Valid Contracts Flashcards
Valid contract
A valid contract requires: 1) offer 2) acceptance 3) consideration and 4) no formation defenses
Advertisement
An advertisement is an invitation to receive offer, unless 1) associated with stated reward 2) the advertisement specifies who may accept, how acceptance is made, and is not negotiable. .
Offer
An offer requires 1) an express present intent to be legally bound to a contract 2) certain and definite terms 3) communication to an identifiable offeree. [under common law, essential terms (subject, price, quantity) must be covered]
Termination
Lapse of Time
Death
Revocation: An offer terminates 1) an offer directly communicates revocation to the offeree or 2) the offeree acquires reliable information that the offeror has taken definite action insconsistent with the the offer. A revocation is effective when received by the offeree.
UUC Firm Offer
Under the UCC, an offer to buy or sell goods is irrevocable if 1) offeror is a merchant 2) there are assurances the offer is to remain open and 3) the assurances are contained in authenticated writing from the offeror
Bilateral Contract
In a bilateral contract, one party’s promise is exchanged for the other party’s promise. The exchange of promises renders both enforceable
Unilateral contract
In an unilateral contract, the offeror promises to perform in return for the offeree’s act. The oferee’s promise to perform is insufficient to constitute acceptance, the offerree must perform the act to accept the offer.
Unilateral contract- Irrevocable Offer
Starting performance makes an offer for unilateral contract irrevocable for a reasonable time to allow for complete performance.
Counteroffer
Generally an acceptance is effective upon posting. At common law, acceptance must mirror the offer terms, neither omitting nor adding terms. Modifications to an offer act as a rejection of the offer and create a new offer.
The UCC states that acceptance does not have to mirror the offer and the acceptance may be included different or additional terms, without revocation of the offer and thus constituting a valid contract. However the offeree’s different of additional terms are deemed included in the contract only if: 1) both parties are merchants 2) the term is not a material change 3) the offer does not expressly limit acceptance to the exact terms of the offer, and 4) no objections was made within a reasonable time. A material change is any change that is likely to cause hardship or surprise to the offeror (disclaimer of warranties, an arbitration clause, payment of shipping /handling charges)
Acceptance
Acceptance requires: 1) unequivocal acceptance terms 2) an offeree with power to accpt, and 3) communication of acceptance
Silence (acceptance)
Silence does not operate as acceptance of an offer, unless 1) the oferee has reason to believe the offer could be accepted by silent, was silent and intended to accept the offer by silent 2) due to previous dealing, it is reasonable to believe the offeree must notify the offeror if the offeree intends not to accept.
Action- (acceptance)
Bilateral contract: An offer requiring a promise to accept can be accepted with 1) return promise or 2) act completion. Staring performance is enough to accept an offer for a bilateral contract.
Action: Unilateral contract: An offer requiring action to accept can be accepted with offeree 1) aware of the offer, and 2) act completion
Mailbox Rule
Under the mailbox rule, acceptance by mail or similar means, properly addressed, stamped and sent, is effective at dispatch. The mailbox rule applies only to acceptance, and does not apply to other contract events.
Consideration
Consideration involves 1) a bargain for exchange 2) of legal value.
Generally past or moral consideration is not sufficient to support a contract.
Illusory Promise
An illusory promise, a promise to perform that leaves performance to the prosmising party’s discretion, is not consideration.
Consideration substitutes: Promissory Estoppel/ Detrimental reliance.
Contracts that lack consideration may be enforced to avoid injustice under the doctrine of promissory estoppel. Promissory estoppel applies when 1) a party reasonably and foreseeably relied to his detriment on the promise of the other party. 2) the promisor should have reasonably expected a change in position in reliance of the promise, and 3) enforcement of the promise is necessary to avoid injustice.
Preexisting Legal Duty: Performing or promising to perform an existing legal duty is insufficient consideration
No formation Defenses
Undue Influence: Undue influence occurs when one party is dominant and the oher party is dependent, due to lack of expertise, experience or disminished mental capacity. Generally the dominant party will be held to higher fairness and disclosure standard than in a contract between arms-lenght parties.
Duress: Duress means any wrongful act or threat that deprives a party of meangful choice. When a party’s agreement results from physical duress, the contract is void. When the duress is a threat, the contract is voidable.
