Contracts Law for BAR Flashcards
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Applicable Law Formation of Contracts Terms of Contract Performance Remedies for unexcused nonperformance Excuse of nonperformance Third-party problems
Contract is a legally enforceable agreement (not just an agreement)
Quasi K / Quantum Meruit is an equitable remedy (restitution), requires elements of:
P has conferred a benefit on D, AND
P reasonably expected to be paid, AND
D realized unjust enrichment if P not be compensated
Recovery in quasi K is value ob benefit conferred.
Bilateral K…
offer that is open as to the method of acceptance.
offerree can return promise or go out and perform
Unilateral K
offer that expressly requires performance as the only possible method of acceptance
(return promise doesn’t cut it)
usually reward/prize or offer requires performance for acceptance and uses words ‘offer’ ‘only’ ‘by’
Common law applies to..
everything except the sale of goods
Article 2 of the UCC applies to….
sale of goods (tangible personal prop)
IF transaction is mixed, goods and services.. use ‘all or nothing/more important part’ predominant purpose test
Court factors:
1) worth of goods versus service
2) time spent on service portion (less time = UCC)
3) sophistication of service (surgery)
4) typical sales language in the K
In looking for a legally enforceable agreement, look for 3 things:
1) the initial communication (offer)
2) what happens after the initial communication (termination o the offer)
3) who responds and how (acceptance)
basic test for an offer..
whether a reasonable person in the position of the offer would believe that his/her assent creates a K
Sale of real estate requires…..
price and description of land.. or else not an offer
Sale of goods, article 2 has no price requirement, still an offer if the parties so intend
price can be filled in later via gap fillers in UCC (FMV)
Vague or ambiguous material terms not an offer under UCC or common law
3 magic words:
- appropriate
- fir
- reasonble
Requirements/output K’s are valid. Magic words include…
Requirements, All, Only, Solely
But no unreasonably disproportionate increase is allowed. Buyer can increase output requirements so long as increase is in line with prior demands.
An AD is not an offer, but an invitation to deal. 2 exceptions…
1) ad can be an offer it is in the nature of a reward
2) ad can be offer if it is specific as to quantity and expressly indicates who can accept.
Four methods to terminate an offer…
1) lapes of time (time stated or reasonable time)
2) words or conduct of offerror (revocation of an offer)
3) Words or conduct of offerree (rejection)
4) Death of a party prior to acceptance
Lapse of time to terminate an offer
if more than 30 days between offer and acceptance on exam then raise lapse of time rule.
Words or conduct of offeror to terminate an offer (revocation) can be:
- an unambiguous statement by Offeror to offeree of unwillingness or inability to contract OR
- unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of.
Offeree has to know/hear/see about oferorr revocation for it to be effective.
Offer terminated only if reasonable/resliable source informs ofereee. If unreliable source, then possible ofer still open.
Revocation of an offer becomes effective when received.
An offer cannot be revoked after it has been accepted = breach.
Four types of offers that CANNOT be revoked by offeror
1) if the offeror has promised to keep the offer open AND this promise is supported by consideration (OPTION K)
2) Merchant Firm Offer Rule - offer can’t be revoked for up to 3 monhts if (i) offer to buy or sell goods, (ii) signed, written promise to keep offer open, and (iii) party is a merchant.
3 Reliance: an offer cannot be revoked if there has been detrimental reliance by the oferee that is reasonably foreseeable on the offerors part. (using sub’s bid in construction K)
4) The start of performance pursuant to an offer to enter into unilateral K, makes that offer irrevocable for a reasonable time to complete performance. Requires start of performance, not mere prep to perform.
third method of termination: words or conduct of offeree (rejection).
Three methods of indirect rejection (counteroffer, conditional acceptance, and additional terms (common law only)).
1) counteroffer terminates offer and becomes a new offer. Bargaining does not terminate the offer.
2) conditional acceptance operates same as counter offer. terminates the offer and becomes a new offer. Look for phrases such as ‘if’ ‘but’ ‘provided’ ‘ so long as’ ‘on condition that’
3) additional terms to a COMMON law K: Mirror Image Rule. Under Common Law, an acceptance that adds new terms is treated like a counteroffer.
* additional terms still acceptance under UCC (2-207), seasonable expression of acceptance. If BOTH parties MERCHANTS, the additional term is part of the K. Two exceptions: 1) additional term not part of K between merchants if it materially changes the offer. 2) additional term is NOT part of K between merchants if the Offeror objects to the change.
* Knock out rule: conflicting terms deleted.
Fourth method to terminate an offer: death of party prior to acceptance:
death or incapacity terminates the ofer.
