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1

Requirements for Specific Types of Contracts

  1.  Real Estate Transactions - Land and Price Terms an offer involving realty must identity the land and the price terms. The land must also be identified with some particularity.  
  2. Sale of Goods - Quantity Term. In a contract for the sale of goods, the quantity being offered must be certain or cable of being made certain.
    1. Requirements and Output Contracts. - requirements - buyer promises to buy from a certain seller all of the goods the buyer requires, and seller agrees to sell that amount. Output - buyer agrees to buy all of the product that the seller produces. It is assumed that the parties will act in good faith. There may not be a tender of or a demand for a quantity unreasonably disproportionate to
      1. any stated estimate, or
      2. any normal or otherwise comparable prior output requirements.
  3. Services - Nature of Work - The nature of Work to be performed is required in a offer for services.

2

What happens when there are Missing Terms in a contract?

Vague Terms?

Terms to Be Agreed upon Later?

 

A.  Missing Terms do not prevent the formation of a contract if:

  1. it appears that the parties intended to make a contract; and
  2. there is a reasonably certain basis for giving a remedy

In such cases, the majority and Article 2 hodl that the court can supply reasonable terms

i.e. when the price is a missing term, the court will substitute a reasonable price at the time of delivery. 

B.  Vague Terms - vagueness can make a contract unenforcable, since it cannot be presumed that the vague terms were intended to be reasonable.  Vagueness can be cured by partial performance that clarifies the vague term.

C.  Terms to be agreed on later - This is fine, unless the term to be agreed upon is a material term to the contract.  Then the offer is too uncertain. 

3

Termination of Offer

Termination by Offeror

  1. Termination by Acts of the Parties
    1. Termination by the Offeror - Revocation -
      1. may revoke by directly communicating the revocation to offeree
      2. what about offer made by publication?  Can be revoked by similar means
      3. an offer can be revoked indirectly, if offeree receives:
        1. correct information
        2. from a reliable source
        3. acts of the offereor would indicate to a reasonable person that the offeror no longer wishes to make the offer
    2. Effective when recieved
      1. revocation effective when received by offeree.  where by publication, it is effective when published.
  2. Limitations on Offeror's Power to Revoke
    1. Option contacts
    2. Merchant's firm offer under Article 2
      1. Merchant
      2. offers to sell goods in a signed writing
      3. the writing gives assurances that it will be held open, but no longer than three month if no term of openness is stated
    3. Detrimental Reliance
      1. when the offeror could reasoably expect that the offeree would rely to her 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. Part Performance - True Unilateral Contract Offers
      1. Implied Contract for Reasonable Time.  an offer for a true unilateral contract becomes irrevocable once performance has begun. The offeror must give offeree reasonable time to complete.  Offeree not bound to complete, bc of unilateral nature of contrat.
      2. Distinguish - preparations to peform
        1. does not make offer irrevocable, but offeree may have claim for detrimental reliance.  
    5. Part Performnce - Offer Indifferent as to Manner of Acceptance
      1. start of performance forms bilateral contract.  therefore, once performance begun, it is impossible to revoke offer since contract has offer has been accepted. 

4

Termination of Offer - Termination by Offeree

  1. Rejection
    1. Express Rejection
    2. Counteroffer as rejection
      1. however an inquiry into different terms will not terminate an offer
    3. rejection effective when received by the offeror
    4. Rejection of Option - not a rejection of the offer, because the option keeps it open.  however, if the offeror has detrimentally relied on offeree's rejection, then not enforceable by offeree.
  2. Lapse of Time - an offer may be terminated by offeree's failure to accept within a specified time or if within a reasonable time period if none was specified.  
  3. Termination by Operation of Law
    1. Death or insanity of either party
    2. Destruction of proposed contract's subject matter
    3. supervening illegality

5

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

6

Contract

Article 2

Sale of Goods, then Article 2 applies

  • Goods - all things movable (not land, services, or construction
  • Merchant - one who regularly deal in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved

7

Questions to ask when looking at whether a contract was created

  1.  was there mutual assent (i.e. offer and acceptance)
  2. Was there consideration or some substitute for consideration (promise for promise, promissory estoppel, or detrimental reliance)
  3. Are there any defenses to the creation of the contract
    1. mistake
    2. lack of capacity
    3. illegality
    4. statute of frauds

 

8

Types of Contracts

As to Formation and

As to Acceptance

As to Validity

As to Formation:

