1 Az Contracts

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Contracts: IF YOU KNOW NOTHING ELSE

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"Arizona common law and the UCC apply. Ks involving services are governed by Arizona common law. Contracts involving the sale of goods are governed by UCC Article 2. In mixed Ks for goods and services, the court will look to see which aspect of the K dominates to determine which law to apply. The value of goods versus services will be the measure."

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K Formation:

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Requires valid offer, acceptance, consideration. legal capacity of the parties, legal subject matter and compliance with the SOF if the K involves marriage, takes over a year to perform, involves $500 or more under the UCC, land transfers or leases for more than a year, and suretyship promises to answer for the debt of another.

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Excuses for Non-Performance:

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Incapacity, impossibility, impartibility, frustration of purpose, subsequent illegality.

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Law:

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Common Law of K's applies to all Ks except the sale of goods (UCC 2)

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Types of K's

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Express: Oral or writte
Implied: Conduct of parties, or implied in law to prevent unjust enrichment
Bilateral: A promise for a promise
Unilateral: Promise for performance

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Enforceability of Ks

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1) K is an enforceable promise, characterized by a manifestation of commitment through words or actions.
2) Void: Null from inception
3) Voidable: Aggrieved party can make K unenforceable at his option.

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Valid K: OFFER: Objective theory

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Mutual assent must be founded on an objective manifestation of mutual intent

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Valid K: Offer

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Offer is a manifested willingness to bargain communicated to another seeking another's mere agreement such that the offeree is justified in believing that assent is invited when the terms are reasonably certain.

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Valid K: Offer
Must include:

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1) Commication, particular offeree, particular item or quantity.
2) NOT offers: Ads, auctions, negotiations.

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Valid K: Offer--Termination

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1) Revocation: Effective if received by offeree prior to acceptance: EXCEPT when offer has been "encapsulated"
a) Option K: Offeree paid consideration to keep offer open.
b) Firm offer: Merchant makes a written offer.
c) Detrimental Reliance: (Promissory estoppel) Offeree relies on the offer to his detriment (e.g. subcontractor's bid to general contractor)
d) Performance of unilateral K begun (promise for performance)
2) Counteroffer: Terminates original offer when Offeree rejects and makes new offer (Violates Mirror Image Rule)
3)Lapse of time; Must accept within stated time or reasonable time.
4) By law; Death, insanity, (only terminates offer, not K if accepted.) destruction of subject matter, supervening illegality.

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Mirror Image Rule

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Common law: Acceptance can't deviate from the offer--functions as a rejection AND a counteroffer.
UCC: Permissible so long as doesn't materially alter terms.

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Contract Formation: Consideration
Generally:

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Promise not enforceable unless made in exchange for something of value (one party's detriment may be considered consideration)

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Contract Formation: Consideration
Sufficiency

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Consideration must have legal sufficiency, and be bargained for.

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Contract Formation: Consideration
Mutuality and Illusory Promises

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Exchange does not have to be of mutual value, but there must be mutuality of consideration, such as mutual promises;
EX: lllusory: e.g. Moral commitment "I'll perform if it suits me." e.g. quitting smoking.

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Pre-Existing Duty Rule:

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Bar to recovery: No consideration to perform a legal duty which is already owed, unless that duty is doubtful or honestly disputed (e.g. contractor agrees to complete job a month early, this can be consideration that will support homeowner's agreement to pay additional sum.)
Traditional view: In exchange for a promise, the promisee agrees to perform, or actually performs, a public duty, there is no consideration.

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Partial Payment Rule:

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When a tendered sum is a genuine compromise, not merely a token offer, and a partial payment is tendered with "payment in full" written on the check, and claimant is aware of condition of tender, even if payee crosses out "payment in full," cashing the check still constitutes acceptance of the payment as payment in full.

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Surrendering Legal Claim

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Good consideration if holder of the claim reasonably believed the claim was well-founded and enforceable even if in fact it is not.

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Promissory Estoppel

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Promise lacking consideration is enforceable if the promisee has acted reasonably to change their position in reliance on the promise.
REQUIRES:
Foreseeable reliance
Ex: Charity pledges, employee remains at a job for pension.

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UCC Modifications: Do NOT require consideration: Binding when made in good faith

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Additional Amount Promised.
In Good Faith = "honesty in fact in the dealing in the trade."

EX: input cost increased and buyer agrees to pay more.

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Third Party Beneficiaries:

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Usually apply promisee's consideration. Offer, acceptance and consideration are collectively referred to as mutual assent. All three are necessary to form K.

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Valid K: Acceptance: Only effective when there's a valid offer

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Offeree has the power to accept an open offer that has not been revoked or terminated and thereby create a K; acceptance of a unilateral K requires PERFORMANCE.

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Acceptance: Intended Offeree

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Offers are not assignable, and the power of acceptance is thus personal to the offeree; reward offeres are intended to be accepted by ANY member of the public.