2 exceptions…
1) Option: if party dies during option K, it doesn’t terminate. Oferee can still accept.
2) Part performance of offer to enter into unilateral K: if offeror dies while party starts performing - party still has right to complete K and be paid.
An offer can be accepted only by…
1) a person who knows about the offer
2) who is the person to whom it was made
Offers CANNOT be assigned. Options can be assigned unless the option otherwise provides.
!
Six methods of accepting an Offer…
1) Oferee fully performs (notice may be required depending on what the offer provides and whether the oferee has reason to believe that offeror will not learn of acceptance.
2) Offeree starts to perform (acceptance in bilateral K, not acceptance in unilateral K. Unilateral K requires completion of performance, start of performance is not acceptance).
3) offeree promises to perform (note, offers that expressly require performance must have performance for acceptance and reward offers required performance.)
4) Offeror and Offeree are at different places and there are conflicting communication between parties.1) Generally communications are effective only when received. 2) Generally acceptance is effective when SENT. 3) If rejection sent first, then ignore rule 2.
5) Seller of goods sends “wrong goods” = acceptance and breach. Note: Accommodation Exception when seller provides an explanation, that is a counteroffer and no breach.
6) Offeree is silent. Silent is not Acceptance. Exception: if custom between parties indicates acceptance is reasonable, or offeree by words or conduct agrees that silence is acceptance then silence is acceptance.
Legal reasons for not enforcing an agreement include
1) lack of consideration or a consideration substitute
2) lack of capacity of the person who made that promise
3) statute of frauds
4) existing laws that prohibit performance of agreement
5) misrepresentation
6) duress
7) unconscionability
8) ambiguity in words of agreement
9) mistakes at time of agreement as to the material facts of agreement
Consideration is bargained for legal detriment. Legal Value.
Look at each promise separately. typically not an issue
Forms of consideration:
1) performance (doing something not obligated to do)
2) forbearance (not doing something entitled to do)
3) promise to perform
4) promise to forbear
Possible consideration issues include…
1) consideration must be bargained for (asked for by the promisor in exchange for her promise)
A promise along is consideration
Seller promises to sell house. Buyer promises to buy house. K formed.
If S promises to sel louse unless she changes her mind = illusory promise which lacks consideration.
Past consideration is NOT consideration. One exception…..
Exception: when act expressly requested and party knew in advance there would be an expectation to be paid for it.
Preexisting contractual or statutory duty rule (common law and UCC different)
Common law: doing what you are already legal obligated to do is not consideration for a promise to pay you more to do merely that. need new consideration to modify K governed by common law.
3 exceptions to common law Preexisting contractual or statutory duty rule
1) addition to or change in performance
2) unforeseen difficulty so severe as to excuse performance
3) a third party promises to pay
Article 2 does not have a Preexisting contractual or statutory duty rule
Good faith is the test for changes in an existing sale of goods K.
Part payment as consideration for release (promise to give balance of debt) - requires debt be not yet due or disputed to be valid.
if debt is due and undisputed, then part payment is NOT consideration for release.
If debt not yet due or disputed, then part payment is consideration.
A written promise to pay debt for which there is a legal defense (such as statute of limitations) is enforceable without new consideration
legal action on debt barred by SoL, but person with debt writes letter offering to make a payment = enforceable even though no consideration.
Promissory Estoppel (detrimental reliance) is the most important consideration substitute.
elements of promos. estop:
1) promise
2) reliance that is reasonable, detrimental, and foreseeable
3) enforcement necessary to avoid injustice (someone does great deal of work in reliance on promise)
Three persons that lack capacity to contract….
1) infant, under 18
2) mental incompetents
3) intoxicated persons, IF the other party has reason to know(linsday lohan)
These persons have a right to disaffirm; can’t be sued.
IMplied affirmation by retaining benefits after gaining capacity (buys car when 17, doesn’t pay, but keeps and enjoys after turning 18)
A person who doesn’t have capacity is legally obligated to pay for things necessary such as food, clothing, med car or shelter, but that liability is based on quasiK law, not K law.
Statute of Frauds (SOF) is a statute designed to prevent fraudulent claims - to make it harder to make a false claim that there is a contract.
SOF makes it harder to make such a false or fraudulent claim by requiring special proof that a K exists.
Three primary SOF issues…
1
1 is K within SOF (common law covers 5 kinds of K within sof; UCC brings an additional K within SOF)
2 if so, is SOF satisfied? SOF is evidentiary. requires special proof that the alleged agreement is made… generally satisfied by either performance or by a writing.
3 is there a SOF defense? SOF is defense to enforcement of agreement that is within the statute if the SOF is not satisfied.