  1. Express - formed by language, written or oral
  2. implied - formed by manifestations of assent
  3. quasi-contract - not a contract used to avoid unjust enrichment

As to Acceptance:

  1. Bilateral - promise for a promise
  2. unilateral - one promise to pay offeree only upon completion of task
    1. only full completion of requested act forms the contract
  3. modern view - most contracts are bilateral unless:
    1. offer is CLEAR that completion of performance only matter of acceptance
    2. offer is to the public, like a reward offer

As to Validity

  1. Void - one that is totally without any legal effect from the beginning (i.e. agreement to comitt a crime)
  2. Voidable - a contract that one or both parties may elect to avoid (i.e. by raising defenses such as infancy or mental illness)
  3. Unenforcable - otherwise valid, but which may not be enforceable due to a defense extraneous to the contract formation, such as statute of limitations or the statute of frauds.

9

Mutual Assent 

Offer and Acceptance

Offer - 3 elements

  1. Expression of a promise, undertaking, or commitment to enter into contract
  2. certainty and definiteness in the essential terms
    1. must identify offeree, or at least a class to which the offeree belongs
    2. the subject matter must be certain
  3. Communication of the above to the offeree
    1. the broader the communication, the less likely it is to be an offer

10

The Acceptance

An Acceptance is a manifestation of assent to the terms of an offer

  1. only offeree may accept
  2. offeree must know of the offer
  3. acceptance of offer for unilateral contract only occurs upon completion
    1. notice to offerer that performance has begun is not necessary.  but notice that performance is complete must occur within a reasonable time, unless
      1. offeror waived notice, or
      2. offeree's performance would normally come to the offeror's attention within reasonable time
  4. Acceptance of Offer for Bilateral Contract - by return promise or performance
    1. generally, acceptance must be communicated to offeror
    2. method - any objective manifestation of the offeree's counterpromise is sufficient
    3. Offers to buy goods for current or prompt shipment
      1. acceptance by either shipment or promise to ship
      2. the shipment of nonconforming goods is an acceptance creating a bilateral contract AS WELL AS A BREACH of contract, unless the seller notifies the buer that a shipment of nonconforming goods is offered only as an accommodation.
        • buyer does not have to accept accommodation
        • if not accepted, shipper not in breach
        • if seller promises to ship, then option to send accommodation is not available
    4. Acceptance must be unequivocal
      1. Common Law - acceptance must be mirror image of offer
      2. Article 2 - the proposal of additional or different terms by the offeree in a definite and timely acceptance does not constitute a rejection and counteroffer, but rather is effective as an acceptance (unless the acceptance is expressly made conditional on assent of additional terms)
      3. Bilateral contracts formed by performance. beginning of perforamces creates the contract/acceptance
    5. Auction Contracts - a sale by auction is complete when the auctioneer so announces by the fall of the hammer
    6. Acceptance by unauthorized means - may still be effective if it is actually received by the offeror while the offer is still in existence

11

Mailbox Rule

Acceptance by mail or similar means creats a contract at the moment of dispatch, provided that the mail is properly addressed and stamped, unless:

  1. The offer stipulates that acceptance is not effective until received
  2. an option contract is involved (acceptance is effective only upon receipt)
  3. if the offeree sends a rejection and then sends an acceptance, whichever arrives first is effective
  4. If the offeree sends an acceptance and then a rejection, the acceptance is effective, unless the rejection arrives first and the offeror detrimentally relies on it.  

12

Consideration

Elements of Consideration

Two elements necessary

  • there must be a bargained for exchange between the parties, and
  • that which is bargained for must be considered og legal vaule, or it must constitute a benefit to the promisor or a detriment to the promisee
  1. bargained for exchange
    1. gifts are not bargained for
    2. act or forbearance by promisee myst be of benefit to promisor, benefit need not be economic
    3. Past consideration - bargained for exchange must be for something in the future, not an act already performed
      1. exceptions - where past obligation is unenforceable b/c of defense (SOL), then that obligation will become enforceable again if a new promise is made in writing or partially performed
      2. modern trend - if past act benefited promisor and was at promisor's request, a subsequent promise to pay will be enforceable
  2. Legal Value Element
    1. adequacy of consideration - consideration cannot be devoid of value
    2. majority of courts also state the a party incur detriment .  minority rule states that conferring a benefit is also sufficient
    3. preexisting legal duty not consideration
      1. exceptions
        1. new or different consideration is promised
        2. the promise is to ratify a voidable obligation
        3. the preexisting duty is owed to a 3rd person rather than the promissory directly
        4. there is an honest dispute as to the duty
        5. there are unforeseen circumstances sufficient to discharge a party
    4. Forbearance to Sue - can be consideration if claim is valid or claimant in good faith believes claim to be valid

 

13

Consideration

Requirement of Mutuality

Consideration must exist on both sides of the contract. If only one party is bound to perform, the promise is illusary and will not be enforced.  

