Contracts

Front 1

Overview of CONTRACTS

Back 1

Armadillos From Texas Play Rap, Eating Tacos

Applicable law
Formation of contract
Terms of contract
Performance
Remedies for unexcused nonperformance
Excuse of nonperformance
Third-party problems

Front 2

UNILATERAL CONTRACT

Back 2

Results from an OFFER that expressly requires PERFORMANCE as the ONLY possible method of acceptance

Includes rewards, prizes, contests

Front 3

BILATERAL CONTRACT

Back 3

All other offers

Usually silent as to acceptance

Front 4

Elements of QUASI-CONTRACT

Back 4

i. π has conferred a benefit on ∆, and

ii. π reasonably expected to be paid, and

iii. ∆ realized unjust enrichment if π not compensated

Front 5

Measure of recovery for QUASI-CONTRACT

Back 5

Value of benefit conferred

Contract price is a ceiling if P is in default

Front 6

When does Article 2 of UCC apply?

Back 6

Sale of goods

Front 7

Which law applies in a mixed deal?

Back 7

The most important part of the contract dictates which law to apply (UCC or common law).

All or nothing (all UCC, or all common law)

Front 8

Exception to “all or nothing”

Back 8

If contract divides payment, apply UCC to sale of goods part and common law to the rest

Front 9

OFFER

Back 9

An offer is a manifestation of intention to contract.

Words or conduct showing commitment by one person.

Test is whether a reasonable person in position of the offeree would believe that his assent creates a contract.

Front 10

Offer requirements for sale of real estate

Back 10

PRICE and DESCRIPTION

Front 11

VAGUE or AMBIGUOUS material terms

Back 11

Not an offer under common law or UCC

Examples: appropriate, fair, reasonable

Front 12

REQUIREMENTS CONTRACT

Back 12

A contract for the sale of goods can state the quantity of goods to be delivered under the contract in terms of the buyer’s requirements or seller’s output

Examples: all, only, exclusively, solely

Front 13

Increase in requirements under a requirements contract

Back 13

Buyer can increase so long as increase is NOT UNREASONABLY DISPROPORTIONATE to prior demands.

Front 14

Advertisements

Back 14

Advertisements are NOT OFFERS

Exceptions:

i) if it is in the nature of a reward

ii) if it specifies quantity and expressly indicates who can accept

Front 15

Methods of TERMINATION OF OFFERS

Back 15

1. LAPSE of time

2. DEATH of a party prior to acceptance

3. REVOCATION by words or conduct of offeror

4. REJECTION by words or conduct of offeree

Front 16

Rule of thumb for when an offer has lapsed

Back 16

Time stated, or reasonable time (e.g. 1 month)

Front 17

Effect of death or incapacity of offeror

Back 17

Terminates the offer (except for irrevocable offers)

Front 18

REVOCATION

Back 18

Unambiguous STATEMENT by offeror to offeree of unwillingness or inability to contract; or

Unambiguous CONDUCT by offeror to offeree of unwillingness or inability to contract THAT OFFEREE IS AWARE OF.

Front 19

Irrevocable offers

Back 19

1. Option

2. UCC “Firm Offer Rule”

3. Detrimental Reliance

4. Partial performance

Front 20

OPTION

Back 20

An option offer cannot be revoked if:

i) promise to keep offer open; and

ii) promise is supported by payment or other consideration

Front 21

UCC Firm Offer Rule

Back 21

An offer cannot be revoked for up to three months if:

i) offer to buy or sell goods

ii) signed, written promise to keep offer open

iii) party is a merchant

Front 22

DETRIMENTAL RELIANCE

Back 22

An offer cannot be revoked if there has been:

i) RELIANCE that is

ii) reasonably FORESEEABLE, and

iii) DETRIMENTAL

Front 23

UNILATERAL PERFORMANCE

Back 23

The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance.

Mere preparation is not enough to trigger this rule (though “detrimental reliance” may apply).

Front 24

Methods of REJECTION

Back 24

1. direct rejection

2. counteroffer

3. conditional acceptance

4. additional terms (under common law only)

Front 25

Counteroffer vs. Bargaining

Back 25

If response is a statement, it’s a counteroffer.

If response is a question, it’s bargaining.

Front 26

CONDITIONAL ACCEPTANCE

Back 26

A conditional acceptance terminates the offer.