Unilateral Mistake: An unilateral mistake by one party is insufficient to make a contract voidable, unless the non mistake party 1) knew or had reason to know of the mistake or 2) had a duty to diclose the fact about which the other party was mistaken.
Mutual Mistake: Mutual mistake occurs when both parties are mistaken as to an essential contract element There must be substantial difference between the contempladed and actual deal, with no intent by the parties to take a risk on the contract element. The contract is generally voidable by the party adversely by the mistake.
Misrepresentation: If a party 1) induces another party to enter into a contract 2) asserting fraudulent misrepresentation (known untrue information) , the contract is 3)voidable by the party who justifiably relies on the misrepresentation.
Unconscionability: A contract may be voidable where the provisions are one sided as to be unconscionable at the time the contract is made. The defense is applied where one party has unequal and superior bargaining power the other party.
Defenses- Statute of Frauds
[Under the UCC, to be enforceable, agreements for the sale of goods for $500 or more must be in writing] [ The statute of Frauds requires service contracts that cannot be performed within one year to be in writing and signed by the party to be charged, unless an exception applies]. [The statute of Frauds requires contracts involving a land interest to be in writing and signed by the party to be charged, unless an exception applies].
Under the UCC to be enforceable, agreements for the sale of goods or more must be in writing containing 1) identity of parties 2) contract’s subject matter, 3) terms and conditions, 4) consideration recital, and 5) signature of the party to be charged, unless both parties are merchants. The writing need be an actual contract, or the terms be contained on one piece of paper. A series of correspondence between the parties may suffice.
Defenses
Part Payment- For a goods sale, when a part of the purchase price has been paid, the contract is enforced and outside the Statute of frauds to the extent of the purchase.
Part Performance A court may enforce a contract where there has been part performance (acts by either party subsequent to contract formation) evidencing contract existence.
Illegality: If the consideration of performance under a contract is illegal, the contract is illegal and unenforceable. If a contract contemplates illegal conduct, it is void. If a contract becomes illegal after formation, performance is discharge
Defenses (Capacity, Mental, MInor)
Capacity: Parties to a contract must have legal capacity to be held to contractual duties.
Mental: If a party with mental illness or defect is adjudicated mentally incompetent, contracts made by the individuals are void. If the party is not adjudicated mentally incompetent, contracts are voidable and may be disaffirmed if the person does not understand the nature and consequences of the transaction and the other party has reason to know of this fact.
Minor: Traditionally a minor lacked capacity to enter into a contract. Modernly, a minor may enter into a contract, but the contract is voidable at the minor’s option.
Defenses - Quasi contracts
A court implies a quasi contract when there is a failed contract, no contract, or divisible contract by implying a promise that requires the defendant to make restitution to the plaintiff. Elements : 1) plaintiff confers defendant a measurable benefit without gratuitous intent 2) defendant knows or has reason to know of plaintiff expectation because defendant had opportunity to decline the benefit, but instead knowingly accepted it and 3) defendant unjustly enriched if defendant retains the benefit without cost
Breach
A contract breach occurs when a party fails to perform once 1) condition precedent are met or excused 2) time to perform arrives 3) performance is not discharged.
Breach- Condition Precedent
A condition precedent occurs before an absolute duty of performance arises in the other party.
Breach- Condition Precedent
Assurance of Performance
Assurance of Performance: Common Law: A non breaching party may request adequate assurance of performance, and treat the failure to assure within a reasonable time as anticipatory repudiation. The requesting party may suspend performance until assurances are given.
UCC: Under the UCC, a request for adequate assurances of performance must be in writing. A non breaching party may request adequate assurances of performance, and treat the failure to assure within 30 days as anticipatory repudiation. The requesting party may suspend performance until assurances are given.
Breach / Condition Precedent/ Anticipatory Repudiation
Anticipatory repudiation occurs where a promisor, prior tot he time to perform arrives, unequivocally indicates he will not perform when the time occurs. Anticipatory repudiation gives the non repudiating party four options: 1) treat the contract as totally repudiated and sue immediately 2) suspend own performance and wait until performance is due to sue 3) treat the repudiation as an offer to rescind and the contract discharged, or 4) ignore the repudiation and urge performance.
