005 Contracts--01 Formation; Consideration; Defenses To Formation/enforcement

Front 1

Applicable Law--UCC

Back 1

UCC applies to the transactions for the sale of goods (items that are movable/tangible at the time of contracting).

Look for the involvement of a merchant (one who regularly engages in buying/selling of goods of the particular type).

Front 2

Applicable Law--Common Law

Back 2

Applies to all other contracts

look for sale of land, employment contracts and service or construction contracts

Front 3

Predominant Purpose Test

Back 3

ask whether the predominant purpose of the transaction is the rendition of a service, with goods incidentally involved i.e. a contract with artist for a painting, or is a transaction of sale, with service incidentally involved i.e. installation of a water heater in a bathroom.

Front 4

Contract defined

Back 4

short def: : a legally enforceable agreement

long def: a promise or set of promises, for the of which the law gives a remedy, or the performance of which the law in some way recognizes a duty

Front 5

Express K

Back 5

created by parties' words (either oral or written)

Front 6

Implied-in-fact K

Back 6

created by the parties' conduct

Front 7

Lack of Consideration

Back 7

no contract exists

Front 8

Construction K

Back 8

Whenever a general K relies on the bid of a subcontractor, it creates an option K between the general and the subcontractor.

If K is breached by the owner, builder is entitled to profit plus any costs expended.

-risk of loss lies with the builder, absent contrary provisions

Front 9

Exclusivity K

Back 9

Consideration b/c courts imply a promise to use best efforts to sell te product.

Front 10

Mutual Assent--Offer

Back 10

offer is a manifestation of an intention to be bound

typically tested in 2 situations: advertisements, auctions and indefiniteness

Front 11

Bi-Lateral Contract

Back 11

Offer can be accepted in any reasonable way

i.e. promise, performance, forbearance

Front 12

Unilateral K

Back 12

Offer can be accepted only by performing

All K's are bilateral in nature except:

1. Reward, Contest, or Prize
2. Offer expressly says it can be accepted only by performing

-rescission promise must be supported by EITHER:
1. offer of new consideration
2. elements of promissory estoppel
OR
**3.offeree's manifestation of an intent to make a gift of the obligation owed him.

Front 13

Formation Methodology

Back 13

1. Is there an agreement (offer and acceptance)
2. If so, is it legally enforceable (are there any defenses against the K's enforcement?)

Front 14

Elements required to create a K:

Back 14

1. Mutual Assent i.e. offer and acceptance

2. Consideration (or a substitute)

3. No defenses to formation

Front 15

Offer--advertisements

Back 15

Generally an advertisement is NOT an offer

UNLESS

the ad specifies a QUANTITY term and who can accept

--advertisement materials i.e catalogues sent aftert request to purchase CAN be considered an offer.

Front 16

Offer-Definiteness and Certainty

Back 16

see if any of the terms are too indefinite to be enforced

"All essential terms must be covered"

Front 17

Offer-indefiniteness--Requirement Contracts (Art. 2)

Back 17

Requirements Ks are definite enough, even though there is no specific quantity mentioned.

Front 18

Offer-indefiniteness--Open Price Term

Back 18

CL--open price term too indefinite

UCC--open price term is NOT too indefinite

Front 19

Offer--Auctions

Back 19

General Rule: A normal auction has a reserve price. Bidder is the offeror

Exception: No reserve (aka "Absolute Auction") the auctioneer is the offeror and the highest bid is an acceptance.

Front 20

Offer-Termination

Back 20

4 ways to terminate an offer:
1. Lapse of Time

2. Revocation

3. Rejection

4. Death before Acceptance

Front 21

Offer-Termination--Lapse

Back 21

An offer lapses after a STATED term or after a REASONABLE TIME has passed

Front 22

Offer-Termination--Revocation

Back 22

Generally, offer can be revoked at any time before acceptance

revocation can be either 1. direct or 2. indirect

Front 23

Offer-Termination--Direct revocation

Back 23

offeror indicates DIRECTLY TO THE OFFEREE that he has changed his mind about the deal.

Front 24

Offer-Termination--Indirect Revocation

Back 24

2 part definition:

1. offeror engages in conduct that indicates he has changed his mind

AND

2. the offeree is AWARE of the conduct

-if offer was made by PUBLICATION, then the rejection must be made in the manner (or medium) in which the offer was made

Front 25

Offer-Termination--Revocation--Exceptions

Back 25

4 situations where an offer cannot be revoked:

1. Option: an option to keep the promise open that is PAID FOR( a mere promise to keep open is not enough)

2. Foreseeable reliance before acceptance (very rare) i.e general contractor relies on sub to make a bid on the project

3. Starting to perform a UNILATERAL K

4. Firm Offer (UCC)

2.

