Contracts Flashcards
Merchants Definition
A merchant includes not only a person who regularly deals in the type of goods involved in the transaction or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction, but also in some instances
any businessperson when the transaction is of a commercial nature.
Offer
There must be intent to enter into a contract plus specific terms (e.g., price, quantity, and identity of the parties). And, it must be communicated to the offeree
An offer requires a promise, terms, and communication to the offeree.
Promise: A promise a statement indicating a present intent to enter into a contract.
Terms
- CL—all essential terms must be provided (parties, subject matter, price, quantity)
- UCC—the essential terms are the parties, subject matter, and quantity; a court will “gap fill” any other missing terms.
Communication: The offer must be communicated to the offeree (i.e., he must know of
the offer).
Advertisements
Advertisements are generally not offers, unless they are specific and limit who may accept the offer. If an ad is presented in the facts, you must discuss it as a potential offer.
Revocation
- An offer can be terminated if the offeror revokes the offer prior to acceptance.
- Revocation is effective when received (a mailed revocation is not effective until received)
How to terminate Offer, just list (4)
1) Lapse of time
2) Rejection
3) Revocation of offer
4) Death of incapacity of offeror
How to create irrevocable offer
(A) Firm offer by a merchant in a signed writing under the UCC. This offer can be held open for a maximum of three months.
(B)Option contract: a promise to hold open the offer plus consideration for that promise.
(C)Unilateral contract: if the offeree begins performance on a unilateral contract, the offer is held open for a reasonable time.
(D) Reasonably foreseeable substantial reliance on the offer
Acceptance rule statement
Acceptance is the objective manifestation by the offeree to be bound by the terms of the offer.
Mirror Image Rule Common Law
1) Mirror Image Rule (Common Law)
• The acceptance must mirror the terms of the offer; any changes/additions to the terms constitute a rejection of the original offer and a counter-offer.
Note 1: Recall that a “mere suggestion” or a “mere inquiry” is not a counteroffer and will not terminate the original offer.
Mirror Image Rule UCC
• UCC: An acceptance does not need to mirror the offer and may have additional or different terms.
Between merchants, an additional term will be a part of the contract unless
- it materially alters terms of original offer,
- the offeror objects within a reasonable time, or
- the offer limits acceptance to the terms of the offer.
Under the majority rule, a different term is knocked out and replaced with gap fillers.
If any party is a non-merchant:
o An acceptance from the offeree with changes or additions will be a valid acceptance.
o However, the contract will not include the changes or additions unless the offeror agrees to them.
Mailbox rule, exception to it
Exception: If there is an option contract or firm offer, the acceptance is valid when received and must be received before the offer expires.
Another way to accept offer under Article 2, and what happens if ship nonconforming/defective goods?
An offer for the sale of goods is accepted by
promising to ship or shipping the goods.
if the seller ships defective goods with an accommodation letter, that constitutes a counteroffer.
If there is no letter, it is an acceptance and a breach.
What is consideration, and detriments?
Consideration requires a bargained-for change in the legal position between parties.
Most courts find consideration if there is a detriment to the promisee, regardless of the benefit to the promisor.
A minority of courts look to either a detriment or a benefit, not requiring both.
o Legal Detriment: A legal detriment can take the form of a promise to do/not do something, or performance/refraining from performance.
o Adequacy of Consideration: A court will not look at the adequacy of the consideration (e.g., the monetary value of the items being exchanged).
Preexisting Duty Rule
A promise to perform a preexisting legal duty will not qualify as consideration because the promisor is already required to perform (no additional legal detriment is being incurred) by the promisor
Past Consideration, common law and modern trend
Under the common law, a legal detriment incurred in the past does not constitute consideration because it was not bargained for and it was not in exchange for a legal
detriment in return.
Moral Consideration (modern trend): A promise not supported by consideration may be enforceable if it is made in recognition of a significant benefit previously received by the promisor from the promisee.
- This rule does not apply if the promisee conferred the benefit as a gift to the promisor.
- The court may also reduce the amount of money owed under the promise if it is disproportionate to the benefit conferred by the promisee
A Consideration Substitute, and elements of it
Promissory Estoppel:
If a promise is made by a party, but there is not consideration provided by both sides, the promise will still be enforceable if certain conditions are met.
Promise binding if:
• The promisor should reasonably expect the promise to induce action or forbearance;
- The promise actually induces action or forbearance; and
- Injustice can be avoided only by enforcement of the promise.
The damages awarded under promissory estoppel are usually limited to reliance damages (money spent on reliance of the promise)
Defense to formation of K, Mistake Mutual, and the 2 remedies
Mutual: If both parties are mistaken as to an essential element of the contract, the contract may be voidable by the adversely affected party.
1) Reformation: The parties can ask a court to reform the contract and rewrite it to reflect the correct element(s) of the contract.
Reformation is available if:
• There was a prior agreement (either oral or written) between the parties;
- There was an agreement by the parties to put that agreement into writing; and
- As a result of a mistake, there is a difference between the prior agreement and the writing.
