Contracts Ii

Front 1

For a deal to be enforceable, you need ______ and ______?

Back 1

consideration and no valid defenses

Front 2

What is consideration?

Back 2

a bargained-forexchange; the promisor bargained for an exchange by the promisee in which the promisee (1) promises to do something (or in fact doessomething) that, but for the contract, he or she is not obligated to do or (2) promises not to do something (or in factdoes not do something) that, but for the contract, he or she is legallyentitled to do (i.e., a legal detriment).

Front 3

What 3 things are NOT consideration?

Back 3

(1) past consideration; (2) pre-existing legal duties; (3) part payment of debt

Front 4

Past consideration?

Back 4

Ifthe promisee has already performed the act before the promisor makes herpromise, there is no “bargained-for” exchange and thus no consideration

Front 5

Pre existing legal duty?

Back 5

If the promisee islegally bound to do (or not to do) the act (either by prior contract orstatutory law), there is no legal detriment suffered by the promisee and thusno consideration.

Front 6

exceptions to pre-existing legal duty?

Back 6

(1) The promisee agrees toadd to or modify the original deal in any fashion;

(2) An unforeseen difficultyhas arisen that would excuse (i.e., an impossibility or impracticability) thepromisee’s performance;

(3) A third party agrees topay additional consideration to the promisee;

(4) UCC: sales contracts may bemodified without consideration as long as the parties act in “good faith”

Front 7

If a creditor agrees to take less than full payment in exchange for a release, may the creditor seek the remainder from debtor?

Back 7

YES - Ifthe debt is due and undisputed in amount, part payment does notconstitute consideration for the release (and thus the debtor owes theremainder).

(1) But (EXCEPTION) if the debt is not yet due (and the debtor pays early) or if there is a goodfaith dispute as to the amount of the debt, part payment would constituteconsideration for a release (there will also be consideration if a differenttype of performance is agreed upon)

Front 8

Is a written promise to pay a debt barred by the Statute of Limitations and enforceable up to the amount of the new promise?

Back 8

YES

Front 9

Is a promise not to sue is consideration?

Back 9

Yes, if the promisor has a good faith belief that the suit is valid, even if it is not

Front 10

If there is no consideration, may the promisee enforce the deal?

Back 10

Generally, no unless promissory estoppel applies

Front 11

What is promissory estoppel?

Back 11

But consider promissory estoppel, which applies where the promisor (1) made a promise; (2) the promisee reasonably, detrimentally, and foreseeably relied on the promise (i.e., the promise induced the promisee to act); and (3) enforcement of the promise is necessary to avoid injustice.

Front 12

Does the Statute of Frauds (“SOF”) apply to promissory estoppel?

Back 12

NO

Front 13

A contract is not enforceable if there is a valid defense? What are the 7 defenses?

Back 13

(1) Lackof Capacity; (2) Statuteof Frauds; (3) Illegality; (4) Duress; (5) Misrepresentation; (6) Mistake; (7) Unconscionability

Front 14

What type of defenses are these (lack of capacity, SOF, etc.)? Who has the burden to show them?

Back 14

These defenses aretypically affirmative defenses for which the defendant would carry the burdenof pleading, the burden of production, and the burden of persuasion.

Front 15

Who lacks capacity?

Back 15

(1) minors(under age 18); (2) mentalincompetents (unable to understand legal significance of acts); (3) intoxicatedpersons (unable to understand legal significance of acts)

Front 16

A party lacking capacity may do what?

Back 16

Disaffirma contract (i.e., the contract is voidable by the incapacitated party)

Front 17

Incapacitated partiesare liable on contracts in what two situations?

Back 17

(1) If the incapacitated party retains the benefit of the contract after gaining capacity (e.g., reaching age 18), he has impliedly “affirmed” the contract and it is enforceable (An affirmation by a minor or incompetent does not require new consideration);

(2) The contract is for necessaries; if so, the incapacitated party is liable in quasi-contract for the VALUE of the goods or services, but not for the actual contract price (tough to test)

Front 18

T/F: TheSOF is an affirmative defense, which is waived if not timely raised by thedefendant.

Back 18

T

Front 19

Is the Contract Subjectto the SOF? General Rule.

Back 19

Oral contracts are generally enforceable

Front 20

Is the Contract Subjectto the SOF? Exception to the General Rule - which contracts must be in writing (6)?

Back 20

(1) Marriage contracts with financial consideration (e.g., prenuptial agreements)(not just marriage itself);

(2) Promise by an executor (or administrator) of an estate to pay the estate’s debts out of the executor’s own pocket;

(3) Suretyship contracts (i.e., where one person “guarantees” the payments of another; e.g., a co-signer) (Exception: if the “main or primary purpose” of the agreement is to benefit the “surety,” the contract does not have to be in writing);

(4) Service contracts that are NOT CAPABLE of being performed within one year from the date of the contract;

(5) A contract for the sale of goods when the purchase price is $500 or more (as ultimately modified);

(6) A transfer of an interest in land, except short-term (12 months or less) leases

Front 21

What is required for non-goods ks to satisfy the SOF?

