Contracts Flashcards
Contract
- a promise or set of promises for the breach of which the law gives a remedy or performance of which the law, in some way, recognizes as a duty
- a legally enforceable agreement
- an agreement is not enough to make something legally enforceable - we need consideration or a substitute for consideration as well
Implied/Implied-in-fact Contract
• created by parties’ conduct
Example: “X fills her car with gas at Y’s gas station. There is a contract for purchase and sale of the gas.”
Express Contract
• formed by language, oral or written
Example: “X promises to paint Y’s car in return for Y’s promise to pay X $100.”
Quasi-contract
- 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
- not a contract at all
- it is a restitution remedy when an unenforceable contract results in unjust enrichment
- remedy of last resort
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.”
Oral Employment Contracts
• have to be completed within 1 year or they are not enforceable
Bilateral Contract
- one consisting of the exchange of mutual promises
- a promise for a promise
- each party is both a promisor and promisee
- can be accepted in any reasonable way
- can be accepted by promising or beginning performance
Unilateral Contracts
- offeror requests performance rather than a promise
- offeror-promisor promises to pay upon the completion of the requested act by the promisee
- once the act is completed, a contract is formed
- occurs in two situations: when the offeror clearly (unambiguously) indicates that completion of performance is the only manner of the acceptance and where there is an offer to the public, such as the reward offer
Void Contract
- a void contract is one that is totally without any legal effect from the beginning
- cannot be enforced by either party
Example: an agreement to commit a crime
Voidable Contract
• one that one or both parties may elect to avoid, such as by raising a defense that makes it voidable (infancy, mental illness)
Unenforceable Contract
• an unenforceable contract is otherwise valid but isn’t enforceable due to a defense, such as the statute of limitations or Statute of Frauds
Goods
• all things movable at the time they are identified as items to be sold under the contract
Merchant
- one who regularly deals in goods of the kind sold or who otherwise by their profession holds themselves out as having special knowledge or skills as to the practices or goods involved
- a party is not a merchant for purposes of sales that are solely personal
Contracts Involving Goods and Nongoods
- if a sale involves both goods and services, you will determine which aspect is dominant and apply the law governing that aspect to the whole contract
- if the contract divides payment between goods and services, then Article 2 will apply to the sale portion and the common law will apply to the services portion
Offer
- creates a power of acceptance in the offerer and a corresponding liability on the part of the offeror
- creates a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms
- must be definite and certain in its terms
- must sufficiently identify the offeree or a class to which they belong to justify the inference that the offeror intended to create a power of acceptance
- there must be an objective intent to enter into a contract
- surrounding circumstances are considered to determine if an offer exists
- a court will look at the prior relationship and practice of the parties involved to determine if certain remarks constitute an offer
- must include offer’s subject matter, offeree’s name, and a price
- bids are offers
Was there an expression of a promise, undertaking, or commitment to enter into a contract?
Was there certainty and definiteness in the essential terms?
Was there communication of the above to the offeree?
Advertisements
- ads, catalogs, circular letters, and the like containing price quotations are usually construed as mere invitations for offers
- too indefinite as to quantity and other terms are needed to enforce the contract
- if the terms are certain/definite, there’s a promise, and the offeree is identified then the ad will be considered an offer
Land Sale Offers
• must contain price and description of land
Sale of Goods
- in a contract for the sale of goods, the quantity being offered must be certain or capable of being made certain
- UCC gap fillers can fill-in the missing price term
- if a contract for the sale of goods is missing a price term, Article 2 provides that the price will be a reasonable price at the time of delivery
Requirements Contracts
- a buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer
- parties are acting in good faith: can’t be a tender or demand for a quantity unreasonably disproportionate to (1) any stated estimate or (2) in the absence of a stated estimate, any normal or otherwise comparable prior output or requirements.
Output Contracts
- a seller promises to sell to a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller
- parties are acting in good faith: can’t be a tender or demand for a quantity unreasonably disproportionate to (1) any stated estimate or (2) in the absence of a stated estimate, any normal or otherwise comparable prior output or requirements.
Employment Contracts
- if the duration of the employment is not specified, the offer, if accepted is construed as creating a contract terminable at the will of either party
- for other services, the nature of the work to be performed must be included in this offer
Missing Terms
- the fact that one or more terms are left open does not prevent the formation of a contract if it appears that the parties intended to make a contract and there is a reasonable certain basis for giving a remedy
- court can supply reasonable terms for those that are missing under UCC and common law
- price: except in contracts for real property, failure to state the price doesn’t prevent the formation of a contract if the parties intended to form a contract without the price being settled
- time: if an agreement does not specify the time in which an act is to be performed, the law implies that it is to be performed within a reasonable time; usually more than a month is not reasonable
Vague Terms
- the presumption that the parties’ intent was to include a reasonable term goes to supplying missing terms
- presumption cannot be made if the parties have included a term that makes the contract too vague to be enforced
- uncertainty can be cured by part performance that clarifies the vague term or by acceptance of full performance
Note: if a material term is vague or ambiguous, it is not an offer at common law or under the UCC; appropriate, fair, and reasonable all signal a possible vagueness problem.