Front 26

Offer-Termination--Revocation--Timing

Back 26

Revocation of an offer is effective ONLY ON RECEIPT

-mailbox rule has nothing to do with a revocation b/c it is only effective on receipt

Front 27

Offer-Termination--Rejection

Back 27

An offer terminates when the offeree rejects it ("inappropriate response")

1. Counter-Offer
2. Conditional Acceptance
3. An Acceptance Varying an offer (except UCC--apply battle of the forms)

Front 28

Offer-Termination--Rejection--Counter Offer

Back 28

operates a rejection but mere bargaining does not

-asking a question is mere bargaining

Front 29

Offer-Termination--Rejection--Acceptance Varying an offer--CL

Back 29

Acceptance must exactly mirror the offer--MIRROR IMAGE RULE

Front 30

Offer-Termination--Rejection--Acceptance Varying an offer--UCC

Back 30

Battle of the Forms--acceptance does NOT have to mirror the terms of the offer.

1. adding a term or changing a term does not prevent acceptance

2. but the offeree's terms are not automatically included in the K. The terms become part of the K only if:

1. Both parties are MERCHANTS
2. term is not a MATERIAL CHANGE ( a change that is likely to cause hardship or surprise for the offeror)

AND

3. the offeror does not OBJECT within a reasonable time

--basically the offeree's terms almost never become become part of the K

Front 31

Offer-Termination--Death Before acceptance

Back 31

Death of either party before acceptance terminates a REVOCABLE offer

Front 32

Acceptance

Back 32

Language of the offer controls.

Valid acceptance requires:
1. an offeree with power of acceptance

2. unequivocal terms of acceptance

AND

3. communication of acceptance

Front 33

Acceptance by starting performance

Back 33

Bilateral K--starting performance is acceptance of an offer to enter a bilateral contract and carries with it an IMPLIED PROMISE to finish the job

Unilateral K--starting performance is NOT acceptance. only COMPLETING PERFORMANCE is acceptance

Front 34

Acceptance--Improper Performance

Back 34

CL--improper performanceoperates as ACCEPTANCE and BREACH

UCC-improper performance operates as acceptance and breach

UNLESS the seller is sending goods as an ACCOMMODATION to the buyer

Front 35

Acceptance--Silence

Back 35

offeree's silence is generally not aceptance

UNLESS

1. express waiver of comm by offeror
2. offer requires an act as acceptance
3. offeree silently takes the offered benefits
4. prior dealings between the party or trade practices or both created a reasonable expectation by the offeror that silence constitutes acceptance.

Front 36

Acceptance--Timing

Back 36

Generally, MAILBOX RULE. offer is accepted when it IS MAILED

Front 37

Exceptions to Mailbox Rule

Back 37

heavily tested

1. Offer provides otherwise (can be contracted out) i.e. if offer says acceptance upon receipt.

2. if IRREVOCABLE offer, the offeree doesnt need protection of the mailbox rule

3. offeror RELIES on OVERTAKING REJECTION(where an acceptance is sent first, but rejection arrives first

***4. Rejection sent first--mailbox rule does not apply. whichever letter arrives FIRST is effective
-does not matter that rejection letter is ACTUALLY opened. If delivered/received before acceptance then no K.

--**Mailbox rule does NOT apply to the exercise of options. Acceptance must be RECEIVED by the offeror.
--if offers stating precisely the same terms cross in the mail, they do not give rise to a K b/c an offer cannot be acceptance if there is no knowledge of it.

Front 38

Consideration

Back 38

required in order to create a valid K

Involves 2 elements:
1. Bargained for exchange
2. Legal Value

Front 39

Bargained for exchange

Back 39

bilateral K--parties exchange promises
unilateral K--parties exchange a promise for an act

Front 40

Legal Value--Benefit-Detriment test

Back 40

a legal DETRIMENT is when one promises to do something he is under no legal obligation to do, or promises not to do something he has a legal right to do.

Front 41

Consideration

Back 41

bargained-for return promise or performance that reasonably induces the initial promise

Front 42

Consideration--Gratuitous or Donative promises?