2) Rescission: If reformation is available to cure the mutual mistake, neither party can void (rescind) the contract.
If reformation is not available, the contract may be voidable if:
• A mistake of fact existing at the time the contract was formed;
• The mistake relates to a basic assumption of the contract;
• The mistake has a material impact on the transaction; and
• The adversely affected party did not assume the risk of the mistake.
Defense to formation of K, Unilateral Mistake, and remedy
if a party knew or had reason to know of the other party’s mistake, the contract is voidable.
1) Rescission: The mistaken party can void (rescind) the contract if:
- The mistake would make enforcement of the contract unconscionable; or
- Non-mistaken party failed to disclose the mistake or caused the mistake.
- Also, there must not be serious prejudice to the non-mistaken party if the contract is voided.
Defense to Formation: Fraudulent Misrepresentation, and remedy
o An intentional misrepresentation of a fact that the innocent party justifiably relies on. The misrepresentation can be affirmative (a lie) or through non-disclosure (omission).
o If a fraudulent misrepresentation prevents a party from knowing the character or essential terms of the transaction, no contract is formed, and the apparent contract is void.
o If a fraudulent misrepresentation is used to induce another to enter into a contract, the contract is voidable by the adversely affected party if she justifiably relied on the
misrepresentation in entering into the agreement.
o Remedies (reformation or rescission): When one party misrepresents the content or legal effect of a writing to another party, the other party may elect to avoid (rescind) the contract or to reform it to express what had been represented.
Contract Formation Defenses, Undue Influence
unfair persuasion where a person in a position of trust, confidence, or dominance uses that position to convince another to enter into a contract that is not in that
party’s best interest
o Occurs when a party unfairly persuades the other party to assent to a contract
o This can occur in certain relationships where the innocent party is susceptible to persuasion.
o If party can show that it was the victim of undue influence, it can void the contract
Undue Influence requires you to analyze the facts of the question and argue/counter-argue why the specific facts indicate unfair persuasion or not.
Contract Formation Defense: Duress
When a party threatens to commit a wrongful act that would threaten the other party’s finances, property, well-being, or life.
o When a party is improperly threatened and has no meaningful choice but to agree to the contract. This is a subjective test, so the defendant must actually feel like she has no choice but to agree.
o When a party’s agreement to enter into a contract is physically compelled by duress, such as the threat to inflict physical harm, the contract is void.
o When a party is induced to enter into a contract due to other duress, such as the threat of pursuing a civil action in bad faith, the contract is voidable.
Note 2: Generally, a threat to breach a contract is not improper for purposes of duress. However, if the breach would violate the duty of good faith and dealing, it would constitute an improper threat
Contract Formation Defense: Incapacity
for minors, mentally incompetent, or intoxicated persons. However, they may be liable for “necessities.”
o Minors are still liable for necessities that they contract for (e.g., housing or food)
Statute of Frauds - What kinds of K’s need it
Which contracts fall into the SOF? (MYLEGS)
- contracts made in consideration of marriage,
- contracts that cannot be performed within a year,
- contracts for the sale of land,
- promises made by an executor to pay a debt from his own estate,
- contracts for the sale of goods over $500, and
- surety contracts
What is required in a SOF contract
There must be a writing signed by the person to be charged (the person against whom enforcement is sought) that contains the essential terms of the deal.
Tip: the “party to be charged” generally means the defendant.
1) Writing
• The writing does not have to be a formal contract (it can be in the form of letters or receipts) and multiple writings can be put together to meet the requirements, as long as they reference each other.
• UCC sale of goods for $500 or more: The writing need not contain all the terms of the contract, but the contract is not enforceable against the party beyond the
quantity of the goods shown in writing.
2) Signature: A document on company letterhead may be enough to constitute a signed writing as long as the party to be charged intended to authenticate the writing as that of the signer to adopt the document.
Note 3: The writing does not have to exist at the time of the promise. It can be created after the promises are made and still meet the SOF.
Exceptions to SOF for Land Sale
Sale of Land—Part Performance
If the contract involves the sale of land, the contract
will be enforced if at least two of the following three acts have occurred:
- The purchaser pays part or all of the purchase price;
- The purchaser takes possession of the land; or
- The purchaser substantially improves the property.
Exception to SOF Contracts SALE of GOODS
Sale of goods: the four exceptions are
a) If full performance has occurred by the party seeking to enforce the contract (the goods have been full delivered or fully paid for), the contract will be fully enforceable.
b) If part performance has occurred (part of the purchase price has been paid), the contract will be enforceable to the extent that the money has been paid.
c) No writing required if the contract involves specially manufactured goods for the buyer.
(2) when the seller has made a substantial beginning in manufacture or commitments for specially manufactured goods not suitable for sale to others in the seller’s ordinary course of business
(3) judicial admissions (one admits in his pleadings, testimony, or in court that there is a contract—it is enforceable up to the quantity admitted)
d) Letter or Memorandum of Confirmation
If both parties are merchants and a party sends a confirmatory letter/memo that meets the SOF to the other party and the other party knowingly receives the memo and does not object in writing within 10 days, the contract is enforceable against the receiving party, even though the receiving party did not sign the memo
Exceptions for SOF Surety
a promise to pay the debt of another if the other does not pay falls within the SOF unless the main purpose of the surety promise is to serve a pecuniary interest of the person making the promise.
