mbe contracts Flashcards
formation: offer
- objective manifestation (reasonable person standard) of willingness to enter into an agreement
- creates the power of acceptance in the offeree
- specific terms; all essential terms covered
formation: revoking
- by person who made offer
- offer can be terminated by:
1. lapse of time
2. death or mental incapacity of offeror/offeree
3. destruction or illegality
4. revoked by the offeror before acceptance (expressly or constructively by taking action inconsistent with continuing k, selling car)
remember, while offers are generally freely revocable by the offeror, they MUST be rejected or else the offer is still open to the offeree. so if the offeror makes an offer, then sells the house to someone else, then offeree comes to buy the house he was still free to accept the offer
formation: rejecting
- by person who received offer
- counter offer rejects offer and is new offer
formation: revocation exceptions
- offers are revocable, unless
UCC
1. option k: if there is a promise to keep offer open for period of time (happens between non-merchants, lay people); i promise to keep option open for 3 days for additional consideration ($)
2. firm offer: looks like option, promise to keep offer open but offeror is merchant. needs to be in writing and signed by offeror. no consideration needed. max irrevocable for 3 mos or time stated; if no time stated, then 3 mos. after, becomes revocable
**COMMON LAW **
1. unilateral k: promise for performance. once performance begins, offer becomes irrevocable
2. **promissory estoppel **
acceptance: manifestation of intent to accept
- how to accept:
- any reasonable manner you chose
- words/actions manifesting intent
- EXCEPT if offeror specifies manner of acceptance
- COMMON LAW: acceptance must mirror terms of offer
- UCC: acceptance contains additional/different terms can still be treated as acceptance
- THERE IS STILL A CONTRACT AND AN OBLIGATION TO PERFORM ACCORDING TO A CONTRACT’S ORIGINAL TERM IF THERE IS AN ADDITIONAL TEMR WHICH THE OTHER PARTY OBJECTS TO
mailbox rule
- acceptance effective when sent, moment after you put letter in mail, you have deal
- rejection effective upon receipt
- if your first response is rejection, but then you send acceptance, the acceptance will control even if the rejection was received first
- if your first response is acceptance, and then rejection is sent and received, then a contract is formed unless there was detrimental reliance
mailbox rule does not apply in option k’s, can accept at any point in designated time period, even after rejection
consideration: bargained for exchange
things exchanged, market value of exchanged items do not matter (even a peppercorn)
consideration: gift
- promise to give a gift is not enforceable consideration
- giving of gift is enforceable, and you can not get it back
consideration: past/moral
- not enforceable
- you did a good deed on your own behalf, and after the act someone offers you consideration
third party beneficiary:
- two people make a k and someone else benefits
- the two people could be just exchanging promises to pay someone else
intended beneficiary
- original parties had intent to benefit the 3rd party beneficiary
- 3pb may have right against original parties
- may have rights when their rights vest
- before rights vest, parties can change their minds (cant be sued)
incidental beneficary
- someone claiming benefit, but deal was never intended to benefit
- incidental 3pb never has any rights
when do rights vest? 3 party beneficiaries
- when either or both parties notify beneficiary
- when beneficiary learns of intent and begins to rely on it
assignment
one party assigns away their rights in k
where there is a general assignment of an entire contract, it gives the delegatee the right to receive payment directly from the buyer provided that the delegatee delivers the goods
delegation:
one party delegates their duty under k
assignment and delegation rule
- generally, one can freely assign their right and delegate their duty to whomever, notice or consent unecessary
- if duty/right breached (non-performance/bad performance) you can sue the person who delegated duty/assigned right or the person they delegated the duty or assigned the right to, unless original parties entered into novation
- new person can not unilaterally change terms once duty delegates/right assigned, only getting duty and rights from original
k - under ucc, assignee cannot disproportionately alter the contemplated quantity
- although k rights freely assignable, when k rights assigned to party gratuitously (without receiving anything in exchange), assignor retains power to revoke the assignment unless and until assignee obtains performance from obligor
VVVVVVVVVVV
An exculpatory clause releases a party from liability for damages caused during the execution of the contract.
Such a clause would effectively release that party from liability for damages caused by a delegatee (someone to whom the work was delegated to) as well.