NOTE:

A promise to choose one of several alternative means of performacne is illusory unless every alternative involves legal detriment to the promisor. 

14

Consideration - 

Promissory Estoppel

consideration is not necessary if the facts indicate that the promisor should be estopped from not performing

  1. the promisor should reasonably expect to induce action or forbearance
  2. of a definite and substantial character (1st restatement only
  3. and such action or forbearance is in fact induced

1st restatement - will award expection damages

2nd restatement - will award reliance damages

 

 

15

Defenses as to Formation - 

  1. Absence of mutal assent
    1. mutual mistake as to existing facts
      1. mistake concenrs basic assumption
      2. mistake has a material effect
      3. party seeking avoidance did not assume the risk
    2. Assumption of risk - when party is with superior knowledge, or where assumption of fact was doubtful
      1. mistake as to value not a defense
    3. Unilateral mistake -
      1. not a defense, unless
      2. the nonmistaken party knew of the mistake by the other party.  then contract is voidable
    4. Mistake by intermediary - message as it was transmitted is operative, unless other party knew or should have known about the mistake
    5. ambiguous contract language
      1. neither party aware - no contract, unless parties intended same meaning
      2. both parties aware - no contract, unless parties intended same meaning
      3. on party aware - binding contract based on what the ignorant party reasonably believed to be the meaning of the ambiguous words
    6. Misrepresentation
      1. fraud in the inducement - contract voidable
      2. when misrepresentation is material, and innocent party justifiably relied on statement, then contract voidable 
      3. innocent party may rescind at any time
  2. Absense of consideration
    1. illusory promise does not create a contract
  3. public policy defenses - illegality
    1. if subject matter is illegal, then contract void (contract to sell crack is void)
    2. if purpose is illegal, then contract voidable by party who was unaware of the purpose, or aware of purpose, but did not facilitate and purpose does not involve serioud moral turpitude (contract to fly plane from columbia to USA voidable upon learning that the plane is transporting crack)

16

Defenses Based on Lack of Capacity

  1. Legal Incapacity to contract
    1. minors
      1. minor may disaffirm contract before or shortly after reaching age of majority.  must return contents of contract unless squandered, wasted, or negligently destroyed
      2. minor may affirm the contract upon reaching majority
      3. exceptions  - infant/minor bound to pay the reasonable value of necessities
    2. mental incapacity - person incapable of understanding the nature and signicance of a contract may disaffirm once lucid.  He may also affirm while lucid.  contract is voidable, not void.
    3. intoxicated person - enters into voidable promise if other party had reason to know of intoxication