Breach/ Condition Precedent/ Substantial Performance
Where a party almost completely performs the duties, but breaches in a minor way, substantial performance avoid forfeiture return performance.
Breach/ Time to Perform Arrives
Time to Perform Arrives: Failure to perform by the time in the contract is generally not a material breach if performance is rendered within a reasonable time. However, if the contract makes timely performance essential, or expressly provides time is of the essence, failure to perform on time is a material breach.
Performance Discharged: Assignment
Assignment: Contractual rights may be assigned so long as 1) assignee has notice 2) contract does not specifically say all attempted assignments will be void, and 3) assignment does not materially increase the obligator duty or, materially reduce the obligator’s chance of obtaining performance.
Performance Discharged/ Mutual recisison/ Modification
Mutual Rescission: Mutual rescission may discharge executory contract duties.
Modification: Modification may partially discharge a duty if there is mutual assent to modifying the agreement.
Common Law: At common law, contracts may not be modified without consideration, but courts may find consideration unnecessary where modification is a correction or the parties limit their rights to enforce the contract. At common law, a provision requiring written modification even though the modification is not within the statute of Frauds will not be enforceable.
UCC: Under the UCC, contracts may be modified without consideration. Under the UCC, the statute of Frauds must be satisfied if the contract as modified is within its provisions.
Breach / Performance Discharge/ Waiver/ Impossibility/Impracticability/ Frustration of Purpose
Waiver: A party can waive a condition. A condition may be reinstated if 1) waiving party communicates a retraction before the condition is due 2) other party has not suffered detrimental reliance
Impossibility: Impossibility discharges performance objectively when an unforeseen circumstance makes no one able to perform the contract.
Impracticability: Impracticability discharges performance subjectively when unforeseen circumstance makes it extremely difficult or expensive to perform.
Frustration of Purpose: Frustration of purpose discharges performance when an unforeseen circumstance completely or almost completely destroys the contract purpose understood by both parties.
Breach/ Performance Discharge/ Disclaimer
Disclaimer
Express: Disclaimer that conflict with express warranties are ignored
Implied Warranty of Merchantability: An implied warranty of merchantability can be disclaimed by “as is” “without fault,” or similar language that makes plain there is not implied warranty. The disclaimer must be conspicuous if in writing, and use the term “merchantability if oral.
Implied Warranty of Fitness for a Particular Purpose.
Implied warranty of fitness for a particular purpose: can be disclaimed by general language, including “as is”. The disclaimer must be in writing and conspicuous.
Accord and Satisfaction: under an agreement, one party accepts different performance than was promised in the existing contract from the other party. Generally, a valid accord requires consideration. Satisfaction (perforamnce of the accord) discharges the existing contract and the accord.
Breach/ Performance Discharge/ Minor vs. Material Breach/ Perfect tender rule
Minor vs. Material Breach: Whether a breach is minor or material depends on whether the non breaching party obtains the substantial benefit of the bargain. If the breach is material, the non breaching party may 1) treat the contract as ended ( counter performance discharged) and 2) immediately sue for breach.
Perfect Tender Rule: The ucc requires perfect tender. If the goods or the tender of delivery fail to conform to the contract, the buyer may 1) reject the whole 2) accept the whole 3) accept any commercial units and reject the rest.
Parol Evidence Rule
Under the parol evidence rule, a party cannot introduce evidence of a prior contemporaneous agreement (either oral or written) that contradicts a later writing. A merge clause is evidence that the writing is complete on its face (fully integrated) and cannot be supplemented with additional consistent terms. However there are four exceptions where a court will permit such evidence: 1) to correct a clerical error or typo, 2) to establish a defense against formation (that the contract wasn’t valid in the first instance), 3) to interpret vague or ambiguous terms, but court will interpret words to represent their ordinary or plain meaning(the plain meaning rule) and 4) to supplement a partially integrated writing. The parol Evidence Rule does not apply to subsequent agreements
Contract remedies: Legal
Compensatory Damages: Compensatory damages are slip into two categories: 1) Expectation and 2) consequential
1.Expectation: Common Law: Expectation are the damages sufficient to buy substitute performance (benefit of the bargain)
UCC: cover is the market price less the contract price.