This goes against the controlling principle that a delegating party is not released from liability for damages caused by a delegatee unless the other party to the contract expressly agrees to a release.
assignment and delegation exception
- when nature of agremeent is unique (special personal service) can not delegate duty or assign right to someone else (even to someone at same level of expertise)
- if the k says, there shall be no assignment, any assignment is prohibited
- if assignment assigned anyways, assignment valid but owe damages for breaching promise
- if k says no delegation of duty, it is strictly construed and can not be delegated to anyone else
- if it says assignment/delegation VOID, anything connected is strictly construed, cant do it
defense: statute of frauds
- k’s need to be in writing, signed, id the parties, and contain essential elements of k
M=marriage
Y= contracts that cant be performed for less than 1 yr
L= land, conveyance of interest in land
E= executor, agreement to be executor of estate
G= gurantor/surety, guranteeing debt of another, if he does not pay i will pay
S= sale of goods for $500 or more
**XXXXXXXXXX*
distinctiong for land conveyances:
lease agreement and easements for less than a year are usually excluded from SOF, and thus can be enforceable without a signed writing
for gurantor/surety, the promise will not fall under SOF if prinicpal purpose of making gurantee was to benefit the promisor (person giving loan) and not the 3rd party debtor (person taking out loan), the inverse will make it covered under SOF
common law: statute of frauds exception
- part peformance= commonly applies in
1. land = interest in land. part performance= when you pay some part of purchase price (Down payment/deposit) and you take possession of property OR make improvement to property
parol evidence
after k formed, one party tries to admit oral evidence in k
The parol evidence rule generally bars the admission of prior or contemporaneous agreements that modify or contradict the terms of a written contract.
parol evidence: final integration
- complete/final agreement will have this language in k
- merger clause will have language
- it will say this shall be final agreement between parties, cannot be modified orally
- IF FINAL, NO PAROLE EVIDENCE ADMITTED, EXCEPT TO CLEAR UP AMBIGUITY
The canon of contract construction known as contra proferentem construes an ambiguous term’s meaning against the party who drafted the contract.
parol evidence: partial
- if facts do not tell you its final, by default its partially integreated k
- PAROL EVIDENCE ADMISSIBLE FOR CONSISTENT ADDITIONAL TERMS, BUT NOT FOR MATERIAL ALTERATION OR CONTRADICTING MATERIAL TERMS
Parol evidence always comes in when
- to prevent fraud/duress/mistake
- clear up ambiguity
- show condition precedent
- shows in sale of goods, custom or trade usage (to explain/supplement NOT contradict)
- whether writing is integrated and, if so, completely or partially
- ground for granting or denying remedy (eg, rescission, reformation)
- subsequent contract modifications
can only come in: raising defense to formation of k (mistake, misunderstanding, misrepresentation), defense to enforcement of k (incompetence, illegality, duress), separate deal, subsequent agreements, course of performance, course of dealing (previous transactions),
The canon of contract construction known as contra proferentem construes an ambiguous term’s meaning against the party who drafted the contract.
conditions
- something happens which relieves party of duty to perform
- look for unless, only if , on condition that
types of conditions
- precedent
- subsequent
- concurrent
- express
- implied
condition precedent
happens before day of k/performance
requires PLAINTIFF to prove that the event occured to prevail
condition subsequent
happens after k/performance
requires DEFENDANT TO PROVE vent occured to avoid liability
condition concurrent
happens at time of k
waiver of condition
- remove requirement, no longer have to meet terms of condition
- waiver= after a condition has failed to occur, party to whom condition designed to benefit may choose to ignore non-occurence and continue performing (BUT where BOTH parties fail to perform when performance due, contractual obligations DISCHARGED FOR BOTH, NO K)
- wrongful interference: party wrongfully interferes/prevents conditions occurence (party may have duty to fulfill a condition under good faith and fair dealing); the condition will be excsued, no longer need that condition for the party’s peformance to become due (buyer was supposed to secure a mortgage in 30 days, does nothing in those 30 days, can be sued for specific performance)
- estoppel: party indicates condition will not be enforced and other party reasonably and detrimentally relied on belief condition is waived
- disproportionate forfeiture: party substantially performed and will be significantly harmed is condition enforced
waiver: party who waived may reinstate the condition if
(i) the waiving party communicates a retraction of the waiver before the condition is due to occur, and
(ii) the other party has not already suffered detrimental reliance.
before condition is due: (ex: insurance company requires notice within 30 days of accident, agent waived condition 3 weeks after accident, company tries to reinstate after the fourth week does not count, but would if before 30 days)
duty of good faith
This binds you to terms IN contract and NOT in contract
Contracting parties are typically bound only by the explicit terms of the contract.