Back 21

Allmaterial terms must be in writing (i.e., the identity of the parties, subjectmatter, price, and time) and the writing must be signed by the defendant

Front 22

What is required for goods ks to satisfy the SOF?

Back 22

theonly essential term is quantity (note: the quantity is limited to the amount stated in the writing)

Front 23

What is required for goods ks for the UCC to satisfy the SOF?

Back 23

thewriting must be signed by D or a written confirmation may be usedbetween two merchants (a confirmation letter containing a quantity term signedby the plaintiff) if the other party does not object to the writtenconfirmation within 10 days of receipt; the writing or confirmation iseffective for the quantity stated therein

Front 24

May “PartPerformance," in some cases, entitle the plaintiff to specific performancedespite the lack of a writing?

Back 24

YES

Front 25

Service ks satisfy SOF by part performance?

Back 25

fullperformance by either party satisfies SOF; part performance does not(but quasi-contract damages may be available)

Front 26

sale of goods ks satisfy SOF by part performance? For ordinary goods? For unique/specialized goods?

Back 26

(1) Ordinary Goods: part performance (i.e.,part delivery/acceptance or part payment/acceptance) will satisfy SOF to extentdelivered (and accepted) or paid (and accepted);

(2) Unique or SpecializedGoods Not Suitable for Sale in the Ordinary Course: the contract fullycomplies with SOF when the seller substantially begins performance or makescommitments for procurement of the goods.

Front 27

land ks satsify SOF by part performance?

Back 27

Requiresthe following: payment (substantial orfull) plus either possession or improvement

Front 28

Underthe UCC, may an admission in court or court papers satisfy the SOF (up to the amountof the admission)?

Back 28

YES

Front 29

Rule for modification to a k and SOF?

Back 29

Amodification to a contract must satisfy SOF if the contract, as modified,would be subject to SOF.

Front 30

Underthe UCC and common law, a “no oral modifications” clause is usually deemed....?

Back 30

waived by the parties’ oral modification of the contract.

Front 31

If the SOF applies andhas not been satisfied, are there any remedies available to the plaintiff?

Back 31

(1) Restitution;

(2) PromissoryEstoppel

Front 32

Illegality as defense for k?

Back 32

Ifthe subject matter of a contract is illegal (e.g., a contract with a hit man),neither party may enforce it at anytime.

Front 33

exception to illegality as defense for k?

Back 33

Ifthe contract merely relates to an illegal act (e.g., the purchase of a gun oncredit from Wal-Mart that is to be used in a murder), it is enforceable by theparty who is not involved in the illegal act (i.e., Wal-Mart).

Front 34

license as defense for k?

Back 34

If a contract is illegalsolely because a party does not have a required license, the enforceability ofthe contract depends on the purpose of the license:

(1) Ifthe purpose of the license is to protect the public (e.g., a license topractice law or medicine), the contract is unenforceable;

(2) Ifthe purpose of the license is solely to raise revenue (e.g., a businesslicense), the contract is enforceable.

Front 35

duress as defense to k? What are the 2 types?

Back 35

Two types of duress mayrender a contract voidable:

(1) Physical Duress (violence or threats of violence);

(2) Economic Duress: one party takes unreasonable advantage ofanother party who has no reasonable alternatives; such defense is limited tocircumstances where the defendant “caused” the plaintiff’s financial distressin the first place

Front 36

misrepresentation as defense for k?

Back 36

False assertions ofpresent, material facts constitute fraud. Under contract law, the intent of the party making the assertionis irrelevant. If the fraud relates to amaterial fact, the defrauded party may rescind the contract.

Front 37

2 types of mistake as defense for k?

Back 37

(1) Mutual Mistake and (2) unilateral mistake

Front 38

Mutual mistake?

Back 38

Both parties are mistaken about a basic material fact

Front 39

If the mistake relates to what is being purchased (i.e., the subject matter of the contract—a real Picasso as opposed to a fake Picasso), is the contract enforceable?

Back 39

the contract is unenforceable

Front 40

When is the defense of mutual mistake available?

Back 40

This defense is unavailable if the party asserting it “assumed the risk” of the mistake because there was no way to determine whether a mistake would occur at the time of contracting b. by contrast, if the mistake relates to the “value” of what is being purchased (the value of a real Picasso), the contract is fully enforceable (as long as there was no fraud, etc.)

Front 41

Unilateral Mistake?

Back 41

Only one party was mistaken. a. General Rule: Contract is enforceable Exception: Defendant knew or should have known of the mistake (i.e., the offer was too good to be true)

Front 42

unconscionability as a defense for k? When is unconscionability measured? Question of law or fact?

Back 42

An unconscionable contract is one that is either (i) procedurally unfair (e.g., surprise terms, adhesion contracts); and/or (ii) the terms are oppressive (e.g., grossly overpriced)

(1) Tested(measured) at the time of contracting;

(2) Questionof law for the court.