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Stipulated Terms:

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If the offer stipulates method of communication and timeliness, such terms are binding.
If the offer does not include these terms, the analysis shifts to the acceptance if it contains the term in question. The original offeree becomes the new offeror under the common law.

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Knowledge Necessary:

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Acceptance by the offeree must be made with knowledge of the offer. Crossing offers or performance without knowledge of an offer does not create a K.

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Objective Standard:

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Whether offeree's actions constitute acceptance is measured by a reasonable person standard. An acknowledgment that the offer was made e.g. "Thank you" is insufficient.

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Silence:

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Not usually imposed as acceptance on the other K party as constituting acceptance.
EXCEPTION: If the parties expressly or through their past course of dealings intend silence to constitute acceptance of an open offer. When common party understanding indicates that silence is an acceptance, duty to speak may be needed to avoid K formation.

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Acceptance Auction Acceptance:

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Bid is the offer, and the fall of the hammer is acceptance.

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Acceptance Retail Installment K

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A buyer may revoke up to midnight of the third day if the sale was solicited in person or at a place other than the seller's place of business.

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Unilateral K: Acceptance

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Unilateral offer requires acceptance in the form of performance of the act (whereas a bilateral K requires only a promise indicating an intent to be bound.

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Common Law Acceptance

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Generally, a valid acceptance must be unequivocal, unconditional and a mirror image of the offer under the common law. Conditional and additional terms are deemed rejection and counteroffer.

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UCC Treatment: Acceptance

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Unless the offer specifies to the contrary, acceptance in any manner and in any medium is adequate.

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UCC Treatment: Acceptance plus additional terms

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Additional Terms: Unless BOTH parties are merchants, treated as mere proposals that the offeror must expressly approve.
BOTH PARTIES ARE MERCHANTS:
Minor additional terms become part of the K unless specifically objected to within a reasonable period of time OR if the additional terms materially alter the original bargain, such as negating warranties or reserving to the seller a unilateral right to cancel.

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Conflicting Terms: Common Law

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Acceptance of the counteroffer may be by performance of the other party. The terms of the last communication usually prevail under the "master of the bargain" "last shot" rule.

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Conflicting Terms: UCC

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Conflicting terms in both offer and acceptance are to be disregarded. So terms are consistent with what both parties agreed to and any "gap-filling" provisions.

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Effective Date: Revocation by Offeror

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Effective on receipt by offeree.

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Effective Date: Mailbox Rule

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Acceptance is effective on dispatch (as long as offeree uses authorized menas or medium of communicating the acceptance (letter for letter and anything faster)
Offeror's Revocation or Unawareness: Even if offeror never received the acceptance, it is still effective because it's effective on dispatch.
Unauthorized means/options: then acceptance is only effective on receipt.

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Effective Date: Rejection Exception

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When offeree first rejects, then accepts, the effectiveness of the acceptance would depend on which arrived in Offeror's mailbox FIRST.

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UCC Treatment of effective date:

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Mailbox rule, but ANY reasonable means or manner is authorized.

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K FORMATION CHECKLIST

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1) OFFER; if terms of acceptance are the same as the offer, binding.
2) ACCEPTANCE: Analyze the words of acceptance, is there a communication of acceptance, mere inquiry or effective rejection?
3) Mailbox rule determines effectiveness of accepantance or revocation

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DEFENSES TO FORMATION:
Mutual Mistake

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VOIDABLE by adversely affected party when there's a factual error regarding a fundamental matter, which has a material effect on the agreement.
1) NOT voidable if party bore the risk of mistake (awareness that s/he was acting with limited knowledge)
2) Mistake by intermediary construed against the person who chose him.

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DEFENSES TO FORMATION:
Unilateral Mistake

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Only voidable when other party knew or should have known of mistake.

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DEFENSES TO FORMATION:
Misrepresentation

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If assent is induced by material misrepresentation (even if innocent) and the adversely affected party reasonably relied on it, K is voidable.

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DEFENSES TO FORMATION:
Fraud

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Intentional misrepresentation of material fact that induces reliance is voidable by adversely affected party.

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DEFENSES TO FORMATION:
Duress

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Physical Duress: Void.
Mental, emotional economic duress (not financial necessity) or wrongful threat that leaves no reasonable alternative: Voidable.

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DEFENSES TO FORMATION:
Unconscionability

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Voidable.
1) Procedural absence of meaningful choice in bargaining process.
2) Substantive unreasonably harsh terms (real imbalance)
3) Ambiguity. Construed against the drafter.
-Both parties know: VOID
-Neither party knows: VOID
-One party knows: Interpret on innocent party's term

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DEFENSES TO FORMATION:
Capacity

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Under 18: Voidable by minor unless married to an adult, ratifies after 18 or signed educational loans at 16, or K was for a necessity.
Insane: Void (although previously made K is not void)1
Intoxicated: Binding if VOLUNTARY. Only voidable if involuntary if intoxicated person was unable to understand NATURE and CONSEQUENCES of transaction.