Dures and Coercion  - contracts induced by duress or coercion are voidable

17

Defenses to Enforcement

  1. Statute of Frauds
    1. writing required that reflects the material terms of the contract.
      1. electronic record is fine. 
    2. signature requirement - liberally construed.  must have indicia of signature, i.e. letterhead, initials, e-signature.  only party to be charged must sign
    3. agreements convered under statute
      1. executor promises personally to pay estate debts
      2. suretyship-cosign
      3. promises in consideration of marriage
      4. interest in land
        1. also applies to leases for more than one year
        2. easements of more than one year
        3. fixtures
        4. minerals
        5. mortgages
        6. Not within statute
          1. contract to build on land
        7. effect of performance on land contacts - to enforce oral agreement on land
          1. payment (whole or in part)
          2. possession and/or valuable improvements
      5. perfomance not within one year
        1. effective date - runs from the date of agreement, not from date of performance
        2. lifetime contracts - not within SOF b/c a person can die at any time
      6. Goods priced at $500.00 or more
        1. exception when writing not required
          1. specially manufactured goods - goods are only made for one buyer
          2. admission in pleadings or court
          3. payment or delivery of goods - only enforceable up to the amount of goods paid for. 
        2. Merchants - contracts between merchants
          1. written confirmation of an oral contract sufficient if:
            1. recipient of communication has reason to know of the confirmation's contents, and
            2. he does not object to it in writing within 10 days
    4. Effect of Noncompliance with SOF - renders contract unenforceable at the option of party to be charged.  if not raised as defense, then it is waived
    5. remedies if contract is within SOF -
      1. reasonable value of the services or performance rendered
      2. restituttion
      3. part performance doctrine (see above for land) - if part performance takes the contract out of the SOF, the performing party has option of suing on the contract for expectation damages, rather than merely restitution for value of benefit conferred. 
  2. Unconscionability - allows a court to refuse to enforce a provision or entire contract to avoid unfair terms due to some unfairness in teh bargaining process
    1. Common Instances
      1. Inconspicuous risk shifting provision -
      2. contracts of adhesion - all vendors require the provision and it is not bargained for.  take it or leave it provision
      3. exculpatory clauses - releasing a contracting party from liability for his own INTENTIONAL wrongrul acts.  
      4. Limitations on Remedies 
    2. timing - unconscionability is determined by the circumstances as they existed at the time the contract was formed
    3. effect if court finds unconscionable clause
      1. refuse to enforce contract
      2. enforce remainder of contract without the unconscionable clause
      3. limit the application of any clause as to avoid unconsionable result

NOTE: MYLEGS for SOF

Marriage

Year (within one)

Land

Executor

Goods (for $500 or more)

Surety

 

18

General Rules of Contract Construction

  1. Contracts will be construed as a whole
  2. courts will construe words according to their ordinary meaning
  3. written or typed provision will prevail over printed provisions
  4. courts will look to the custom and usage in the particular business
  5. courts try to reach a detrmination that a contract is valid and enforceable
  6. ambiguities in a contract are construed against the party perparing the contract

19

Parol Evidence Rule - Supplementing, Explaining or Contradicting Terms

When an integration exists, any expressions, written or oral, made prior to the writing, as well as any oral expression contemporaneous with the writing, are inadmissible to vary the terms of the writing under the parol evidence rule.

  1. Is the writing an integration?
    1. Is the writing intended as a final expression
    2. Is the writing a complete or partial integration
  2. Extrinsic Evidence outside scope of the parol evidence rule
    1. Attacking validity
      1. evidence of formation defects (ie fraud, durress, mistake, etc
      2. conditions precedent - integration conditioned upon a previous oral agreement
    2. Interpretation - if a term is unclear in the integration, then parol evidence is allowed to reach correct interpretation
    3. Parol evidence allowed to show that true consideration was or was not paid
    4. reformation - parol evidence allowed to allege facts (ie mistake) to reform the contract
  3. Collateral Agreements and Naturally Omitted Terms
    1. evidence allowed when
      1. it does not conflict with written integration, and
      2. it concerns a subject that would not ordinarily be expected to include in the writing
  4. Parol evidence allowed to show subsequent modificaitons
  5. Article 2
    1. allows a party to add consisten additional terms, unless
      1. there is a merger clause, or
      2. the courts find from all of the circumstances that the writing was intended as a complete and exclusive statement of the terms
    2. Allows terms to be explained or supplemented by
      1. parties course of dealing (previous transactions)
      2. usage of trade (practice or method of dealing)]
      3. parties course of performance - if repeated performance is required, then evidence of previously accepted performance is admissible. 

20

Article 2

Battle of the Forms

  1. Contracts involving a nonmerchant - terms of offer govern
  2. contracts between merchants - additional terms in acceptance usually included: unless
    1. materially alter the original terms  (change risk/remedies)
    2. the offer expreslly limits acceptance to the terms in the offer
    3. offeror has already objected to the terms, or objects within a reasonable time after notice of the additional terms are received
  3. Contracts between merchants - different terms in acceptance may or may not be included
    1. some courts treat different terms as additional terms
    2. other courts use knockout rule - conflicting terms are knocked out of the contract.  gaps in the contract are then filled by the UCC

 

21

Article 2

Gap-Filler Terms

The key to forming a contract under article 2 is the quantity term. if other terms are missing, then article 2 has gap filler provisions.