Back 42

No consideration b/c not induced by any return promise or performance
-$25K donation
-$200 gratuitous promise

Front 43

Consideration--Waiver

Back 43

Can equal valid consideration

Front 44

Consideration--forbearance

Back 44

can equal consideration
-uncle promise to pay his nephew $5k is induced by nephew's forbearances(not drink, smoke, gamble, etc)

Front 45

Adequacy V. Inadequacy--Consideration

Back 45

-courts use baseline inquiry
1. if the consideration is "sham" nominal--no consid. i.e. one penny for $500
2. If objective value, courts leave valuations to parties--Batsakis

Where there is a possibility of value, in the thing bargained for, consideration will be found even if value never comes into existence.

Front 46

Consideration--worthless or valueless promises

Back 46

do not serve as consideration b/c they they are worthless therefore cannot reasonably induce a promise

Front 47

Consideration--Waiver or Forbearance of invalid legal claims

Back 47

Valueless unless:
1. claim or defense is doubtful because of uncertainty as to law or facts
2. the waiver believes that the claim may fairly be determined to be valid[good-faith belief approach]

Front 48

Consideration--Discretionary promises

Back 48

Where the promise reserves a choice, each of the choices or alternative performance, must be consideration on its own.

Front 49

Consideration--Illusory Promises

Back 49

lacks mutuality and attaches no obligation i.e. promising to buy as much coal as one "would want"

If K can be canceled at any time, then illusory. otherwise, valid K

Front 50

Consideration--Output Requirements Contracts

Back 50

Not Illusory b/c quantity measured as "actual output" of seller(or "actual requirements" of buyer) as may occur in good faith, but cannot be reasonably disproportionate

Front 51

Exclusivity Contracts--Consideration

Back 51

Not Illusory.
implied promise to use "reasonable efforts or best efforts"

Front 52

$ Consideration--Pre-existing Duty Rule

Back 52

1. performance of a legal duty owed to promisor that is neither doubtful nor the subject of honest dispute is not consideration.
2. There must be a modification with new consideration

Front 53

$ Pre-Existing Duty Rule--Exceptions

Back 53

$ 1. New or different Consideration

2. Promise is to ratify a VOIDABLE OBLIGATION (i.e. ratification of minor's K after he reaches majority)

3. preexisting duty owed to a 3P rather than the promisor

4. HONEST DISPUTE as to the duty

5. UNFORESEEN CIRCUMSTANCES sufficient to discharge a party.

-an attempt to pay a smaller amount than due on a debt is generally not enough consideration for the a promise by debtor to discharge the debt, BUT look for EARLIER payment than required or STOCK instead of cash.

change in performance could make the smaller payment amount sufficient consideration.

Front 54

Consideration--Accord and Satisfaction-CL

Back 54

The Payment in Full Check Cashing Rule says that :

if a person sends a check clearly marked “payment in full” for a disputed amount, the cashing of the check by the other person is an accord and satisfaction and is sufficient consideration.


Accord is an agreement where one party to an existing K agrees to accept--in lieu of performance that he is supposed to receive from other party--some other, different performance.

Satisfaction is the performance of the accord agreement.

*If debtor breaches the accord agreement, the debtor has option of either raising the accord agreement as equitable defense OR waiting until he is damaged (i.e. creditor is successful in an action on original K) and THEN bringing an action for breach of the ACCORD K.

Front 55

Consideration--Accord and Satisfaction-UCC

Back 55

The Payment in Full Check Cashing Rule says that:

if a person sends a check clearly marked “payment in full” for a disputed amount, the cashing of the check by the other person is an accord and satisfaction and is sufficient consideration

BUT

if the check is sent to a company, it must be sent to a designated address for such claims if there is one specified.

In addition, if there is no designated address for disputed claims, a claimant may prevent an accord and satisfaction if, within 90 days of the payment of the check, the claimant tenders repayment of the amount of the check to the person against whom the claim is asserted.

Front 56

Account Stated

Back 56

occurs when one payment is made to pay for a number of earlier invoices.

i.e. there must be more than one prior transaction between the parties

Front 57

Consideration--Past or Moral Consideration

Back 57

A promise given in exchange for something already done does not satisfy the consideration req.

EXCEPT

Where a past obligation is unenforceable for a technical defense (e.g. SOL) a new promise in writing will be enforceable if a new promise is IN WRITING or is PARTIALLY PERFORMED .

Front 58

Promissory Estoppel or Detrimental Reliance--Elements

Back 58

1. Promisor should REASONABLY EXPECT his promise to INDUCE ACTION OR FOREBEARANCE

2. action or forebearance must be of a DEFINITE and SUBSTANTIAL character, and

3. such action or forebearance is IN FACT INDUCED.

