaken as to a material fact, the adversely affected party can avoid the contract
(i)subject matter is nonexistence (stolen/destroyed)-contract is void
7) unilateral mistake (mistake by one party): generally not a defense to contract, unless there is a unilateral mistake as to a material fact if the other party knew or should have known the mistake (then it is a defense)
8) illegality- contract generally void
(i) failure to have a license required to “protect the public” (i.e. CPA, attorney, realtor, doctor)-contract void
(ii) license is merely required to raise revenue (license for the city revenue)-contract is enforceable
9) minors may generally disaffirm (cancel) contracts except contracts for necessities: consumed the food, clothing, or shelter.
10) intoxication-other party knew of the impairment
11) mental incompetency- contract is voidable, and contract is void if the party is “adjudicated mentally incompetent”
12) statue of limitations: common law RISE (real estate, insurance, services, and employment)- 4-6 years from date of breach of contract and 4 years fro UCC (sale of goods) from date of breach of contract
13) impossibility-objectively impossible-destruction of subject matter (note that a mere increase in the cost to perform does not make performance impossible)
14) conditions can affect a party’s duty to perform: condition precedent (qualify for a mortgage) before the other party can perform; condition concurrent: must occur simultaneously: exchange of goods/money; condition subsequent: i.e. engagement ring-condition that will occur after a party’s duty to perform has arisen and will cut off that duty.
15) prevention of performance is a breach
16) unconscionability: doctrine used by courts to refuse to enforce provisions of a contract, based on notions of fairness (extremely unfair) and the party having the benefit of the unfair term had substantially superior bargaining power
Statute of Frauds- 6 contracts required in Writing
“MY LEGS”
general rule: contracts need not be in writing, however 6 contracts do need some type of writing (email, text, several letters) to be enforceable and only the defendant must sign (party trying to avoid the contract)
M-Marriage-contracts where the consideration is marriage (i.e. if you get married, I’ll buy you a house)
Y-Year-Contracts which by their terms CANNOT be performed within a year (thus multi-year contracts require written doc)
L-Land-Contracts involving interest in land (real property such as building, sale of house, lease over 1 year)
E-Executors- contracts by executors or similar reps tp pay estate debts out of personal funds
G-Goods-contracts for sale of goods for $500 or more (services can be oral regardless of price if item is completed within 1 year)
S-Surety-contracts to act as surety (i.e. pay the debt of another)
Other terms - Difference between
“accord and satisfaction/substituted contract” and
“novation”
Accord and satisfaction: agreement to substitute one contract for another, and satisfaction is the execution of the accord (same parties, but new agreement).
Novation: It occurs when a new party substitutes for an old party in an existing contract. All parties must agree. Old party has been released from a contract.
Remedies
Breach:
(i) at common law, if material or substantial breach=nonbreaching party can be discharged from the contract
(ii) if breach is minor=nonbreaching party is not discharged, but entitled to damages.
Damages: compensatory damages (money) OR specific performance (NOT both)
(i) compensatory damages: enough money to substitute performance and also entitled to
- consequential damages: collect on damages that are reasonably foreseeable as a result of breach
(ii) specific performance-USED w Land or Unique items (one-of-a kind items, patent, Picasso painting): money would be an inadequate remedy. Court order that the breaching party perform or face contempt charges.
Cannot be used for personal service contracts (involuntary servitude)
Other damages:
(iii)Liquidated damages: damages agreed to in the contract, is enforceable if the amount is (i) reasonable in relation to the actual harm done, and (ii) not a penalty
(iv) rescission or cancellation: cancels the contract and restores parties to their former position
(v) Quasi-contract (restitutional) damages: implied promise (i.e. ambulance for unconscious person); though no contract, performance was partially or fully performed and compensation is reasonably expected.
Statute of Frauds (for UCC-sales)
SWAP mnemonic
The Statute of Frauds requires contracts involving the sales of goods to be in writing, if they exceed $500 (“G” in MY LE”G”S). However, if any four of exceptions apply, an oral contract will be enforceable:
S-contracts for Specially manufactured goods (custom goods)
W-Written confirmation between merchants: where a merchant sends another merchant a Written confirmation of a contract that is sufficient to bind the sender, it will also bind the recipient if she does not object within 10 days (aka merchant confirmatory memo rule)
A-Admission in court: contract that the parties admitted in court
P-Performance: contracts that have been performed, to the extent that the performance has been accepted
Express warranties: oral or written/statements of fact, descriptions, or samples or models made by seller
Implied warranties: implied by law
- Implied warranty of merchantability (merchant): every sale of goods by merchant includes this implied warranty. It is a warranty that the goods sold are fit for the ordinary purposes for which they are designed (i.e. chair is designed to be sat upon as ordinary purpose, if it breaks upon sitting, then there is a breach of implied merchantability)
- Implied warrant of fitness for particular purpose (any seller): arise only where the buyer relies on the seller to choose goods suitable for the buyer’s purposes (seller of goods knows this at the time the buyer is relying on the seller). No need to be in writing or even specifically mentioned (seller need not be a merchant)
- Implied warranty of title (any seller): every sale of goods includes a warranty that the seller has title to the goods unless the warranty is disclaimed explicitly or by circumstances
UCC: sales: Obligation of Good Faith
UCC imposes an obligation of good faith on both parties to a sales contract (every buyer/seller).
If its a merchant seller, then he must also observe reasonable standards of fair dealing in the trade.
Merchant’s firm offer
Unlike common law where consideration is needed to make an offer irrevocable.
Under UCC(sale of goods)-merchant’s firm offer are irrevocable without consideration. To qualify as merchant’s firm offer:
(i) seller must be a merchant;
(ii) offer must be in writing and signed by the merchant (i.e. rain check); and
(iii) offer must give assurances it will be kept open for a certain time. If no time is stated, it’s for a reasonable time, but no longer than 3 months.