Exceptions for SOF for Full Year Ks
full performance on one side will serve as a substitute for a signed writing, like benefit was given and all that
Estoppel enforcement on SOF Ks
Estoppel (applies to all contract types): If a party reasonably and detrimentally relies on a promise made by the party to be charged, a court may enforce the contract, despite the failure to meet the SOF requirement.
Defense to K enforcement Illegality
illegal subject matter (e.g., selling drugs): The contract is void.
If it is for an illegal purpose (e.g., leasing a car to transport drugs), it is voidable by the party who didn’t have
the illegal purpose (e.g., the car owner) if he didn’t know the purpose or he knew of the purpose but didn’t facilitate it and it doesn’t involve “serious moral turpitude.”
Defense to K enforcement, Unconscionability
A court will not enforce a contract that is so unfair, no reasonable person would agree to it. If a court finds unconscionability, it can refuse to enforce the entire contract, or strike the unconscionable portion of the contract, or limit the unconscionable terms.
There are two necessary elements:
- procedural unconscionability (an unfair bargaining process—e.g., hidden or incomprehensible terms, if a party is in a superior position and takes advantage of this position) and
- substantive unconscionability (grossly unfair terms). This is voidable.
Mutual misunderstanding
there is no contract if both parties have a different understanding of a material term that is open to at least two reasonable interpretations and neither party has any reason to know of the meaning attached by the other.
Nondisclosure Defense
Affirmative conduct to conceal a fact is equivalent to an assertion that the fact does not exist.
In addition, mere nondisclosure of a known fact is tantamount to an assertion that the fact does not exist, if the party not disclosing the fact knows that:
i) Disclosure is necessary to prevent a previous assertion from being a misrepresentation or fraudulent or material;
ii) Disclosure would correct a mistake of the other party as to a basic assumption, and the failure to disclose would constitute lack of good faith and fair dealing;
iii) Disclosure would correct a mistake of the other party as to the contents or effect of a writing evidencing their agreement; or
iv) The other party is entitled to know the fact because of a confidential or fiduciary relationship.
Contract Defense Public Policy
Even if a contract is neither illegal nor unconscionable, it may be unenforceable if it violates a significant public policy, such as a contract in restraint of marriage, a contract for the commission of a tort, or a contract that unreasonably restrains trade. These contracts may be enforceable when exceptions similar to those discussed at §I.F.1.b., Exceptions, are applicable
Modifying a K under Common Law, preexisting duty rule and SOF interactions with modification
- Common Law: Under the common law, a modification must be supported by consideration.
a. Pre-existing Duty Rule
Watch out for exam facts where a party offers to pay more money to the other party to guarantee completion of the contract on time.
Under the Preexisting Duty Rule, there is no additional consideration here because the other party already has a duty to perform the contract on time. The modification (additional money) will not be enforceable.
Unless falls under exception: (e.g., unforeseen difficulty, a good faith settlement of a lawsuit, a good faith payment in full of a due and disputed debt, a written promise to pay a time-barred debt, or if the duty was owed to a third person).
If a party agrees to pay more money in exchange for earlier performance of the contract, there will be consideration. The parties are changing their duties.
b. Statute of Frauds: If the modified contract falls within the Statute of Frauds, it must be in writing (unless an exception applies, see the exceptions to the SOF, above).
Note 4: Under the common law, a provision requiring a modification to be in writing even though the modification would not otherwise fall within the Statute of Frauds is not enforceable.
UCC K modification
Only good faith is needed to modify a contract.
o A modification does not require additional consideration, as long as the modification is entered into in good faith by both parties.
o Statute of Frauds: If the modified contract falls within the Statute of Frauds, it must be in writing (unless an exception applies, see the exceptions to the SOF, above).
Note 5: A provision prohibiting oral modifications to a sales contract even though the modification would not otherwise fall within the SOF is valid under the UCC
What is accord and satisfaction? How is it enforceable regarding consideration?
When there is a dispute over the validity of the contract or the amount owed, a party can agree to
accept a different performance from what was agreed upon in the contract.
• Accord—the new agreement where a party agrees to accept a different performance than what
was agreed upon.
- Satisfaction—occurs when the different performance is completed by the other party, which discharges the original contract duties and the accord agreement duties.
- Consideration is found to support this type of agreement as follows:
o The party performing the different performance is incurring a legal detriment.
o The party that is agreeing to accept the different performance is giving up the right to
dispute the original contract and sue for breach.
Parol Evidence Rule
The PER applies when a party wants to add a term from preliminary negotiations to a final written agreement.
• If there is a complete integration, no terms will be admitted into evidence.
• If there is a partial integration, consistent additional terms are admitted.