The K’s within the SOF (1-3)
1) Promise in consideration of marriage (not a promise to marry, but a promise to do something or refrain from doing something if we marry)
2) promise by executor or administrator to pay obligation of estate from his own funds (not merely promise to pay estate expenses but promise to pay the estates expenses from other funds)
3) Promises to answer for (guarantee) debts of another. Not merely a promise to pay but rather a promise to pay if someone else does not. MUST BE GAURANTEE. (Main purpose Exception - SOF n/a b/c can look to see job done)
The K’s within the SOF (4-6, the heavily tested ones)
- 4) Service K not capable of being performed within 1 year from the time of the K (subject to SOF if more than 1 year)> More than 1 year from date of K then SOF applies. If task and nothing said about time, then SOF DOE NOT Apply (what might have happened with unlimited resources = job complete within 1 year). Lifetime K = SOF does not apply b/c P could die tomorrow.
- 5) Transfers of Interest in Real Estate of a Term More Than One Year. (does not include construction condition to build something). Lease for one year not covered by SOF.
- 6) Sale of goods for $500+ (on the nose).
If SOF satisfied then there is no SOF defense. If SOF not satisfied then there is a SOF defense.
SOF can be satisfied by…
1) PERFORMANCE
a) service K = full performance by either party satisfies SOF; part performance of service K does not satisfy SOF.
b) Sale of goods K
(I) ordinary goods - part performance of a K for sale of gods satisfies SOF but only to the extent of the part performance.
- SOF satisfied with respect to already delivered goods. Court can see you have the goods. If goods undelivered, then seller has SOF defense.
(II) specially manufactured goods exception - if K for goods to be specially made, SOF satisfied as soon as seller makes a substantial beginning of making or obtaining the goods.
(C) Real Estate Transfer K - part performance by buyer can satisfy SOF if any 2 of following 3 met: i payment (full or close to full) ii possession and/or iii improvements.
SOF can be satisfied by… I performance and 2….
2) WRITING
a) when not UCC, look at contents of writing(s) - all material terms (who and what ) and ii) who signed the writing - must be signed by party to be sued (defendant) (WHO, WHAT, SIGNED BY D)
b) when UCC, look to contents of writing and who signed the writing. Writing must contain the quantity term (how many).
—- UCC exception to rule that writing must be signed by Def. Merchant Confirmatory Memo Rule (Answer Damn Letter Exception) Both parties must be merchants, person receives signed writing with quantity term claiming a K and fails to resound within 10 days of receipt.
SOF can be satisfied by… I performance and 2 Writing and 3….
3) Judicial admission of sale of goods agreement
Admission - statement by D acknowledging the agreement
Judicial - statement appeared in pleadings or testimony or in response to discovery.
Equal Dignity Rule (auth to enter into K for someone else)
Authorization must be in writing IF the K to be signed is within the SOF.
Contract Mods - when is there a legal requirement of written evidence for a contract mod
1) loook at the deal with the alleged change and
2) determine whether the deal with the alleged change would be within the SOF. If so, then as a matter of law, the alleged mod must be in writing.
(lease mod less than 1 year = no writing; lease mod more than 1 year = writing). Mod to Goods K over $500 = writing; Mod too goods K under $500 = no writing.
Under COMMON LAW, contract provisions requiring all mods to be in writing are IGNORED.
Under UCC, K provisions requiring written Mod are effective unless waived.
If subject matter illegal then agreement void.
If subject matter legal but purpose is illegal then agreement enforceable only by person who did NOT know of the illegal purpose.
Misrepresentation - False assertion of fact OR concealment of facts. No requirement of fraud
Even honest misrepresentation allows Buyer to cancel K.
Duress: physical or economic
Economic duress includes (a) a bud guy with improper threat (b) vulnerable guy with no reasonable alternative but to agree to the threat.
Unconsionability applies to all K law and empowers a court to refuse to enforce all or part of an agreement. Two basic tests…
Unfair surprise and oppressive terms are tested as of the time the agreement was made. Q for the judge.
Along term K that now looks one sided is NOT unconscionable.
Ambiguity in words of agreement.
No K if (1) parties use a material term that is open to at least 2 reasonable interpretations AND (2) each party attaches a different meaning to the term AND (3) Neither party knows or has reason to know the term is open to at least 2 reasonable interpretations.
If one party knew of the ambiguity, then K is valid under the innocent party’s terms.
Mistake of fact existing at time of K
No K if (1) both parties mistaken and (2) basic assumption of fact, and (3) materially affects the agreed exchange.
if mutual mistake as to what it is, the existence of the subject matter then agreement not legally enforceable.
if mistake is to value/worth then agreement still enforceable.