However, an implied duty of good faith and fair dealing is imposed on each party in the performance and enforcement of any contract.
Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing.
principle of reasonable expectations
EXISTING contract term –> other party DOES NOT EXPECT that term to be there —> not bound unless it was shown to them explicitly (in long contract netflix makes you agree, there is term they can make a tv show based off of you, cant enforce this unless they explicitly showed it to you :D)
According to the principle of reasonable expectations, parties should not be bound by terms that they would not expect to find in a contract unless those terms were called to their attention.
But since there is no term in the lease that allows the owner to enter the home with a prospective lessee, this principle is irrelevant here.
Duty to use best efforts
the duty to use best efforts requires all parties to use their best efforts to carry out the intent of the contract to prevent it from being illusory when the scope of a party’s performance is omitted or unclear
follow the TERMS of the contract, this does not apply to term that DOES NOT EXIST IN CONTRACT
promissory estoppel
- substitute for consideration
- one person makes promise to other party, other party detrimentally relied on promise, party making promise estopped from denying promise (Can be held to promise, this happens when you dont have a k)
- detrimental reliance= you’re doing something you would not have ordinarily done but for the promise
- often used in construction industry, unjust for subcontractor to revoke bid after inducing justifiable reliance in the general contractor, but general contractor is not bound to accept it
- BUT the subcontractor bid is irrevocably for a reasonable period of time, so if the subcontractor revokes before that period of time and the contractor still accepts, there IS a contract, and you would get expectation damages
- a party that reasonably and detrimentally relies on another party’s promise may recover the costs of relying on that promise—but not the value of the promise itself.
The remedy may be limited or adjusted as justice requires.
Generally, this results in the award of reliance damages rather than expectation damages.
impossibility: excuse
- want to be discharged from obligation to perform
- legally, not objectively impossible
- not only can i not do it, nobody can
- performance is now illegal, another option
- house blown away into tornado, can no longer use it
excuse: impracticability
- due to unforeseen circumstances, performance possible, but now unfair/impracticable (usually very expensive)
- cost rising, in economy price fluctuation foreseeable. but price rise so much you would not have entered into k in first place
- allocate risks between the parties, based on what the court thinks parties would have done if they had planned for the contingency that is currently making performance impracticable
- impracticability will not be available where event in question suffciently foreshadowed so as to be fairly viewed as party of risks seller assumed when entering contract
mistake (Defense)
unilateral= when one party mistaken, its not defense to performance unless other party knew of mistake
mutual= both parties mistaken about basic term of k, mistake is defense.
- this is not a defense if the court determines the party asserting mistake ashould bear the risk of mistake (like excavator entering into k and then finding issue after excavating)
remedies type
- legal= money
- liquidated damages
remedies: legal (money)
- expectation: put non-breaching party in a position had the contract been performed; you sue when someone breaches
Remedies: liquidated damages
- another form of remedy, ie money
- predetermine the amount of damage at time you enter k in the event of breach
- if you wait until breach, too difficult to calculate
- valid and enforceable, as long as they are reasonable and not acting like penalty/punishment
- generally 10% or less of value of k is reasonable; the higher you go from this, the more it seems like punishment
- usually see this in down payment/deposit or late fines/penalties for later deliveries/performance
restitutionary remedies: defaulting buyer’s refund
For contracts for the sale of goods, a defaulting buyer is entitled to a refund of any payments made on the contract less damages provable by the seller and
either:
1. actual damages (expectation damages): the amount to which the seller is entitled by virtue of an enforceable liquidated-damages provision (lost profits if the seller is a lost-volume seller) plus any incidental damages (shipping/transportation costs) or
2. statutory damages: a penalty of “20 percent of the value of the total performance for which the buyer is obligated under the contract, or $500, whichever is smaller.”
