Cal Bar Cheat Sheet (Contracts)

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Contract Formation

Back 1

In order to determine the rights and remedies of the parties under the contract, it must be determined whether a contract was validly formed in the first place.

A contract is a promise or a set of promises the breach of which has a remedy under law, or performance of which the law recognizes as a duty. In order for a contract to be created, there must be: (1) mutual assent (offer and acceptance); (2) consideration or a substitute; and (3) no defenses to formation.

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Mutual Assent- Offer

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An offer is: (1) a promise, undertaking or commitment; (2) with definite and certain terms; (3) must clearly demonstrate a manifestation of intent to be bound such that a reasonable personal would construe it as inviting acceptance; and (4) be communicated to an identified offeree.

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Applicable Law

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The Uniform Commercial Code (UCC) governs all contracts involving the sale of goods, and the common law governs all other contracts. Goods are defined as tangible, moveable objects at the time the contract was entered into. When a contract includes both goods and services, whichever predominates will determine which law governs.

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Merchant

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Certain rules of Article 2 of the UCC apply only to contracts between merchants. A merchant, for purposes of these rules, is one who regularly deal in the kinds of goods sold, or professes to have a special knowledge of the goods sold.

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Acceptance

Back 5

Under the UCC, acceptance by any reasonable means is valid.

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Consideration

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Consideration is a bargained for exchange of legal value or detriment.

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Defenses to Formation - Statute of Frauds and UCC exception

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Under the Statute of Frauds, for a contract involving the sale of goods over $500 [or which cannot be performed in a year or less, etc.], there must be a writing signed by the party being charged. However, in contracts between merchants, UCC 2-201 provides that a confirmatory memorandum detailing orally-agreed upon terms by one merchant will suffice if not objected to within 10 days.

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Modification (UCC)

Back 8

Under the UCC (2-209) modifications do not require consideration so long as they are made in good faith. However, modifications must also meet the statute of frauds requirement if the contract itself is governed by the statute of frauds.

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Anticipatory Repudiation

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Words or conduct of the promisor which unequivocally indicate she cannot or will not perform entitled the non-breaching party to: (1) treat the anticipatory repudiation as a breach and sue; (20 suspend performance and wait to sue on the date of performance; (3) treat the repudiation as a rescission; or (4) ignore the repudiation and urge the promisor to perform.

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Demand for Further Assurances.

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Once a party has a reasonable belief that the other party will not perform under the contract, the party may demand further assurances, which is a formal request that the opposing party re-commit to performance.

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Rights after Anticipatory Repudiation

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Once there has been an unequivocal anticipatory repudiation, the non-breaching party may: (1) sue immediately; (2) suspend performance and wait to sue until counter performance is due; (3) treat the breach as a rescission and void the contract; or (4) take no legal action and encourage performance.

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Excuses to Performance: Commercial Impracticability

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Under the doctrine of commercial impracticability, the promisor is released from his obligation on the grounds of an unforeseeable supervening event that increases the cost of performance or damages liability beyond those originally anticipated.

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Specific Performance

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Specific Performance is an equitable remedy in which the court orders the breaching party to perform under the contract. It is available only when: (1) the legal remedy is inadequate; (2) the contract has definite and certain terms; (3) there is feasibility of enforcement; and (4) there is mutuality of remedy.

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Specific Performance: Inadequacy of Legal Remedy

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A legal remedy is inadequate when damages are speculative or the subject matter of the contract is rare or unique.

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Specific Performance for Service Contracts

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Courts will not force parties to perform under service contracts because it amounts to involuntary servitude.

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Discharge by Impracticability

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Modern courts will discharge contractual duties where performance has become impracticable. Impracticability is found when the party under a duty to perform has encountered extreme and unreasonable difficulty and expenses that were not anticipated.

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Discharge by Impossibility

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Contractual duties will be discharged where it has become impossible to perform. The impossibility must be objective, i.e., the duties cannot be performed by anyone.

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Discharge by Frustration

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Frustration of contract exist if the purpose has become valueless because of some supervening event not the fault of the party seeking discharge. The supervening event must not have been foreseen by the parties and must destroy the purpose of the contract.

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Modification (Common Law)

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Under the common law, modifications must be supported by additional consideration.

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Quasi-Contract

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Where a contract fails, the breaching party may recover in quasi-contract to prevent unjust enrichment of one of the parties.

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Duty to Mitigate Damages

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The non-breaching party is under a duty to mitigate damages.

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Certainty Rule

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Damages must be certain in their nature and not speculative.

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Consequential Damages

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Breaching party may be liable for any losses resulting from the breach that a reasonable person would have foreseen at the time of formation.

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Compensatory Damages

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Under contract law, π's standard measure of damages is based his expectation under the contract.

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Material or Minor Breach

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The nature of the breach depends on whether the obligee gains the substantial benefit of her bargain despite the obligor's defective performance. If the obligee receives her benefit of the bargain due to complete performance of the contract, any breach is minor.

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Output Contract

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An output contact exist where the seller commits to sell all the goods it produces to the buyer. Such contracts are valid even though no specific quantity is mentioned or accepted by the offeree. However, the UCC requires that the quantity be set in good faith, not unreasonably disproportionate to any stated estimate or any normal prior output or requirement.

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Parol Evidence Rule

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Where the parties to a contract express their agreement in a final writing, other expressions made prior to or contemporaneously with the writing are not admissible to vary the contract's terms.

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Merchant's Confirmatory Memo Rule

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In contracts between merchants, if one party sends the other party a written confirmation of the understanding within a reasonable amount of time, it will bind the recipient if he has reason to know of the confirmation's contents and does not object within 10 days of receipt.

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Remedy of Specific Performance

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Specific performance is available when: (1) there is an inadequate legal remedy; (2) The terms of the contract are definite and certain; (3) it is feasible to enforce the contract; (4) there is mutuality of the remedy or performance; and (5) no equitable defense exist.