4. promise is ONLY ENFORCEABLE TO THE EXTENT NECESSARY TO PREVENT INJUSTICE
--therefore a valid K is better than an agreement enforceable by promissory estoppel. if the K is valid, do not pick it as an answer choice.

Front 59

Detrimental Reliance--Elements--Examples

Back 59

1. uncle promises nephew trip to europe, it is forseeable that he would take it, and he actually took it because of the promise.
2. Board promises employee $200/yr. when she retires. she retires.
vs. case where man retires then told he would be taken care of. Action was not induced by promise nor reasonably forseeable as a result of the promise.

Front 60

Reliance in the Construction Biz/other three-party contracts outside the contracting biz.

Back 60

-Absent contrary agreement, subs bound to supply services per bids once the GC detrimentally relies on bid in seeking, and then obtaining, the prime K. [drennan]
but not vice-versa
GC's not bound to use subs in the same way.

Front 61

UCC--Subsequent modifications

Back 61

consideration not necessary to GOOD FAITH, WRITTEN modification of a K

Front 62

UCC--promises to pay

Back 62

If a legal obligation is not enforceable under law (i.e. debt barred by statute of limitations) , a new promise is enforceable if in WRITING

this promise wil be enforceable only according to the NEW TERMS, not the terms of the original legal obligation.

Front 63

UCC-Seal

Back 63

no effect

Front 64

$ Unconscionability

Back 64

K may be voidable where the clauses are so one sided as to be unconscionable.

tested at the TIME K WAS MADE, not later (i.e. K must have been unfair when it was entered into)

-includes Ks with risk-shifting provisions (e.g. W disclaimers in fine print)

-includes adhesion Ks

RARELY A GOOD DEFENSE ON MBE

Front 65

Uconscionability--def and elements

Back 65

K or K term is unscionable the court can refuse or limit its enforcement
1. Substantive Unconscionability
-unreasonably favorable terms/gross disparity in values exchanged/extremely and dramatically one-sided i.e. furniture case
2. Procedural Unconscionability
-absence of meaningful choice:
1. factor 1: gross inequality of bargaining power
2. factor 2: over-reaching manner in which K was entered e.g. maze of fine print, deceptive sales practices(high pressure, etc.)

Front 66

$ SOF--does it apply

Back 66

SOF requires that certain agreements must be in writing.

MY LEGS

1. Interest in LAND
$ 2. SURETYSHIP Agreement--must be evidenced by a writing.
3. Performance within a YEAR
4. Consideration of MARRIAGE (Pre-Nups)
5. EXECUTOR or Administrator's Promise to pay debts of the estate out of his own funds

$ 6. GOODS valued at $500 or more (UCC) BUT an oral K for the sale of goods over $500 is enforceable to the extent of goods received and accepted by the buyer.

Modification Rule:

look to K as modified. "if new price brings K within SOF, must be in writing"

Front 67

SOF--MY LEGS

Back 67

marriage
within one year
Land
Executor
Goods
Surety

Front 68

SOF--writing requirement

Back 68

Long rule:
1. IDENTITY of parties
2. identification of k's SUBJECT MATTER
3. TERMS AND CONDITIONS of the k
4. recital of CONSIDERATION

AND

5. signature of the PARTY TO BE CHARGED.

Short rule; must contain all essential terms and signature of the party to be charged.

--can be cobbled together

Front 69

SOF--One-Year Provision

Back 69

K that cannot possibly be performed within a year of its making must be in writing.

Front 70

SOF--Land Contract Provision

Back 70

Promise to transfer an interest of land. includes sales, mortgages, leases.
BUT
under part-performance doctrine, conduct that unequivocally indicates that parties have contracted for the sale of land will take the K out of the SOF.
-evidence that could be construed as a continuation of L-T relationship is NOT unequivocal.

Front 71

SOF--Suretyship Provision

Back 71

A guaranty i.e. a promise to pay the legally enforceable debt of another

Front 72

SOF--writing requirement UCC--ADD TO THIS

Back 72

1. QUANTITY term

2. Signature of party to be charged

Merchant exception: written confirmation not objected to within 10 days satisfies the signature requirement.

Front 73

$ Defenses based on lack of capacity

Back 73

Party incurs voidable contractual duties if:
$ 1. Minor
2. Mentally ill or defective
3. $ Intoxicated

Front 74

$ Minor Restriction

Back 74

$ Generally: a minor may disaffirm a K up until age of majority or a reasonable time thereafter

-voidable on infant but binding on adult.