Front 43

Parol Evidence Rule (“PER”) - what is it?

Back 43

Ifa written contract is the final and complete agreement of the parties (i.e., itis a fully integrated contract), the parol evidence rule prohibits parties fromintroducing prior or contemporaneous oral statements or writings that add toor contradict the written contract.

Front 44

Parole Evidence Rule -- what if k includes a merger clause?

Back 44

If a contract contains a merger clause (“This is the complete and final agreement.”), there is a presumption of full integration.

Front 45

PER Exceptions (4)

Back 45

(1) Admissible to prove fraud, duress, mistake, illegality, failure tosatisfy a condition precedent (most commonly tested), to establish the meaningof an ambiguous term, to show that consideration was in fact paid, or toestablish a case for reformation (i.e., the writing contains a clerical error);

(2) Oralor written statements made after the contract was executed -- usually aspart of a contract modification -- are not subject to the PER; thus, suchstatements are generally admissible (subject, of course, to SOF);

(3) Underthe UCC, the following evidence (in order of preference) is admissibleto explain or supplement a contract, regardless of whether the contract isintegrated or ambiguous: (a) courseof performance (the same parties in the same contract); (b) course of dealing(the same parties in an earlier contract); and (c) usage in trade (otherparties in the same industry);

(4) if a prior orcontemporaneous additional agreement is of a type that would “naturally andnormally” be contained in a separate agreement (with separate consideration),its admissibility is not barred by the PER (e.g., a side deal)

Front 46

Gap Fillers - Payment - When is payment due under the UCC? Under an Installment K?

Back 46

(1) Under the UCC, payment is due at thetime of delivery;

(2) In an installmentcontract,payment is due at the time of delivery of each installment.

Front 47

Gap Fillers - Payment - How may the buyer pay?

Back 47

The buyer may pay bycheck, but the seller may demand cash; in such event, the buyer must be given areasonable time to obtain the cash.

Front 48

Gap Fillers - Risk of Loss - What are delivery Ks? What are the 2 types of delivery Ks?

Back 48

TheUCC recognizes two types of “delivery” contracts, which are used when theparties expressly provide for delivery by common carrier or the circumstancesare such that common carrier delivery is implied: (1) shipment Ks; and (2) Destination Ks

Front 49

What are shipment Ks?

Back 49

Such contracts arecreated by the phrase “FOB or FAS Seller’s City.”

(1) Undersuch contracts, the seller’s obligation ends when she places the goods with acommon carrier (under a reasonable contract), notifies the buyer of suchshipment, and forwards the necessary shipping documents to the buyer; the riskof loss shifts to buyer at that point (unless the seller is in breach -- seenext slide);

(2) Ifa contract calls for delivery but is silent as to risk of loss, the UCC presumesthat the contract is a “shipment” contract.

Front 50

What are Destination Ks?

Back 50

Such contracts arecreated by the phrase “FOB or FAS Buyer’s City.”

(1) Undersuch contracts, the seller’s obligation ends when the goods arrive at buyer’splace of business; the risk of loss does not shift to the buyer until the goodsarrive at the buyer’s business (unless the buyer is in breach -- see nextslide)

Front 51

Gap Fillers for Risk of Loss In Common Carrier Cases When One Party Is InBreach. Who does risk of loss remain with?

Back 51

(1) Riskof loss remains with the seller (regardless of the type of delivery contract)if the seller is in breach (e.g., non-conforming goods or a substantialnon-conformity in the shipping contract)

Front 52

Gap Fillers for Risk of Loss In Common Carrier Cases When One Party Is In Breach. When is risk of loss borne by the buyer?

Back 52

Risk of loss is borne by the buyer (regardless of the type ofdelivery contract) if the buyer is in breach (e.g., anticipatory repudiation),but the buyer is entitled to any insurance proceeds the seller obtains for suchloss.

Front 53

Gap Fillers for Non-DeliveryContracts

Back 53

Ifthe K does not call for (expressly or implicitly) delivery, the UCCpresumes that the buyer will pick up such goods at the seller’s place ofbusiness or, if none, the seller’s residence

Front 54

If there is no delivery required, risk of loss shifts to the buyer upon what (2)?

Back 54

(1) Physical receipt by the buyer if the seller is a merchant or (2) Tender by the seller if the seller is a non-merchant

Front 55

Gap Fillers for Price - Can you have a K w/o deciding on price?

Back 55

Theparties can conclude a contract for sale even though the price is notsettled.

Front 56

Gap Fillers for Price

If price is not settled for K, when is price reasonable?

Back 56

In such case, the price is a reasonable price at the time for delivery if:

(a) Nothing is said as to price;

(b) The price is left to be agreed by the parties and they fail to agree; or

(c) The price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.

Front 57

Gap Fillers for Date of Delivery - when is it if not decided?

Back 57

Thetime for shipment or delivery or any other action under a K if notagreed upon by the parties shall be a reasonable time.