Examples: “if,” “only if,” “provided,” “so long as,” “but,” or “on condition that”

Front 27

Effect of CONDITIONAL ACCEPTANCE under common law

Back 27

Rejects and replaces the offer

Front 28

Effect of CONDITIONAL ACCEPTANCE under the UCC

Back 28

Rejects the offer (but does not replace it)

Front 29

MIRROR IMAGE RULE

Back 29

Under common law, a response to an offer that adds new terms is a counteroffer and rejection of the original offer.

Front 30

Additional Terms under UCC

Back 30

Under the UCC, a response to an offer that has additional terms is still an acceptance (so long as acceptance isn’t conditioned upon accepting the terms).

Additional term is part of the contract only if:

i) both parties are merchants AND

ii) additional term is not “material” AND

iii) additional term is not objected to by offeror

Front 31

Methods of ACCEPTANCE

Back 31

1. ORAL acceptance

2. offeree starts to PERFORM a bilateral contract

3. dropping acceptance in MAILBOX

4. seller sends WRONG GOODS

Front 32

START OF PERFORMANCE of a unilateral contract

Back 32

Not an acceptance.

Make offer irrevocable for a reasonable time.

Front 33

START OF PERFORMANCE of a bilateral contract

Back 33

Starting to perform a bilateral contract is an acceptance. It is treated as an implied promise to perform.

Front 34

MAILBOX rules

Back 34

1. All communications (other than an acceptance) are effective when received.

2. Acceptance is generally effective when mailed.

3. If rejection is mailed before an acceptance, neither is effective until received.

4. Cannot use the mailbox rule to meet an option deadline.

Front 35

Effect of seller sending WRONG GOODS

Back 35

Acceptance and breach.

Exception: If wrong goods are sent with an accommodation (i.e. explanation), it is a counteroffer and no breach.

Front 36

Who can accept an offer

Back 36

1. Person who knows about the offer when he accepts

2. Person to whom offer was made

Front 37

ASSIGNMENT of OFFERS

Back 37

Offers cannot be assigned.

Options CAN be assigned.

Front 38

Agreements that are NOT LEGALLY ENFORCEABLE

Back 38

1. lack of consideration/substitute

2. lack of capacity

3. Statute of Frauds

4. existing laws that prohibit performance

5. public policy

6. misrepresentations

7. nondisclosure

8. duress

9. unconscionability

10. ambiguity in words of agreement

11. mistakes about material facts

Front 39

CONSIDERATION

Back 39

Consideration is a bargained-for legal detriment.

Front 40

Adequacy of consideration

Back 40

Not relevant in contract law.

(A mere peppercorn can be consideration.)

Front 41

PAST CONSIDERATION

Back 41

Past consideration is generally not consideration. (You can’t bargain with someone to do what they’ve already done.)

Exception: Expressly requested by promisor and expectation of payment by promisee.

Front 42

Preexisting Duty

Back 42

Common Law: Doing what you are already legally obligated to do is not new consideration for a new promise to pay you more to do merely that

Front 43

Exceptions to requirement of new consideration for preexisting duty

Back 43

i. Addition to or change in performance

ii. Unforeseen difficulty to severe as to excuse performance

iii. Third-party promise to pay

Front 44

Requirements for CONTRACT MODIFICATION

Back 44

Common Law: new consideration is required to modify a contract.

UCC: Good faith is the test for changes to an existing sale of goods contract (no new consideration is required).

Front 45

Part payment as consideration for release

Back 45

If debt is DUE and UNDISPUTED, then part payment is not consideration for release.

If debt is disputed (or not yet due), part payment can be consideration for release.

Front 46

CONSIDERATION SUBSTITUTES

Back 46

1. Written promise to satisfy an obligation for which there is a legal defense

2. Promissory estoppel

Front 47

Elements of PROMISSORY ESTOPPEL

Back 47

i) promise;

ii) reliance that is reasonable, detrimental, and foreseeable; and

iii) enforcement necessary to avoid injustice.

Front 48

Who LACKS CAPACITY to contract?

Back 48

1. infant (under age 18)

2. mental incompetents (lacks ability to understand agreement)

3. intoxicated persons (if other party has reason to know)

Front 49

Consequences of incapacity

Back 49

A person who lacks capacity may disaffirm the contract.

Front 50

Ratification by person lacking capacity

Back 50

A person who gains capacity may imply affirmation of the contract if they retain the benefits after gaining capacity.

Front 51

Party who lacks capacity: liability for necessities

Back 51

Under quasi-contract law, a person who does not have capacity is still legally obligated to pay for necessities (e.g. food, clothing, medical care, shelter).