$misrepresentation of age has no effect on ability to disaffirm
-NOT in TN--minor eho misrepresents his age is estopped to disaffirm the K

exceptions: necessities, student loans, insurance contracts.

Front 75

Insane persons

Back 75

lack capacity, but may contract during a lucid interval.

-absent a judicial declaration of insanity, an insane person's contracts generally will not be avoided UNLESS the opposite party knew of the insanity at the time of the K.

Front 76

$ Intoxicated/Drugged persons

Back 76

lack capacity if other party had reason to know of the intoxication

Front 77

Quasi-Contract--recovery

Back 77

limited to the value of the benefit conferred and not the actual contract price.

--To recover under the theory of quasi-contract, the person conferring the benefit must not have been a volunteer or an officious intermeddler.

**MBE tip:
dont pick as an answer UNLESS : 1. no formal agreement between the parties and 2. unjust enrichment

Front 78

Restitution Damages/Unjust Enrichment--elements

Back 78

1. One party has conferred a benefit by rendering service or expending properties on the other

2. person has a reasonable expectation of being compensated

3. person conferring benefit was not a "volunteer" or an "officious intermeddler"

4. If ∆ is allowed to retain the benefits without compensating the π, ∆ would be unjustly enriched

**benefit measured by the benefit to enriched party(in cases of breaching contractor--K price) not the detriment to claimant
UNLESS
it would achieve an unfair result
-benefit never measured by detriment to the breaching party.

Front 79

Unjust Enrichment(as consideration substitute)--Elements

Back 79

1. Conferral of measurable benefit to another at one's expense
2. Conferral is non-officious(i.e. wanted)
3. Conferral is non-gratuitous(i.e. expectation of compensation)
*all requirements must be met

Front 80

Quasi-Contract

Back 80

protects against unjust enrichment (equitable remedy) whenever contract yields an unfair result.

-a remedy of LAST RESORT

Front 81

$ Defenses to Formation

Back 81

1. Absence of Mutual Assent(mistake/ $fraudulent misrepresentation)
2. Absence of Consideration
3. Public Policy Defenses
4. $ SOF
5. $ Failure to agree on an essential term
6. $ Illegality
7. $ Unconcsionability

Front 82

Mutual Mistake

Back 82

Mistake by both parties is a defense if:

1. mistake concerns a BASIC ASSUMPTION on which the k was made

2. mistake has a MATERIAL ADVERSE EFFECT on the agreed-upon exchange

AND/UNLESS

3. adversely affected party did NOT ASSUME the risk
i.e. builder draws up plans, begins to build then realizes that it will cost $1mill more to complete. arguably, builder assumed the risk.

grounds for unilateral rescission

Front 83

Unilateral Mistake

Back 83

Insufficient UNLESS nonmistaken party knew or should have known of the mistake. (except for errors in judgment as to the value or quality of work done or goods contracted for).

Front 84

Mistakes in Transmission

Back 84

e.g. telegraph company makes a mistake

message usually will be operative AS TRANSMITTED

UNLESS the party should have been aware of the mistake.

Front 85

Latent Ambiguity Mistake

Back 85

if K includes an ambiguous term, result depends on awareness of the ambiguity

1. Both Parties unaware or aware--no K unless both Ps intended the same meaning

2. One party aware--binding K based on what the ignorant party reasonably believed to be the meaning of the ambiguous words

Front 86

$ Misrepresentation

Back 86

When a misrep is fraudulent, person to whom the misrep was made need only rely on it.
-reliance need not be reasonable.
-if actually relied on, K is voidable upon action of the injured party.


Fraud in the inducement--voidable

Fraud in the factum--void

Front 87

Public Policy Defenses--consideration or subject matter is illegal

Back 87

K is void UNLESS:

1. π unaware of the illegality while ∆ knows of it
2. parties in pari delicto (one party not as culpable as the other)
3. illegality is failure to obtain a license when the license is for revenue-raising purposesrather than the protection of the public.

Front 88

Public Policy Defenses--only purpose behind K is illegal

Back 88

K is VOIDABLE by a party who:

1. was UNAWARE of the purpose

OR

2. was aware but did not facilitate the purpose AND the purpose does not involve serious moral turpitude (i.e. murder)

Front 89

Rejection--Lapse of Time--Face-to-face rule

Back 89

continue only to close of conversation unless offer or other circumstances indicate that the offer is intended to extend beyond the conversation

-applies to phone conversations