note: an injured seller is not limited to the $500 statutory offset when the seller’s actual damages exceed that amount (use #1 actual damages instead)
For example where a contract between the boat owner and a sail maker did not contain a liquidated damages clause, the boat owner is entitled to a refund of his $750 deposit less the smaller of $500 or 20 percent of the price of the sail ($1,500), which is $300. The boat owner, therefore, is entitled to recover $450 ($750 - $300) of his deposit
equitable remedies:
no adequate remedy at law
equitable remedies types
- specific performance
- injunction
- recission
equitable remedies: specific performance
- someone has to perform= k is unique (LAND ALWAYS CONSIDERED UNIQUE)
Equitable remedies: Injunction
- stop someone from performing, to prevent irreperable harm
equitable remedies: recission
- to go back and put the parties in a position PRIOR to the k being entered into
- court grants recission when there is no meeting of the minds (we were on the wrong page)
- two main causes of action
1. mistake
2. misrepresentation (if non-disclosure is fradulent/material, k is voidable for misrepresentation, even if seller himself did not give the representation, it could inspector the seller hired)
UCC: Gap filler
- contract must have essential terms or else there is no contract, but missing terms for nonessential items can be filled in by gap fillers
- when nonessential item missing, court will SUPPLY A REASONABLE TERM UNDER CIRCUMSTANCES
- time (Reasonable), place for delivery (seller’s place of business), time for payment (when buyer receives goods), the assortment of goods (reasonable cboice of the buyer), and price
- UCC can NOT fill in gap for quantity or subject matter
- exception: requirement or output contracts, no quantity required.
vagueness is not the same as missing terms.
accord
- a party to a k agrees to accept a performance from the other party that differs from the performance that was promised in the existing contract, in satisfaction of the other party’s existing duty
-
accord of debt: when party accepts lesser amount in satisfaction of its monetary claim, consideration for acceptance of lesser amount where:
1. other party honestly disputes claim or
2. agrees to forego an asserted defenses or
2. payment is of different type than called for under original k (like car instead of money)
satisfaction
- performance of accord agreement; it will discharge both the original k and the accord k
- if accord breached by party who has promised a different performance, the non-breaching party can sue on original k or under the accord agreement
risk of loss: FOB Shipment vs FOB Destination
- Under the UCC, the risk of loss in the absence of a breach generally passes to the buyer when the buyer receives the goods. IF THE BUYER IS IN BREACH, then the risk of loss passes to the buyer to the extent of any deficiency in the seller’s insurance coverage.
VVVVVVVVVVVVVVVVVVV
But if the contract requires the seller to deliver the goods through a third-party carrier (e.g., a national delivery service), the risk of loss passes to the buyer at different times depending on whether the contract is a:
* shipment contract – a contract that does not require delivery at a particular location, in which case the risk of loss passes to the buyer when the goods are delivered to the carrier and a proper contract for their shipment is made or
* destination contract – a contract that requires delivery at a particular location, in which case the risk of loss passes to the buyer when the goods are delivered at the named location.
compensatory damages
-
Primary (expectation measure): Place nonbreaching party in same position as if contract had been performed. Expectation measure includes:
- Expectation damages: damages that arise naturally and obviously from the breach (see chart)
- Incidental damages: type of loss anyone would incur from a breach, commercially reasonable expenses incurred by the non-breaching party in UCC Ks (e.g., costs of inspecting, returning, storing, reselling goods)
- Consequential damages: losses unique/special to this plaintiff
-
fallback (reliance measure): When expectation measure too speculative, place nonbreaching party in same position as if no contract had been formed. Reliance measure includes:
- Reliance damages: foreseeable expenses that the nonbreaching party incurred in reasonable reliance on the promise that the other party would perform (out of pocket expenses)
- Liquidated damages (stated in k upon breach, can not be punitive like 10x contract price)
- Restitution: give the plaintiff amount equal to economic benefit that plaintiff occurred
Although the nonbreaching party can pursue reliance damages in lieu of expectation damages, the nonbreaching party cannot recover both for the same breach.
Although a party may be liable for consequential damages of the other party to a contract where those damages are foreseeable, a party may eliminate that liability through an agreement with the other party.
damages for substantial performance vs. material breach
entrustment
Under the UCC, the entrustment of goods by the owner to someone who sells goods of that kind (i.e., a merchant) gives the merchant the power to convey good title.
Good title can be conveyed to a buyer in the ordinary course of business—i.e., someone who buys goods:
- in good faith
- without knowledge that the sale violates the owner’s rights to the goods and
- from a merchant in the business of selling goods of that kind.