Front 52

Proof required to satisfy the STATUTE OF FRAUDS

Back 52

1. PERFORMANCE; or

2. WRITTEN AGREEMENT signed by the person asserting there was no agreement;

3. judicial ADMISSION

Front 53

Contracts within the STATUTE OF FRAUDS

Back 53

1. Promises to answer for the debts of another

2. Service contract not capable of being performed within one year form the time of the contract

3. Transfers of interest in real estate

4. Sale of goods for $500 or more

Front 54

SOF: Performance and Transfer of Real Estate

Back 54

Part performance in transfers of real estate satisfies the Statute of Frauds.

Part performance requires any two of the following three:

i. improvements to land

ii. payment

iii. possession

Front 55

SOF: Performance and Service Contracts

Back 55

i. part performance of a services contract does not satisfy the Statute of Frauds

ii. full performance of a services contract by either party satisfies the Statute of Frauds

Front 56

SOF: Performance and Sale of Goods Contracts for Ordinary Goods

Back 56

i. seller’s part performance of a sale of goods contract satisfies the Statute of Frauds only to the extent of the part performance

Front 57

SOF: Performance and Sale of Goods Contracts for Specially Manufactured Goods

Back 57

i. If the contract is for the sale of goods that are to be specially manufactured, then the Statute of Frauds is satisfied as soon as seller makes a SUBSTANTIAL BEGINNING.

Front 58

Requirements for common law Statute of Frauds writings

Back 58

i. All material terms (i.e. WHO and WHAT)

ii. SIGNATURE of the person asserting there was no agreement

Front 59

Requirements for UCC Statute of Frauds writings

Back 59

Under the UCC, the writing must indicate “how much”, plus

i. SIGNATURE of the person asserting there was no agreement; OR

ii. FAILURE TO RESPOND to a signed writing (i.e. both parties are merchants, and the person who receives a signed writing with a quantity term that claims there is a contract fails to respond within 10 days).

Front 60

SOF: Judicial Admission

Back 60

If the defendant asserting the Statute of Frauds defense ADMITS in a pleading, discovery, or testimony that he had entered into an agreement with the plaintiff, the Statute of Frauds is satisfied.

Front 61

EQUAL DIGNITY RULE

Back 61

An authorization to contract for someone else only needs to be in writing if the contract to be signed is within the Statute of Frauds

Front 62

Applicability of the Statute of Frauds to modified contracts

Back 62

If the deal with the alleged change would be within the Statute of Frauds, then the alleged modification agreement must be in writing

Front 63

Contract provisions requiring that all modifications be in writing

Back 63

Common law: contract provisions requiring that all modifications be in writing are ineffective (ignore the language)

UCC: contract provisions requiring that all modifications be in writing are effective unless waived

Front 64

Enforceability of Illegal Contracts

Back 64

If SUBJECT MATTER is illegal, the agreement is not enforceable.

If the subject matter is legal but the PURPOSE is illegal, the agreement is enforceable only by the person who did not know of the illegal purpose.

Front 65

Public Policy reasons for not enforcing a contract

Back 65

1. Exculpatory agreement that exempts intentional or reckless conduct from liability

2. Covenant not to compete without a reasonbale need or reasonable time and place limits.

Front 66

Effect of MISREPRESENTATION on a contract

Back 66

Contract is unenforceable if there was:

i. statement of “fact” before the contract

ii. by one of the parties or his agent

iii. that induces the contract

iv. that is false

(no wrongdoing required for material misrepresentations)

Front 67

Effect of NONDISCLOSURE on a contract

Back 67

Generally, a person making a contract has no duty to disclose what he knows.

Exceptions: FIDUCIARY RELATIONSHIP or CONCEALMENT

Front 68

Elements of ECONOMIC DURESS

Back 68

i. improper threat (usually threat to breach existing contract)

ii. no reasonable alternative

Front 69

Forms of UNCONSCIONABILITY

Back 69

1. procedural unconscionability (unfair surprise)

2. substantive unconscionability (oppressive terms)

Both are tested as of the time the agreement was made.

Front 70

Effect of AMBIGUITY IN WORDS OF AGREEMENT

Back 70

There will be no contract if:

i. parties use a MATERIAL TERM open to at least two reasonable interpretations

ii. each party attaches different meaning to term

iii. neither party know or has reason to know the term is open to at least two reasonable interpretations

Front 71

MISTAKE OF FACT

Back 71

a. mutual mistake of material fact does not invalidate the contract

b. unilateral mistake of material fact does not invalidate the contract unless it was a palpable mistake (i.e. so obvious that the other party should have known it was a mistake)