Terms to be Agreed on Later
• often, an offer will state that some term is to be agreed on at a future date, but if the term is a material term, the offer is too uncertain
Communication to the Offeree
- to have the power to accept, the offeree must have knowledge of the offer
- proposal must be communicated to them
Continuing Offers
- an offer may be a continuing offer; that is an offer to form a series of contracts
- watch for facts in which a seller offers to sell to a buyer certain goods for a stated price over a specified time period
Termination of Offer
- an offer can’t be accepted after it has been terminated
* an offer may be terminated by an act of either party or by operation of the law
Lapse of Time (termination by offeree)
• an offer may be termination by the offeree’s failure to accept within the time specified by the offer or, if no deadline was specified, within a reasonable period (usually 1 month)
Express Rejection (termination by offeree)
- an offer terminates when a offeree rejects it
- a rejection is effective when received by the offeror
- a statement by the offeree that they do not intend to accept the offer
Counteroffer as Rejection
- a counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in terms; kills the original offer
- it is both a reject and a new offer
- 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
- mere bargaining does not kill off the original offer and does not constitute a rejection; the test is whether a reasonable person would believe that the original offer had been rejected
- mere bargaining = question mark
- counteroffer = period
Conditional Acceptance as Rejection
• when an acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer
• conditional acceptance is the new offer and the original offeror may form a contract by expressly assenting to the new terms
•
Rejection of Option
- because an option is a contract to keep an offer open, a rejection of or a counteroffer to an option does not constitute a termination of the offer
- the offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree’s rejection
- effective when received
Revocation (termination by offeror)
- a retraction of an offer by the offeror
- revocation is effective when received by the offeree
- a revocation by publication is effective when published
- it does not matter whether the recipient actually reads the communication
- an offeror may revoke by directly communicating the revocation to the offeree any time prior to acceptance (direct revocation)
- an offer made by publication can be directly revoked only by publication through comparable means
- an offer may be revoked indirectly if the offeree receives: (1) correct info, (2) from a reliable source, (3) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
- offeree must know about the revocation; must be aware otherwise it is just an attempted revocation
Limitations on Offeror’s Power to Revoke
• offers can be revoked at will by the offeror, even if he has promised not to revoke for a certain period
Exceptions:
1) option contract: an option is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer
2) merchant’s firm offer (under Article 2 only): (1) if a merchant, (2) offers to buy or sell goods in a signed writing, and (3) the writing gives assurances that it will be held open, the offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed 3 months even if the offer states more than 3 months)
• UCC defines signed/merchant pretty broadly
• if it is on letterhead = meets signed requirement
3) [foreseeable] detrimental reliance: when the offeror could reasonably expect that the offeree would rely to their detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time
4) beginning performance in response to true unilateral contract offer: an offer for a true unilateral contract becomes irrevocable once performance has begun; the offeror must give the offeree a reasonable time to complete performance; the offeree is not bound to complete performance - they may withdraw at any time prior to completion of performance, and there is no acceptance until performance is complete
• substantial (mere) preparations to perform (as opposed to beginning of performance) do not make the offer irrevocable but may constitute detrimental reliance sufficient to make the offeror’s promise binding to the extent of the detrimental reliance
Termination by Operation of the Law
• death by either party prior to acceptance will terminate a revocable offer
The following events will terminate an offer by operation of law:
a. death or insanity of either party - need not be communicated to the other party
b. destruction of the proposed contract’s subject matter
c. supervening illegality
• death does not automatically terminate a contract that has already been formed - usually go after the estate
• death does not terminate irrevocable offers, such as an option contract or unilateral contract
Acceptance
- an acceptance is a manifestation of assent to the terms of an offer
- language of offer controls acceptance
Who may accept?
- only the person to whom an offer is address has the power of acceptance
- a member of a class to which an offer has been directed also has the power to accept
- an offeree’s power of acceptance cannot be assigned, but if offeree paid consideration to keep the offer open, the right to accept is transferable
- offeree must know of the offer in order to accept it for both unilateral/bilateral contracts
Acceptance of Offer for Bilateral Contract
- unless an offer specifically provides that it may be accepted only though performance, it will be construed as an offer to enter into a bilateral contract and may be accepted either by a promise to perform or by the beginning of performance (you can still withdraw at any time, but it is a breach)
- an offer is construed as inviting acceptance in any reasonable manner and by any medium reasonable under the circumstances
- unless the offer says otherwise, acceptance of an offer to enter into a bilateral contract must be communicated to the offeror
- silence as an acceptance: a court may find silence works as an acceptance if, because of prior dealings or trade practices, it would be commercially reasonable for the offeror to consider silence an acceptance; if the recipient of services knows or should have known that the services were being rendered with the expectation of compensation and, by a word, could have prevented the mistake, the recipient may be held to have accepted the offer if they fail to speak
Offers to Buy Goods for Current or Prompt Shipment
- under Article 2, an offer to buy goods for current or prompt shipment is construed as inviting acceptance either by a promise to ship or by current or prompt shipment of conforming or nonconforming goods
- the shipment of nonconforming goods is an acceptance creating a bilateral contract as well as ab reach of the contract unless the seller reasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation
- buyer is not required to accept the accommodation goods and may reject then
- if the buyer rejects, the shipper isn’t in breach and may reclaim the accommodation goods, because the tender does not constitute an acceptance of the buyer’s original offer
- accommodation shipment rule applies only when shipment is used as a form of acceptance