  1. price is a reasonable price at the time of delivery if:
    1. nothing has been said as to price
    2. price is left open to be upon later and they fail to agree
    3. the price is to be fixed in terms of some standard set by third party
  2. if delivery not specified, then seller's place of business or home
  3. if time for shipment or delvery is not specified, then it is due in a reasonable time
  4. if time of payment not specified, then time and place at which the buyer is to receive the goods
  5. if contract provides that an assortment of goods is to be delivered, the assortment is at the buyer'soption
    1. failure to choose assortment either give seller cause to choose for buyer or to treat the failure as a breach

22

Article 2

Delivery Terms and Risk of Loss

  1. Noncarrier case -
    1. if seller is merchant, then risk passes to buyer upon physical possession of the goods
    2. if seller is non-merchant, then risk of loss passes to buyer upon tender of delivery
  2. Carrier Case
    1. Shipment Contract - seller only required to ship goods, but not to a particular destination, then the risk of loss passes upon delivery to the carrier
    2. Destination Contract - seller required to deliver goods to a particular destination, then risk of loss passes to buyer when the goods are tendered to the buyer at the destination
    3. Common Delivery Terms
      1. CIF - cost insurance freight - shipment contract
      2. FAS - free alonside - shipment by boat, risk basses once goods delivered to the dock
      3. FOB - free on board - risk of loss passes at the named locatoin of delivery
  3. Effect of Breach on Risk of Loss
    1. Defective goods - risk of loss does not pass to buyer if the buyer rejects them.  seller has opportunity to cure.  buyer can accept in spite of defects
    2. Revocation of Acceptance
      1. if buyer rightfully revokes acceptance, risk of loss is on the seller
  4. Risk in Sale or Return and Sale on Approval Contracts
    1. Sale or Return - risk remains with buyer while goods are in transit
    2. sale on approval - risk of loss remains with seller until buyer accepts

 

23

Warranty of title

Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encubrances against title.  this warranty arises automatically

 

Can be disclaimed only by specific language that give buyer notice that seller does not claim title

24

Warranty Against Infringement

a merchant seller automatically warrants that the goods are delivered free of any patent, trademark, copyright, or similary claims.  A buyer who furnishes specifications for goods to the seller, must hold the seller harmless against such claims.  

25

Implied warranty of merchantability

  1. implied in every contract for sale by a merchant
  2. fit for the ordinary purposes for which such goods are used
  3. seller's negligence does not matter.  this is absolute liability

can be disclaimed by either specific or general methods of disclaimer

specific disclaimer must mention merchantability and must be conspicuous

26

Implied Warranty of Fitness for a Particular Purpose

In every contract when:

1. any seller has reason to know the particular purpose for which goods are to be used, and

2. the buyer relies in fact on the seller's skill or judgment

 

can be disclaimed by specific or general methods of disclaimer

specific disclaimer must be conspicuous writing

27

Express Warranties

Any affirmation of fact made by seller to buyer, description, etc is a part of the basis of the bargain. actual reliance on description not necessary, only that buyer could have relied on it. 

 

Difficult to disclaim

28

Disclaimer of Warranties

General Disclaimer - UCC methods for disclaiming implied warranties

  1. By general disclaimer language - "AS IS"
  2. by inspection or refusal to inspect - after buyer has inspected, or refused an inspection, then there is no warranty as to defects that a reasonable examincation would have revealed
  3. by course of dealing - disclaimed by course of dealing, course of performance, or usage of trade

Limitation of Damages - contrcats may limit damages available in breach of warranty, unless limitation is unconscionable

Timing of Disclaimer - must be present on the packaging or prior to installation of software

Limitations on damages for personal injury are prima facie unconscionable

29

Damages for breach of warranty

  1. in General damages are for the difference between goods tendered and the goods as warranted
  2. Breach of warranty of title - when goods taken back by rightful owner, the damages are the value of the goods as warranted, which is often the purchase price
    1. the value of goods in breach of warranty of title is at the time of dispossession, not at the time of acceptance

Warranties extend to any natural person who is in the family or household of the buyer or who is a guest in the buyer's home if it is reasonable to expect that the person may use, consume, or be affected by the goods and that person sufferes personal injury because of a breach of warranty.

30

Modification of Contract Terms

  1. Consideration
    1. UCC - new and different terms are valid without consideration
    2. common law - only new consideration can modify contract
  2. Writing
    1. Written contract can be modified orally, however, 
    2. for sale of goods, the modification must be in writing if the contract as modified falss within the SOF
    3. Common Law - provision prohibiting oral modification not effective
    4. UCC - "No Modification" clauses are effective
  3. Parol evidence rule does not apply to contract modifications