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DEFENSES TO FORMATION:
Statute of Frauds

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K is VOID if not in writing, and cannot possibly be performed in one year (or marriage, land, executor, goods over $500, surety)
1) K must provide signature of person against whom the K is sought to be enforced, party names, material terms, subject matter, and consideration.
2) Exceptions: SPECIALTY manufactured goods, admissions in court (if D admits he had K, then enforceable, even if not in writing), but detrimental reliance is IRRELEVANT (no implied K by promissory estoppel, but can get restitution for unjust enrichment.)

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DEFENSES TO FORMATION:
Illegality

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Void.

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Interpreting the K: Intent Controls

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1) Construe K as a whole.

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Interpreting the K: K format

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WRITTEN words preferred over printed (e.g. crossed out and scribbled in):
HIERARCHY:
a) words
b) course of performance-what parties have done under the K.
c) course of dealings: what parties have done in past Ks.
d) trade custom: norms that parties should be aware of.
THE BERG RULE:
1) Extrinsic evidence is admissible as to the entire circumstance under which the K was made, as an aid in ascertaining parties intent.
2) If evidence indicates that written K is COMPLETE, FINAL and UNAMBIGUOUS, then parol evidence rule will still apply.

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Interpreting the K: Parol Evidence Rule

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1) A final, written expression of intent may not be contraindicated by evidence of a prior or contemporaneous agreement.
a) Consistent terms may be used to ascertain intent.
b) Trade custom can be used to ascertain intent.
c) Can still raise defenses or lack of consideration.
2) Subsequent agreements raise issue of modification.

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THIRD PARTY RIGHTS:

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Parties other than promisee /promissor may acquire rights or duties at formation, or post-formation of K.
1) Third party beneficiary learns of and detrimentally relies on K.

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DUTY TO PERFORM: Conditions (terminate or trigger obligation, may be waived or excused.)

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Conditions Precedent: Events that happen after K formation, but before promisee has the right to performance by the promisor. (E.g. Home inspection prior to buying house.)

Conditions Subsequent: Events that occur after K formation, terminates duty to perform (e.g will paint unless it rains.)

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Duty to Perform:
Discharge buy Agreement of Parties:
MODIFICATION

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1) Modification:
a) MUST be supported by separate consideration.
b) Mutual agreement is adequate consideration
c) Pre-existing Duty: Just demanding more money to finish is NOT modification, unless
1) Unforseen circumstances released duty to perform (impossibility, etc)
2) Honest dispute over duty.

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Duty to Perform:
Discharge buy Agreement of Parties:
Mutual Rescission

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Agreement to terminate K (Consideration: Mutual surrender of rights under the K)

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Duty to Perform:
Discharge buy Agreement of Parties:
Accord and Satisfaction

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Settlement of a disputed obligation (consideration: compromise of differences)

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K Discharge by Operation of Law:
Unforeseen Change in Circumstances

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1) Objective Impossibility: Destruction of subject matter of K, Death or illness of a party, supervening illegality.
2) Impracticability: Subjective undue burden, Frustration of purpose (rented apartment to see parade)
3) SOL 3-6 years for written K duty to perform becomes unenforceable.
4) Material Breach by one party discharges the other's obligation to perform.

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BREACH:

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Anticipatory repudiation: Clear declaration that breach will occur when it is time to perform. Can retract repudiation at any time before time to perform, or before other party has relied on repudiation.
Minor Breach: Slight deviation--other party can sue for damages, but must perform.
Major Breach: Other party's performance is suspended.

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Remedies for Breach:
Money Damages

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Compensatory/Expectation measures: Aggrieved party is entitled to recover the amount of money that would place him in the same position he would have been in had the K been performed.
a) Must be reasonably certain
b) Foreseeable
c) Unavoidable: Duty to mitigate--must make reasonable effort to minimize damages from another's breach without undue risk, burden or humiliation.

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Remedies for Breach:
Reliance Damages

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When monetary value cannot be proven, the aggrieved party can recover damages that will place him in the same position he was in prior to entering the K: Promissory estoppel (reliance on a promise makes it enforceable)

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Remedies for Breach:
Liquidated Damages

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1) CAN'T be a PENALTY
2) Reasonable forecast of just compensation
3) Harm must be such that it can be ascertained only with great difficulty
4) They will be a party's exclusive remedy
5) No harm, still enforced.

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Remedies for Breach:
Specific Performance:

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NEVER allowed for service Ks
Allowed when damages are inadequate (e.g. unique goods, land) and it is not unduly burdensome for court to supervise.

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Remedies for Breach:
Restitution

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Remedies unjust enrichment when one party has conferred a benefit on another.
Conferring party had a reasonable expectation of compensation and the other party knew this.
Benefit was expressly or implicitly requested.