2. Consequential: Consequential damages are awarded if a reasonable person foresees at the time of contract formation such damages result from breach
Mitigation: A party to a contract has the obligation to use reasonable efforts to avoid damages. Failure to mitigate damages defeats a claim for consequential, not expectation damages.
Reliance Damages: An alternative to compensatory damages is reliance damages, where a plaintiff may be awarded monetary damages for expenses made in preparing to perform and performing a contract based on reliance interest. Generally reliance damages can only be recovered where a plaintiff cannot prove a profit will be made on the contract, or the contract will produce a loss. Reliance damages cannot exceed the contract price.
Incidental Damages: Incidental Damages are expenses a non breaching party incurs as a result of a breaching party’s breach.
Liquidated Damages: A liquated damages provision will be enforced, and not construed as a penalty, if the time a contract is entered into the 1) damages amount is difficult to estimate and 2) amount stipulated is reasonable in reliance to the a) actual damages suffered or b) damages anticipated. Although a contract may fix the damages amount recoverable in the event of a breach, because a party may not be penalized for breach, penalty clauses are unenforceable.
Restitution: If a non breaching party transfer a benefit to a breaching party, while attempting to perform a contract, the non breaching party is entitled to restitution for the benefit transferred.
Defenses: Statute of Limitations/ Mutual Mistake.
Statute of Limitations: The statute of limitations limits the time a plaintiff may bring a claim to encourage resolving claims within a reasonable time, and prevent stale claims from arising after evidence has been lost or facts become unclear trough time passage, defective memory, death, or witness disappearance.
Mutual Mistake: Mutual mistake occurs when both parties are mistaken as to an essential contract element. There must be substantial difference between the contemplated and actual deal, with no intent by the parties to take a risk on the contract element. The contract is generally voidable by the party adversely affected by the mistake.
Defenses:
Unclean Hands: The party seeking relief must not have been guilty of wrongful conduct with respect to the transaction subject matter.
Laches: The right to equitable relief is cut off when there has been unreasonable delay in initiating the claim, and the delay prejudices the defendant.
Bona Fide Purchaser: Reformation is subject to the innocent parties rights. Sale to a bona fide purchaser who 1) pays valuable consideration 2) with no notice as to the contents of the writing prevents reformation.
Unilateral recission: A non- defaulting party can rescind a contract, wich requires a return of benefit conferred on the other party Equitable rescission requires an inadequate legal remedies.
Defenses:
Unclean Hands: The party seeking relief must not have been guilty of wrongful conduct with respect to the transaction subject matter.
Laches: The right to equitable relief is cut off when there has been unreasonable delay in initiating the claim, and the delay prejudices the defendant.
Bona Fide Purchaser: Reformation is subject to the innocent parties rights. Sale to a bona fide purchaser who 1) pays valuable consideration 2) with no notice as to the contents of the writing prevents reformation.
Unilateral recission: A non- defaulting party can rescind a contract, wich requires a return of benefit conferred on the other party Equitable rescission requires an inadequate legal remedies.
Defenses:
Unclean Hands: The party seeking relief must not have been guilty of wrongful conduct with respect to the transaction subject matter.
Laches: The right to equitable relief is cut off when there has been unreasonable delay in initiating the claim, and the delay prejudices the defendant.
Bona Fide Purchaser: Reformation is subject to the innocent parties rights. Sale to a bona fide purchaser who 1) pays valuable consideration 2) with no notice as to the contents of the writing prevents reformation.
Unilateral recission: A non- defaulting party can rescind a contract, wich requires a return of benefit conferred on the other party Equitable rescission requires an inadequate legal remedies.
Defenses:
Unclean Hands: The party seeking relief must not have been guilty of wrongful conduct with respect to the transaction subject matter.
Laches: The right to equitable relief is cut off when there has been unreasonable delay in initiating the claim, and the delay prejudices the defendant.
Bona Fide Purchaser: Reformation is subject to the innocent parties rights. Sale to a bona fide purchaser who 1) pays valuable consideration 2) with no notice as to the contents of the writing prevents reformation.
Unilateral recission: A non- defaulting party can rescind a contract, wich requires a return of benefit conferred on the other party Equitable rescission requires an inadequate legal remedies.
